10QSB

FORM 10-QSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from              to             .

Commission file number: 0-15399

DREAMS, INC.

(Exact name of small business issuer as specified in its charter)

Utah	87-0368170
State or other jurisdiction of incorporation or organization	(I.R.S. Employer identification No.)

2 South University Drive, Suite 325, Plantation, Florida 33324

(Address of principal executive offices)

Issuer’s telephone number, including area code: (954) 377-0002

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 22, 2004, there were 56,363,195 shares of Common Stock, no par value per share outstanding.

Transitional Small Business Disclosure Format:    Yes  ¨    No   x

DREAMS, INC.

INDEX

		PAGE
Part I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Controls and Procedures	23
Part II.	Other Information	24
Item 1.	Legal proceedings	24
Item 6.	Exhibits and Reports on Form 8-K	24

Dreams, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet – Unaudited

As of September 30, 2004

(Dollars in Thousands, except share amounts)

ASSETS
Current assets:
Cash and cash equivalents	$	333
Accounts receivable, net		1,650
Inventories, net		10,267
Prepaid expenses and deposits		681
Deferred loan costs		84
Deferred tax asset, net		401
Total current assets		13,416
Property and equipment, net		1,578
Deferred tax asset, net		1,226
Other intangible assets, net		3,227
Goodwill, net		1,932
Total assets	$	21,379
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,383
Accrued liabilities		1,351
Current portion of long-term debt		362
Note payable - related party		700
Short-term notes payable		210
Borrowings against line of credit		5,500
Deferred credits		97
Total current liabilities		10,603
Long-term debt, less current portion		1,098
Commitments and contingencies		—
Stockholders’ equity:
Common stock and paid in capital, no par value; authorized 100,000,000 shares; 56,363,195 shares issued and outstanding		22,848
Accumulated deficit		(13,170	)
Total stockholders’ equity		9,678
Total liabilities and stockholders’ equity	$	21,379

The accompanying notes are an integral part of this condensed consolidated financial statement.

1

Dreams, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations – Unaudited

(Dollars in Thousands, except share amounts and earnings per share amounts)

	For the six months ended:						For the three months ended:
	Sept. 30, 2004			Sept. 30, 2003			Sept. 30, 2004			Sept. 30, 2003
Revenues	$	11,183		$	6,732		$	6,056		$	3,353
Expenses:
Cost of sales		6,062			3,397			3,259			1,624
Operating expenses		6,171			3,628			3,308			1,733
Depreciation and amortization		163			79			81			41
Total expenses		12,396			7,104			6,648			3,398
Loss before interest and taxes		(1,213	)		(372	)		(592	)		(45	)
Interest, net		220			91			163			50
Loss before provision for income taxes		(1,433	)		(463	)		(755	)		(95	)
Income tax benefit		(573	)		(186	)		(302	)		(39	)
Net loss	$	(860	)	$	(277	)	$	(453	)	$	(56	)
Earnings per share:
Basic:  Loss per share	$	(0.02	)	$	0.00		$	(0.01	)	$	0.00
Weighted average shares outstanding		56,363,195			56,908,537			56,363,195			56,863,195
Diluted:  Loss per share	$	(0.02	)	$	0.00		$	(0.01	)	$	0.00
Weighted average shares outstanding		56,363,195			56,908,537			56,363,195			56,863,195

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Dreams, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows – Unaudited

(Dollars in Thousands, except share amounts)

	Six Months Ended September 30,
	2004			2003
Net cash used in operating activities	$	(1,325	)	$	(1,630	)
Cash flows from investing activities:
Issuance of promissory note		—			(149	)
Cash paid for acquisition		(200	)		—
Purchase of property and equipment		(280	)		(176	)
Net cash used in investing activities		(480	)		(325	)
Cash flows from financing activities:
Net change in line of credit		1,213			1,856
Proceeds from term loan		—			325
Proceeds from short term note payable		700			—
Repayments on notes payable and term loans		(94	)		(187	)
Net cash provided by financing activities		1,819			1,994
Net increase in cash and cash equivalents		14			39
Cash and cash equivalents at beginning of period		319			146
Cash and cash equivalents at end of period	$	333		$	185
Supplemental Disclosure of Cash Flow Information:
Cash paid during the six month period ended September 30:
Interest	$	194		$	91
Income taxes		—			—
	$	194		$	91

Non-cash investing and financing activities:

On April 1, 2004, the Company acquired certain assets of ProSports Memorabilia, Inc. (“ProSports”), in order to further support its e-commerce initiative, for an aggregate purchase price of $683. $100 was paid at closing and $100 since closing, and the remaining $483 will be paid over a three year period, ending in March 2007. The payments are not pursuant to a note payable, not secured or subject to interest.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

1. Management’s Representations

The condensed consolidated interim financial statements included herein have been prepared by Dreams, Inc. (“the Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10K-SB, for the fiscal year ended March 31, 2004.

The accompanying condensed consolidated interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements set forth in Accounting Principles Board Opinion No. 28 and reflect, in management’s opinion, all adjustments, which are of normal recurring nature, necessary to summarize fairly the financial position and results of operations for such periods. The results of operations for such interim periods are not necessarily indicative of the results expected for future quarters or the full fiscal year.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation.

Earnings Per Share

For the six months ended September 30, 2004, weighted average shares outstanding for basic earnings per share purposes and diluted earnings per share purposes was 56,363,195. For the six months ended September 30, 2003, weighted average shares outstanding for basic earnings per share purposes and diluted earnings per share purposes were 56,908,537.

For the three months ended September 30, 2004, weighted average shares outstanding for basic earnings per share purposes and diluted earnings per share purposes was 56,363,195. For the three months ended September 30, 2003, weighted average shares outstanding for basic earnings per share purposes and diluted earnings per share purposes was 56,863,195.

4

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Common stock equivalents have been excluded from the diluted earnings per share calculation for the six and three month periods ending September 30, 2004 and September 30, 2003 as the Company incurred a net loss during those periods.

Stock options to purchase up to 4,994,809 shares of the Company’s common stock with an exercise price ranging from $0.15 to $0.25 per share were not considered in the calculation of diluted earnings per share for the six and three month periods ended September 30, 2004, due to their anti-dilutive effects. Stock options to purchase up to 2,650,250 shares of the Company’s common stock with an exercise price ranging from $0.25 to $0.75 per share were not considered in the calculation of diluted earnings per share for the three and six month period ended September 30, 2003, due to their anti-dilutive effects.

Stock Compensation

The Company accounts for stock options issued to non-employees under Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation.” The Company’s issuance of employee stock options is accounted for using the intrinsic value method under APB 25, “Accounting for Stock Issued to Employees.” The Company provides disclosure of certain pro forma information as if the fair value-based method had been applied in measuring compensation expense.

In accordance with the requirements of SFAS 123, the fair value of each employee option grant was estimated on the date of grant using a binomial option-pricing model with the following weighted-average assumptions used for grants in fiscal 2005 and fiscal 2004, no dividend yield; expected volatility of 60% in fiscal 2005 and 130% in fiscal 2004, risk-free interest rates of 2% and expected holding periods of three years.

The Company accounts for stock-based compensation to employees using the intrinsic value method. Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the fair value of the Company’s common stock at the date of grant over the exercise price of the options. The Company’s net earnings (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below had compensation cost for the stock option plans and non-qualified options issued to employees been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123:

	For the six months ended:						For the three months ended:
	Sept. 30 2004			Sept. 30 2003			Sept. 30 2004			Sept. 30 2003
Net loss:
As reported	$	(860	)	$	(277	)	$	(453	)	$	(56	)
Pro forma	$	(936	)	$	(324	)	$	(491	)	$	(65	)
Basic and diluted loss per share:
As reported	$	(0.02	)	$	0.00		$	(0.01	)	$	(0.00	)
Pro forma	$	(0.02	)	$	(0.01	)	$	(0.01	)	$	(0.00	)

5

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

3. Business Segment Information

The Company has three reportable segments: the Manufacturing/Distribution segment, the Retail Operations segment and the Franchise Operations segment.

The Manufacturing/Distribution segment represents the manufacturing and wholesaling of sports memorabilia products, custom artwork and reproductions and acrylic cases. Sales are handled primarily through in-house salespersons that sell to specialty retailers and other distributors in the United States. The Company’s manufacturing and distributing facilities are located in the United States. The majority of the Company’s products are manufactured in these facilities.

The Retail Operations segment represents the Company-owned Field of Dreams^® retail stores and the Company’s e-commerce division. As of September 30, 2004, the Company owned and operated 15 Field of Dreams^® stores. During October 2003, the Company purchased 100% of the outstanding common stock of FansEdge Incorporated (“FansEdge”), an e-commerce retailer selling a diversified selection of sports licensed products and memorabilia on the Web. Additionally, in April 2004, the Company acquired the assets of Pro Sports Memorabilia (“ProSports”), and e-commerce retailer of sports memorabilia products on the Web.

The Franchise Operations segment represents the results of the Company’s franchise program. The Company is in the business of selling Field of Dreams^® retail store franchises in the United States and generates revenues through the sale of those franchises and continuing royalties.

All of the Company’s revenue generated in the first six months of fiscal 2005 and 2004 was derived in the United States and all of the Company’s assets are located in the United States.

6

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Summarized financial information concerning the Company’s 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.

Segment information for the six month periods ended September 30, 2004 and 2003 was as follows:

Six Months Ended:	Manufacturing/ Distribution			Retail Operations			Franchise Operations			Total
September 30, 2004
Net sales	$	6,173		$	5,367		$	519		$	12,059
Intersegment net sales		(932	)		—			(86	)		(1,018	)
Operating earnings		184			(626	)		50			(392	)
Total assets		10,028			4,246			212			14,486
September 30, 2003
Net sales	$	5,491		$	1,069		$	463		$	7,023
Intersegment net sales		(460	)		—			(10	)		(470	)
Operating earnings		7			5			61			73
Total assets		9,979			1,453			115			11,547

Reconciliation to consolidated amounts is as follows:

	YTD FY2005			YTD FY2004
Revenues:
Total revenues for reportable segments	$	12,059		$	7,023
Other revenues		142			179
Eliminations of intersegment revenues		(1,018	)		(470	)
Total consolidated revenues	$	11,183		$	6,732
Pre-tax loss:
Total earnings for reportable segments	$	(392	)	$	73
Other loss		(821	)		(445	)
Interest expense		(220	)		(91	)
Total consolidated loss before taxes	$	(1,433	)	$	(463	)

7

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Segment information for the three month periods ended September 30, 2004 and 2003 was as follows:

Three Months Ended:	Manufacturing/ Distribution			Retail Operations			Franchise Operations			Total
September 30, 2004
Net sales	$	3,356		$	2,906		$	259		$	6,521
Intersegment net sales		(467	)		—			(45	)		(512	)
Operating earnings		219			(385	)		17			(149	)
Total assets		10,028			4,246			212			14,486
September 30, 2003
Net sales	$	2,781		$	573		$	235		$	3,589
Intersegment net sales		(315	)		—			(5	)		(320	)
Operating earnings		14			6			15			35
Total assets		9,979			1,453			115			11,547

Reconciliation to consolidated amounts is as follows:

	Q2 FY2005			Q2 FY2004
Revenues:
Total revenues for reportable segments	$	6,521		$	3,589
Other revenues		42			84
Eliminations of intersegment revenues		(507	)		(320	)
Total consolidated revenues	$	6,056		$	3,353
Pre-tax loss:
Total earnings for reportable segments	$	(149	)	$	35
Other loss		(443	)		(80	)
Interest expense		(163	)		(50	)
Total consolidated loss before taxes	$	(755	)	$	(95	)

4. Inventories

The components of inventories as of September 30, 2004 are as follows:

Raw materials	$	511
Work in process		69
Finished goods, net		9,687
	$	10,267

8

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

5. Related Party Transactions

Ross Tannenbaum, the Company’s Chief Executive Officer and a director, and Sam Battistone, the Company’s Chairman, each have ownership interests in franchised Field of Dreams^® stores. Mr. Tannenbaum is a 25% owner in M&S, Inc., a Florida Corporation that owns and operates two Field of Dreams^® franchised stores in the state of Florida. Mr. Battistone is a principal in FOD Las Vegas, LLC which owns and operates four Field of Dreams^® franchised stores in the state of Nevada. Mr. Tannenbaum and Mr. Battistone, through their partnerships with M&S, Inc. and FOD Las Vegas, LLC, respectively, have entered into the Company’s standard franchise agreements, in an arms length transaction on commercially reasonable terms.

For the six months ended September 30, 2004, M&S and FOD Las Vegas, LLC paid the Company $24 and $140 in royalties, respectively. Additionally, during the first six months of fiscal 2005, M&S, Inc. and FOD Las Vegas, LLC purchased products from the Company totaling $79 and $103, respectively. For the six months ended September 30, 2003, M&S, Inc. and FOD Las Vegas, LLC paid the Company $25 and $121 in royalties, respectively. During the first six months of fiscal 2004, M&S, Inc. and FOD Las Vegas, LLC purchased products from the Company totaling $71 and $138, respectively.

For the three months ended September 30, 2004, M&S and FOD Las Vegas, LLC paid the Company $12 and $72 in royalties, respectively. Additionally, during the second quarter of fiscal 2004, M&S, Inc. and FOD Las Vegas, LLC purchased products from the Company totaling $37 and $90, respectively. For the three months ended September 30, 2003, M&S, Inc. and FOD Las Vegas, LLC paid the Company $14 and $65 in royalties, respectively. During the second quarter of fiscal 2004, M&S, Inc. and FOD Las Vegas, LLC purchased products from the Company totaling $60 and $116, respectively.

During the six and three month periods ended September 30, 2004, the Company paid Dan Marino, a director of the Company, $90 and $0, respectively, for his autograph on inventory items and appearance fees. During the six and three month periods ended September 30, 2003, the Company paid Mr. Marino $211 and $95, respectively, for his autograph on inventory items and appearance fees. Such payments were based on arms-length negotiations between the parties.

In August 2004, the Company received an unsecured loan of up to $1.0 million due January 15, 2005 from the brother of the Company’s Chief Executive Officer. As of September 30, 2004 the Company has borrowed $700 under this facility that was used for working capital purposes. In consideration for such loan, the Company has agreed to pay such third party interest at the rate of 12% per annum and granted five year options to purchase 1,000,000 shares of common stock at an exercise price of $0.25

9

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

per share. These options are exercisable immediately. In an event of a default under the loan, the loan is convertible into the Company’s common stock at $0.05 per share. As of November 22, 2004, the outstanding balance of this loan was $1 million. The value of the beneficial conversion feature embedded in this loan is $4 million due to the conversion rate upon default being less than the market value of the common stock on the date the loan agreement was entered into. Should the company default on this loan the $4 million will be expensed in the fourth quarter of fiscal 2005.

To provide the Company with additional working capital, nine senior Company employees, including the Company’s Chairman and Chief Executive Officer, have agreed to defer all but $1 of their monthly salary effective August 1, 2004. In consideration for such deferral, each employee shall receive options to purchase common stock which the number of shares equal to the dollar amount deferred. The five year options shall be exercisable at $0.25 per share. In addition, upon payment of such accrued amounts, each employee will receive a 5% deferral bonus. As of September 30, 2004, the Company has accrued approximately $100 for such deferred salaries and bonuses and as of November 22, 2004 the amount accrued is $371. Effective November 15, 2004, the Company ceased to defer salaries from the nine senior Company employees. As of November 22, 2004, stock options to purchase up to 353,273 shares have been issued at an exercise price of $0.25 share. These options are exercisable immediately. The Company is continuing to review its operational expenses and examining ways to reduce costs on a going-forward basis.

The Company has agreed to amend the former Chief Financial Officer’s, stock option agreement to reduce the number of options to 250,000 from 500,000. These options have an expiration period of three years and are exercisable immediately.

6. Legal Proceedings

The Company is a defendant in an action in the United States Bankruptcy Court for the District of Maryland in an action brought by Unitas Management, Inc. Unitas Management has brought a claim against the Company for damages of up to $419, based upon an alleged breach of contract. The Company is vigorously defending such claim. On September 22, 2004 in a related ruling the Court of Special Appeals of Maryland ruled that Unitas Management did not have the authority to control the business and on October 26, 2004, the bankruptcy court heard our Motion for Summary Judgment. We believe that the amount of ultimate liability of these matters, if any, is not likely to have a material effect on our business, financial condition, results of operations or liquidity and accordingly, no accrual has been recorded as of September 30, 2004.

The Company is also subject to other legal proceedings that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, in excess of

10

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

applicable insurance coverage, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or other legal claims is difficult to predict, significant changes in the estimated exposures could occur, which could have a material impact on the Company’s operations.

7. Commitments

The Company is a party to certain contracts with several athletes which will require the Company to make minimum payments to these athletes over the next three years. The payments are in exchange for autographs and licensing rights on inventory items to be received in the future.

8. Acquisition

On April 1, 2004, the Company acquired certain assets of ProSports Memorabilia, Inc. (“ProSports”), in order to further support our e-commerce initiative, for an aggregate purchase price of $750. $100 was paid at closing and the remaining $650 shall be paid over a three year period, ending in March 2007. The present value of the remaining payments as of September 30, 2004 is $550. The payments are not pursuant to a note payable, not secured or subject to interest. The Company paid an additional $50 in October 2004 leaving an amount due of $500.

The following table summarizes the fair values of the assets and liabilities acquired at the date of acquisition:

Purchase price	$	683
Current assets, net		30
Intangible assets		653
Liabilities	$	—

Primarily all of the $653 of acquired intangible assets represents indefinite lived intellectual property. The remaining amount represents intangible assets such as customer lists which have been assigned useful lives of three years.

The acquisition was accounted for as a purchase in accordance with SFAS 141 and accordingly, the purchase price was allocated based on the estimated fair market value of the assets and liabilities acquired. The excess purchase price over the estimated fair market value of the assets and liabilities acquired amounted to $653 and was primarily allocated to certain identifiable intangible assets which have indefinite useful lives. The results of operations of

11

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

ProSports from April 1, 2004 through September 30, 2004 are included in the accompanying statement of operations for the three and six months ended September 30, 2004.

Unaudited Pro Forma Results

Unaudited pro forma results of operations after giving effect to certain adjustments resulting from the acquisition were as follows for three month periods ended September 30, 2004 and 2003 as if the business combination had occurred at the beginning of each period presented.

	For the six months ended:						For the three months ended:
	Sept. 30 2004			Sept. 30 2003			Sept. 30 2004			Sept. 30 2003
Net Revenue	$	11,183		$	7,148		$	6,056		$	3,904
Net loss	$	(860	)	$	(243	)	$	(453	)	$	(45	)
Earnings per share – basic	$	(0.02	)	$	0.00		$	(0.01	)	$	0.00
Earnings per share – diluted	$	(0.02	)	$	0.00		$	(0.01	)	$	0.00

The pro forma data is provided for information purposes only and does not purport to be indicative of results which actually would have been obtained if the combination had been effected at the beginning of each period presented, or of those results which may be obtained in the future.

9. New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities,” which establishes criteria to identify variable interest entities (“VIE”) and the primary beneficiary of such entities. An entity that qualifies as a VIE must be consolidated by its primary beneficiary. All other holders of interests in a VIE must disclose the nature, purpose, size and activity of the VIE as well as their maximum exposure to losses as a result of involvement with the VIE. FIN 46 was revised in December 2003 and is effective for financial statements of public entities that have special-purpose entities, as defined, for periods ending after December 15, 2003. For public entities without special-purpose entities, it is effective for financial statements for periods ending after March 15, 2004. The Company does not have any special-purpose entities, as defined. The adoption of FIN 46 did not have a material effect on the Company’s financial statements.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of

12

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our results of operations or financial position.

In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition,” which codifies, revises and rescinds certain sections of Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements,” in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes noted in SAB 104 did not have a material effect on our consolidated results of operations, consolidated financial position or consolidated cash flows.

On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed statement, Share-Based Payment, that addresses the accounting for share-based payment transactions (for example, stock options and awards of restricted stock) in which an employer receives employee-services in exchange for equity securities of the company or liabilities that are based on the fair value of the company’s equity securities. This proposal, if finalized as proposed, would eliminate use of APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require such transactions be accounted for using a fair-value-based method and recording compensation expense rather than optional pro forma disclosure of what expense amounts might be. The proposal, if approved, would substantially amend FASB Statement No. 123, Accounting for Stock-Based Compensation. Because of the timing of the proposal and the uncertainty of whether it will be adopted substantially as proposed, management has not completed its review of the proposal or assessed its potential impact on the Company.

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 the Company’s consolidated financial statements.

13

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-QSB under “Management’s 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; expansion of the franchise chain; availability, locations and terms of sites for franchise development; changes in business strategy or development plans; availability and terms of capital; labor and employee benefit costs; changes in government regulations; our ability to successfully operate retail stores, 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.

GENERAL

As used in this Form 10-QSB “we”, “our”, “us” and “Dreams” refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise. Dreams, Inc. (the “Company”) is a Utah Corporation which was formed in April 1980. The Company operates through its wholly-owned subsidiaries with business operations in franchising, manufacturing and distribution, and recently retail operations. Dreams Franchise

14

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Corporation (“DFC”) is in the business of selling Field of Dreams^® retail store franchises and generates revenues through the sale of those franchises and continuing royalties. There are currently 21 Field of Dreams^® franchise stores operating. The manufacturing and distribution business is conducted through Dreams Products, Inc. (“DPI’) and through the Company’s Farley Art division, which is the Company’s entry into original art and reproductions of sports personalities and events. DPI is a wholesaler and manufacturer of sports memorabilia products and acrylic cases. DPI employs the trademark “Mounted Memories.” DPI pays annual fees to Major League Baseball and the National Football League which officially licenses DPI’s baseball and football memorabilia products, respectively. Through The Greene Organization, the Company is engaged in the representation and marketing of professional athletes. In March 2002, we entered into the company-owned retail store business with the purchase of two existing Field of Dreams^® franchises through Dreams Retail Corporation. As of September 30, 2004 we owned and operated fifteen retail stores. We currently own and operate fifteen retail stores. and are currently evaluating our plans for the upcoming fiscal year.

RESULTS OF OPERATIONS

Six Months Ended September 30, 2004 Compared to the Six Months Ended September 30, 2003

Revenues. Total revenues increased 67.2% to $11.2 million in the first six months of fiscal 2005 from $6.7 million in the same period last year due primarily to an increase of $682 or 12.4% in manufacturing and distribution revenues and an increase of $4.3 million to $5.4 million representing a 391% increase in retail revenues. The increase in retail revenues is due to our company-owned retail stores which expanded from seven units as of September 30, 2003 to fifteen units as of September 30, 2004. In addition, during October 2003 the Company acquired FansEdge, which generated retail revenues for the Company through FansEdge.com and the Company acquired Pro Sports Memorabilia in April 2004, which generated retail revenue through Prosportsmemorabilia.com.

Manufacturing and distribution revenues increased from $5.5 million in the first six months of fiscal 2004 to $6.2 million in the first six months of fiscal 2005. The increase primarily is the result of the introduction of an expanded product line relating to NASCAR products which were developed throughout fiscal 2004.

Retail operations revenues increased significantly from $1.1 million in the first six months of fiscal 2004 to $5.4 million in the same period this year. We operated seven retail stores during the first six months of last fiscal year versus fifteen stores this fiscal year.

15

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Our internet retail division, which is comprised of two websites (Fansedge.com and ProSportsmemorabilia.com), began operations in October 2003 concurrent with the Company’s acquisition of FansEdge. The internet division had retail sales of $1.4 million during the first quarter of fiscal 2005 and $1.7 million during the second quarter of fiscal 2005 for a total of $3.1 for the six months ended September 30, 2005.

Franchise operations revenues were $463 in the six month period ending September 30, 2003 compared to $519 in the same period this year. The 12.1% increase in revenue principally relates to increased royalty revenue.

The Company realized $191 in net management fee revenues in the six months ending September 30, 2003 versus $143 in the same period this year. The decrease relates to a reduction in the frequency of significant athlete marketing events in the current year period. We will continue to market opportunities for these significant events, however, we have seen a slowdown in corporate spending for these large events.

As a result of the forgoing events, for the six month ended September 30, 2004 the Company incurred a net loss of $860, respectively.

Costs and expenses. Total cost of sales for the first six months of fiscal 2004 was $3.4 million versus $6.0 million in the same period in fiscal 2005, a 76.5% increase. The increase relates to an increase in Company sales. As a percentage of total sales, cost of sales was 54.2% for the six months ending September 30, 2004 versus 50.5% for the same period a year ago. The change relates to an increase in revenue from our internet division which operates at a lower margin than retail stores.

Cost of sales of manufacturing/distribution products were $3.0 million in the first six months of fiscal 2004 versus $3.0 million in the same period in fiscal 2005. As a percentage of manufacturing/distribution revenues, cost of sales was approximately 56.3% in the current year period versus 59.6% a year ago.

Operating expenses increased from $3.6 million in the first six months of fiscal 2004 to $6.2 million in the same period this fiscal year. The increase relates primarily to incremental operating expenses associated with operating fifteen retail stores and the internet division in the current year period versus only seven stores last year. As a percentage of sales, operating expenses increased from 53.9% to 55.2% as a result of an increase in corporate overhead in anticipation of future revenue growth.

Interest expense, net. Net interest expense increased due to higher levels of borrowing including the line of credit, note payable - related party, and amortization of the deferred loan costs on the related party loan.

16

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Provision for income taxes. The Company recognized an income tax benefit of $573 during the current year period due to a pre-tax loss and an income tax benefit in the same period last year of $186. The effective tax rate for both periods was approximately 40%.

Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003

Revenues. Total revenues increased 76.5% from $3.4 million in the second quarter of fiscal 2004 to $6.0 million in the same quarter of fiscal 2005 due primarily to an increase in manufacturing and distribution revenues as a result new products, and an increase in revenues generated through our company-owned retail stores. In addition, during October 2003 the Company acquired FansEdge, which generated retail revenues for the Company through FansEdge.com and the Company acquired Pro Sports Memorabilia in April 2004, which generated retail revenue through Prosportsmemorabilia.com.

Manufacturing and distribution revenues increased 16.0% from $2.5 million in the second quarter of fiscal 2004 to $2.9 million in the second quarter of fiscal 2005, due primarily to an increase in sales generated through our Mounted Memories wholesale/manufacturing division. The increase primarily is the result of the introduction of an expanded product line relating to NASCAR products which were developed throughout fiscal 2004.

Retail operations revenues increased significantly from $573 in the second quarter of fiscal 2004 to $2.9 million in the current year quarter. We operated seven retail stores during the second fiscal quarter last year versus fifteen stores this year and added the internet division. Our internet retail division, which is comprised of two websites (Fansedge.com and ProSportsmemorabilia.com), began operations in October 2003 concurrent with the Company’s acquisition of FansEdge. The internet division had retail sales of $1.7 million during the second quarter of fiscal 2005.

Franchise operations revenues were $235 in the quarter ending September 30, 2003 compared to $259 in the same quarter this year. The slight increase in revenue principally relates to increased royalty revenue.

The Company realized $46 in net management fee revenues in the three months ending September 30, 2004 versus $93 in the same period last year. The decrease relates to a reduction in the frequency of significant athlete marketing events in the current year period. We will continue to market opportunities for these significant events, however, we have seen a slowdown in corporate spending for these large events.

17

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Costs and expenses. Total cost of sales for the second quarter of fiscal 2005 was $3.3 million versus $1.6 million in the same quarter in fiscal 2004, a 106.25% increase. The increase relates to an increase in company sales. As a percentage of total sales, cost of sales was 53.8% for the three months ending September 30, 2004 versus 48.4% for the same period a year ago. We have added our internet division that has slightly lower margins than our retail stores.

Cost of sales of manufacturing/distribution products were $1.6 million in the second three months of fiscal 2005 versus $1.4 million in the same period of fiscal 2004. As a percentage of manufacturing/distribution revenues, cost of sales was approximately 56.3% in the current quarter versus approximately 57.0% a year ago. Retail cost of sales increased approximately $1.4 million and directly relates to the Company owning and operating fifteen retail stores during the second quarter of fiscal 2004 versus only seven stores in the same quarter last year and the addition of the internet division.

Operating expenses increased from $1.7 million in the second quarter of fiscal 2004 to $3.3 million in the same period this fiscal year. The increase relates primarily to incremental operating expenses associated with operating fifteen retail stores and the internet division in the current year quarter verses only seven stores last year. As a percentage of sales, operating expenses increased from 51.7% to 54.6% as a result of increased overhead in anticipation of an increase in future revenues.

As a result of the forgoing events, for the three months ended September 30, 2004 the Company incurred a net loss of $453, respectively.

Interest expense, net. Net interest expense increased due to higher levels of borrowing including the line of credit, note payable - related party, and amortization of the deferred loan costs on the related party loan.

Provision for income taxes. The Company recognized an income tax benefit of $302 during the current year period due to a pre-tax loss and an income tax benefit in the same period last year of $38. The effective tax rate for both periods was approximately 40%.

18

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities,” which establishes criteria to identify variable interest entities (“VIE”) and the primary beneficiary of such entities. An entity that qualifies as a VIE must be consolidated by its primary beneficiary. All other holders of interests in a VIE must disclose the nature, purpose, size and activity of the VIE as well as their maximum exposure to losses as a result of involvement with the VIE. FIN 46 was revised in December 2003 and is effective for financial statements of public entities that have special-purpose entities, as defined, for periods ending after December 15, 2003. For public entities without special-purpose entities, it is effective for financial statements for periods ending after March 15, 2004. The Company does not have any special-purpose entities, as defined. The adoption of FIN 46 did not have a material effect on the Company’s financial statements.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our results of operations or financial position.

In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition,” which codifies, revises and rescinds certain sections of Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements,” in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes noted in SAB 104 did not have a material effect on our consolidated results of operations, consolidated financial position or consolidated cash flows.

On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed statement, Share-Based Payment, that addresses the accounting for share-based payment transactions (for example, stock options and awards of restricted stock) in which an employer receives employee-services in exchange for equity securities of the company or liabilities that are based on the fair value of the company’s equity securities. This proposal, if finalized as proposed, would eliminate use of APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require such transactions be accounted for using a fair-

19

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

value-based method and recording compensation expense rather than optional pro forma disclosure of what expense amounts might be. The proposal, if approved, would substantially amend FASB Statement No. 123, Accounting for Stock-Based Compensation. Because of the timing of the proposal and the uncertainty of whether it will be adopted substantially as proposed, management has not completed its review of the proposal or assessed its potential impact on the Company.

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 the Company’s consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The balance sheet as of September 30, 2004 reflects working capital of $2.8 million versus working capital of $5.8 million one year earlier.

At September 30, 2004, the Company’s cash and cash equivalents were $333, as compared to $185 at September 30, 2003. Net accounts receivable at September 30, 2004 were $1.7 million compared to $1.5 million at September 30, 2003.

Cash used in operations amounted to $1.3 million for the first six months of fiscal 2005, compared to $1.6 million used in operations in the same period of fiscal 2004. Cash used in operations for the six months ended September 30, 2004 improved $305 over the six months ended September 30, 2003. Cash flow used in investing activities was ($480); including $200 cash paid for acquisition of Pro Sports Memorabilia. Cash generated from financing activities was $1.8 million, including the $700 of cash from note payable – related party, an increase in the borrowings against the line of credit of $1.2 million, offset by costs attributed to the repayment of certain debt facilities. As of September 30, 2004, the Company’s cash balance was $333.

The amount outstanding on our line of credit, which is classified in the financing section of the Statement of Cash Flows, increased by approximately $1.2 million since September 30, 2003. Outstanding borrowings against our line of credit were $5.5 million at September 30, 2004. The line of credit, which has a maximum borrowing capacity of $5.5 million, has annual renewal terms and renewed most recently in November 2003. The line of credit is used for working capital purposes and was used to fund our retail store expansion, pay for costs incurred relating to our planned acquisition of FansEdge (completed in October 2003) and ProSports Memorabilia (completed in April 2004), the move of our primary warehouse facility and the replacement of our primary accounting software. The line of credit is collateralized by the

20

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Company’s accounts receivable and inventories. The Company is required to comply with certain annual financial ratios with respect to the line of credit. The interest rate is a floating rate based on adding a fixed interest charge of 2.40% to the thirty day “Dealer Commercial Paper Rate” (4.24% at September 30, 2004).

By virtue of our expansion and investment in the company-owned retail store model, the October 2003 acquisition of FansEdge and the April 2004 acquisition of ProSports Memorabilia, we have become more cyclical and reliant on the calendar fourth quarter (our fiscal 3^rd quarter) for revenues and profits. As a result of such factors, the Company sought to obtain financing to satisfy its short term capital needs including the planning for the upcoming holiday season. In order to satisfy these needs, subsequent to the end of the fiscal first quarter, the Company received a convertible loan to borrow up to $1.0 million due January 15, 2005 from the brother of the Company’s Chief Executive Officer. The initial advance of $700 as of September 30, 2004, was used for working capital purposes. As of November 22, 2004 the remaining $300 has been funded and used. In consideration for such loan, the Company has agreed to pay such third party interest at the rate of 12% per annum and granted five year options to purchase 1,000,000 shares of common stock at an exercise price of $0.25 per share. In an event of a default under the loan, the loan is convertible into the Company’s common stock at $0.05 per share.

In addition, to provide the Company with additional working capital, nine senior Company employees, including the Company’s Chairman and Chief Executive Officer, agreed to defer all but $1 of their monthly salary effective August 1, 2004. In consideration for such deferral, each employee received options to purchase common stock which the number of shares is equal to the amount deferred. The five year options shall be exercisable at $0.25 per share. In addition, upon payment of such accrued amounts, each employee received a 5% deferral bonus. The deferrals ceased on November 19, 2004. The Company has also begun a program to review its operational expenses and examining ways to reduce costs on a going-forward basis.

Our renewal of our current line of credit facility has expired in November 2004 and we are currently negotiating with our lender on an ongoing basis. There is no guarantee that our lender will renew the line of credit facility; however, the Company believes in the event our current lender would not renew our line of credit facility that we would be able to secure similar financing with a different lender. Based on the Company’s current liquidity, we are seeking additional capital from other sources. However, no assurance can be given that we will be able to obtain additional financing or that, if obtainable, the terms will be acceptable to us. Should the Company not be successful in obtaining additional financing, it could adversely affect the Company’s operations and financial condition.

21

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Although there can be no assurances, the Company believes its current cash and financial forecasts for the year and periods beyond, is sufficient to meet our cash needs on both a short-term and long-term basis. The balance sheet has a favorable working capital ratio and the Company’s long-term debt obligations require payments of approximately $50 per month for the next twelve months. 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. However, business may not generate sufficient cash flow from operations, our anticipated revenue growth and operating improvements may not be realized and future borrowings may not be available under the credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. Except as described herein, the Company’s management is not aware of any known trends or demands, commitments, events, or uncertainties, as they relate to liquidity which could negatively affect the Company’s ability to operate and grow as planned.

22

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Item 3. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Sections 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report, based upon the evaluation of these controls and procedures required by paragraph (b) of 13a-15(e) or 15d-15(e) of the Securities and Exchange Act of 1934, have concluded that as of the date of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities to allow timely decisions regarding required disclosures.

Changes in Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls during the period covered by this report.

23

Dreams, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements – Unaudited

Dollars in Thousands, Except per Share Amounts

Part II. Other Information

Item 1. Legal Proceedings.

See Note 6 to the Condensed Consolidated Financial Statements.

Item 6. Exhibits and Reports on Form 8-K.

(a)	Exhibits
	No.
	31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K
	None.

24

SIGNATURE

In accordance with the Exchange Act, the Registrant has caused this report to be signed on behalf of the Registrant by the undersigned in the capacities indicated, thereunto duly authorized on November 22, 2004.

DREAMS, INC.

/s/ Eric Sands

Eric Sands, Chief Financial Officer,

Principal Accounting Officer

25

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Ross Tannenbaum, Chief Executive Officer of Dreams, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-QSB of Dreams, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 22, 2004	/s/ Ross Tannenbaum
	Ross Tannenbaum
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Eric Sands, Chief Financial Officer of Dreams, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-QSB of Dreams, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 22, 2004	/s/ Eric Sands
	Eric Sands
	Chief Financial Officer
	(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

CERTIFICATION PURSUANT TO\

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Dreams, Inc. (the “Company”) on Form 10-QSB for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric Sands, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 22, 2004

/s/ Eric Sands

Eric Sands

Chief Financial Officer

(Principal Accounting Officer)

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATIONS

CERTIFICATION PURSUANT TO\

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Dreams, Inc. (the “Company”) on Form 10-QSB for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ross Tannenbaum, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 22, 2004

/s/ Ross Tannenbaum

Ross Tannenbaum

Chief Executive Officer

(Principal Executive Officer)