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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
/ / TRANSITION REPORT UNDER SECTION 13 OR 5(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number 0-15399
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Dreams, Inc.
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(Exact name of small business issuer as specified in its charter)
Utah 87-0368170
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5009 Hiatus Road, Sunrise FL 33351
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(Address of principal executive offices)
(954) 742 - 8544
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
40,148,500
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Transitional Small Business Disclosure Format (Check One): Yes / / No /X/
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DREAMS, INC.
TABLE OF CONTENTS
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet at June 30, 2000
Condensed Consolidated Statements of Income for the three month
periods ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the three
month periods ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
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DREAMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
AS OF JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 229
Restricted cash 20
Accounts receivable, net 1,359
Inventories 4,141
Prepaid expenses and deposits 138
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Total current assets 5,887
PROPERTY AND EQUIPMENT, NET 220
INTANGIBLE ASSETS, NET 2,600
OTHER ASSETS, NET 529
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TOTAL ASSETS $ 9,236
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,022
Accrued liabilities 709
Deferred franchise fees 60
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Total current liabilities 1,791
LONG-TERM DEBT, LESS CURRENT PORTION 3,443
DETACHABLE STOCK WARRANTS 300
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TOTAL LIABILITIES 5,534
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COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 100,000,000
shares; 40,148,500 shares issued and outstanding 18,084
Additional paid-in-capital --
Accumulated deficit (14,382)
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Total stockholders' equity 3,702
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,236
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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DREAMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the three months ended:
June 30, June 30,
2000 1999
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<S> <C> <C>
REVENUE $ 3,006 $ 2,876
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EXPENSES:
Cost of sales 1,693 1,564
Operating expenses 396 229
General and administrative expenses 664 549
Depreciation and amortization 70 66
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Total expenses 2,823 2,408
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INCOME BEFORE INTEREST AND TAXES 183 468
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Interest, net 132 141
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INCOME BEFORE PROVISION FOR INCOME TAXES 51 327
Current tax expense 4 25
Deferred tax expense -- --
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NET INCOME $ 47 $ 302
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EARNINGS PER SHARE:
BASIC:
Net income $ 0.00 $ 0.01
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Weighted average shares outstanding 40,148,500 40,148,500
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DILUTED:
Net income $ 0.00 $ 0.01
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Weighted average shares outstanding 47,110,730 46,908,936
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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DREAMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 1999
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<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 48 $ (99)
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Cash flows from investing activities:
Purchase of property and equipment (35) (21)
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NET CASH USED IN INVESTING ACTIVITIES (35) (21)
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NET CASH PROVIDED BY FINANCING ACTIVITIES -- --
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NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 13 (120)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 236 840
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 249 $ 720
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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DREAMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
1. MANAGEMENT'S REPRESENTATIONS
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The condensed
consolidated interim financial statements and notes thereto should be read
in conjunction with the financial statements and the notes thereto,
included in the Company's Form 10K-SB filed with the SEC for the fiscal
year ended March 31, 2000.
The accompanying condensed consolidated interim financial statements have
been prepared, in all material respects, in conformity with the standards
of accounting measurements set forth in Accounting Principles Board Opinion
No. 28 and reflect, in the opinion of management, all adjustments, which
are of normal recurring nature, necessary to summarize fairly the financial
position and results of operations for such periods. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Dreams, Inc. (the "Company") operates through its wholly-owned subsidiary,
Dreams Franchise Corporation ("DFC") and through Dreams Entertainment, Inc.
("DEI") and Dreams Products, Inc. ("DPI"), wholly-owned subsidiaries of
DFC. DFC is in the business of selling Field of Dreams-Registered
Trademark- retail store franchises and generates revenues through the sale
of those franchises and continuing royalties. DEI was incorporated in
fiscal 1999 and has been inactive since its inception. DPI is a wholesaler
of sports memorabilia products and acrylic cases. DPI pays an annual fee to
the National Football League which officially licenses DPI's football
memorabilia products.
BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements
include the accounts of the Company and its subsidiaries. All material
intercompany transactions and accounts have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to the financial statements. Estimates are
used when accounting for uncollectable accounts receivable, inventory
obsolescence, depreciation, taxes, contingencies, among others. Actual
results could differ from those estimated by management and changes in such
estimates may affect amounts reported in future periods.
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DREAMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and accounts
receivable arising from its normal business activities.
Franchisee receivables subject the Company to credit risk. The Company's
franchisee receivables are derived primarily from royalties on franchisee
sales, sales of merchandise to franchisees and the reimbursement of various
costs incurred on behalf of franchisees.
Regarding retail accounts receivable, the Company believes that credit risk
is limited due to the large number of entities comprising the Company's
customer base and the diversified industries in which the Company operates.
The Company performs certain credit evaluation procedures and does not
require collateral. The Company believes that credit risk is limited
because the Company routinely assesses the financial strength of its
customers, and based upon factors surrounding the credit risk of customers,
establishes an allowance for uncollectable accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such
allowances is limited. The Company had a consolidated allowance for
doubtful accounts at June 30, 2000 of approximately $108. The Company
believes any credit risk beyond this amount would be negligible.
4. INVENTORIES
The components of inventories as of June 30, 2000 are as follows:
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Memorabilia products $ 3,284
Licensed products 635
Acrylic cases and raw materials 272
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4,191
Less reserve for obsolescence (50)
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$ 4,141
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Dreams, Inc. operates through its wholly-owned subsidiary, Dreams
Franchise Corporation ("DFC") and through Dreams Products, Inc. ("DPI") and
Dreams Entertainment, Inc. ("DEI"), wholly-owned subsidiaries of DFC. DFC is
the franchisor of Field of Dreams-Registered Trademark- retail units that
sell sports and celebrity memorabilia products. DFC licenses the right to use
the proprietary name Field of Dreams-Registered Trademark- from Universal
Studios Licensing, Inc. ("USL"), formerly known as Universal Merchandising,
Inc. As of June 30, 2000 there were 36 Field of Dreams-Registered Trademark-
franchises operating in 19 states and in the District of Columbia.
DPI is a wholesaler of sports memorabilia products and acrylic cases. It
sells to a wide customer base, which includes internet companies, traditional
catalog companies and other retailers of sports and celebrity memorabilia
products, including Field of Dreams-Registered Trademark-. Approximately,
eleven percent of DPI's revenues are generated through sales to Field of
Dreams-Registered Trademark- franchises. DPI is licensed by the National
Football League and Major League Baseball as a distributor of autographed
products. DEI was incorporated in fiscal 1999 and has been inactive since its
inception.
The Company believes that the factors that will drive the future growth of
its business will be the opening of new franchised units and, to some extent,
capitalizing on its relationships with certain entities, such as the National
Football League, Major League Baseball and Universal Studios, and with certain
well-known athletes, as those relationships and agreements will allow. The
Company plans to open approximately ten franchised units each of the next three
fiscal years. There can be no assurance, however, that any such franchised units
will open or that they will be successful.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS JUNE 30, 1999.
REVENUES. Total revenues increased $130, or 5%, from $2.9 million in first
quarter of fiscal 2000 to $3.0 million in the first quarter of fiscal 2001.
COSTS AND EXPENSES. Cost of sales in the first quarter of fiscal 2001
increased 8.2% over the same quarter in the prior year due to increased sales
and a slight change in the sales mix. Operating expenses increased $167, or
73.0%, for the first three months of fiscal 2001 compared to the same quarter of
fiscal 2000, due primarily to timing of franchise promotion expenses. The
Company incurred franchise promotion expenses of approximately $112 in the first
three months of fiscal 2001 versus only $19 in the first three months of fiscal
2000 as a result of current year promotions with Major League Baseball, one of
our key strategic partners added since June 1999.
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General and administrative expenses increased $115, or 20.9% for the first
three months of fiscal 2001 compared to the first three months of fiscal 2000,
due to expenses associated with the Company's public relations and investor
relations strategy implemented after June 1999. Depreciation and amortization
increased slightly from $66 in first quarter of fiscal 2000 to $70 in first
quarter of fiscal 2001.
INTEREST EXPENSE, NET. Net interest expense decreased slightly from $141 in
the first quarter of fiscal 2000 to $132 in the first quarter of fiscal 2001.
PROVISION FOR INCOME TAXES. At June 30, 2000, the Company had available net
operating loss carryforwards of approximately $4.6 million, which expire in
various years beginning in 2007 through 2014. Accordingly, a valuation allowance
was provided for the full amount of federal taxes as of the end of fiscal 2000.
However, a provision for income taxes was provided for in the first quarter of
fiscal 2001 and fiscal 2000 for applicable taxes.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's cash are net cash flows from operating
activities and short-term vendor financing. Currently, the Company does not have
available any established lines of credit with banking facilities.
At June 30, 2000, the Company's cash and cash equivalents were $229,
compared to $203 at March 31, 2000 and $346 as of June 30, 1999. The reduction
in cash and cash equivalents since June 30, 1999 primarily relates to inventory
buildup. Accounts receivable at June 30, 2000 were $1.4 million compared to $1.6
million at March 31, 2000 and $1.1 million at June 30, 1999.
Cash provided by operations amounted to $48 in the first three months of
fiscal 2001, compared to cash used of $99 in the first three months of fiscal
2000. The change in cash provided by operating activities is primarily
attributed to Q1 fiscal 2000 payments for accounts payable and accrued
liabilities associated with the consolidation of DFC's and DPI's infrastructure
during fiscal 2000.
Investing activities, comprised of only capital expenditures, used $35 in
the first three months of fiscal 2001, compared to $21 in fiscal 2000. The
capital expenditures in both periods relate to upgrades and purchases of
computer equipment utilized in the Company's operations.
The Company presently does not operate or own any Field of
Dreams-Registered Trademark- units, and does not plan to own any in the
future. It will continue to sell franchised units to prospective and current
third-party franchisees. Additionally, there are no major capital
expenditures planned for in the foreseeable future, nor any payments planned
for off-balance sheet obligations or other demands or commitments for which
payments become due after the next 12 months.
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The Company believes its current available cash position, coupled with its
cash forecast for the year and periods beyond, is sufficient to meet its cash
needs on both a short-term and long-term basis. The balance sheet has a strong
working capital ratio and its long-term debt obligations require interest-only
payments totaling $39 per month. The Company's management is not aware of any
known trends or demands, commitments, events, or uncertainties, as they relate
to liquidity which could negatively affect the Company's ability to operate and
grow as planned.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 attached.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dreams, Inc.
Date August 3, 2000 /s/
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Mark Viner, Chief Financial Officer
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EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
