UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2011
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 001-33405
Dreams, Inc.
(Exact name of registrant as specified in its charter)
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Utah
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87-0368170
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2 South University Drive, suite 325 Plantation, Florida
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33324
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number (954) 377-0002
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, no par value
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NYSE Amex Equities Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes
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No
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 a 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.
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Yes
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No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x
Yes
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No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.)
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Yes
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No
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the closing price of such shares on
the last business day of the registrants most recently completed second fiscal quarter was approximately $71,424,911.
The number of shares outstanding of the registrants common stock as of March 1, 2012 is 44,662,579.
DOCUMENTS INCORPORATED BY REFERENCENONE
TABLE OF CONTENTS
FORM 10-K
i
Part I
Introduction.
As used in this Form 10-K we, our, us, the Company and Dreams refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise.
Overview
Dreams, Inc., headquartered in Plantation, Florida is a Utah Corporation which was formed on April 9, 1980, has evolved into a technology driven, vertically integrated, multi-channel retailer focused
on the sports licensed products industry. This has previously been accomplished, in part, via organic growth and strategic acquisitions. We believe our senior management and corporate infrastructure is well suited to acquire both large and small
industry competitors, especially online.
Specifically, we are engaged in multiple aspects of the licensed sports products and
autographed memorabilia industry through a variety of distribution channels.
We generate revenues principally from:
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Our e-commerce component featuring
www.FansEdge.com
and others; (reported in retail segment)
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Our web syndication sites; (reported in retail segment)
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Our ten (10) company-owned FansEdge stores; (reported in retail segment)
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Our five (5) company-owned Field of Dreams stores; (reported in retail segment)
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Our catalogues; (reported in retail segment)
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Our manufacturing/distribution of sports memorabilia products, custom acrylic display cases and framing; (reported in mfg/wholesale segment)
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Our running of sports memorabilia /collectible trade shows; (reported in mfg/wholesale segment)
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Our franchise program through the five (5) Field of Dreams franchise stores presently operating*; (reported in other income) and
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Our representation and corporate marketing of individual athletes* (reported in other income).
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revenues not material to the overall consolidated results.
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Organic Growth (dollar amounts in thousands)
Key components of our organic
growth strategy include building brand recognition; improving sales conversion rates both on our web sites and in our stores; continuing our execution of multi-channel retailing under our flagship brand, FansEdge; aggressively marketing our web
syndication services, exploring additional distribution channels for our products; and cross pollinating corporate assets among our various operating divisions. Management believes that there remain significant benefits to cross pollinating the
various corporate assets and leveraging the vertically integrated model that has been constructed over the years.
In
particular, we have had success with the marketing of our products on-line via FansEdge.com and the complement of each of our web properties. The Companys sales associated with these e-commerce initiatives have grown from $4,000 in 2004 to
$113,000 in 2011. This remains the fastest growing area of the Company and will remain its primary focus. This Internet growth has re-defined our Company as we have completed a transformation to a technology company, operating in the sports licensed
products industry, generating a majority of our revenues via the eCommerce channel. In fact, 2011 brought 33.4% growth in revenues for the Internet division.
The Company has drawn on a complete spectrum of competencies it has developed over the years to support its flagship online brand, FansEdge. This has allowed the Company to leverage the investments made
during the past several years by marketing a proven range of services to third parties that include: managed hosting, custom site design and development, customer service, order fulfillment, purchasing, inventory management, marketing,
merchandising, and analytics and reporting. The Company calls the compilation of e-commerce services described above,
Web Syndication
and believes there are significant growth opportunities that exist in the marketplace. Our current
web syndication portfolio consists of some of the best known brands and properties in the country, including JC Penney, Comcast Sports, Majestic Athletic, Modells Sporting Goods, the University of Texas, the Chicago Bulls and the Philadelphia
Eagles.
1
With the continued growth of our
Web Syndication
business model, we are leveraging
the Companys investment in its broad inventory by adding additional distribution channels for our products through our partners sites. This concurrent marketing effort is improving our inventory turns, increasing our absorption rates,
and reducing overall inventory carrying costs.
Commencing in June 2008, we opened (6) six FansEdge stores in the greater
Chicago, IL area. (Our FansEdge store count is currently ten (10).) This was in support of our
Multi-channel Retailing
strategy; whereby we market a single brand via multiple channels. We are pleased with the results to date of our
FansEdge brick & mortar stores. They have performed well during the slow economy as we believe they offer approachable price points for the consumer. They cross market with the on-line Fansedge.com site and benefit by a high-tech
inter-active kiosk used in each of the FansEdge stores. Furthermore, we have begun to offer this suite of
Multi-channel Retailing
services to third parties who are seeking to add one or more distribution channels to their retail model.
Our proprietary eCommerce platform has also enabled us to implement a
state-of-the-art interactive
Kiosk
for ordering products. These
Kiosks
are in each of our FansEdge stores and are providing a unique shopping experience for our customers by allowing them to access the entire Company portfolio of more
than 200,000 product offerings. In 2011, we experienced a range of 10% to 20% lift in store sales attributed to the
Kiosk
. The Company is exploring joint venture deals with other retailers who could benefit by adding a broader range of
merchandising options to their patrons by placing our
Kiosks
within their store footprint or integrating our technology feed into their own hardware. In fact, on February 7, 2011, JC Penney announced that they rolled out their Findmore
®
smart fixture (kiosk) to over 120 select stores across the country, featuring our Sports Fan Shop.
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We believe this expansion of our revenue producing footprint will serve us well as we navigate our
business models and look to distinguish ourselves from our competitors.
Objective
Our overall objective is twofold; to become the premier multi-channel retailer in the team licensed products industry under our FansEdge
brand; and become the leading online syndicator for sports related properties.
Analysis
We review our operations based on both our financial results and various non-financial measures. Managements focus in reviewing
performance begins with growth in sales, margin integrity and operating income. On the expense side, with a majority of our sales being achieved as an on-line retailer of licensed sports products, we spend a disproportionate amount of our operating
expenses in internet marketing. Therefore, we continuously monitor the return on investment of these particular expenses. Non-financial measures which management reviews include: unique visitors to our web sites, foot traffic in our stores, sales
conversion rates and average sold unit prices.
During 2011, we closed four (4) under-performing Field of Dreams stores
as three (3) of their leases came due and we chose not to renew. One of the store closings required an early termination fee of $75. We will continue to monitor the results of the remaining stores to ensure that they are providing the Company
with the desired results.
We believe the implementation of our
Multi-channel Retailing
strategy will strengthen our
FansEdge brand in the marketplace, and that we are well positioned to capture increased activity of on-line retail purchases. Industry experts and analysts state that currently, only 7-8% of all retail sales are being conducted on-line and are
anticipated to increase.
With the continued growth of our
Web Syndication
business model, which grew from 31 clients
in 2008 to 77 clients in 2011, and revenues from syndication growing from $3,000 in 2008 to $44,000 in 2011 (this figure of $44,000 is included in our Internet revenues of $113,000), we are leveraging the Companys investment in its broad
inventory by offering the items to multiple sites simultaneously. This improves our inventory turnover, increases our absorption rates and reduces inventory carrying costs. We believe there is significant opportunity in the marketplace to continue
to aggressively grow this model.
Historically, the fourth quarter of the fiscal year (October to December) has accounted for
a greater proportion of our operating revenues and income than have each of the other three quarters of our fiscal year. This is primarily due to increased buying activities as a result of the holiday season. We expect that we will continue to
experience quarterly variations and operating results principally as a result of the seasonal nature of our industry. Management continues to seek ways to shift expenses from the non-holiday quarters
3
to the busier holiday quarter in order to improve cash flow. We have begun to explore identifying companies whose product offerings are in high demand during the spring and summer months such as
boating, fishing and golf sites to determine whether we could operate their online stores. Other factors also cause a significant fluctuation of our quarterly results, including the timing of special events, the general popularity of a specific team
that plays in a championship or an individual athlete who enters their respective sports Hall of Fame, the amount and timing of new sales contributed by new web syndication accounts, new stores, the timing of personal appearances by particular
athletes and general economic conditions. Additional factors may cause fluctuations in expenses, including the costs associated with the opening of new stores, the integration of acquired businesses and stores into our operations, the general health
of the economy, and corporate expenses needed to support our expansion and growth strategy.
Conclusion
We set ourselves apart from other companies with our diversified product and services line, our proprietary e-commerce platform, our
plethora of sports leagues and celebrity licenses, as well as our relationships with sports leagues, agents and athletes. Management believes we can continue to capture market share, especially on-line.
Current Landscape
Dreams presently operates in two business segments:
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Retail
. Our retail segment is made up of many
locations
for our inventory. Revenues are achieved by moving inventory through our sales
channels to reach and expand our customer base. These channels include the internet, stores, kiosks and our catalogues. The retail segment is comprised of Company owned and operated Field of Dreams
®
retail stores, Company owned and operated FansEdge retail stores, catalogues and e-Commerce sites featuring
FansEdge.com and ProSportsMemorabilia.com. The e-commerce component of the segment consists primarily of two e-commerce retailers along with a growing portfolio of syndicated web sites selling a diversified selection of sports licensed products and
memorabilia on the Internet and has represented the fastest growing area of the Company.
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Manufacturing/Distribution
. The manufacturing/distribution segment represents the manufacturing and wholesaling of sports and celebrity
memorabilia products, custom framing and acrylic display cases. These operations are conducted through Mounted Memories. New additional capabilities include apparel sourcing, decorating and screen printing through The Comet Clothing Company,
LLC and Dreams Apparel Manufacturing, Inc.
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Retail Segment.
Brick & Mortar Channel
As of March 1, 2012 we owned and operated five (5) Field of
Dreams
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retail stores and ten (10) FansEdge stores. The Company will continue to evaluate the opening of
new retail stores under the FansEdge brand. Stores typically are located in high traffic areas in regional shopping malls. The stores average approximately 1,000-2,500 square feet. We pay a 1% royalty fee to MCA Universal Licensing for the use of
the Field of Dreams trademark relating to sales generated in our Field of Dreams stores. Effective December 31, 2010, the parties extended the exclusive licensing agreement for an additional two-year term. During the years ended
December 31, 2011 and 2010, we incurred royalty fees of $75 and $102, respectively.
This segment prides itself on being
the ultimate, corporate-owned licensed sports products and celebrity gift stores in the country. We seek to achieve this goal by:
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Incorporating technology into the retail shopping experience (Inter-active kiosks);
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Staying ahead of the competition by offering innovative and fresh products;
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Offering unrivaled service and product knowledge communicated through the best personnel in the industry; and
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Implementing management, product and financial controls to ensure maximum profitability.
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A store typically has a full-time manager and a full time assistant manager in addition to hourly personnel, most of who work part-time.
The number of hourly sales personnel in each store fluctuates depending upon our seasonal needs. Our stores are generally open seven days per week and ten hours per day.
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Set forth below is a listing of our stores as of March 1, 2012, their location and the
date opened or acquired.
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STORE NAME
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LOCATION
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DATE OPENED OR ACQUIRED
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Field of Dreams:
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Park Meadows Mall
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Denver, CO
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March 2002
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Woodfield Mall
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Schaumberg, IL
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October 2002
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The Rio Hotel
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Las Vegas, NV
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December 2006
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Caesars Palace Forum Shops
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Las Vegas, NV
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December 2006
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Florida Mall
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Orlando, FL
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July 2007
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Fans Edge:
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Fox Valley Mall
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Aurora, IL
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June 2008
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Northbridge Mall
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Chicago, IL
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August 2008
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Orland Square
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Orland Pk, IL
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September 2008
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Lincolnwood Mall
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Lincolnwood, IL
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September 2008
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Woodfield Mall
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Schaumberg, IL
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October 2008
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River Oaks Mall
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Calumet City, IL
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October 2008
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Oklahoma University
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Norman, OK
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September 2010
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Gurnee Mills Mall
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Gurnee, IL
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November 2010
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Clybourn Galleria
Geneva
Commons
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Chicago, IL
Geneva,
IL
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June 2011
November
2011
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E-Commerce Channel
The Company sells officially licensed products and authentic autographed memorabilia of the NFL, MLB, NHL, NBA, NCAA and NASCAR via our e-commerce channel with our feature sites Fansedge.com and
ProSportsMemorabilia.com leading the way.
Our focus is on providing the best customer experience in the online
sports-licensed products and memorabilia vertical.
These e-commerce channels have provided for the fastest growing area of
the Company with revenues climbing from approximately $4,000 in 2004 to $113,000 in 2011.
E-commerce products are marketed
through a series of company-owned and syndicated websites that offer customers a daily selection of items from more than 200 teams and over 1,300 different athletes. This division sells over 200,000 products across categories such as apparel, auto
accessories, autographed memorabilia, collectibles, headwear, home and office items, jewelry and watches, tailgate and stadium gear, and DVDs. These online properties represent several of the leading brand names in this market including, but
not limited to:
Big Box Retailer Sites (JC Penney, WalMart)
Professional Sports Team Sites (Philadelphia Eagles, San Diego Chargers, Chicago Bulls)
Sporting Goods Retailer Sites (Hibbett Sports, Modells)
Colleges (University of Texas, University of Miami, Indiana University)
Content/Media
Sites (NBCSports, Comcast Sports.com)
Newspaper Sites (Baltimore Sun, SF Gate, USA Today, Boston Globe)
Player Sites (Dan Marino, Dick Butkus, Mike Schmidt, Andre Dawson)
Miscellaneous Sites (Majestic Athletic, Zubaz)
Towards the end of 2008,
the Company began marketing its web syndication services to third parties.
Web Syndication
is when website material is made available to multiple other sites. This arrangement benefits both the Company providing content/products and the
websites displaying it. The Companys list of syndication clients has grown from 31 in 2008, to 77 in 2011, with associated revenues of $3,000 in 2008 and $44,000 in 2011 (this figure of $44,000 is included in our Internet revenues of
$113,000). The Company has drawn on the complete spectrum of competencies it developed to support its flagship online brand, FansEdge. These services include: managed hosting, custom site design and development, customer service, order fulfillment,
purchasing, inventory management, marketing, merchandising, analytics and reporting. The Company calls the compilation of e-commerce services described above,
Web Syndication
and believes there are significant growth opportunities that
exist in the marketplace.
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In addition, FansEdge maintains strategic alliances with Amazon.com and WalMart.com in which
our FansEdge and ProTeam brands and their products are sold in the apparel and sporting section of these websites. Amazon, with an audience of more than 100 million active customer accounts, affords us national brand prominence for our
FansEdge.com brand. On August 31, 2009, WalMart announced the launch of the WalMart Marketplace whereby they selected a few retailers based on their strong customer service track records and large assortments of quality brands and
products to enhance the WalMart on-line experience. Pro Team, a Dreams, Inc. brand, was chosen to provide their vast array of sports licensed products. Also, beginning in March of 2011, Dreams went live with Sears.com as a key vendor in their
innovative on-line community to exclusively manage the team licensed products category experience.
E-commerce orders are
fulfilled by shipping products from our own warehouse facilities in Sunrise, Florida, Chicago, Illinois and Las Vegas, Nevada, and from suppliers via drop-ship agreements. Our distribution network enables us to provide prompt delivery service to our
online customers. It is our goal to be the market leader by shipping orders the same day they are received.
This
channels strategy is to be the best at what they do within the sports-licensed products and memorabilia vertical. Tactics employed to execute this strategy include:
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Applying critical expertise to improve logistics and provide the best possible customer experience;
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Strengthening brands by continually expanding catalogs and reinforcing market positioning in response to market demand;
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Efficiently transforming shoppers into customers and effectively turning customers into repeat customers; and
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Operating with optimal efficiencies realized through superior market expertise and technology, total commitment to quality, accuracy, and timely
fulfillment.
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Manufacturing/Distribution Segment.
Mounted Memories.
Mounted Memories (MMI) celebrating its 23nd
anniversary this year, is one of the largest wholesalers of authentic sports and celebrity memorabilia products, custom framing and acrylic display cases in the country. The Company maintains exclusive
and non-exclusive agreements with numerous athletes who frequently provide autographs and/ or game used memorabilia at agreed upon terms. In addition to its relationships with various athletes and their representatives, MMI holds licenses with
different sports leagues which allow for the manufacture and distribution of a wide array of products. Licenses are currently held with MLB, MLBPA, NFL, NBA, NHL, Golden Bear (Jack Nicklaus), NASCAR and a variety of NASCAR teams and drivers and many
more. MMI has diversified into obtaining several celebrity licenses to compliment their sports licenses, including Signature Product (Elvis Presley), and CBS (I Love Lucy).
Specifically, MMI strives to enhance its market leading position by executing the following
objectives:
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Expand and diversify product lines by adding new licenses and bringing new products to market.
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Continue to pursue exclusive licensing and memorabilia opportunities.
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Enhance manufacturing efficiencies.
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Provide strategic advantages to company owned retail properties by offering exclusively manufactured items.
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MMI has been in business since 1989 and has achieved its industry leading status
fundamentally due to a combination of its licenses and its strict authenticity policies. The only sports memorabilia products sold by MMI are those produced by MMI through private or public signings organized by MMI or purchased from an authorized
agent of MMI and witnessed by an MMI and /or league representative. In addition to sports and celebrity memorabilia products, MMI manufactures a large selection and supply of custom acrylic display cases, with over 50 combinations of materials,
colors and styles. The primary raw material used in the production process is acrylic. There are many vendors who sell plastic throughout South Florida. The Company seeks to obtain the best pricing through competitive vendor bidding. The Company
does not produce the helmets, footballs, baseballs or other objects which are autographed. Those products are available through numerous suppliers. No individual supplier represented more than ten percent of the Companys total year ended
December 31, 2011 or 2010 purchases.
MMI has one of the most advanced and effective fulfillment processes in the
industry and utilizes the most current shipping software to assist in the process. MMI operates out of a 50,000 square foot facility in Sunrise, Florida and has sales offices in Denver, CO and Chicago, IL and will continue to invest in technologies
that enhance its competitive manufacturing and distribution advantages.
The Comet Clothing Company, LLC
Comet Clothing sources and manufactures cut and sew and import apparel goods for wholesale and retail distribution. Its major brand
holdings include Zubaz, one of the original licensed products brands in the industry.
The Greene Organization.
The Greene Organization since 1991 has been engaged in athlete representation and corporate sports marketing of individual
athletes. This boutique division provides athletes with all off-field activities including but not limited to; personal appearances, product endorsements, book publishing deals, public/private autograph signings, licensing and marketing
opportunities. As a result, over the years, The Greene Organization has become a portal for numerous corporate clients who regularly contract this division to identify a professional athlete to enhance their companys profile, products and or
services. In addition, the auction arm of this division, SCAC (Sports Collectibles and Auction Company) provides complete auction services to charities and organizations throughout the country. Warren H. Greene, president of The Greene Organization,
is the brother-in-law of the Companys president.
Competition.
The Companys retail stores compete with other retail establishments, including the Companys franchise stores and other stores
that sell sports related merchandise, memorabilia and similar products. The success of our stores depends, in part, on the quality, availability and the varied selection of authentic products offered, as well as providing strong customer service.
Our e-commerce business competes with a variety of online and multi-channel competitors including mass merchants, fan shops,
major sporting goods chains and online retailers. We believe the principal competitive factors are product selection, price, customer service and support, web site features and functionality, and delivery performance.
MMI competes with several major companies and numerous individuals in the sports and celebrity memorabilia industry such as Steiner
Sports and Upper Deck Authenticated. MMI believes it competes well within the industry because of the reputation it has established in its 23-year existence. MMI focuses on ensuring authenticity and providing the best possible customer service. MMI
has concentrated on maintaining and selling memorabilia items of athletes and celebrities that have a broad national appeal. MMI believes it maintains its competitive edge because of its long established relationships with numerous high profile
athletes, each of the major sports leagues and several of the largest sports agencies. Several of its competitors tend to focus on specific regional markets due to their relationships with sports franchises in their immediate markets. The success of
those competitors typically depends on the athletic performance of those specific franchises. Additionally, MMI typically focuses on the three core sports that provide the greatest source of industry revenue, baseball, football and basketball.
Within the acrylic display case line of business, MMI competes with other companies which mass produce cases. MMI does not
compete with companies which custom design one-of-a-kind cases. MMI believes that because it is one of the countrys largest acrylic case manufacturers, it is price competitive due to its ability to purchase large quantities of material and
pass the savings on to customers.
The Greene Organization competes with other companies which provide off-field
services to athletes, some of which are much larger and better capitalized, including traditional sports agencies such as International Management Group.
Employees.
The Company employs 570 full-time employees and 40
part-time employees. None of our employees are represented by a labor union and we believe that our employee relations are good.
7
Seasonality.
Our business is highly seasonal with operating results varying from quarter to quarter. We have historically experienced higher revenues
and profits in the October December quarter, primarily due to holiday sales. Approximately 53% of our annual revenues were generated during this quarter for 2011 and 2010. Management believes that the percentage of revenues in the holiday
quarter will increase in future years as we focus on and grow the retail segment. As a result, we may incur additional expenses and cash needs during our holiday quarter, including higher inventory of product and additional staffing in anticipation
of increased sales activity.
We
operate in rapidly changing industries which makes our operating results difficult to predict.
The industries in which
we operate are rapidly changing and evolving making our risks, capital needs and operating results difficult to predict. Any failure to adapt our business in response to market changes could adversely affect our operating results.
Our failure to manage growth and diversification of our business could harm us.
We are continuing our efforts to grow in the United States. This has placed, and will continue to place, demands on our personnel, as well
as on our operational and financial infrastructure. To effectively manage our growth initiatives, we will need to continue to expand, improve and adapt our personnel, operations, infrastructure and our financial and information management systems
and continue to implement adequate controls. These enhancements and improvements are likely to be complex and could require significant operating expenses, capital expenditures and allocation of valuable management resources. We may also have to
expand our management team by recruiting and employing additional experienced executives and employees. If we are unable to adapt our business, put adequate controls in place and expand our management team in a timely manner to accommodate our
growth, our business may be adversely affected.
We may not be able to compete successfully against current and future
competitors.
Our business is rapidly evolving and intensely competitive. We face competition from technology and
service providers which supply one or more components of an e-commerce solution and other providers of integrated e-commerce solutions. Our Web Syndication services has competitors with longer operating histories, larger customer bases, greater
brand recognition and/or greater financial, marketing and other resources. Those competitors may be able to devote more resources to technology development and marketing.
We cannot assure you that we will be able to compete successfully against current and future competitors. In addition, competition may intensify as our competitors enter into business combinations or
alliances or raise additional capital and established companies in other market segments or geographic markets expand into our market segments or geographic markets. If we cannot compete successfully against our competitors, our business, results of
operations and financial condition could be negatively impacted.
Our business is highly seasonal; a weak fourth quarter
could have a material adverse effect on our operating results for the year.
Our fourth fiscal quarter has accounted
for and is expected to continue to account for a disproportionate amount of our total annual revenues because consumers increase their purchases and businesses increase their advertising to consumers during the fourth quarter holiday season. For
fiscal years 2011 and 2010, 53% of our annual net revenues were generated in our fourth fiscal quarter. Because our fourth quarter accounts for a larger percentage of our annual revenue, any negative impact on our business during the fourth quarter
will have a disproportionate adverse affect on our results of operations for the full year.
General economic conditions
may adversely affect our results of operations and financial condition.
General economic conditions may adversely
affect our results of operations and financial condition. The direction and relative strength of the global economy as well as the local economies in which we compete continue to be uncertain and any weakness in consumer spending may have an adverse
effect on our results of operations and financial condition. Recent softness in the real estate and mortgage markets, volatility in fuel and other energy costs, deteriorating economic conditions in different countries, difficulties in the financial
services sector and credit markets, high levels of unemployment and other macro-economic factors have created consumer uncertainty about current economic conditions which could adversely affect consumer confidence and behavior in ways that adversely
affect our results of operations and financial condition.
Our leverage and debt service obligations could adversely
affect our financial condition and our ability to fulfill our obligations and operate our business.
We currently have
and expect to continue to have a significant amount of indebtedness. As of December 31, 2011, borrowings under our Existing Credit Facility and capital Leases were about $12,000. We may also incur additional indebtedness in the future. In the
event of a default under any of our indebtedness, our indebtedness could become immediately due and payable and could adversely affect our financial condition.
8
Our indebtedness could have significant negative consequences, including:
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our debt level increases our vulnerability to general adverse economic and industry conditions;
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|
we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;
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|
we may need to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the amount of
money available to finance our operations and other business activities;
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|
our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general; and
|
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|
|
our substantial amount of debt and the amount we must pay to service our debt obligations could place us at a competitive disadvantage compared to our
competitors that have less debt.
|
Our growth and success depend, in part, on our ability to add new
clients, our ability to maintain and expand our relationships with existing clients, and the financial condition of our clients.
Key elements of our growth strategy include adding new clients and extending the term of existing client agreements. Competition for clients is intense, and we may not be able to add new clients or keep
existing clients on favorable terms, or at all. If we are unable to add new clients within the time frames projected by us, we may not be able to achieve our targeted results in the expected periods. A change in the management of our clients could
adversely affect our relationship with those clients, including our ability to renew agreements with those clients or enter into amendments to those agreements on favorable terms. Many of our client contracts contain service level commitments. If we
are unable to meet these commitments, our relationships with our clients could be damaged, client rights to terminate their contracts with us may be triggered, and financial penalty provisions of the contracts may be triggered. If any of our
existing clients were to exit the business we provide services to, declare bankruptcy, suffer other financial difficulties, fail to pay amounts owed to us, and/or terminate or modify their relationships with us, our business, results of operations
and financial condition could be adversely affected. If our agreements with existing clients expire or are terminated, we may be unable to renew or replace these agreements on comparable terms, or at all.
We are subject to significant inventory risks.
We are exposed to significant inventory risks that may adversely affect our operating results. These inventory risks are a result of seasonality, changes in consumer tastes, changes in consumer demand and
spending habits, and other factors. In order to be successful in our owned inventory we must accurately predict consumer demand and avoid overstocking or under-stocking products. If we fail to identify and respond to changes in merchandising and
consumer preferences, sales on our owned inventory could suffer and we could be required to mark down unsold inventory, which would depress our profit margins. In addition, any failure to keep pace with changes in consumers tastes could result
in lost opportunities and reduced sales through our owned inventory. If we are unable to liquidate our inventory through our primary channels, then we may need to liquidate merchandise below cost through third party channels. Inventory loss and
theft, or shrinkage, and merchandise returns could also increase in the future. If merchandise returns are significant, or our shrinkage rate increases, our revenues and costs of operations could be adversely affected.
Our licensed sports business depends on continued customer interest in professional sports leagues and could be adversely affected
by any decrease in fan interest in the professional sports leagues, their teams or their players.
Our business derives
substantial revenues from the sale of sports products branded with the names and logos of professional sports leagues, their teams and/or their players. Any decrease in fan interest in professional sports leagues, their teams or their players,
including as a result of labor conflicts (and resulting lock-outs, strikes, or cancelled games or seasons), player trades, player injuries, the lack of success of popular players or teams, or logo changes, could adversely affect our revenues and
financial results.
A disruption at any of our facilities could materially and adversely affect our business, results of
operations and financial condition.
Any disruption at any of our facilities, including system, network,
telecommunications, software or hardware failures, any damage to our physical locations or off-site data centers, or our ability to access our locations for any reason, could materially and adversely affect our business, results of operations and
financial condition.
9
Our operations are subject to the risk of damage or interruption from:
|
|
|
fire, flood, hurricane, tornado, earthquake or other natural disasters;
|
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|
power losses and interruptions;
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|
|
Internet, telecommunications or data network failures;
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|
|
|
physical and electronic break-ins or security breaches;
|
|
|
|
outbreak of disease; and
|
If any of these events occur, it could result in interruptions, delays or cessations in our businesses. Our clients might seek significant compensation from us for their losses. Even if unsuccessful, this
type of claim likely would be time consuming and costly for us to address and damaging to our reputation.
We are
dependent upon consumers willingness to use the Internet for commerce.
Our success depends upon the general
publics continued willingness to use the Internet as a means to purchase goods, communicate, and conduct and research commercial transactions. If consumers became unwilling or less willing to use the Internet for communications or commerce for
any reason, including lack of access to high-speed communications equipment, congestion of traffic on the Internet, Internet outages or delays, disruptions or other damage to users computers, increases in the cost of accessing the Internet and
security and privacy risks or the perception of such risks our businesses would suffer, such decreased use of the internet for communications and commerce would have an adverse impact on our businesses.
We may be unable to protect our proprietary technology and intellectual property rights.
Our success depends to a significant degree upon the protection of our intellectual property rights. We may be unable to deter
infringement or misappropriation of our software, trademarks, business processes and other proprietary information and material, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. The steps we have taken
to protect our proprietary rights may be inadequate and third parties may infringe or misappropriate our proprietary rights. Any significant failure on our part to protect our intellectual property could make it easier for our competitors to offer
similar services and thereby adversely affect our market opportunities. In addition, litigation may be necessary in the future to enforce our intellectual property rights. Litigation could result in substantial costs and diversion of management and
technical resources.
We have been, and may in the future be subject to intellectual property claims or competition or
trade Practices claims that could be costly and could disrupt our business.
Third parties may assert that our
businesses or technologies infringe or misappropriate their intellectual property rights, or that we are engaging in unfair competition or other illegal trade practices. During our normal course of business, we have been notified of potential patent
disputes in the past, although nothing material. Patent infringement and other intellectual property claims, whether meritorious or not, are time consuming and costly to resolve, and could require expensive changes in our methods of doing
business, could require us to enter into costly royalty or licensing agreements, or could require us to cease conducting certain operations.
If one or more states successfully assert that we should collect or should have collected sales or other taxes on the sale of our merchandise, our business could be harmed.
The application of sales tax or other similar taxes to interstate and international sales over the Internet is complex and evolving. We
currently collect sales or other similar taxes only for goods we own, sell and ship into certain states. One or more local, state or foreign jurisdictions may seek to impose past and future sales tax obligations on us or other out-of-state companies
that engage in e-commerce. If one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of merchandise for which we are not currently collecting taxes, it could result in substantial tax
liability for past sales, decrease future sales and otherwise harm our business.
10
our agreements with our clients. If we are not able to or do not maintain the required insurance coverage,
we could breach those agreements.
Our success is dependent upon our executive officers and other key personnel.
Our success depends to a significant degree upon the contribution of our executive officers and other key Personnel,
including our President & CEO, Ross Tannenbaum. Our executive officers and key personnel could terminate their employment with us at any time despite any employment agreements we may have with these employees. Due to the competition for
highly qualified personnel, we cannot be sure that we will be able to retain or attract executive, managerial or other key personnel. In addition, key personnel of an acquired company may decide not to work for us. The loss of any of our key
personnel could harm our business if we are unable to effectively replace that person, if we incur significant operating expenses and direct management time to search for a replacement, or if that person should join one of our competitors or
otherwise compete with us.
We may be unable to hire and retain skilled personnel which could limit our growth.
Our success depends on our ability to continue to identify, attract, retain and motivate skilled personnel. Due to
intense competition for these individuals from our competitors and other employers, we may not be able to attract or retain highly qualified personnel in the future. Our failure to attract and retain the experienced and highly trained personnel that
are integral to our businesses may limit our growth. Additionally, we have experienced recent growth in personnel numbers and expect to continue to hire additional personnel in selected areas. Managing this growth requires significant time and
resource commitments from our senior management. If we are unable to effectively manage a large and geographically dispersed group of employees or to anticipate our future growth and personnel needs, we may not be able to retain skilled personnel
and our business may be adversely affected.
The price of our common stock has and may continue to fluctuate
significantly.
Our stock price has been and may continue to be volatile. Fluctuations in our stock price have been and
may be as a result of a variety of factors, many of which are beyond our control. These factors include, among others: our performance and prospects; fluctuations in our operating results; changes in our publicly available guidance of future results
of operations; investor perception of us and the industries in which we operate; and general financial, economic and other market conditions. In addition, broad market and industry fluctuations may adversely affect the price of our stock, regardless
of our operating performance. Declines in our stock price could have a material adverse impact on investor confidence and employee retention.
We have never paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future.
We have never paid cash dividends on our common stock and do not anticipate that any cash dividends will be declared or paid in the foreseeable future. In addition, the terms of our Existing Credit
Facility with PNC Bank restrict our ability to declare or pay dividends on our common stock.
11
Item 1B.
|
Unresolved Staff Comments.
|
None.
We do not
own any real property. The Company leases its corporate office and primary manufacturing/warehouse facility in Plantation, Florida and Sunrise, Florida, respectively. The corporate office lease is for approximately 7,500 square feet of office space
and expires in June 2013, and has total occupancy costs of approximately, $18 per month. The Companys principal executive, human resources and accounting offices are located at the Plantation, Florida facility.
Our primary manufacturing/warehouse facility is located in Sunrise, Florida and has approximately 50,000 square feet of office,
manufacturing and warehousing space. The lease expires in December 2013, with total occupancy costs of approximately $40 per month with 3% annual increases. We also lease a warehouse facility in Las Vegas, NV which has approximately 12,000 square
feet that has an occupancy cost of $15 per month, expiring in December 2012.
Our fifteen (15) company-owned stores
currently lease their facilities, with lease terms (including renewal options) expiring in various years through September 2018 with initial terms of 5 to 10 years.
Our Internet division leases a 207,000 square foot facility in Northbrook, IL with a termination date of May 31, 2014 and a monthly occupancy cost of approximately $120. In June 2011, the Company
secured a second distribution facility in Elk Grove, IL to support our continued eCommerce growth. The Elk Grove facility is 120,000 square feet with the ability to expand, if necessary. The lease is for 1-year, with a 1-year option at a monthly
occupancy cost of $35. We are analyzing our longer term distribution center needs that may include a consolidation of these two facilities into one, larger facility in the near future.
Item 3.
|
Legal Proceedings.
|
None.
Item 4.
|
Removed and Reserved
|
12
Part II
Item 5.
|
Market for the registrants common equity, related stockholder matters and Issuer purchases of equity securities.
|
The Companys common stock is listed on the NYSE Amex Equities Exchange under the symbol DRJ. The high and low bids of
the Companys common stock for each quarter during the year ended December 31, 2011, and the year ended December 31, 2010, are as follows:
Year Ended December 31, 2011
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High Bid Price
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Low Bid Price
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First Quarter
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$
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3.11
|
|
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$
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1.93
|
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Second Quarter
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2.65
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|
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2.04
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Third Quarter
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2.92
|
|
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1.66
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Fourth Quarter
|
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2.50
|
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|
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1.73
|
|
Year Ended December 31, 2010
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|
|
|
|
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High Bid Price
|
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Low Bid Price
|
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First Quarter
|
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$
|
1.64
|
|
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$
|
1.47
|
|
Second Quarter
|
|
|
1.54
|
|
|
|
1.28
|
|
Third Quarter
|
|
|
1.90
|
|
|
|
1.88
|
|
Fourth Quarter
|
|
|
2.67
|
|
|
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2.55
|
|
The records of Fidelity Transfer, the Companys transfer agent, indicate that there are 395 record
owners of the Companys common stock as of March 1, 2012. Because many of our shares of common stock are held by brokers, and other institutions on behalf of stockholders, we are unable to determine the total number of stockholders
represented by these record holders. However, we believe there are more than 2,000 beneficial holders of our common stock. On March 1, 2012, the high bid price was $2.62 and the low bid price was $2.52 for the Companys common stock.
Dividend Policy
The Company has never paid dividends and we intend to retain future earnings to finance the expansion of our operations and for general corporate purposes. In addition, our current loan and security
agreement with PNC Bank prohibits the Company from paying cash dividends.
Issuance of Unregistered Securities
The Company issued 555,115 unregistered common shares as a result of options that were exercised during the reporting
period.
All of the common stock issued for the above transactions were not registered under the Securities Act of 1933 (the
Act) and were issued pursuant to an exemption from registration under Section 4 (2) of the Act.
13
EQUITY COMPENSATION PLAN INFORMATION
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Number of securities
to be issued upon
exercise of
outstanding
options, warrants and
rights
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Weighted average
exercise price of
outstanding options,
warrants
and rights
|
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|
Number of securities
remaining available
for future issuances
under
equity
compensation plans
(excluding securities
reflected in column (a))
|
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(a)
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|
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(b)
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(c)
|
|
Equity Compensation Plans Approved by Security Holders
|
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|
648,442
|
|
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$
|
.54
|
|
|
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689,326
|
|
Item 6.
|
Selected Financial Data.
|
Not required for smaller reporting companies.
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K under Managements Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements are indicated by words or phrases such as anticipates, projects,
management believes, Dreams believes, intends, expects, and similar words or phrases. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new
product development and introduction schedules; acceptance of new product offerings; franchise sales; advertising and promotional efforts; adverse publicity; availability, locations and terms of sites for franchise development; changes in business
strategy or development plans; availability and terms of capital including the continuing availability of our credit facility with PNC Bank or a similar facility with another financial institution; labor and employee benefit costs; changes in
government regulations; and other factors particular to the Company.
Should one or more of these risks, uncertainties or
other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of Dreams may vary materially from any future results, performance or achievements expressed or implied by such forward-looking
statements. All subsequent written and oral forward-looking statements attributable to Dreams or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Dreams disclaims any obligation
to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Managements Overview
Dreams, Inc., headquartered in Plantation,
Florida is a Utah Corporation which was formed on April 9, 1980, has evolved into a technology driven, vertically integrated, multi-channel retailer focused on the sports licensed products industry. This has previously been accomplished, in
part, via organic growth and strategic acquisitions. We believe our senior management and corporate infrastructure is well suited for further organic growth and for strategic and synergistic acquisitions of companies and assets, particularly within
the eCommerce industry.
Specifically, we are engaged in multiple aspects of the licensed sports products and autographed
memorabilia industry through a variety of distribution channels.
We generate revenues principally from:
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Our e-commerce component featuring
www.FansEdge.com
and others; (reported in retail segment)
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Our web syndication sites; (reported in retail segment)
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Our ten (10) company-owned FansEdge stores; (reported in retail segment)
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Our five (5) company-owned Field of Dreams stores; (reported in retail segment)
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Our catalogues; (reported in retail segment)
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Our manufacturing/distribution of sports memorabilia products, custom acrylic display cases and framing; (reported in mfg/wholesale segment)
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Our running of sports memorabilia /collectible trade shows; (reported in mfg/wholesale segment)
|
14
|
|
|
Our franchise program through the five (5) Field of Dreams franchise stores presently operating*; (reported in other income) and
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Our representation and corporate marketing of individual athletes* (reported in other income).
|
*
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revenues not material to the overall consolidated results.
|
Organic Growth (dollar amounts in thousands)
Key components of our organic
growth strategy include building brand recognition; improving sales conversion rates both on our web sites and in our stores; continuing our execution of multi-channel retailing under our flagship brand, FansEdge; aggressively marketing our web
syndication services, exploring additional distribution channels for our products; and cross pollinating corporate assets among our various operating divisions. Management believes that there remain significant benefits to cross pollinating the
various corporate assets and leveraging the vertically integrated model that has been constructed over the years.
In
particular, we have had success with the marketing of our products on-line via FansEdge.com and the complement of each of our web properties. The Companys sales associated with these e-commerce initiatives have grown from $4,000 in 2004 to
$113,000 in 2011. This remains the fastest growing area of the Company and will remain its primary focus. This Internet growth has re-defined our Company as we have completed a transformation to a technology company, operating in the sports licensed
products industry, generating a majority of our revenues via the eCommerce channel. In fact, 2011 brought 33.4% growth in revenues for the Internet division.
The Company has drawn on a complete spectrum of competencies it has developed over the years to support its flagship online brand, FansEdge. This has allowed the Company to leverage the investments made
during the past several years by marketing a proven range of services to third parties that include; managed hosting, custom site design and development, customer service, order fulfillment, purchasing, inventory management, marketing,
merchandising, and analytics and reporting. The Company calls the compilation of e-commerce services described above,
Web Syndication
and believes there are significant growth opportunities that exist in the marketplace. Our current
web syndication portfolio consists of some of the best known brands and properties in the country, including JC Penney, Comcast Sports, Majestic Athletic, Modells Sporting Goods, University of Texas, Chicago Bulls and the Philadelphia Eagles.
With the continued growth of our
Web Syndication
business model, we are leveraging the Companys investment in
its broad inventory by adding additional distribution channels for our products through our partners sites. This concurrent marketing effort is improving our inventory turns, increasing our absorption rates, and reducing overall inventory
carrying costs.
Commencing in June 2008, we opened (6) six FansEdge stores in the greater Chicago, IL area. (Our
FansEdge store count is currently ten (10).) This was in support of our
Multi-channel Retailing
strategy; whereby we market a single brand via multiple channels. We are pleased with the results to date of our FansEdge brick &
mortar stores. They have performed well during the slow economy as we believe they offer approachable price points for the consumer. They cross market with the on-line Fansedge.com site and benefit by a high-tech inter-active kiosk used in each of
the FansEdge stores. Furthermore, we have begun to offer this suite of
Multi-channel Retailing
services to third parties who are seeking to add one or more distribution channels to their retail model.
Our proprietary eCommerce platform has also enabled us to implement a state-of-the-art interactive
Kiosk
for
ordering products. These
Kiosks
are in each of our FansEdge stores and are providing a unique shopping experience for our customers by allowing them to access the entire Company portfolio of more than 200,000 product offerings. In 2011, we
experienced a range of 10% to 20% lift in our store sales attributed to the
Kiosk
. The Company is exploring joint venture deals with other retailers who could benefit by adding a broader range of merchandising options to their patrons by
placing our
Kiosks
within their store footprint or integrating our technology feed into their own hardware. In fact, on February 7, 2011, JC Penney announced that they rolled out its Findmore
®
smart fixture (kiosk) to over 120 select stores across the country, featuring our Sports Fan Shop.
We believe this expansion of our revenue producing footprint will serve us well as we navigate our business models and look to
distinguish ourselves from our competitors.
Objective
Our overall objective is twofold; to become the premier multi-channel retailer in the team licensed products industry under our FansEdge
brand; and become the leading online syndicator for sports related properties.
Analysis
We review our operations based on both our financial results and
various non-financial measures. Managements focus in reviewing performance begins with growth in sales, margin integrity and operating income. On the expense side, with a majority of our sales being achieved as an on-line retailer of licensed
sports products, we spend a disproportionate amount of our operating expenses in internet marketing. Therefore, we continuously monitor the return on investment of these particular expenses. Non-financial measures which management reviews include:
unique visitors to our web sites, foot traffic in our stores, sales conversion rates and average sold unit prices.
15
During 2011, we closed four (4) under-performing Field of Dreams stores as three of
their lease terms came due and we chose not to renew, with one (1) store requiring an early termination fee of $75. We will continue to monitor the results of the remaining stores to ensure that they are providing the Company with the desired
results.
We believe the implementation of our
Multi-channel Retailing
strategy will strengthen our FansEdge brand in
the marketplace, and that we are well positioned to capture increased activity of on-line retail purchases.
On the
Mobile
Channe
l front, we plan to continue to invest in various initiatives to leverage mobile opportunities to acquire customers online and offline, conduct mobile commerce, enhance the in-store experience and connect with our customers even when they
are not shopping. Currently, our e-commerce platform is mobile capable and with revenues transacted from mobile devices growing exponentially, this is expected to become a more material part of our overall revenue stream. In the near future, we
plan on releasing an enhanced mobile e-commerce experience that is fully optimized for intuitive shopping via a mobile device. Additionally, we plan to continue to expand our various mobile oriented marketing programs that we use to acquire new
customers and stimulate repeat purchasing from existing programs. Currently, we use programs such as local search, text alerts and other mobile oriented promotions. We also plan to use mobile to enhance our in-store experience such as
using QR codes to allow in-store shoppers to access customer reviews, quickly see what other teams we have available in a particular style and to quickly see what sizes we might have online that we may not have in the store.
With the continued growth of our
Web Syndication
business model, which grew from 31 clients in 2008 to 77 clients in 2011, and
revenues from syndication growing from $3,000 in 2008 to $44,000 in 2011, (this figure of $44,000 is included in our Internet revenues of $113,000), we are leveraging the Companys investment in its broad inventory by offering the items to
multiple sites simultaneously. This should improve our inventory turnover, increase our absorption rates and reduce inventory carrying costs. We believe there is significant opportunity in the marketplace to grow this model.
Towards the end of 2010, we acquired a 51% ownership stake in The Comet Clothing Company, LLC. This entity owns the
rights to the Zubaz
®
brand, a line of casual sportswear with unique designs. Also, we consummated a purchase
agreement for certain assets previously owned by Collegiate Marketing Services (CMS). The principal asset is the retail contract with the University of Texas for the management of both the official online store and all campus event sales. Both of
these initiatives were strategic in nature for the Company. We have now added the ability to manufacture soft goods (apparel) within the organization and will seek to produce some of the items that will be featured on many of our online shops and
our partners eCommerce sites. This should improve our overall gross margins within this segment. In addition, with our team providing game-day/stadium sales for the University of Texas, we are able to deliver a comprehensive retail solution to
current and prospective clients that are looking for a provider who offers both eCommerce and in-stadium operations and merchandising.
Historically, the fourth quarter of the fiscal year (October to December) has accounted for a greater proportion of our operating income than have each of the other three quarters of our fiscal year. This
is primarily due to increased buying activities as a result of the holiday season. We expect that we will continue to experience quarterly variations and operating results principally as a result of the seasonal nature of our industry. Management
continues to seek ways to shift expenses from the non-holiday quarters to the busier holiday quarter in order to improve cash flow. Additionally, other factors also cause a significant fluctuation of our quarterly results, including the timing of
special events, the general popularity of a specific team that plays in a championship or an individual athlete who enters their respective sports Hall of Fame, the amount and timing of new sales contributed by new web syndication accounts,
new stores, the timing of personal appearances by particular athletes and general economic conditions. Other factors may cause fluctuations in expenses, including the costs associated with the opening of new stores, the integration of acquired
businesses and stores into our operations, the general health of the economy, and corporate expenses needed to support our expansion and growth strategy.
16
Conclusion
We set ourselves apart from other companies with our diversified product and services line, our proprietary e-commerce platform, our plethora of sports leagues and celebrity licenses, as well as our
relationships with sports leagues, agents and athletes. Management believes we can continue to capture market share, especially on-line.
GENERAL
As used in this Form 10-K we, our,
us, the Company and Dreams refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise.
Use of Estimates and Critical Accounting Policies
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or
market adjustment for inventory; sales returns; the allowance for doubtful accounts; the recoverability of long-lived and intangible assets; the determination of deferred income taxes, including related valuation allowances; the accrual for actual,
pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation
In an on-going basis, the Company reviews its outstanding customer receivables for collectability. Adjustments to the allowance account are made according to current knowledge. Additionally, management
reviews the composition of its inventory no less than annually. Reserves are adjusted accordingly. On a quarterly basis, the Company also evaluates its ability to realize its deferred tax assets and whether or not a valuation allowance is necessary.
The Company has both Goodwill and other long-lived intangible assets which are not amortized. As prescribed by the FASB, the
Company evaluates the carrying value of these assets for impairment. Significant economic changes may require the Company to recognize impairment. As of December 31, 2011 and as of December 31, 2010, no impairment had been necessary.
Management believes that the following may involve a higher degree of judgment or complexity:
Collectibility of Accounts Receivable
The Companys allowance for doubtful accounts is based on managements estimates of the creditworthiness of its customers, current economic conditions and historical information, and, in the
opinion of management, is believed to be an amount sufficient to respond to normal business conditions
.
Should business conditions deteriorate or any major customer default on its obligations to the Company, this allowance may need to be
significantly increased, which would have a negative impact upon the Companys operations. The Companys current allowance for doubtful accounts is $24.
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Accounts receivable
|
|
$
|
11,614
|
|
|
$
|
9,924
|
|
Allowance for doubtful accounts
|
|
|
24
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
11,590
|
|
|
$
|
9,898
|
|
Reserves on Inventories
The Company establishes a reserve based on historical experience and specific reserves when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge
to operations results when the estimated net realizable value of inventory items declines below cost. Management regularly reviews the Companys investment in inventories for declines in value. Adjustments are made to the reserve based on a
number of factors, such as, players changing teams, falling out of favor with the public, incurring an injury, etc. These negative situations may impact valuation. However, dynamics that could increase inventory value, like the death of an athlete,
do not result in writing up of inventory values. The Companys current reserve for inventory obsolescence is $463.
17
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Inventory
|
|
$
|
45,158
|
|
|
$
|
33,139
|
|
Reserves for inventory obsolescence
|
|
|
463
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
Inventory, net
|
|
$
|
44,695
|
|
|
$
|
32,609
|
|
Income Taxes
Significant management judgment is required in developing the Companys provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances
that might be required against the deferred tax assets. The Company evaluates quarterly its ability to realize its deferred tax assets and adjusts the amount of its valuation allowance, if necessary. The Company provides a valuation allowance
against its deferred tax assets when it believes that it is more likely than not that the asset will not be realized. The Company has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to
realize its net deferred tax asset. After consideration of all the evidence, both positive and negative, management has determined that no valuation allowance as of December 31, 2011, was necessary.
Goodwill and Unamortized Intangible Assets
In accordance with FASB A S C Topic 350-20-35 Intangibles-Goodwill and Other > Goodwill > Subsequent Measure, the Company evaluates the carrying value of goodwill as of December 31 of each year
and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a
significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of
the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be
calculated by comparing the implied fair value of the reporting units goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and
liabilities of that unit based on their fair value. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the
carrying amount of goodwill exceeds it implied fair value.
The Companys evaluations of the carrying amount of goodwill
were completed as of December 31, 2011 in accordance with ASC Topic 350-20-35, resulted in no impairment losses.
Revenue Recognition
The Company recognizes retail (including e-commerce sales and web syndication sales) and wholesale/distribution revenues at the later of (a) the time of shipment or (b) when title passes to the
customers, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Retail revenues and wholesale/distribution are recognized at the time of sale. Return allowances, which reduce
gross sales, are estimated using historical experience.
Revenues from the sale of franchises are deferred until the Company
fulfills its obligations under the franchise agreement and the franchised unit opens. The franchise agreements provide for continuing royalty fees based on a percentage of gross receipts.
Management fee revenue related to the representation and marketing of professional athletes is recognized when earned and is reflected
net of its related costs of sales. The majority of the revenue generated from the representation and marketing of professional athletes relates to services as an agent. In these arrangements, the Company is not the primary obligor in these
transactions but rather only receives a net agent fee.
Revenues from industry trade shows are recognized at the time of the
show when tickets are submitted for autographs or actual product purchases take place. In instances when the Company receives pre-payments for show autographs, the Company records these amounts as deferred revenue.
The Company had approximately $714 in orders not yet shipped as of December 31, 2011.
18
RESULTS OF OPERATIONS
The following table presents our historical operating results for the periods indicated as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December
31,
2011
|
|
|
Year Ended
December
31,
2010
|
|
Net Sales
|
|
|
1.00
|
|
|
|
1.00
|
|
COGS
|
|
|
.54
|
|
|
|
.54
|
|
Gross Profit
|
|
|
.46
|
|
|
|
.46
|
|
*Operating Expenses
|
|
|
.42
|
|
|
|
.41
|
|
Operating Income
|
|
|
.04
|
|
|
|
.05
|
|
Income Before Taxes
|
|
|
.01
|
|
|
|
.02
|
|
Net Income
|
|
|
.01
|
|
|
|
.01
|
|
*
|
Does not include depreciation and amortization.
|
**
|
The above table may not foot due to rounding.
|
RESULTS OF OPERATIONSTWELVE MONTHS ENDED DECEMBER 31, 2011 AS COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2010. (dollars in thousands)
Revenues
. Total revenues increased 27.3% to $141,720 during the twelve months ended December 31, 2011, from $111,363
during the same period ended December 31, 2010. This increase was attributed to an increase in retail revenues generated through on-line sales. Online sales continue to represent the fastest growing area of the Company and will remain its
primary focus.
Manufacturing and distribution revenues
remained constant at $15,344 during the twelve months ended
December 31, 2011, and $15,321 during the same period ended December 31, 2010. Net revenues reported, after elimination of intercompany sales, decreased 2.7% to $10,807 during the twelve months ended December 31, 2011, from $11,107
during the same period ended December 31, 2010. Nevertheless, over the past few years, the Company has modified its manufacturing segment to primarily support its retail efforts instead of maintaining and growing its own wholesale account
customer base. This has resulted in providing the Companys retail assets with a competitive advantage. In a continuation of Dreams concentration on retail and the continued migration of the wholesale unit from a separate entity to an
internal retail channel supplier, consideration is being given to the absorption of the unit into the retail segment.
Retail operation revenues
increased 31.0% to $130,697 during the twelve months ended December 31, 2011, from $99,798 during
the same period ended December 31, 2010. This increase was attributed to the continuing growth the Company is experiencing with its on-line properties. In fact, Retail revenues represented over 92.2% of the Companys consolidated revenues.
|
|
|
E-Commerce
Our Internet retail division revenues increased 33.4% to $113,000 for the year ended December 31, 2011, from $84,728
generated for the year ended December 31, 2010. We are experiencing organic online growth from our flagship brand, FansEdge.com and continue to grow the web syndication portfolio. A further break-out of our E-Commerce revenue components shows
$44,000 in web syndication revenues, up 29.4% over 2010, when we delivered $34,000 in web syndication sales and $69,000 in E-Commerce revenues produced from our owned-brands, led by
www.FansEdge.com
, up 35.2% over 2010, when we delivered
$51,000 in E-Commerce revenues from our owned-brands. Total E-Commerce revenues of $113,000 represented nearly 80.0% of the Companys consolidated revenues and are expected to increase further as a percentage of over-all sales in 2012.
|
|
|
|
FansEdge stores
Retail revenues generated through our eleven (11) FansEdge stores increased 33.5% to $7,644 for the year ended
December 31, 2011, from $5,725 generated for the year ended December 31, 2010 when we had nine (9) FansEdge stores operating. Same store sales were up 4.5%.
|
|
|
|
Field of
Dreams
®
stores
-. Retail revenues generated through our five (5) company-owned Field of Dreams stores
decreased 10.8% to $7,540 for the year ended December 31, 2011, from $8,453 generated for the year ended December 31, 2010 when we had nine (9) company-owned Field of Dreams stores operating. However, same store sales were up 14.4%.
|
|
|
|
Stadium Sales
Retail revenues generated in stadium was $2,513, up 181% for the year ended December 31, 2011, when we ran both the
University of Texas and the Chicago Fire, versus $892 for the year ended December 31, 2010 when we operated (1) stadium venue. This is the newest channel for the Company.
|
19
Costs and expenses
.
Total costs of sales for the twelve months ended
December 31, 2011 increased 27.3%, to $76,035, versus $59,715 for the same period in 2010. The increase is as a result of higher overall sales. As a percentage of total sales, costs were 53.6% for both the twelve months ended December 31,
2011 and December 31, 2010.
Costs of sales of manufacturing/distribution
products were $6,232 for the twelve
month period ended December 31, 2011, versus $6,543 for the same twelve month period in 2010. As a percentage of total manufacturing/distribution sales, costs were 70.0% for both the twelve months ended December 31, 2011 and
December 31, 2010. After elimination of intercompany sales, as a percentage of total manufacturing/distribution sales, costs were 57.6% and 58.9%, respectively.
Cost of sales of retail
products were $69,803 for the twelve month period ended December 31, 2011, versus $53,172 for the same twelve month period in 2010, or a 31.2% increase. This increase
is attributable to an overall increase in retail sales. As a percentage of total sales, costs were 53.4% and 53.2% for the twelve months ended December 31, 2011 and December 31, 2010, respectively.
Operating expenses
increased 30.9% to $60,136 for the twelve month period ended December 31, 2011, versus $45,939 for the
same period in 2010. The current period expenses were elevated by some one-time, non-core, non-cash and cash charges totaling $1,961 that included, charges associated with our senior debt financing, certain legal fees, two legal settlements,
write-offs and expenses associated with the closing of several Field of Dreams stores, impairment charges associated with some pre-paid royalties, non cash, compensation expense related to the issuance of stock options to employees, and severance
expenses to released employees from the closed Field of Dreams stores. One-time charges for 2010 were approximately $1,200. As a percentage of sales, operating expenses were 42.4% and 41.2% for the twelve month periods ended December 31, 2011
and December 31, 2010, respectively. Without these one-time charges to operations, as a percentage of sales, operating expenses would have been 41.0% for the year ended December 31, 2011 and 40.2% for the year ended December 31, 2010.
Interest expense, net
.
Net interest expense was $978 for the twelve months ended December 31, 2011, versus
$1,185 for the same period last year. This reduction in interest expense is a result of paying lower interest rates to our senior lender.
Provision for income taxes
.
The Company recognized an income tax expense of $729 for the year ended December 31, 2011, versus an income tax expense of $1,363 for the same period in
2010. Each quarter, the Company evaluates whether the realizability of its net deferred tax assets is more likely than not. Should the Company determine that a valuation reserve is necessary, it would have a material impact on the Companys
operations. The Company has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to realize its net deferred tax asset. The Company believes it is more likely than not that the net deferred tax
asset will be realized. Therefore, the Company has determined that a valuation allowance was not necessary as of December 31, 2011. The effective tax rate for 2011 was 37.1% and for 2010 was 49.0%.
LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)
Our primary sources of liquidity during the twelve months ended December 31, 2011, are the cash flows generated daily from our
operating subsidiaries; availability under our $27,500 senior revolving credit facility and available cash. Noteworthy, was our successful refinancing of our senior debt with the establishment of a $35,000 revolving credit facility effective
December 23, 2011, that also provides for an additional $5,000 seasonal over advance to support our projected growth.
The balance sheet as of December 31, 2011, reflects working capital of $20,911 versus working capital of $19,645 at
December 31, 2010. At December 31, 2011, the Companys cash was $1,860 compared to $440 at December 31, 2010. Please note that the Company is not negatively impacted by the cash balance of $1,860 as it has ample access to capital
under its revolving credit facility with its new senior lender. Throughout the year, and accelerated as a lead-in to the holiday season, the Company draws down on its line of credit to make inventory purchases so it is properly positioned to support
the projected increased sales activity it experiences during the quarter ended December 31. The increased throughput results in significant pay-downs to the line balances; and the yearly cycle starts anew. For example, our highest outstanding
line balance occurred during the first week of November at $26,400 and finished the year at about $6,700 (when netting out the year-end cash balances). Net accounts receivable at December 31, 2011 were $11,590 compared to $9,898 at
December 31, 2010.
Use of Funds
Cash
used in
operations amounted to $5,079 for the twelve months ended December 31, 2011, compared to $4,123 cash
provided by
operations during the same period of 2010. The
Companys inventory levels increased by more than $12,000 in order to support its continued e-Commerce growth along with making inventory investments in new lines of businesses, i.e. MMA (mixed martial arts). Also, the Company has brought in
additional hard-goods into inventory to generate slightly higher margins as opposed to having these hard-goods supplied by a third party, drop-ship vendor. With a higher year-end inventory balance, the Company is experiencing higher growth rates
than projected with its e-Commerce sales in the first quarter of 2012.
20
Cash
used in
investing activities was $2,498 for the twelve months ended
December 31, 2011 and $3,091 cash
used in
investing activities for the same period ended December 31, 2010.
Cash
provided by
financing activities was $8,997 for the twelve months ended December 31, 2011, versus $1,174 cash
used in
financing activities for the same period in 2010. On
December 23, 2011, the Company used $9,000 from its newly established credit facility with PNC Bank to pay-off the entire outstanding line amount from its previous senior lender.
Other Activity
On December 23, 2011, Dreams, Inc. (the Company) and its subsidiaries (collectively the Debtors) closed on a $35,000 revolving credit facility with PNC Bank. $35,000 will be
available from August 1 to December 31 reducing to $30,000 on January 1 of every year. The revolving note (the Note) has a maturity date of December 23, 2014. The amount outstanding from time to time under the Note
may not exceed the sum of: (i) 85% of the Borrowers eligible accounts receivable; plus (ii) 85% of Borrowers eligible credit cards receivable; plus (iii) up to the lesser of (x) 60% of eligible Borrowers
inventory or (y) 90% of the net Borrowers orderly liquidation value of eligible inventory; minus (iv) any applicable reserves. The initial principal balance under the Note is $9,000.
Interest shall accrue on all outstanding amounts under the Note at the rate of LIBOR plus 2.25% per annum, and is due and payable monthly in
arrears. The rate may further adjust based upon the Companys Fixed Charge Coverage Ratio and Seasonal Over-advances (up to $2,500 for three (3) months beginning in June and $5,000 for six (6) months beginning in September. Seasonal
Over-advances will be priced at 50 basis points above the then applicable margin. The default rate of interest is the applicable rate plus 2% per annum. An unused line fee in the amount of 0.25% per annum is payable monthly in arrears
based on the average daily unused portion of the facility. All outstanding principal, and any remaining outstanding interest, shall be paid in one lump sum on the maturity date.
The Debtors have granted PNC Bank a security interest in all of Debtors assets and a pledge of Debtors equity in all of the Companys subsidiaries to secure Debtors payment when due of all of
Debtors existing and future indebtedness to PNC Bank.
The transaction documents contain standard affirmative and negative loan covenants.
On May 18, 2010, the Company entered into a Securities Purchase Agreement with three accredited investors, pursuant to
which the Company raised $2,000 through the issuance of 1,428,570 shares of the Companys common stock and warrants to purchase 285,714 shares of the Companys common stock at an exercise price of $1.80 per share. The offering was exempt
from registration pursuant to exemption under section 4(2) of the Securities Act of 1933.
On July 16, 2010, the Company
entered into a Subscription Agreement with a group led by William Blair & Company, LLC whereby the Company agreed to sell and issue to the investors a total of 4,615,384 shares of the Companys common stock for $6,000. The shares had
been registered on a Form S-3 filed by the Company with the Securities and Exchange Commission.
On July 23, 2010, the
Company entered into a 3-year loan and security agreement with Regions Bank who provided the Company with a $20,000 Senior Secured Credit Facility, of which $11,200 was used at closing to pay-off its previous loan balances with Comerica Bank. The
interest rate on the loan balance is the 30-day libor rate plus a 3.00% margin. The interest rates on outstanding loan balances were reduced from 6.5% from the previous lender, to libor plus a 3.00 margin, or 3.34% for the new line of credit. The
new 3-year loan and security agreement is secured by all of the assets of the Company and its divisions. The Regions credit facility requires that certain performance financial covenants be met on a monthly and or quarterly and or yearly basis.
These financial covenants consist of a
Fixed Charge Coverage Ratio and a Funded Debt to EBITDA Ratio
. This facility was refinanced on December 23, 2011 with PNC Bank.
Summary
Management believes that future funds generated from our
operations and available borrowing capacity will be sufficient to fund our debt service requirements, working capital requirements and our budgeted capital expenditure requirements for the foreseeable future.
Off-balance sheet arrangements
We have not created and are not a party to any special purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. Except as described herein, our
management is not aware of any known trends or demands, commitments, events or uncertainties, as they relate to liquidity which could negatively affect our ability to operate and grow as planned, other than those previously disclosed.
21
NEW ACCOUNTING PRONOUNCEMENTS
In September 2011, the FASB issued ASU 2011-08,
Intangibles
Goodwill and Other (Topic 350): Testing Goodwill for
Impairment
(ASU 2011-08). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350,
Intangibles-Goodwill and Other
. The more-likely-than-not threshold is defined as having a likelihood of greater than 50%. ASU 2011-08
is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on the Companys consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards
(ASU 2011-04). The objective of ASU 2011-04 is to converge guidance of the FASB and the International Accounting Standards Board on fair value
measurement and disclosure. This update changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements; clarifies the FASBs intent about the
application of existing fair value measurement requirements; and changes particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective prospectively for interim
and annual periods beginning after December 15, 2011. The Company is currently evaluating the potential impact of this standard on the Companys consolidated financial statements.
In January 2010, the FASB amended guidance now codified as FASB ASC Topic 810,
Consolidation
. FASB ASC Topic 810
changes the accounting and reporting for minority interests, which will be re-characterized as non-controlling interests and classified as a component of equity. The amendment of FASB ASC Topic 810-10 establishes the accounting and reporting
guidance for non-controlling interests and changes in ownership interests of a subsidiary. FASB ASC Topic 810 is effective for us on a prospective basis for business combinations with an acquisition date beginning in the first quarter of fiscal year
2010. The adoption of FASB ASC Topic 810 as amended did not have an impact on our consolidated financial statements.
In
January 2010, the FASB amended its guidance now codified as FASB ASC Topic 505-20, Equity Stock Dividends and Stock Splits, to clarify that the stock portion of a distribution to shareholders that allows them to elect to receive
cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. These provisions of FASB ASC Topic 505 are effective for interim and annual periods ending after
December 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations as we do not currently have
distributions that allow shareholders such an election.
In January 2010, the FASB issued authoritative guidance which
requires new disclosures and clarifies existing disclosure requirements for fair value measurements. Specifically, the changes require disclosure of transfers into and out of Level 1 and Level 2 (as defined in the accounting
guidance) fair value measurements, and also require more detailed disclosure about the activity within Level 3 (as defined) fair value measurements. This guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, with the exception of the disclosures about purchases, sales, issuances and settlements of Level 3 assets and liabilities, which is effective for fiscal years beginning after December 15, 2010. As this guidance only
requires expanded disclosures, the adoption did not impact the Companys consolidated financial position, results of operations or cash flows.
In December 2010, the FASB issued amendments that modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required
to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15,
2010. Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Companys consolidated financial position, results of operations or cash flows.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various
regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
22
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Not required for smaller reporting companies.
Item 8.
|
Financial Statements and Supplementary Data.
|
The financial statements required by this Item 8 are included at the end of this Report beginning on page F-1 as follows:
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.
Item 9A.
|
Controls and Procedures.
|
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as
of December 31, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.
Report of Management on Internal Controls over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management
conducted an assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2011, utilizing the framework established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Companys internal control over financial reporting as of December 31, 2011, is effective.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not
be detected.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal
controls over financial reporting that occurred during the fourth fiscal quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
|
Other Information.
|
None.
23
Part III
Item 10.
|
Directors, Executive Officers and Corporate Governance.
|
Directors and Officers
. The Directors and Executive Officers of the Company and the positions held by each of them are as follows. All directors serve until the Companys next annual meeting
of shareholders.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Serving as
Director/
Officer of
the
Company
Since
|
|
Position Held With the Company
|
Sam D. Battistone
|
|
72
|
|
1982
|
|
Chairman/Director
|
Ross Tannenbaum
|
|
49
|
|
1998
|
|
President/CEO/Director
|
David M. Greene
|
|
49
|
|
2001
|
|
Senior V. P. /Corporate Secretary
|
Dale Larsson
|
|
67
|
|
1982
|
|
Director
|
Kevin Bates
|
|
44
|
|
2006
|
|
Divisional President - Retail
|
Dorothy Sillano
|
|
54
|
|
2006
|
|
V.P. / Chief Financial Officer
|
David Malina
|
|
67
|
|
2006
|
|
Director
|
Steven Rubin
|
|
51
|
|
2006
|
|
Director
|
Biographical Information.
Sam D. Battistone
. Sam D. Battistone has been Chairman of the Board since our inception. Mr. Battistone served as president
until November 1998. He also served as the Chairman and CEO of Pro Stars, Inc. from January 2005 until he resigned his position in January 2007. He was the principal owner, founder and served as Chairman of the Board, President and Governor of the
New Orleans Jazz and Utah Jazz of the National Basketball Association (NBA) from 1974 to 1986. In 1983, he was appointed by the Commissioner of the NBA to the Advisory committee of the Board of Governors of the NBA. He held that position until the
Company sold its interest in the team. He served as a founding director of Sambos Restaurants, Inc. and in each of the following capacities, from time to time, from 1967 to 1979: President, Chief Executive Officer, Vice-Chairman and Chairman
of the Board of Directors. During that period, Sambos grew from a regional operation of 59 restaurants to a national chain of more than 1,100 units in 47 states. From 1971 to 1973, he served on the Board of Directors of the National Restaurant
Association. We believe Mr. Battistone is well qualified to serve as a director on our board based on his prior service as an executive officer of Pro Stars, Inc., an integrated sports and celebrity memorabilia and live appearance company, as
well as his unique and in depth knowledge of the business of sports as a former NBA franchise owner and his experience with professional athletes and sports leagues in general.
Ross Tannenbaum
. Mr. Tannenbaum has served as President and a Director of the Company since November 1998. From August 1994
to November 1998, Mr. Tannenbaum was President, director and one-third owner of MMI. From May 1992 to July 1994, Mr. Tannenbaum was a co-founder of Video Depositions of Florida. From 1986 to 1992, Mr. Tannenbaum served in various
capacities in the investment banking division of City National Bank of Florida. Mr. Tannenbaum earned a B.A. from the University of Florida in 1984. We believe Mr. Tannenbaum is well qualified to serve as a director on our board based on
his extensive experience in the sports memorabilia industry both with the Company and prior thereto with MMI, and also his broad based investment banking experience. Mr. Tannenbaum is the brother-in-law of David M. Greene, the Companys
Senior Vice President.
David M. Greene
. David M. Greene has been Senior Vice President of Finance & Strategic
Planning since June 2001 and our Corporate Secretary since August 2004. From May 1992 to May 2001, he was the President of Florida Tool & Gauge, Inc., an aerospace manufacturing company located in Fort Lauderdale, Florida that provided
precision machined jet and rocket engine components for the Department of Defense, Pratt & Whitney Aircraft and NASA. From April 1987 to April 1992, he served as President of GGH Consultants, Inc., an investment and business consulting
company that provided private and public companies with equity and debt financings, M & A advice, Initial Public Offering and Secondary Offering consultation. From May 1984 to March 1987, he worked as an investment executive at the investment
banking firm of Drexel, Burnham, Lambert, Inc. in New York City and Ft. Lauderdale, Florida. Mr. Greene earned a B.A. from Tufts University in 1984 and a MBA from Nova University in 1993. Mr. Greene is the brother-in-law of Ross
Tannenbaum, the Companys President.
Dale E. Larsson
. Mr. Larsson has served as Director of our Company
since 1982. From 1982 until September 1998, Mr. Larsson was our Secretary-Treasurer. Mr. Larsson served as a Director and CFO of Pro Stars, Inc. from January 2005 until he resigned his positions in January 2007. Mr. Larsson graduated
from Brigham Young University in 1971 with a degree in business. From 1972 to 1980, Mr. Larsson served as controller of Invest West Financial Corporation; a Santa Barbara, California based Real Estate Company. From 1980 to 1981, he was employed
by Invest West Financial Corporation as a real estate representative. From 1981 to 1982, he served as the corporate controller of WMS Famco, a Nevada corporation based in Salt Lake City, Utah, which engaged in the business of investing in land,
restaurants and radio stations. Since 1998, Mr. Larsson has also served as the controller of Dreamstar, Inc., an investment and Retail Sports Memorabilia Company. We believe Mr. Larsson is well qualified to serve as a director on our board
based on his prior service as an executive officer of Pro Stars, Inc., an integrated sports and celebrity memorabilia and live appearance company, and his extensive experience as a controller at a number of companies in different industries,
particularly his experience as a controller for a sports memorabilia company.
24
Kevin Bates
. Kevin Bates founded FansEdge
®
in 1998, serving as its CEO. When Dreams, Inc. acquired FansEdge in 2003, he became President of our e-commerce
division and now serves as President of our retail division. From 1996 to 1999, Mr. Bates was President of Galvin and Wright, Inc., a consulting firm based in Glenview, Illinois. Prior to that he worked on a contract basis for a wide range of
firms including Republic Mortgage Insurance Company of Winston-Salem, North Carolina, Allegiance Health Care of McGaw Park, Illinois, Cincinnati Bell Information Systems of Itasca, Illinois, A.C. Nielson of Bannockburn, Illinois, and others.
Mr. Bates holds a B.S. degree in computer science from Northern Illinois University in DeKalb, Illinois. He also holds various technology certificates from DePaul University in Chicago, Illinois, and Internet Webmaster E-commerce Professional
from Net Guru Technologies of Oak Brook, Illinois.
Dorothy Sillano
. Ms. Sillano was promoted to Vice President
and Chief Financial Officer of the Company in November 2007 after having served as the Companys Controller since August 2005. From January 1987 until November 1996, Ms. Sillano was Second Vice President of Accounting at Chase Personal
Financial Services, the upscale mortgage division of JP Morgan Chase. From 1997 through 1999, Ms. Sillano was the Controller of First American lending, a sub-prime auto finance company. From 2000 through May 2005, Ms. Sillano held the
positions of Controller, acting CFO and CFO at three private educational institutions. Also, during this period, she served as a Sarbanes-Oxley consultant with MSI Consulting, Inc. In December 1990, Ms. Sillano earned a B.B.A. in Accounting
from Florida Atlantic University, became a Certified Public Accountant in 1991 and was conferred with a MBA from DeVry University in July 2005.
David Malina
. Mr. Malina was named as a director of the Company in November 2006 and is currently Vice President of Business Development for Ladenburg Thalmann & Company, Inc., a full
service investment banking and brokerage firm that has recently relocated its headquarters to Miami, Florida. From 2003 to 2006, Mr. Malina was corporate Vice President in charge of Investor Relations and Corporate Communications for IVAX
Corporation, a multinational pharmaceutical company, with direct operations in 39 countries, sales in over 80 countries, and over 7000 employees. IVAX was sold to Teva Pharmaceuticals Industries Ltd in January 2006 for an enterprise value of $9.9
billion. Prior to his employment at IVAX, Mr. Malina was a Managing Director at the Kriegsman Group, a boutique investment bank in Los Angles, California that specialized in health care. From 1974 to 2000, Mr. Malina was a highly regarded
screenplay and teleplay writer working for the major film studios and television networks and producing luminaries such as David Geffin, Arnold Koppelson, Roger Birnbaum, Larry Turman, and Frank Price. Mr. Malina is an honors graduate of the
Wharton School at the University of Pennsylvania and attended graduate school at the London School of Economics and Political Science. We believe Mr. Malina is well qualified to serve as a director on our board based on his extensive investor
relations, corporate communications and investment banking experience.
Steven Rubin
. Mr. Rubin was named a
director of the Company in November 2006. Mr. Rubin has served as Executive Vice PresidentAdministration of OPKO Health, Inc., since May 2007 and a director of OPKO since February 2007. Mr. Rubin served as the Senior Vice President,
General Counsel and Secretary of IVAX from August 2001 until September 2006. Mr. Rubin currently serves on the board of directors of Safestitch Medical, Inc. (OTCBB:SFES), a medical device company, PROLOR Biotech, Inc.(NYSE Amex: PBTH), a
development stage biopharmaceutical company, Kidville, Inc. (OTCBB:KVIL), which operates large, upscale facilities, catering to newborns through five-year-old children and their families and offers a wide range of developmental classes for
newborns-5 year olds, Non-Invasive Monitoring Systems, Inc.(OTCBB:NIMU), a medical device company, Tiger X Medical, Inc.(OTCBB:CDOM), formerly known as Cardo Medical, Inc., previously operated as an orthopedic medical device company specializing in
designing, developing and marketing reconstructive joint devices and spinal surgical devices, Castle Brands, Inc.(NYSE Amex: ROX), a developer and marketer of premium brand spirits, SearchMedia Holdings Limited (NYSE Amex:IDI), a multi-platform
media advertising company and in China, Cocrystal Discovery, Inc., a privately held biopharmaceutical company, and Neovasc, Inc.(TSXV:NVC), a company developing and marketing medical specialty vascular devices. Mr. Rubin holds a B.A. in
Economics from Tulane University and a J.D. from the University of Florida. We believe Mr. Rubin is well qualified to serve as a director on our board based on his vast legal experience as in-house counsel for a large cap company, as well as
his extensive experience serving as a director to a number of companies in various industries, many of which are small cap companies experiencing rapid growth.
Boards Leadership Structure and Role in Risk Management
The Company is structured such that separate individuals fill the roles of Chairman of the Board and Chief Executive Officer.
The Board of Directors has an active role, as a whole and also at the committee level, in overseeing the management of Company risks. The Board regularly reviews information regarding the Companys
financial position, profitability, capital, liquidity and operations, as well as the risks associated with each. The Audit Committee oversees the management of financial risks. The Nominating Committee manages risks associated with management
including the independence of the Board. The Companys Compensation Committee is responsible for the oversight of risks related to the Companys executive and director compensation plan.
25
The Compensation Committee has determined that any risks arising from the Companys compensation policies and practices for its employees are not reasonably likely to have a material adverse
effect on the Company. While each committee is responsible for the evaluation of certain risks and the oversight of the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks.
Background and Qualifications of Directors.
When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable
the Board of Directors to satisfy its oversight responsibilities effectively in light of the Companys business and structure, the Nominating and Corporate Governance Committee focuses primarily on each persons background and experience
as reflected in the information discussed in each of the directors individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our
business. As more specifically described in the biographies set forth above, our directors possess relevant knowledge and experience, industry-specific and otherwise, in the licensed sports products, autographed memorabilia, and finance and
business fields generally, which we believe enhances the Boards ability to oversee, evaluate and direct our overall corporate strategy. The Nominating and Corporate Governance Committee annually reviews and makes recommendations to the
Board regarding the composition and size of the Board so that the Board consists of members with the proper expertise, qualifications, attributes, skills, and personal and professional backgrounds needed by the Board, consistent with applicable
regulatory requirements.
Code of Ethics.
We have adopted a code of ethics for our officers and directors. The Code of Ethics was approved by our Board of Directors in June 2004
and is posted on our web site. We will also disclose any amendments or waivers to our Code of Ethics on our website
www.dreamscorp.com
.
Independence of the Board.
The Board of Directors has determined
that the following four individuals of its five member board are independent as defined under the federal securities laws, and the rules of the NYSE Amex Equities Exchange: Mr. Battistone, Mr. Larsson. Mr. Malina and Mr. Rubin.
Audit Committee
The Audit Committee presently consists of Messrs. Larsson, Battistone and Malina; with Mr. Larsson serving as chairman. The Audit Committee is responsible for monitoring and reviewing our financial
statements and internal controls over financial reporting. In addition, they recommend the selection of the independent auditors and consult with management and our independent auditors prior to the presentation of financial statements to
shareholders and the filing of our forms 10-Q and 10-K. Our Board has determined that Mr. Dale Larsson qualifies as an audit committee financial expert as defined under the federal securities laws. The Audit Committees
responsibilities are set forth in an Audit Committee Charter, a copy of which is currently available from the Company and is posted on our web site at
www.dreamscorp.com
. The Audit committee had (4) four meetings during 2011.
Compensation Committee
The Compensation Committee presently consists of Messrs. Larsson and Malina. The Compensation Committee is responsible for reviewing and recommending to the Board of Directors the compensation and
over-all benefits of our executive officers, including administering the Companys Equity Incentive Stock Option Plan. The Compensation Committee Charter, a copy of which is currently available from the Company, is posted on our web site at
www.dreamscorp.com
.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee presently consists of Messrs. Battistone and Rubin. The Nominating and Corporate
Governance Committee is responsible for identifying prospective qualified Board of Director candidates as well as those names submitted by our shareholders. In addition, this committee provides recommendations to the Board of Directors as to a
proper set of corporate governance guidelines and principles to adopt. The Nominating and Corporate Governance Committee Charter, a copy of which is currently available from the Company, and is posted on our web site at
www.dreamscorp.com
Compliance With Section 16(a) of the Exchange Act
. Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) during twelve months ended December 31, 2011 and amendments thereto furnished to the Company with respect to
the twelve months ended December 31, 2010, the Company is not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the year ended
December 31, 2011.
26
Item 11.
|
Executive Compensation.
|
Employment Agreements
We do not currently have employment contracts in place with any of our Named Executive Officers. It is the position of the Compensation Committee to explore whether it is strategically favorable for the
Company to enter into employment contracts with various key executives.
2011 Compensation Tables.
Summary Compensation Table as of December 31, 2011 (Dollar amounts in whole numbers)
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|
|
|
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|
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|
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|
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
Total
($)
|
Ross Tannenbaum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PEO
|
|
|
2011
|
|
|
|
407,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
9,600
|
|
|
516,600
|
|
|
|
2010
|
|
|
|
370,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
9,600
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|
|
479,600
|
|
|
|
|
|
|
|
|
David M. Greene
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior V.P Finance
|
|
|
2011
|
|
|
|
192,500
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
7,200
|
|
|
249,700
|
|
|
|
2010
|
|
|
|
175,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
7,200
|
|
|
232,200
|
|
|
|
|
|
|
|
|
Kevin Bates
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Division President-Retail
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2011
|
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384,000
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|
|
375,000
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|
|
|
|
|
|
|
|
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|
759,000
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|
|
|
2010
|
|
|
|
360,000
|
|
|
|
373,000
|
|
|
|
|
|
|
|
|
|
|
|
|
733,000
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|
|
|
|
|
|
|
|
Dorothy Sillano
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
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V.P, PFO
|
|
|
2011
|
|
|
|
159,500
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|
|
25,000
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|
|
|
|
|
|
|
|
|
|
|
|
184,500
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|
|
|
2010
|
|
|
|
145,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
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170,000
|
Outstanding Equity Awards At December 31, 2011 Table
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Option Awards
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Stock Awards
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|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
|
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
rights
That
Have Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
rights
That
Have
Not
Vested
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Ross Tannenbaum
|
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153,692
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.45
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6/12
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PEO
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David Greene
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68,083
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.41
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6/12
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|
Senior V.P.
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|
27
DIRECTOR COMPENSATION
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|
Name
|
|
Year
|
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Total
($)
|
|
Sam Battistone
|
|
|
2011
|
|
|
$
|
10,000
|
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|
|
|
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$
|
10,000
|
|
Dale Larsson
|
|
|
2011
|
|
|
$
|
15,000
|
|
|
|
|
|
|
$
|
15,000
|
|
Steven Rubin
|
|
|
2011
|
|
|
$
|
10,000
|
|
|
|
|
|
|
$
|
10,000
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|
David Malina
|
|
|
2011
|
|
|
$
|
10,000
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$
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10,000
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|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Principal Shareholders.
The following table sets forth as of March 1, 2012 the number of the Companys common stock beneficially owned by persons who own five percent or more of the Companys voting stock, by each
director, by each executive officer, and by all executive officers and directors as a group. The table presented below includes shares issued and outstanding and options exercisable within 60 days.
|
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|
Name and Address of Beneficial
Owner
(1)
|
|
Number of
Shares
Owned
|
|
|
Percent
of
Class
|
|
Sam D. Battistone
|
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|
1,416,005
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(2)
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3.1
|
%
|
|
|
|
Ross Tannenbaum
|
|
|
7,830,515
|
(3)
|
|
|
17.1
|
%
|
|
|
|
Dorothy Sillano
|
|
|
24,539
|
|
|
|
*
|
|
|
|
|
Dale Larsson
1776 North State Street, ste #160
Orem, UT 84057
|
|
|
95,491
|
(4)
|
|
|
*
|
|
|
|
|
Kevin Bates
|
|
|
254,364
|
|
|
|
*
|
|
|
|
|
David M. Greene
|
|
|
469,083
|
(5)
|
|
|
1.0
|
%
|
|
|
|
Steven Rubin
4400 Biscayne Blvd
Miami, FL 33137
|
|
|
62,051
|
(6)
|
|
|
*
|
|
|
|
|
David Malina
4400 Biscayne Blvd
Miami, FL 33137
|
|
|
30,000
|
(7)
|
|
|
*
|
|
|
|
|
Frost Gamma Investment Trust (8)
4400 Biscayne Blvd
Miami, FL 33137
|
|
|
4,244,872
|
|
|
|
9.3
|
%
|
|
|
|
William Blair & Company, LLC (9)
222 West Adams
Chicago, IL 60606
|
|
|
5,823,516
|
|
|
|
12.7
|
%
|
|
|
|
All Executive Officers and Directors as a group (8 persons)
(
10)
|
|
|
10,182,048
|
|
|
|
22.6
|
%
|
See footnotes below.
(1)
|
Unless otherwise indicated, the address for each person is 2 South University Drive, suite 325 Plantation, Florida 33324.
|
(2)
|
Includes 20,000 shares which are the subject of stock options.
|
(3)
|
Includes 153,692 shares which are the subject of stock options.
|
(4)
|
Includes 30,000 shares which are the subject of stock options
|
(5)
|
Includes 68,083 shares which are the subject of stock options.
|
(6)
|
Includes 30,000 shares which are the subject of stock options.
|
(7)
|
Includes 30,000 shares which are the subject of stock options.
|
28
(8)
|
Dr. Phillip Frost has ultimate voting and investment control over the shares held by Frost Gamma Investment Trust.
|
(9)
|
Mr. Mike Balkin and Karl Brewer have investment control over the shares held by William Blair & Company, LLC. William Blair & Companys
policy is to vote proxies of its clients solely in the interest of their participants and beneficiaries and for the exclusive purpose of providing benefits to them. The firms written procedures contain steps for complying with this policy and
specifically address the resolution of conflicts of interest, disclosure to clients, and the provision of requested copies of the proxy voting policy statement and procedures, as required by Rule206(4)-6 under the Investment Advisers Act of
1940. William Blair & Companys Proxy Committee (composed of representatives from Operations, Compliance, Research and Trading) meets to discuss and vote on proposals not addressed by its proxy voting guidelines.
|
(10)
|
The directors and officers have sole voting and investment power as to the shares beneficially owned by them.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence.
|
None.
Director Independence
The Board of Directors has determined that four individuals of its five member board are independent as defined under federal securities
laws, including the rules of the NYSE Amex Equities Exchange: Mr. Larsson, Mr. Battistone, Mr. Malina and Mr. Rubin.
Item 14.
|
Principal Accountant Fees and Services. (dollars in whole numbers)
|
The following table shows what Goldstein, Schechter, Koch billed for the audit and other services for the years ended December 31, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
12/31/ 2011
|
|
|
Year
Ended
12/31/10
|
|
Audit Fees
|
|
$
|
85,000
|
|
|
$
|
71,000
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85,000
|
|
|
$
|
71,000
|
|
Audit Fees
This category includes the audit of the Companys annual financial
statements, review of financial statements included in the Companys Form 10-Q Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements for those years.
Audit-Related Fees
N/A
Tax Fees
N/A
Overview
The Companys Audit
Committee, reviews, and in its sole discretion pre-approves, our independent auditors annual engagement letter including proposed fees and all audit and non-audit services provided by the independent auditors. Accordingly, all services
described under Audit Fees, Audit-Related Fees, and Tax Fees were pre-approved by our Companys Audit Committee. The Audit Committee may not engage the independent auditors to perform the non-audit services
proscribed by law or regulation. The Companys Audit Committee may delegate pre-approval authority to a member of the Board of Directors, and authority delegated in such manner must be reported at the next scheduled meeting of the Board of
Directors.
29
Part IV
Item 15.
|
Exhibits and Financial Statement Schedules.
|
(a) Financial Statements.
(b) Exhibits
|
|
|
Exhibit
No.
|
|
|
|
|
3.1
|
|
Restated Articles of Incorporation, dated June 8, 1989 (1)
|
|
|
3.2
|
|
Articles of Amendment, dated March 28, 1996 (1)
|
|
|
3.3
|
|
Articles of Amendment, dated January 14, 1999 (1)
|
|
|
3.4
|
|
Articles of Amendment to the Revised Articles of Incorporation, dated April 5, 2005 (2)
|
|
|
3.5
|
|
Certificate of Amendment to the Certificate of Incorporation, dated January 25, 2007 (3)
|
|
|
3.6
|
|
Bylaws (1)
|
|
|
4
|
|
Dreams, Inc. Equity Incentive Plan (3)
|
|
|
10.1
|
|
Amended and Restated Letter Agreement dated June 30, 2009 (4)
|
|
|
10.2
|
|
PNC Bank Loan and Security Agreement (5)
|
|
|
10.3
|
|
PNC Bank Revolving Note (6)
|
|
|
10.4
|
|
William Blair & Company, LLC Subscription Agreement (7)
|
|
|
21
|
|
Subsidiaries of the Company
|
|
|
23.1
|
|
Consent of Independent Auditors for S-3 registration filing
|
|
|
31.1
|
|
Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
|
Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
|
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933,
as amended, or by the Security Exchange Act of 1934, as amended.)
|
|
|
32.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of
Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended,
or by the Security Exchange Act of 1934, as amended.)
|
|
|
101.INS**
|
|
XBRL Instance Document
|
|
|
101.SCH**
|
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL**
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF**
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
(1)
|
Filed with the Companys Form 10-SB on September 7, 1999, and incorporated by this reference.
|
30
(2)
|
Filed with the Companys Form SB-2/A on April 5, 2005, and incorporated by this reference.
|
(3)
|
Filed as an exhibit with the Companys Form 8-k on January 29, 2007, and incorporated by this reference.
|
(4)
|
Filed with the Companys Form 10-Q on August 14, 2009, and incorporated by this reference.
|
(5)
|
Filed as an exhibit with the Companys Form 8-k on December 28, 2011 and incorporated by this reference.
|
(6)
|
Filed as an exhibit with the Companys Form 8-k on December 28, 2011 and incorporated by this reference.
|
(7)
|
Filed as an exhibit with the Companys Form 8-k on July 20, 2010, and incorporated by this reference.
|
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
|
|
|
DREAMS, INC., a Utah corporation
|
|
|
By:
|
|
/S/ R
OSS
T
ANNENBAUM
|
|
|
Ross Tannenbaum
President, Chief Executive Officer
|
|
Dated: March 29, 2012
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
By:
|
|
/
S
/ R
OSS
T
ANNENBAUM
|
|
|
Ross Tannenbaum,
Chief Executive Officer and a Director
(principal executive
officer)
|
|
Dated: March 29, 2012
|
|
|
By:
|
|
/
S
/ D
OROTHY
S
ILLANO
|
|
|
Dorothy Sillano,
V.P. and Chief Financial Officer
(principal financial officer, principal
accounting officer)
|
|
Dated: March 29, 2012
|
|
|
By:
|
|
/
S
/ S
AM
B
ATTISTONE
|
|
|
Sam Battistone,
Director
|
|
Dated: March 29, 2012
|
|
|
By:
|
|
/
S
/ D
ALE
E.
L
ARSSON
|
|
|
Dale E. Larsson,
Director
|
|
Dated: March 29, 2012
|
|
|
By:
|
|
/
S
/ D
AVID
M
ALINA
|
|
|
David Malina,
Director
|
|
Dated: March 29, 2012
|
|
|
By:
|
|
/
S
/ S
TEVEN
R
UBIN
|
|
|
Steven Rubin,
Director
|
|
Dated: March 29, 2012
|
32
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Dreams, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Dreams, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2011. Dreams,
Inc. and Subsidiaries management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dreams, Inc. and Subsidiaries as of December 31, 2011 and 2010,
and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
|
/s/ Goldstein Schechter Koch P.A.
|
|
March 29, 2012
|
Hollywood, Florida
|
F-1
Dreams, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,860
|
|
|
$
|
440
|
|
Accounts receivable, net
|
|
|
11,590
|
|
|
|
9,898
|
|
Notes receivable, current
|
|
|
131
|
|
|
|
|
|
Inventories
|
|
|
44,695
|
|
|
|
32,609
|
|
Prepaid expenses and other current assets
|
|
|
3,060
|
|
|
|
2,166
|
|
Deferred tax asset
|
|
|
1,396
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
62,732
|
|
|
|
46,453
|
|
Property and equipment, net
|
|
|
6,795
|
|
|
|
5,538
|
|
Deferred loan costs
|
|
|
185
|
|
|
|
234
|
|
Notes Receivable
|
|
|
121
|
|
|
|
|
|
Goodwill, net
|
|
|
8,650
|
|
|
|
8,650
|
|
Other intangible assets, net
|
|
|
5,738
|
|
|
|
5,821
|
|
Other assets
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
84,230
|
|
|
$
|
66,705
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,886
|
|
|
$
|
14,477
|
|
Accrued liabilities
|
|
|
9,818
|
|
|
|
9,264
|
|
Current portion of long-term debt
|
|
|
275
|
|
|
|
323
|
|
Borrowings against line of credit
|
|
|
10,500
|
|
|
|
1,128
|
|
Capital lease obligation, current
|
|
|
445
|
|
|
|
0
|
|
Deferred credits
|
|
|
1,897
|
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
41,821
|
|
|
|
26,814
|
|
Long-term debt, less current portion
|
|
|
1,418
|
|
|
|
1,694
|
|
Capital lease obligation
|
|
|
698
|
|
|
|
168
|
|
Long-term deferred tax liability
|
|
|
3,581
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
47,518
|
|
|
$
|
31,563
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock authorized 10,000,000 shares; issued and 0 outstanding shares as of December 31, 2011 and December 31,
2010.
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital, no par value; authorized 100,000,000, and 100,000,000 shares; issued and outstanding
44,662,579 and 44,107,464 shares as of December 31, 2011, and December 31, 2010, respectively.
|
|
|
44,179
|
|
|
|
43,814
|
|
Treasury stock 38,400 issued as of December 31, 2011 and December 31, 2010.
|
|
|
(46
|
)
|
|
|
(46
|
)
|
Accumulated deficit
|
|
|
(7,354
|
)
|
|
|
(8,588
|
)
|
Non-controlling interest in subsidiaries
|
|
|
(67
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,712
|
|
|
|
35,142
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
84,230
|
|
|
$
|
66,705
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an Integral Part of the Consolidated Financial Statements
F-2
Dreams, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended December 31, 2011 and the Year Ended December 31, 2010.
(Dollars in Thousands, except share and earnings per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Manufacturing/Distribution
|
|
$
|
10,807
|
|
|
$
|
11,107
|
|
Retail
|
|
|
130,697
|
|
|
|
99,798
|
|
OtherFees
|
|
|
216
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
141,720
|
|
|
$
|
111,363
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of salesmanufacturing/distribution
|
|
$
|
6,232
|
|
|
$
|
6,543
|
|
Cost of salesretail
|
|
|
69,803
|
|
|
|
53,172
|
|
Operating expenses
|
|
|
60,136
|
|
|
|
45,939
|
|
Depreciation and amortization
|
|
|
2,709
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
$
|
138,880
|
|
|
$
|
107,474
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
2,840
|
|
|
$
|
3,889
|
|
Interest (expense), net
|
|
|
(978
|
)
|
|
|
(1,185
|
)
|
Other (expense) / income
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,934
|
|
|
$
|
2,704
|
|
Provision for Income tax (expense)/benefit:
|
|
|
|
|
|
|
|
|
Current
|
|
|
(376
|
)
|
|
|
(295
|
)
|
Deferred
|
|
|
(353
|
)
|
|
|
(1,068
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,205
|
|
|
$
|
1,341
|
|
Net loss attributable to non controlling interest
|
|
|
29
|
|
|
|
2
|
|
Net income attributable to Dreams, Inc.
|
|
$
|
1,234
|
|
|
$
|
1,343
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
44,610,838
|
|
|
|
40,715,535
|
|
|
|
|
|
|
|
|
|
|
Dilutive income per share
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
Potentially dilutive weighted average shares outstanding
|
|
|
45,087,436
|
|
|
|
41,636,411
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an Integral Part of the Consolidated Financial Statements
F-3
Dreams, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
For the Year Ended December 31, 2011 and the Year Ended December 31, 2010.
(Dollars in Thousands, except share and earnings per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
Common Stock
& Additional
Paid-In-Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit
|
|
|
Non-controlling
Interest
in Subsidiaries
|
|
|
Total
Stockholders
Equity
|
|
Balance as of December 31, 2009
|
|
|
37,615,786
|
|
|
$
|
35,635
|
|
|
$
|
(46
|
)
|
|
$
|
(9,931
|
)
|
|
$
|
|
|
|
$
|
25,658
|
|
|
|
|
|
|
|
|
Share Based Compensation Expense
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Stock Options Converted/shares Issued
|
|
|
337,835
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
Contributions by non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
Common Stock and Warrants issued for cash
|
|
|
6,153,843
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,343
|
|
|
|
(2
|
)
|
|
|
1,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
44,107,464
|
|
|
$
|
43,814
|
|
|
$
|
(46
|
)
|
|
$
|
(8,588
|
)
|
|
$
|
(38
|
)
|
|
$
|
35,142
|
|
|
|
|
|
|
|
|
Share Based Compensation Expense
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Stock Options Converted/shares Issued
|
|
|
555,115
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283
|
|
Contributions by non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and Warrants issued for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
|
|
(29
|
)
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
|
44,662,579
|
|
|
$
|
44,179
|
|
|
$
|
(46
|
)
|
|
$
|
(7,354
|
)
|
|
$
|
(67
|
)
|
|
$
|
36,712
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Dreams, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2011 and the Year Ended December 31, 2010.
Dollars in Thousands
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Income attributable to Dreams, Inc.
|
|
$
|
1,234
|
|
|
$
|
1,343
|
|
Non controlling interest
|
|
|
(29
|
)
|
|
|
(2
|
)
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,227
|
|
|
|
1,676
|
|
Amortization
|
|
|
482
|
|
|
|
144
|
|
Loan cost amortization
|
|
|
234
|
|
|
|
283
|
|
Net loss from disposal of property and equipment
|
|
|
20
|
|
|
|
|
|
Warrants Issued for Services
|
|
|
|
|
|
|
40
|
|
Stock based compensation
|
|
|
82
|
|
|
|
|
|
Deferred tax benefit, net
|
|
|
638
|
|
|
|
1,068
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,692
|
)
|
|
|
(4,556
|
)
|
Inventories
|
|
|
(12,086
|
)
|
|
|
(6,016
|
)
|
Prepaid expenses and other current assets
|
|
|
1,228
|
|
|
|
165
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,409
|
|
|
|
4,966
|
|
Accrued liabilities
|
|
|
355
|
|
|
|
4,681
|
|
Deferred revenues
|
|
|
275
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(5,079
|
)
|
|
$
|
4,123
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of intangibles
|
|
|
(200
|
)
|
|
|
|
|
Purchase of property and equipment
|
|
|
(2,380
|
)
|
|
|
(2,463
|
)
|
Proceeds received from Notes Receivable
|
|
|
82
|
|
|
|
|
|
Purchase of CMS assets
|
|
|
|
|
|
|
(628
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
$
|
(2,498
|
)
|
|
$
|
(3,091
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from Line of Credit-Regions
|
|
|
131,791
|
|
|
|
75,339
|
|
Paydown on Line of Credit- Regions
|
|
|
(132,919
|
)
|
|
|
(76,796
|
)
|
Proceeds from Line of Credit PNC
|
|
|
10,500
|
|
|
|
|
|
Proceeds from Line of Credit-Comerica
|
|
|
|
|
|
|
48,029
|
|
Paydown on Line of Credit-Comerica
|
|
|
|
|
|
|
(54,799
|
)
|
Deferred loan costs
|
|
|
(185
|
)
|
|
|
(497
|
)
|
Proceeds from stock option exercise
|
|
|
283
|
|
|
|
139
|
|
Proceeds from sale of Common Stock and Warrants
|
|
|
|
|
|
|
8,000
|
|
Repayment of Capital lease
|
|
|
(149
|
)
|
|
|
(77
|
)
|
Repayment of Notes payable
|
|
|
(324
|
)
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) financing activities
|
|
$
|
8,997
|
|
|
$
|
(1,174
|
)
|
Net increase/ (decrease) in cash
|
|
|
1,420
|
|
|
|
(142
|
)
|
Cash at beginning of period
|
|
|
440
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
1,860
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest during the period
|
|
|
744
|
|
|
|
1,239
|
|
Cash paid for taxes
|
|
|
|
|
|
|
29
|
|
Supplemental Disclosure of Non Cash Investing and Financing Activity PP&E acquired under capital lease
|
|
|
1,124
|
|
|
|
97
|
|
Advances to athlete client converted to note receivable, net of earn-off of 47
|
|
|
334
|
|
|
|
|
|
Intangibles purchased through notes payables
|
|
|
200
|
|
|
|
|
|
Notes payable originated in acquisition of CMS assets
|
|
|
|
|
|
|
500
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements
(Dollars in Thousands, except share and earnings per share amounts)
Nature of Business and Summary of Significant Accounting Policies
Description of Business
Dreams, Inc. and its subsidiaries (collectively the Company) are principally engaged in the manufacturing, distributing, retailing and selling of sports licensed products, memorabilia and
acrylic display cases via multiple channels; including internet, brick & mortar, catalogue, kiosks and trade shows. The Company is also in the business of athlete representation and corporate marketing of individual athletes. The
Companys customers are located throughout North America.
Principals of Consolidation
The accompanying consolidated audited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
material inter-company transactions and accounts have been eliminated in consolidation.
Cash
Cash is defined as highly liquid investments with original maturities of three months or less and consist of amounts held as bank
deposits.
Accounts Receivable
The Companys accounts receivable principally result from uncollected royalties from Field of Dreams
®
franchisees and from credit sales to third-party customers from its wholesale operations and recently, some web
syndication clients, and credit card transactions from the internet division. The Companys allowance for doubtful accounts is based on managements estimates of the creditworthiness of its customers, current economic conditions and
historical information, and, in the opinion of management is believed to be set at an amount sufficient to respond to normal business conditions. Should such conditions deteriorate or any major credit customer default on its obligations to the
Company, this allowance may need to be increased which may have an adverse impact on the Companys operations. The Company reviews its accounts receivable aging on a regular basis to determine if any of the receivables are past due. The Company
writes off all uncollectible trade receivables against its allowance for doubtful accounts. As of December 31, 2011 and December 31, 2010, the allowance for doubtful accounts was $24 and $26, respectively.
Revenue Recognition
The Company recognizes retail (including e-commerce sales and web syndication sales) and wholesale/distribution revenues at the later of (a) the time of shipment or (b) when title passes to the
customers, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Retail revenues and wholesale/distribution revenues are recognized at the time of sale. Sales completed but not
shipped at year-end are considered deferred revenue.
Management fee revenue related to the representation and marketing of
professional athletes is recognized when earned and is reflected net of its related costs of sales. The majority of the revenue generated from the representation and marketing of professional athletes relates to services as an agent. In these
arrangements, the Company is not the primary obligor in these transactions but rather only receives a net agent fee.
Revenues
from industry trade shows are recognized at the time of the show when tickets are submitted for autographs or actual product purchases take place. In instances when the Company receives pre-payments for show autographs, the Company records these
amounts as deferred revenue.
The Company had approximately $714 in unshipped orders as of December 31, 2011.
F-6
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Shipping and Handling Costs
Costs incurred for shipping and handling associated with a sale are included in cost of sales in the period when the sale occurred.
Amounts billed to a customer for shipping and handling is reported as revenue.
Advertising and Promotional Costs
All advertising and promotional costs associated with advertising and promoting the Companys lines of business
are expensed in the period incurred and included in operating expenses. For the years ended December 31, 2011 and December 31, 2010, these expenses were $8,144 and $5,806, respectively.
Inventories
Inventories, consisting primarily of licensed sports products, sports memorabilia products and acrylic cases, are valued at the lower of cost or market, using the specific identification and average cost
methods.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Leasehold
improvements are amortized over the remaining lease period or the estimated useful life of the improvements, whichever is less. Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized.
Goodwill and Intangible Assets
In June 2001, the Financial Accounting Standards Board approved the issuance of ASC Topic 350, Intangible Goodwill and Other, which established accounting and reporting requirements for
goodwill and other intangible assets. The standard requires that all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged must be
recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer amortized, but are subject to an annual assessment for impairment by applying a fair value based test.
The Company applied the provisions of ASC Topic 350 beginning on April 1, 2001 and during the years ended December 31, 2011 and
December 31, 2010, performed fair value based impairment tests on its goodwill and other indefinite lived intangible assets and determined no impairment was necessary.
Long-Lived Assets
Long-lived assets and certain non-amortizable
intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of such asset and eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the
fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments
The Company adopted ASC topic 820, Fair Value Measurements and Disclosures (ASC 820), formerly SFAS No. 157 Fair Value Measurements, effective January 1, 2009. ASC 820
defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. There was no impact relating to the adoption of ASC 820 to the Companys financial statements.
ASC 820 also describes three levels of inputs that may be used to measure fair value:
|
|
|
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
|
|
|
|
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
|
|
Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in managements best
estimate of fair value.
|
F-7
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Financial instruments consist principally of cash, accounts receivable, bank line of
credit, prepaid expenses, accounts payable, and accrued liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. The fair value of
long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is managements opinion that the Company is not exposed to any significant
currency or credit risks arising from these financial instruments.
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (ASC 740-10-25). Under ASC 740-10-25,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Earnings per share:
Earnings per share are reported pursuant to the provisions of FASB ASC 210. Accordingly, basic earnings per share reflects the weighted average number of shares outstanding during the year, and diluted
shares adjusts that figure by the additional hypothetical shares that would be outstanding if all exercisable outstanding common stock equivalents with an exercise price below the current market value of the underlying stock were exercised. Common
stock equivalents consist of stock options and warrants. Basic earnings per share are computed by dividing net earnings available to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per
share are computed assuming the exercise of stock options under the treasury stock method and the related income taxes effects, if not anti-dilutive. For loss periods common share equivalents are excluded from the calculation, as the effect would be
anti-dilutive. The following tabulation reflects the number of shares utilized to determine basic and diluted earnings per share for the years ended December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Basic weighted-average common shares outstanding
|
|
|
44,610,838
|
|
|
|
40,715,535
|
|
Dilutive effect of stock plans and other options
|
|
|
476,598
|
|
|
|
920,876
|
|
Dilutive weighted-average shares outstanding
|
|
|
45,087,436
|
|
|
|
41,636,411
|
|
Stock Compensation
Effective April 1, 2006, the Company adopted the provisions of, and accounted for stock-based compensation in accordance with FASB Accounting Standards Codification, Topic 718 Compensation
Stock Compensation. Under the fair value recognition provisions of Topic 718, stock-based compensation cost is measured at the grant date based on the fair value of the award over the requisite service period, which is the vesting period. The
Company elected the modified-prospective method of adoption, under which prior periods are not revised for comparative purposes. The Company has elected the graded-vesting attribution method for recognizing stock-based compensation expense over the
requisite service period for each separately vesting tranche of awards as though the awards were, in substance, multiple awards. The valuation provisions of Topic 718 apply to new grants and to grants that were outstanding as of the effective date
and are subsequently modified.
For the year ended December 31, 2011, the Company recorded $82 of pre-tax share-based
compensation expense under FAS No. 123(R), as part of operating expense in the Companys Consolidated Statement of Operations. This expense was offset by a $33 deferred tax benefit for non-qualified sharebased compensation. For the
year ended December 31, 2010, the Company recorded $40 of pre-tax share-based compensation expense under FAS No. 123(R), as part of operating expenses in the Companys Consolidated Statement of Operations. This expense was offset by a
$16 deferred tax benefit for non-qualified share-based compensation.
Share-Based Compensation Awards
The following disclosure provides information regarding the Companys share-based compensation awards, all of
which are classified as equity awards in accordance with FASB Accounting Standards Codification, Topic 718 Compensation Stock Compensation:
Stock Options
The Company grants stock options to employees that allow them to purchase shares of the Companys common stock. Options are also granted to outside members of the Board of
Directors of the Company as well as independent contractors. The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model. Options generally vest immediately, however, the Company has granted
options that vest over three to five years. Awards generally expire three to five years after the date of grant.
F-8
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Significant estimates
underlying the accompanying consolidated financial statements include: the determination of the lower of cost or market adjustment for inventory; sales returns; the allowance for doubtful accounts; the recoverability of long-lived and intangible
assets; the determination of deferred income taxes, including related valuation allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation
In an on-going basis, the Company reviews its outstanding customer receivables for collectability. Adjustments to the
allowance account are made according to current knowledge. Additionally, management reviews the composition of its inventory no less than annually. Reserves are adjusted accordingly. On a quarterly basis, the Company also evaluates its ability to
realize its deferred tax assets and whether or not a valuation allowance is necessary.
The Company has both Goodwill and
other long-lived intangible assets which are not amortized. As prescribed by the FASB, the Company evaluates the carrying value of these assets for impairment. Significant economic changes may require the Company to recognize impairment. As of
December 31, 2011, no impairment has been necessary.
Subsequent Events
The Company has evaluated subsequent events through the time of the filing of these consolidated financial statements. No material
subsequent events have occurred since December 31, 2011 that required recognition or disclosure in these financial statements.
NEW
ACCOUNTING PRONOUNCEMENTS
In September 2011, the FASB issued ASU 2011-08,
Intangibles
Goodwill and Other
(Topic 350): Testing Goodwill for Impairment
(ASU 2011-08). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350,
Intangibles-Goodwill and Other
. The more-likely-than-not threshold is defined as having a likelihood
of greater than 50%. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on the Companys consolidated
financial statements.
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards
(ASU 2011-04). The objective of ASU 2011-04 is to converge guidance of the FASB and the International Accounting
Standards Board on fair value measurement and disclosure. This update changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements; clarifies the
FASBs intent about the application of existing fair value measurement requirements; and changes particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is
effective prospectively for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the potential impact of this standard on the Companys consolidated financial statements.
F-9
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
In January 2010, the FASB amended guidance now codified as FASB ASC Topic 810,
Consolidation
. FASB ASC Topic 810 changes the accounting and reporting for minority interests, which will be re-characterized as non-controlling interests and classified as a component of equity. The amendment of FASB ASC Topic
810-10 establishes the accounting and reporting guidance for non-controlling interests and changes in ownership interests of a subsidiary. FASB ASC Topic 810 is effective for us on a prospective basis for business combinations with an acquisition
date beginning in the first quarter of fiscal year 2010. The adoption of FASB ASC Topic 810 as amended did not have an impact on our consolidated financial statements.
In January 2010, the FASB amended its guidance now codified as FASB ASC Topic 505-20, Equity Stock Dividends and Stock Splits, to clarify that the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. These provisions of FASB ASC Topic 505 are effective for
interim and annual periods ending after December 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of
operations as we do not currently have distributions that allow shareholders such an election.
In January 2010, the FASB
issued authoritative guidance which requires new disclosures and clarifies existing disclosure requirements for fair value measurements. Specifically, the changes require disclosure of transfers into and out of Level 1 and Level
2 (as defined in the accounting guidance) fair value measurements, and also require more detailed disclosure about the activity within Level 3 (as defined) fair value measurements. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2009, with the exception of the disclosures about purchases, sales, issuances and settlements of Level 3 assets and liabilities, which is effective for fiscal years beginning after
December 15, 2010. As this guidance only requires expanded disclosures, the adoption did not impact the Companys consolidated financial position, results of operations or cash flows.
In December 2010, the FASB issued amendments that modify Step 1 of the goodwill impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill
impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit
be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These amendments are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Companys consolidated financial position, results of
operations or cash flows.
A variety of proposed or otherwise potential accounting standards are currently under study by
standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our
consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year presentation.
2. Acquisitions
General Statement
Upon the closing of an acquisition, management estimates the fair values of the acquired assets and liabilities and consolidates the acquisition as quickly as possible. However, it routinely takes time to
obtain all of the pertinent information to finalize the acquired companys balance sheet and supporting schedules and to adjust the acquired companys accounting policies, procedures, books and records to the Companys standards. As a
result, it may take several quarters before the Company is able to finalize those initial fair value estimates. Accordingly, it is not uncommon for initial estimates to be subsequently revised.
During the year ended December 31, 2011, the Company received a seven-year extension with the University of Texas for its retail
contract.
During the year-ended December 31, 2011, the Company acquired the rights to the
Zubaz
brand.
During the fourth quarter of 2010, the Company acquired a 51% membership interest in The Comet Clothing Company, LLC. There
was no consideration paid for this ownership.
F-10
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Also, during the fourth quarter of 2010, the Company acquired certain assets from Kansas
State Bank under an Asset Purchase Agreement that were previously owned by CMS. The Companys consideration to Kansas State Bank for these assets included $628 in cash, and the assumption of a $500 note bearing interest at 6.5%. In addition,
the Company made some advances on behalf of CMS owners towards various debt obligations. These advances will be earned off with future payroll, earned performance bonuses and upon meeting specific milestones relating to the growth of the
Companys collegiate business.
3. Concentration of Credit Risk
Cash
The Company maintains cash accounts in financial institutions that were guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250. At times, cash balances may be in excess of
the amounts insured by the FDIC. The Company had not experienced any losses in such accounts during the year ended December 31, 2011.
Accounts receivable
The Company believes that credit risk is
limited due to the large number of entities comprising the Companys 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 uncollectible accounts and, as
a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
4. Inventories
The components of inventories as of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Raw materials
|
|
$
|
388
|
|
|
$
|
397
|
|
Work in process
|
|
|
75
|
|
|
|
66
|
|
Finished goods, net
|
|
|
44,232
|
|
|
|
32,146
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,695
|
|
|
$
|
32,609
|
|
|
|
|
|
|
|
|
|
|
The reserve for slow moving inventory was $463 at December 31, 2011 and $530 at December 31,
2010.
5. Property and Equipment
The components of property and equipment as of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Leasehold improvements
|
|
$
|
3,323
|
|
|
$
|
2,464
|
|
Machinery and equipment
|
|
|
1,858
|
|
|
|
1,470
|
|
Office and other equipment and fixtures
|
|
|
1,692
|
|
|
|
1,505
|
|
Transportation equipment
|
|
|
84
|
|
|
|
84
|
|
Computer Software
|
|
|
5,689
|
|
|
|
4,239
|
|
Computer equipment
|
|
|
3,800
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,446
|
|
|
|
12,962
|
|
Less accumulated depreciation
|
|
|
(9,651
|
)
|
|
|
(7,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,795
|
|
|
$
|
5,538
|
|
|
|
|
|
|
|
|
|
|
The depreciation expense for the year ended December 31, 2011 was $2,227 and for December 31,
2010 was $1,676.
F-11
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
6. Intangible Goodwill and Other
During the year ended December 31, 2011, there were no adjustments to goodwill. Goodwill was $8,650 for the years
ended December 31, 2011 and December 31, 2010.
The following tables provide information about changes relating to
intangible assets for the Year ended December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
Weighted
Avg.
Useful
Life
|
|
|
Gross
Carrying
Value
|
|
|
Accum.
Amortization
|
|
|
Net
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement
|
|
|
1
|
|
|
|
325
|
|
|
|
(302
|
)
|
|
|
23
|
|
Other
|
|
|
6.2
|
|
|
|
801
|
|
|
|
(378
|
)
|
|
|
412
|
|
Trademarks
|
|
|
37
|
|
|
|
4,186
|
|
|
|
(288
|
)
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,312
|
|
|
|
(979
|
)
|
|
|
4,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise licenses
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
130
|
|
Other
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
6,717
|
|
|
|
(979
|
)
|
|
|
5,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Weighted
Avg.
Useful
Life
|
|
|
Gross
Carrying
Value
|
|
|
Accum.
Amortization
|
|
|
Net
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement
|
|
|
1.75
|
|
|
|
325
|
|
|
|
(272
|
)
|
|
|
53
|
|
Other
|
|
|
1.7
|
|
|
|
702
|
|
|
|
(35
|
)
|
|
|
667
|
|
Trademarks
|
|
|
38
|
|
|
|
3,886
|
|
|
|
(190
|
)
|
|
|
3,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,913
|
|
|
|
(497
|
)
|
|
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise licenses
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
130
|
|
Other
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
6,318
|
|
|
|
(497
|
)
|
|
|
5,821
|
|
Amortization expense for the year ended December 31, 2011 was $482 and for December 31, 2010
was $144.
7. Line of Credit
On December 23, 2011, Dreams, Inc. (the Company) and its subsidiaries (collectively the
Debtors) closed on a $35,000 revolving credit facility with PNC Bank, while concurrently paying off its entire outstanding loan balance with its previous lender, Regions Bank. $35,000 will be available from August 1 to
December 31 reducing to $30,000 on January 1 of every year. Also, the credit facility provides for an additional $5,000 seasonal over advance in order to support our projected growth. The revolving note (the Note) has a
maturity date of December 23, 2014. The amount outstanding from time to time under the Note may not exceed the sum of: (i) 85% of the Borrowers eligible accounts receivable including eligible credit cards receivable (which are
included in accounts receivable, net); plus (ii) up to the lesser of (x) 60% of eligible Borrowers inventory or (y) 90% of the net Borrowers orderly liquidation value of eligible inventory; minus (iii) any applicable
reserves. The initial principal balance under the Note was $9,000, which the entire amount was used to pay-off its outstanding balance with its previous lender, Regions Bank.
F-12
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Interest shall accrue on all outstanding amounts under the Note at the rate of LIBOR plus 2.25% per
annum, and is due and payable monthly in arrears. The rate may further adjust based upon the Companys Fixed Charge Coverage Ratio and Seasonal Over-advances (up to $2,500 for three (3) months beginning in June and $5,000 for six
(6) months beginning in September. Seasonal Over-advances will be priced at 50 basis points above the then applicable margin. The default rate of interest is the applicable rate plus 2% per annum. An unused line fee in the amount of
0.25% per annum is payable monthly in arrears based on the average daily unused portion of the facility. All outstanding principal, and any remaining outstanding interest, shall be paid in one lump sum on the maturity date.
The Debtors have granted PNC Bank a security interest in all of Debtors assets and a pledge of Debtors equity in all of the Companys
subsidiaries to secure Debtors payment when due of all of Debtors existing and future indebtedness to PNC Bank.
The transaction documents
contain standard affirmative and negative loan covenants.
8. Accrued Liabilities
Accrued liabilities consisted of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Payroll costs (including bonuses and commissions)
|
|
$
|
1,789
|
|
|
$
|
1,428
|
|
Accrued royalties
|
|
|
939
|
|
|
|
520
|
|
Accrued site commissions
|
|
|
1,245
|
|
|
|
2,506
|
|
Accrued Taxes
|
|
|
337
|
|
|
|
|
|
Other accrued expenses
|
|
|
5,508
|
|
|
|
4,810
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,818
|
|
|
$
|
9,264
|
|
|
|
|
|
|
|
|
|
|
F-13
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
9. Notes Payable
Notes payable consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
Note payable, unsecured, due February 2011, monthly payments $7,320 including interest at 6.0% annually.
|
|
$
|
|
|
|
$
|
9
|
|
|
|
|
Note payable, unsecured, due January 2011, monthly payments of $8,247, including interest at 6% annually
|
|
|
|
|
|
|
15
|
|
Note payable, unsecured, due Dec 2013, with interest at 7%. There are no monthly payments due.
|
|
|
80
|
|
|
|
80
|
|
Note payable, unsecured, due Dec 2013, with interest at 7%. There are no monthly payments due.
|
|
|
220
|
|
|
|
220
|
|
Note payable, unsecured, due Dec 2013, with interest at 7%. There are no monthly payments due.
|
|
|
100
|
|
|
|
100
|
|
Note payable, unsecured, due Dec 2013, with interest at 7%. There are no monthly payments due.
|
|
|
200
|
|
|
|
200
|
|
Note payable, unsecured, due Oct 2013, with interest at 7%. There are no monthly payments due.
|
|
|
518
|
|
|
|
518
|
|
Note payable, unsecured, due April 2012, with no stated interest rate.
|
|
|
175
|
|
|
|
375
|
|
Note payable, unsecured, due December 2015, quarterly payments
|
|
|
|
|
|
|
|
|
Of $25 plus interest at 6.5%.
|
|
|
400
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,693
|
|
|
|
2,017
|
|
Less current portion
|
|
|
(275
|
)
|
|
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,418
|
|
|
$
|
1,694
|
|
|
|
|
|
|
|
|
|
|
Interest expense on the notes for the years ended December 31, 2011 was $108 and December 31,
2010 was $90.
For notes that have no stated interest rates, the Company has imputed a rate of 6%.
The future payments on notes payable are as follows: (dollar amounts in thousands)
|
|
|
|
|
Calendar Year
|
|
|
|
2012
|
|
$
|
275
|
|
2013
|
|
|
1,218
|
|
2014
|
|
|
100
|
|
2015
|
|
|
100
|
|
|
|
|
|
|
Total future payments
|
|
$
|
1,693
|
|
|
|
|
|
|
10. Stockholders Equity
Common Stock:
As of December 31, 2011 and December 31, 2010, the Company had 100,000,000 and
100,000,000 shares authorized and 44,662,579 and 44,107,464 common shares issued and outstanding.
555,115 shares of common
stock were issued in connection with stock options exercised during the twelve months ended December 31, 2011 and 337,835 shares of common stock were issued in connection with stock options exercised during the twelve months ended
December 31, 2010.
F-14
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
In May 2010, the Company issued 1,428,570 shares of common stock and 285,714 warrants
with an exercise price of $1.80, for a total consideration of $2,000 through a private placement memorandum. The investors also received a price protection provision for up to one-year from the closing, whereby should the Company effectuate an
equity raise by offering new shares below $1.40 per share, they would be entitled to additional shares.
On July 16,
2010, the Company issued 4,615,384 shares of common stock to an unrelated group of investors at a per share value of $1.30 for total consideration of $6 million.
As a result of the above transaction, the Company was required to issue additional shares under a price protection provision to the (3) three shareholders who participated in a private placement
transaction in May of 2010. The total amount of new shares issued was 109,891.
Preferred Stock:
As of
December 31, 2011 and December 31, 2010, the Company had 10,000,000 shares authorized and -0- preferred shares issued and outstanding for both periods.
Stock Options:
The following table summarizes information about the stock options outstanding:
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
Shares
|
|
|
Wtd.
Avg.
Exercise
Price
|
|
Outstanding at December 31, 2009
|
|
|
1,465,645
|
|
|
|
.57
|
|
Granted
|
|
|
119
|
|
|
|
.41
|
|
Exercised
|
|
|
(337,835
|
)
|
|
|
.41
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
1.05
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
1,077,929
|
|
|
|
.54
|
|
Granted
|
|
|
360,001
|
|
|
|
2.29
|
|
Exercised
|
|
|
(555,115
|
)
|
|
|
.54
|
|
Expired
|
|
|
(48,563
|
)
|
|
|
1.43
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
834,252
|
|
|
|
1.24
|
|
Options exercisable as of December 31, 2011 were 556,252 and as of December 31, 2010 were
1,077,929. There were 360,001 options granted during 2011. The weighted average fair value of the options granted during the twelve months ended December 31, 2011 was $2.29. There were 119 options granted during 2010. The weighted average fair
value of options granted during the twelve months ended December 31, 2010 was $.41.
As of December 31, 2011, vested
options totaled 556,252 with an average price of $.69. Unvested options totaled 278,000. Total outstanding options that were in the money at December 31, 2011 were 487,252 with an average price per option of $.45. Of those options,
the vested in the money options totaled 487,252 with an average price of $.45. There were no in the money unvested options at December 31, 2011. As of December 31, 2010, vested options totaled 1,077,929 with an
average price of $.54. Unvested options totaled 0. Total outstanding options that were in the money at December 31, 2010 were 1,069,596 with an average price per option of $.52. Of those options, the vested in the money
options totaled 1,069,596 with an average price of $.52 and the in the money unvested options totaled 0.
During
the twelve months ended December 31, 2011; there were 360,001 options granted, 48,563 options expired, 0 options cancelled, and 555,115 options exercised. The Company received $284 from exercised options during the period.
F-15
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
The following table breaks down the number of outstanding options with their
corresponding contractual life as well as the exercisable weighted average (WA), outstanding exercise price, number of vested options with the corresponding exercise price by price range.
Options Breakdown by Range at 12/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range
|
|
Outstanding
Options
|
|
|
Remaining
Contractual
Life
|
|
|
WA
Outstanding
Exercise
Price
|
|
|
Vested
Options
|
|
|
WA
Vested
Exercise
Price
|
|
$0.41 to $1.19
|
|
|
487,252
|
|
|
|
.5
|
|
|
|
.45
|
|
|
|
487,252
|
|
|
|
.45
|
|
$1.20 to $2.75
|
|
|
347,000
|
|
|
|
4.3
|
|
|
|
2.35
|
|
|
|
69,000
|
|
|
|
2.35
|
|
$.41 to $2.75
|
|
|
834,252
|
|
|
|
2.08
|
|
|
|
1.24
|
|
|
|
556,252
|
|
|
|
.69
|
|
At December 31, 2011, exercisable options had aggregate intrinsic values of $827.
Warrants
In May 2010, the Company issued 285,714 warrants as part of a private common stock placement. The warrants are exercisable within 3 years
of issuance at a strike price of $1.80 per share. Upon completion of the private placement the Company issued 50,000 additional warrants exercisable within three years of issuance at a strike price of $1.80 per share to a consultant for services
rendered in connection with the procurement of funding. The 50,000 warrants were valued at approximately $40. The fair value of the warrants at the grant date was estimated using the Black Scholes models with the following assumptions made:
|
|
|
|
|
Risk free Rate
|
|
|
.45
|
%
|
Dividend yield
|
|
|
0
|
%
|
Volatility factor
|
|
|
100
|
%
|
Expected life
|
|
|
1.8 years
|
|
11. Income Taxes
The components of the income tax provision (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal tax expense/ (benefit)
|
|
$
|
373
|
|
|
$
|
729
|
|
State tax expense/ (benefit)
|
|
|
3
|
|
|
|
3
|
|
Benefit of net operating loss
|
|
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal tax expense/ (benefit)
|
|
|
289
|
|
|
|
1,011
|
|
State tax expense/ (benefit)
|
|
|
64
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
353
|
|
|
$
|
1,068
|
|
|
|
|
|
|
|
|
|
|
F-16
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys net deferred income taxes are as follows:
Deferred Tax Asset (Liability):
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Current
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
10
|
|
|
$
|
10
|
|
Inventory reserve
|
|
|
185
|
|
|
|
211
|
|
Inventory capitalization adjustment
|
|
|
999
|
|
|
|
971
|
|
Accrued expenses
|
|
|
202
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,396
|
|
|
|
1,340
|
|
Long-term
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
33
|
|
|
|
168
|
|
Federal and states NOL carry-forward
|
|
|
25
|
|
|
|
89
|
|
Capital loss carry-forward
|
|
|
|
|
|
|
|
|
Alternative Minimum Tax credit
|
|
|
|
|
|
|
163
|
|
Charitable contributions
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(3,639
|
)
|
|
|
(3,307
|
)
|
Less valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,581
|
)
|
|
$
|
(2,887
|
)
|
|
|
|
|
|
|
|
|
|
FASB ASC 740-10 requires a valuation allowance to reduce the deferred tax assets reported, if based on
the weight of evidence, it is more likely than not that some portion or the entire deferred tax asset will not be realized. After consideration of all the evidence, both positive and negative, management has determined that no valuation allowance at
December 31, 2011, was necessary.
Effective January 1, 2007, the Company adopted the provisions of FASB ASC
740-10-50, Accounting for Uncertainty in Income Taxes. The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprises financial statements. The Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. As a result of the Companys evaluation of the implementation of ASC 740-10-50, no significant income tax uncertainties were identified. Therefore, the Company recognized no
adjustment for unrecognized income tax benefits for the year ended December 31, 2011. The tax years subject to examination by the taxing authorities are the years ended December 31, 2011, and December 31, 2010.
In May 2007, the FASB issued FASB Staff Position (FSP) FIN 48-1 Definition of Settlement in FASB Interpretation
No. 48 (FSP FIN 48-1). Now codified FASB ASC 740-10-25-9 provides guidance on how to determine whether a tax position is effectively settled for purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective
retroactively to January 1, 2007. The implementation of this standard did not have a material impact on our consolidated financial position or results of operation.
The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense for the years ended December 31, 2011 and December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Tax at U.S. statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State taxes, net of federal benefit
|
|
|
6
|
|
|
|
6
|
|
Non-deductible items
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
-4
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
%
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
F-17
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
At December 31, 2011, the cumulative state(s) net operating loss carry-forward of
approximately $421 exists, which will expire by 2030.
12. 401 (k) Plan
The Company participates in a 401 (k) defined contribution plan (the Plan) under Section 401
(k) of the Internal Revenue Code. The Plan is available to all employees over the age of 21 with at least one year of service and 1,000 hours worked. Eligible participants may contribute up to 50% of their pretax earnings. Participants are
immediately vested. The Company does not contribute to the Plan.
13. Commitments and Contingencies
Operating Leases
As of December 31, 2011, the Company leases office, warehouse and retail space under operating leases. The leases expire over the next six years and some contain provisions for certain annual rental
escalations, and renewal options for additional periods. Rent expense is computed on the straight-line method over the lease term period.
The future aggregate minimum annual lease payments under the Companys non-cancellable operating leases are as follows: (dollar amounts in thousands)
|
|
|
|
|
Calendar Year
|
|
|
|
2012
|
|
$
|
3,503
|
|
2013
|
|
|
2,817
|
|
2014
|
|
|
1,742
|
|
2015
|
|
|
1,131
|
|
2016
|
|
|
868
|
|
Thereafter
|
|
|
526
|
|
|
|
|
|
|
Total minimum lease commitments
|
|
$
|
10,587
|
|
|
|
|
|
|
Rent expense charged to operations for the years ended December 31, 2011 and December 31, 2010,
were $5,456 and $4,859, respectively. The Company was a named party in a breach of contract suit by a former landlord. The Parties settled the dispute for $475 in February 2012. The $475 was accrued for at December 31, 2011.
Capital Leases
The Company has entered into capital leases for computer and warehouse equipment. The leases require monthly payments of approximately $41 and expire in 2012 through 2014. The interest rate on this
capital leases range from 4%-12%.
Future minimum payments required under the capital leases consist of the following as of
December 31, 2011:
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2012
|
|
|
519
|
|
2013
|
|
|
434
|
|
2014
|
|
|
316
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,269
|
|
Less Amount representing interest
|
|
|
(126
|
)
|
|
|
|
|
|
Present Value of net minimum lease payments
|
|
|
1,143
|
|
|
|
|
|
|
Less Current portion
|
|
|
(445
|
)
|
|
|
|
|
|
Long term portion
|
|
|
698
|
|
|
|
|
|
|
Commitment under Retail Contract
As a result of the Retail Contract transfer from CMS to Dreams, Inc. effective September 1, 2010, Dreams was required to post a $600
irrevocable standby letter of credit for the benefit of The University of Texas to comply with certain terms and conditions of the agreement. In addition, the Company is required to make quarterly payments of $150 towards an annual minimum royalty
figure of $600.
F-18
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Future Contractual Payments to Athletes
As of December 31, 2011, the Company had one remaining agreement with an athlete to provide autographs in the future and the rights
to produce and sell certain products.The amount due for 2012 $666. The autographs are received by the Company as a part of inventory products and resold throughout the Companys distribution channels.
14. Business Segment Information
The Company has two reportable segments as identified by information reviewed by the Companys chief operating
decision makers (CODM) and is comprised of our CEO and SVP Finance of Dreams, Inc. The divisions whose customers are resellers of our goods have their results reflected in the manufacturing/distribution segment. The retail segment is made up
of many
locations
for our inventory. Revenues are achieved by moving inventory through our sales channels to reach and expand our customer base. These channels include the Internet, stores and our catalogues. Hence, customers who are the end
users of our goods have their results reflected in our retail segment.
The Manufacturing/Distribution segment represents the
manufacturing and wholesaling of sports memorabilia products and acrylic display cases. Sales are handled primarily through in-house salespersons that sell to specialty retailers and other distributors in the United States. The Companys
manufacturing and distributing facilities are located in the United States. The majority of the Companys products are manufactured in these facilities.
The Retail Operations segment is multi-channel and features numerous Internet sites, catalogues, kiosks, and some traditional brick and mortar stores:
Internet
The Companys e-commerce components feature FansEdge.com and ProSportsMemorabilia.com along with a complement of syndicated web sites including, but not limited to:
www.shop.Bulls.com,
www.jcp.com
, and www.philadelphiaeagles.com.
These e-commerce retail sites sell a diversified selection of sports licensed products and autographed memorabilia on the web. These e-commerce operations have provided for the fastest
growing area of our retail segment.
Catalogues
The Company publishes and distributes a FansEdge catalogue, a Baseball Hall of Fame catalogue and a Philadelphia Eagles catalogue two
times a year.
Brick and Mortar
As of December 31, 2011, the Company owned and operated five (5) Field of Dreams
®
stores offering a selection of sports & entertainment memorabilia and collectibles and ten
(10) FansEdge stores offering an array of sports licensed products. The Company has multiple stores in the Chicago and Las Vegas markets.
All of the Companys revenue generated during the twelve months ended December 31, 2011 and December 31, 2010, was derived in the United States and all of the Companys assets are
located in the United States.
Summarized financial information concerning the Companys reportable segments is shown in
the following tables. Corporate related items, results of insignificant operations and income and expenses not allocated to reportable segments are included in the reconciliations to consolidated results table.
F-19
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
Segment information for the years ended December 31, 2011 and December 31,
2010, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended:
|
|
Manufacturing/
Distribution
|
|
|
Retail
Operations
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
15,343
|
|
|
$
|
130,697
|
|
|
$
|
146,040
|
|
Intersegment net sales
|
|
|
(4,536
|
)
|
|
|
|
|
|
|
(4,536
|
)
|
Operating earnings
|
|
|
(839
|
)
|
|
|
7,587
|
|
|
|
6,748
|
|
Total assets
|
|
|
19,197
|
|
|
|
56,208
|
|
|
|
75,405
|
|
|
|
|
|
Twelve Months Ended:
|
|
Manufacturing/
Distribution
|
|
|
Retail
Operations
|
|
|
Total
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
15,321
|
|
|
|
99,820
|
|
|
|
115,141
|
|
Intersegment net sales
|
|
|
(4,214
|
)
|
|
|
(22
|
)
|
|
|
(4,236
|
)
|
Operating earnings
|
|
|
(776
|
)
|
|
|
8,033
|
|
|
|
7,257
|
|
Total assets
|
|
|
18,299
|
|
|
|
42,029
|
|
|
|
60,328
|
|
Reconciliation to consolidated amounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Total revenues for reportable segments
|
|
$
|
146,040
|
|
|
$
|
115,141
|
|
Other revenues
|
|
|
216
|
|
|
|
458
|
|
Eliminations of intersegment revenues
|
|
|
(4,536
|
)
|
|
|
(4,236
|
)
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
141,720
|
|
|
$
|
111,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
2011
|
|
|
Year ended
December 31,
2010
|
|
Pre-tax earnings:
|
|
|
|
|
|
|
|
|
Total earnings for reportable segments
|
|
$
|
6,748
|
|
|
$
|
7,257
|
|
*Other (loss) / income
|
|
|
(3,836
|
)
|
|
|
(3,368
|
)
|
Interest (expense)
|
|
|
(978
|
)
|
|
|
(1,185
|
)
|
|
|
|
|
|
|
|
|
|
Total income before income taxes
|
|
$
|
1,934
|
|
|
$
|
2,704
|
|
*
|
These are unallocated costs and expenses that have not been allocated to the reportable segments. Some examples of these unallocated overhead costs which
are consistent with the Companys internal accounting policies are executive salaries and benefits; corporate office occupancy costs; some human resources and accounting support, professional fees, bank charges; certain insurance policy
premiums and public relations/investor relations expenses.
|
15. Non-controlling Interest
Non-controlling interest represents the portion of equity that we do not own in the entity that we consolidate. We
account for and report our non-controlling interest in accordance with the provisions under the Consolidation Topic of the FASB ASC 810. The Company has a 51% equity interest in The Comet Clothing Company, LLC, hence a 49% non-controlling interest.
The Company has a controlling interest because of its management of The Comet Clothing Company, LLC.
As a result of our Asset
Purchase Agreement with Pro-Star, Inc. effective December 26, 2006, Dreams received 86.5% of the Caesars Forum Shops Field of Dreams store; 89% of the Rio Hotel Field of Dreams store; 90.5% of the Smith & Wollensky Field of Dreams
store; and 88.125% of the marketing venture known as Stars Live 365. The Company records all of the revenues generated from these operations and then records a minority interest expense representing the limited partners
earned pro-rata share of the
F-20
Dreams, Inc. and Subsidiaries
Notes to Consolidated Audited Financial Statements(Continued)
(Dollars in Thousands, except share and earnings per share amounts)
actual profits. The minority interest expense at December 31, 2011 was $9 and at December 31, 2010 was $3 and is included in operating expenses. Dreams will have an on-going obligation
to make quarterly distributions on a pro-rata basis depending on the actual profitability of each of the three stores and Stars Live 365.
16. Valuation and Qualifying Accounts
We maintain an allowance for doubtful accounts that is recorded as a contra asset to our accounts receivable balance.
The following table sets forth the change in each of those reserves for the years ended December 31, 2011 and December 31, 2010.
|
|
|
|
|
|
|
Allowance
for
accounts
receivable
|
|
Balance as of December 31, 2010
|
|
$
|
26
|
|
Provision
|
|
|
|
|
Write offs
|
|
|
2
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
$
|
24
|
|
17. Subsequent Events
In preparing the audited consolidated financial statements, the Company has evaluated, for the potential recognition or
disclosure, events or transactions subsequent to the end of the most recent quarterly period through the date of issuance of the financial statements. There were no material subsequent events that were identified that required recognition or
disclosure in these financial statements.
F-21
Exhibit Index
|
|
|
Exhibit
No.
|
|
Description
|
|
|
21
|
|
Subsidiaries of the Company
|
|
|
23.1
|
|
Consent of Independent Auditors for S-3 registration filing
|
|
|
31.1
|
|
Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
|
Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
|
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933,
as amended, or by the Security Exchange Act of 1934, as amended.)
|
|
|
32.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of
Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended,
or by the Security Exchange Act of 1934, as amended.)
|
|
|
101.INS**
|
|
XBRL Instance Document
|
|
|
101.SCH**
|
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL**
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF**
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
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