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) May 11, 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 8.01 Other Events

On May 11, 2005, Dreams, Inc. (the “Company”) completed its previously announced Rights Offering. Pursuant to the terms and conditions of the Rights Offering, the Company received subscriptions for, and issued, 123,348,120 shares of its Company’s common stock. All shares of the Company’s common stock available for issuance in the Rights Offering were issued.

The Company received approximately $3,700,000 in new capital from the Rights Offering which consisted of approximately $2,200,000 of cash proceeds and approximately $1,500,000 of current debt obligations and accrued liabilities being converted into shares of the Company’s common stock on the same terms and conditions as set forth in the Rights Offering.

As previously disclosed, $1,000,000 of the proceeds of the Rights Offering was used in partial payment of indebtedness under the Company’s line of credit to Merrill Lynch Business Financial Services (MLBFS) pursuant to the amended forbearance agreement. Additionally, the following obligations of the Company were satisfied by the issuance of shares of the Company’s common stock in lieu of payment of the subscription price (at the equivalent issue price of $.03 per share). (i) $1,000,000 of indebtedness to the brother of the Company’s President and Chief Executive Officer; (ii) approximately $150,000 of accrued salary to the Company’s President and Chief Executive Officer; (iii) $73,000 of accrued consulting fees owed to the Company’s Chairman of the Board pursuant to a Consulting Agreement; and (iv) the obligation to pay approximately $200,000 in principal amount of indebtedness to a third party was transferred to the Company’s Chairman. The Chairman was the guarantor of such note.

Forbearance Agreement

On May 16, 2005, effective May 13, 2005, the Company entered into an Amended Forbearance Agreement with respect to its line of credit and term loan with MLBFS. Pursuant to the terms of such agreement, MLBFS agreed to forbear from the exercise of its rights and remedies under the Company’s line of credit facility and permit the repayment of the outstanding obligations over a period of time ending June 3, 2005. The Company paid MLBFS a non-refundable forbearance fee of $5,000 for such agreement. Provided the Company repays its obligations to MLBFS on or before June 3, 2005, the previous $60,000 exit fee will be waived by MLBFS. In the event the Company is unable to meet such date, the exit fee shall be reinstated and all amounts shall become immediately due and payable.

Item 9.01 Financial Statements and Exhibits

(c)	Exhibits:
10.1	Forbearance Agreement, dated May 13, 2005 by and among Merrill Lynch Business Financial Services, Dreams products, Inc., Dreams, Inc. and Dreams Franchise Corporation.

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: May 18, 2005

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

Exhibit Index

Exhibit Number	Description
10.1	Forbearance Agreement, dated May 13, 2005 by and among Merrill Lynch Business Financial Services, Dreams products, Inc., Dreams, Inc. and Dreams Franchise Corporation.

EX-10.1

Exhibit 10.1

	Private Client Group
	Merrill Lynch Business Financial Services Inc. 222 North LaSalle Street 17th Floor
	Chicago, Illinois 60601
	(312) 269-1358
	FAX: (312) 499-3252
	May 13, 2005

Dreams Products, Inc.

2 South University Drive

Suite 325

Planation, FL 33324

Re: Amendment to Loan Documents

Ladies & Gentlemen:

This Letter Agreement will serve to confirm certain agreements of Merrill Lynch Business Financial Services Inc. (“MLBFS”), Dreams Products, Inc. (“Customer”), Dreams, Inc. (“Dreams”), and Dreams Franchise Corporation (“Franchise”) with respect to: (i) that certain FORBEARANCE AGREEMENT dated as of December 30, 2004 between MLBFS on the one hand, and Customer, Dreams and Franchise (collectively, Customer, Dreams and Franchise, the “Obligors” or the “Parties”) on the other hand (including any amendments and extensions thereto), and (ii) all other agreements between MLBFS and Obligors including without limitation the Loan Documents. Capitalized terms used herein and not defined herein shall have the meaning set forth in the Forbearance Agreement, or if not defined in the Forbearance Agreement, the Loan Documents. The terms of this Letter Agreement amends and restates and supercedes and replaces in its entirety that certain Letter Agreement dated as of March 30, 2005.

Subject to the last sentence of this Letter Agreement, effective as of the date hereof, the Loan Documents are hereby amended as follows:

(a) Section 4(d)(i) of the Forbearance Agreement is hereby amended and restated in its entirety to read as follows:

The term “Termination Date” shall mean the first to occur of: (i) the last Business Day of the seventeenth (17^th) full calendar month following the Closing Date, or (ii) June 3, 2005, or (iii) if earlier, the date of termination of the WCMA Line of Credit pursuant to the terms of this Forbearance Agreement.

(b) Section 4(e)(i) of the Forbearance Agreement is hereby amended and restated in its entirety as follows:

The term “Maximum WCMA Line of Credit” shall mean, as of the Effective Date (as hereinafter defined) through June 3, 2005 $3,500,000.00. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED PURSUANT TO THIS SECTION IN THE AMOUNTS SPECIFIED IN THIS SECTION.

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May 13, 2005

(c) Subject to the terms hereof, and provided Obligors comply with the terms and conditions hereof, MLBFS hereby agrees to waive the Exit Fee (as such term is defined in the Forbearance Agreement) that became due and payable on May 15, 2005 when Obligors failed to pay in full the Obligations as required by the Forbearance Agreement. However, if the Obligations are not indefeasibly paid in full on or before June 3, 2005, the Exit Fee shall be reinstated instanter and the waiver granted herein shall be void ab initio. and the Exit Fee so reinstated, shall become immediately due and payable and shall be in addition to all other charges under the Forbearance Agreement and Loan Documents, and shall become a WCMA Loan, due immediately and added to the WCMA Loan Balance in the same manner as provided for accrued interest with respect to the WCMA Line of Credit. To which extent, by executing this Letter Agreement, the Obligors hereby authorize MLBFS to pay out of and charge to Customer’s WCMA Account such Exit Fee as a WCMA Loan, at any time on or after June 3, 2005, if the Obligations are not indefeasibly paid in full on or prior to June 3, 2005.

(d) Obligors agree, concurrent with their execution of this Letter Agreement, to pay MLBFS a non- refundable Forbearance Fee of $5,000.00 covering the period between May 15, 2005, and June 3, 2005. Customer agrees to pay the Forbearance Fee with a check drawn on a non-Merrill Lynch checking account, and agrees that the Forbearance Fee will be fully non-refundable once it has been paid. Obligors further agree that additional forbearance fees will become due and owing to MLBFS for any extensions to the Forbearance Agreement or this Letter Agreement as may be granted by MLBFS. By their execution of this Letter Agreement, the Obligors hereby consent to the foregoing modifications to the Forbearance Agreement, and hereby agree that except as expressly amended hereby, the Loan Documents, including but not limited to the Forbearance Agreement, shall continue in full force and effect upon all of their terms and conditions.

Obligors acknowledge, warrant and agree, as a primary inducement to MLBFS to enter into this Agreement, that: (a) no Default or Event of Default has occurred and is continuing under the Forbearance Agreement or Loan Documents, other than the Defaults or Events of Defaults referenced in the Forbearance Agreement or specifically refereneced in this Letter Agreement; (b) each of the warranties of Obligors in the Forbearance Agreement and Loan Documents are true and correct as of the date hereof and shall be deemed remade as of the date hereof; (c) no Obligor has any claim against MLBFS or any of its affiliates arising out of or in connection with the Forbearance Agreement or Loan Documents or any other matter whatsoever; and (d) no Obligor has any defense to payment of any amounts owing, or any right of counterclaim for any reason under, the Forbearance Agreement or Loan Documents.

Provided that no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall then have occurred and be continuing under the terms of the Loan Documents, other than the existing Defaults and Events of Default referenced in the Forbearance Agreement or specifically referenced in this Letter Agreement, the amendments and agreements in this Letter Agreement will become effective on the date (the “Effective Date”) upon which: (a) Obligors shall have executed and returned the duplicate copy of this Letter Agreement along with the Forbearance Fee; and (b) an officer of MLBFS shall have reviewed and approved this Letter Agreement and such other documents as being consistent in all respects with the original internal authorization hereof.

Notwithstanding the foregoing, if each Obligor does not execute and return the duplicate copy of this Letter Agreement to MLBFS by 5PM CST May 17, 2005, or if for any other reason (other than

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May 13, 2005

the sole fault of MLBFS) the Effective Date shall not occur by May 17, 2005, then all of said amendments and agreements will, at the sole option of MLBFS, be void.

Very truly yours,
Merrill Lynch Business Financial Services Inc.
By:	/s/ Bill Kocolowski
	Bill Kocolowski Vice President

Agreed and Accepted:
Dreams Products, Inc.
By:	/s/ Ross Tannenbaum

Printed Name: Ross Tannenbaum

Title:

Dreams, Inc.
By:	/s/ Ross Tannenbaum

Printed Name: Ross Tannenbaum

Title:

Dreams Franchise Corporation
By:	/s/ Ross Tannenbaum

Printed Name: Ross Tannenbaum

Title: