<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
---------------------------------------------------------------
Commission file number 0-15399
---------------------------------------------------------
Dreams, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0368170
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
42-620 Caroline Court, Palm Desert, California 92211
- --------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(619) 776-1010
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
StratAmerica Corporation
- --------------------------------------------------------------------------------
Former Address from Previous Form 10-Q
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
24,000,000 Common Shares, $0.05 par value, were issued and outstanding as
of August 15, 1996.
Transitional Small Business Disclosure Format.
Yes No X
--- ---
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
DREAMS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(unaudited)
June 30, March 31,
1996 1996
-------- --------
ASSETS
Current assets:
Cash $ 28 $ 367
Restricted cash - 30
Trade accounts receivable 35 45
Current portion of notes receivable 13 13
Inventories 90 109
Prepaid expenses 111 85
-------- ---------
Total current assets 277 649
Notes receivable 165 166
Property and equipment, net 78 86
Other assets 10 11
-------- ---------
$ 530 $ 912
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 433 $ 449
Accrued liabilities 1,825 1,954
Current portion of long-term debt and
capital lease obligations 200 211
Notes payable 656 697
Payable to restricted cash 168 75
Deferred franchise fees - 25
-------- --------
Total current liabilities 3,282 3,411
Long-term debt and capital lease obliga-
tions, less current portion 209 294
Accumulated losses in excess of investment
in unconsolidated subsidiary 121 121
Deferred revenue 378 378
Minority interest in consolidated subsidiary 357 357
-------- ---------
4,347 4,561
-------- ---------
Shareholders' equity:
Common stock, $.05 par value -
authorized 50,000,000 shares;
24,000,000 shares issued and outstanding 1,200 1,200
Capital in excess of par value 11,707 11,667
Deferred compensation (535) (550)
Accumulated deficit (16,189) (15,966)
-------- ---------
(3,817) (3,649)
-------- ---------
$ 530 $ 912
-------- ---------
-------- ---------
See notes to consolidated financial statements.
-2-
<PAGE>
DREAMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share amounts)
(unaudited)
Three Months Ended
--------------------
June 30,
--------------------
1996 1995
-------- ---------
Revenues:
Restaurant $ 249 $ 2,804
Retail 68 101
Franchise fees and royalties 114 112
Other 4 1
Interest 1 24
-------- ---------
436 3,042
-------- ---------
Expenses:
Restaurant cost of sales,
excluding depreciation 163 1,929
Restaurant rent 33 324
Other restaurant occupancy
and operating expense 45 539
Retail cost of sales 48 78
Retail operating expense 86 74
General and administrative
expense 248 332
Depreciation and amortization 8 144
Interest 28 121
-------- ---------
659 3,541
-------- ---------
Net loss $ (223) $ (499)
-------- ---------
-------- ---------
Net loss per share $ (0.01) $ (0.05)
-------- ---------
-------- ---------
See notes to consolidated financial statements.
-3-
<PAGE>
DREAMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
Three Months Ended
--------------------
June 30,
--------------------
1996 1995
--------- --------
Cash flows from operating activities:
Cash received from customers $ 538 $ 2,959
Cash paid to suppliers and employees (786) (2,892)
Interest received 1 1
Interest paid (26) (382)
-------- ---------
Net cash used in operating
activities (273) (314)
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment - (5)
Other 1 (3)
-------- ---------
Net cash (used in) provided by
investing activities 1 (8)
-------- ---------
Cash flows from financing activities:
Principal payments on notes payable, long-
term debt and capital lease obligation (97) (80)
Proceeds from borrowings - 136
-------- ---------
Net cash (used in) provided by
financing activities (97) 56
-------- ---------
Net increase (decrease) in cash (369) (266)
Cash and restricted cash at the beginning
of period 397 272
-------- ---------
Cash and restricted cash at end of period $ 28 $ 6
-------- ---------
-------- ---------
(continued)
See notes to consolidated financial statements.
-4-
<PAGE>
DREAMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
(continued)
Three Months Ended
---------------------
June 30,
--------------------
1996 1995
-------- ---------
Net loss $ (223) $ (499)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 8 144
Change in assets and liabilities:
Increase (decrease) in receivables 10 (25)
Increase in other receivables - (23)
Increase (decrease) in inventories 19 (4)
Increase in prepaid expenses (26) (77)
Increase (decrease) in accounts payable
and accrued liabilities (145) 195
Change in deferred revenue,
deposits and other 84 (25)
-------- ---------
Net cash used in operating activities $ (273) $ (314)
-------- ---------
-------- ---------
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None.
See notes to consolidated financial statements.
-5-
<PAGE>
DREAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS:
Information as of June 30, 1996 and for the three months ended June 30, 1996 and
1995 is unaudited. The information in the unaudited financial statements
reflects all adjustments which are, in the opinion of management, necessary to a
fair presentation of the financial statements so as not to be misleading. These
adjustments are of a normal recurring nature. These financial statements are
prepared in accordance with the requirements of Form 10-Q and consequently may
not include all the disclosures normally required by generally accepted
accounting principles or those normally made in the annual Form 10-K filing.
Any required information omitted is either insignificant or is not applicable.
NOTE 2 - LOSS PER SHARE:
Loss per share amounts are based on the weighted average shares outstanding of
24,000,000 for the three months ended June 30, 1996 and 10,000,000 for the three
months ended June 30, 1995.
NOTE 3 - INVENTORY:
Inventory consists primarily of food and beverage inventories sold through its
restaurant and sports memorabilia sold through its wholly owned subsidiary
Dreams Franchise Corporation.
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
The Company has guaranteed five store lease obligations of third party and
former employee franchisees of Dreams Franchise Corporation, which are in
default at June 30, 1996 because the Company has not obtained written landlord
approval for these subleases.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
During the three months ended June 30, 1996, total revenue decreased $2,606,000,
when compared to the three months ended June 30, 1995, due primarily to the
decrease in restaurant revenue of $2,555,000. Restaurant revenue decreased
during the three months ended June 30, 1996 when compared to the three month
period ended June 30, 1995 due to the sale or closure of all the Company's
restaurants during February and March 1996, except the single Heidi's restaurant
located in San Mateo, California.
Total expenses for the three months ended June 30, 1996 decreased $2,882,000
when compared to the three months ended June 30, 1995 due primarily to the sale
or closure of all but one restaurant location. Restaurant cost of sales as a
percentage of restaurant revenue decreased by 4 percent during the three months
ended June 30, 1996 when compared to the same three month period in 1995, due to
the fact that unprofitable restaurants were sold or closed during February and
March 1996. Retail cost of sales as a percentage of retail revenue decreased by
6 percent for the three months ended June 30, 1996 when compared to the three
months ended June 30, 1995 due to improved profitability on products sold.
Retail operating expenses have increased by $12,000 during 1996 when compared to
1995 due to increased franchise advertising and promotion.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company has a working capital deficit of $3,005,000
compared to a working capital deficit at March 31, 1996 of $2,775,000. The
increase in the working capital deficit was due primarily to the loss for the
three month period ended June 30, 1996. However, during the three month period
ended June 30, 1996, the Company managed to decrease the loss from operations by
$276,000 when compared to the three months ended June 30, 1995, due primarily to
the sale or closure of restaurant locations as discussed above and the reduction
of interest and overhead.
Management is hopeful that the Company can continue to reduce costs and that the
Company will be successful in furthering the business growth of Dreams Franchise
Corporation (DFC). During the three month period ended June 30, 1996, several
new franchisees made initial franchise payments to DFC. These franchises are
expected to open store locations during the next 4 to 6 months. Despite the
improvement in DFC franchise sales, the Company will still require significant
capital resources during the remainder of fiscal year 1997. Management is
unable to predict what additional financing will be available, either from
related or other parties, in the future. The failure of the Company to meet any
of these objectives could have a significant negative impact on the liquidity
and capital resources of the Company.
Management does not believe that the effects of inflation and changing prices
will have a significant effect on the Company.
-7-
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
-8-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES:
Dreams, Inc.
- ---------------------------- -----------------------------------
Date President
Sam D. Battistone
- ---------------------------- -----------------------------------
Date Principal Financial Officer
Dale E. Larsson
