8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) January 25, 2005

DREAMS, INC.

(Exact name of registrant as specified in its charter)

Utah	000-30310	87-0368170
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2 South University Drive, Suite 325, Plantation, Florida	33324
(Address of principal executive offices)	(Zip Code)

(954) 377-0002

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

In August 2004, Dreams, Inc. (“Dreams”) issued a Line of Credit Note (the “Note”) in the principal amount of up to $1,000,000 to Brett Tannenbaum (“Tannenbaum”), and issued Tannenbaum a Stock Option concurrently therewith (the “Option”). On January 25, 2005, effective January 15, 2005, Dreams and Tannenbaum entered into a Promissory Note & Stock Option Modification Agreement (the “Modification Agreement”) pursuant to which the Stock Option was cancelled and the Note was amended to (i) extend the maturity date from January 15, 2005 to April 29, 2005, and (ii) change the conversion price from $0.05 per share to a price per share equal to the lesser of: (a) the average closing sale price of a share of the common stock of Dreams (the “Common Stock”) for the three trading days immediately preceding the date on which a conversion notice is received by Dreams, and (b) in the event Dreams sells Common Stock or securities convertible into Common Stock (“Common Stock Equivalents”) after the date of the Modification Agreement, then, and in that event, the lowest price per share of Common Stock or Common Stock Equivalent exercise/conversion price, as the case may be, so sold by Dreams.

The foregoing disclosure is qualified in its entirety by the terms of the Modification Agreement, a copy of which is attached hereto as an exhibit.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

Dreams announced that Dan Marino has resigned from its Board of Directors effective January 25, 2005.

Item 8.01 Other Events.

Dreams 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, Inc. has brought a claim against the Company based upon an alleged breach of contract. The Bankruptcy Court approved Plaintiff’s Motion for Summary Judgment and awarded Plaintiff approximately $435,000. The Company has filed an appeal of the decision. The Company is unable to predict the outcome of such appeal, or, if the appeal is unsuccessful, the potential impact of the judgment on the Company’s financial condition or operations.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits:

10.1 Promissory Note & Stock Option Modification Agreement effective as of January 15, 2004.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 27, 2005

DREAMS, INC.
By:	/s/ David Greene
	David Greene
	Secretary

EXHIBIT INDEX

Exhibit No.	Description
10.1	Promissory Note & Stock Option Modification Agreement effective as of January 15, 2004.

EX-10.1

Exhibit 10.1

PROMISSORY NOTE & STOCK OPTION

MODIFICATION AGREEMENT

Reference is made to the following transaction documents:

A. The Line of Credit Note in the principal amount of up to $1,000,000, issued by Dreams, Inc., a Utah corporation (“Dreams”) to Brett Tannenbaum (“Tannenbaum”), dated August 2004 (the “Note”);

B. The Stock Option Agreement between Dreams and Tannenbaum dated August 2004 (the “Option”);

WHEREAS, the parties to the Note and the Option have agreed to amend the terms of the Note and to cancel the Option.

NOW THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Extension of Maturity Date of the Note. The maturity date of the Note is hereby extended from January 15, 2005 until April 29, 2005.

2. Change in Conversion Price of the Note. The conversion price of the Note is hereby changed from $0.05 per share to a price per share equal to the lesser of: (i) the average closing sale price of a share of the common stock of Dreams (the “Common Stock”) for the three trading days immediately preceding the date on which a conversion notice is received by Dreams, and (ii) in the event Dreams sells Common Stock or securities convertible into Common Stock (“Common Stock Equivalents”) after the date hereof, then, and in that event, the lowest price per share of Common Stock or Common Stock Equivalent exercise/conversion price, as the case may be, so sold by Dreams. In the event the outstanding Common Stock is hereafter changed into or exchanged for a different kind of shares, or other securities of Dreams, or of another entity, by reason of merger, consolidation, other reorganization, recapitalization, or reclassification, the aggregate number, price and kind of securities subject to the conversion rights of the Note shall be adjusted appropriately by Dreams’ Board of Directors.

3. Cancellation of Option. The Option is hereby terminated and cancelled as of the date hereof.

4. Miscellaneous.

A. In the event that any provision of this Promissory Note and Stock Option Modification Agreement (the “Agreement”) is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to

1

be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

B. Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

C. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

This Agreement is dated as of January 25, 2005, and is effective as of January 15, 2005.

Dreams, Inc.
By:	/s/ David M. Greene
Name:	David M. Greene
Its:	Senior V.P.
/s/ Brett Tannenbaum
Brett Tannenbaum

2