10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

Registrant’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  ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 1, 2009 there were 37,528,214 shares outstanding of the registrant’s Common Stock.

DREAMS, INC.

INDEX

		PAGE
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	21
Part II.	Other Information	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	22

Part I. Financial Information

Item 1. Financial Statements

Dreams, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	June 30, 2009			December 31, 2008
(Dollars in Thousands, except share amounts)	(un-audited)
ASSETS
Current assets:
Cash	$	633		$	498
Accounts receivable, net		1,764			3,313
Inventories		28,657			31,121
Prepaid expenses and deposits		2,053			1,863
Deferred tax asset		636			636
Total current assets	$	33,743		$	37,431
Property and equipment, net		4,923			5,476
Deferred loan costs		41			44
Other intangible assets, net		5,401			5,472
Goodwill, net		8,651			8,715
Deferred tax asset		1,776			1,776
Other assets		9			9
Total assets	$	54,544		$	58,923
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,227		$	7,522
Accrued liabilities		2,536			6,060
Current portion of long-term debt		704			1,255
Borrowings against line of credit		19,361			11,445
Borrowings against bank term note		777			1,111
Deferred credits		550			1,863
Total current liabilities	$	27,155		$	29,256
Long-term debt, less current portion		1,626			1,876
Capital lease obligation		74			75
Long-term deferred tax liability		2,500			2,500
Total Liabilities	$	31,355		$	33,707
Minority interest in subsidiary		—			4
Stockholders’ equity:
Preferred stock authorized 10,000,000, issued and outstanding -0- shares		—			—
Common stock and additional paid-in capital, no par value; authorized 100,000,000 shares; shares issued and outstanding 37,528,214 and 37,528,214 shares as of June 30, 2009 and December 31, 2008, respectively.		35,378			35,339
Treasury stock 38,400 issued as of June 30, 2009 and December 31, 2008		(46	)		(46	)
Accumulated deficit		(12,143	)		(10,081	)
Total stockholders’ equity		23,189			25,212
Total liabilities and stockholders’ equity	$	54,544		$	58,923

1

Dreams, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations – Unaudited

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

	Six Months Ended June 30,						Three Months Ended June 30,
	2009			2008			2009			2008
Revenues:
Manufacturing/Distribution	$	5,459		$	9,605		$	1,936		$	3,993
Retail		21,397			22,240			10,164			9,474
Other		181			322			92			183
Total Revenues	$	27,037		$	32,167		$	12,192		$	13,650
Expenses:
Cost of sales-mfg/distribution	$	2,513		$	5,464		$	933		$	2,477
Cost of sales-retail		11,587			12,185			5,343			5,206
Operating expenses		15,078			15,804			7,041			7,301
Depreciation and amortization		912			541			453			332
Total Expenses	$	30,090		$	33,994		$	13,770		$	15,316
(Loss) before interest and taxes		(3,053	)		(1,827	)		(1,578	)		(1,666	)
Interest expense, net		371			372			197			224
Other expense		8			70			8			32
(Loss) before income taxes		(3,432	)		(2,269	)		(1,783	)		(1,922	)
Income tax benefit		1,370			870			710			763
Net (loss)	$	(2,062	)	$	(1,399	)	$	(1,073	)	$	(1,159	)
(Loss) per share:
Basic: (Loss) per share	$	(0.05	)	$	(0.04	)	$	(0.03	)	$	(.03	)
Weighted average shares outstanding – Basic		37,528,214			37,560,590			37,528,214			37,556,376
Diluted: (Loss) per share	$	(0.05	)	$	(0.04	)	$	(0.03	)	$	(.03	)
Weighted average shares outstanding – Diluted		37,528,214			37,728,136			37,528,214			37,718,100

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)

Six Months Ending June 30, 2009 and June 30, 2008

(Dollars in Thousands)

	2009			2008
Cash Flows from Operating Activities
Net(Loss)	$	(2,062	)	$	(1,399	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		841			513
Amortization		71			28
Loan cost amortization		32			20
Net loss from the sale of property and equipment		188			—
Write down of goodwill		64			—
Minority interest in net income of consolidated subsidiary		4			—
Stock based compensation		38			13
Deferred tax benefit, net		—			(374	)
(Increase) decrease in:
Accounts receivable		1,549			2,745
Inventories		2,464			(3,900	)
Prepaid expenses and deposits		(190	)		(582	)
Increase (decrease) in:
Accounts payable		(4,295	)		(7,037	)
Accrued liabilities		(3,524	)		(975	)
Deferred revenues		(1,313	)		(783	)
Net cash (used in) operating activities		(6,132	)		(11,731	)
Cash Flows from Investing Activities
Purchase of property and equipment		(476	)		(1,085	)
Net cash (used in) investing activities		(476	)		(1,085	)
Cash Flows from Financing Activities
Proceeds from Line of Credit		17,290			22,160
Paydown on Line of Credit		(9,707	)		(9,539	)
Deferred loan costs		(34	)		(38	)
Payment of minority interest		—			(74	)
Borrowings- capital lease		11			—
Repayment of Capital lease		(13	)		(9	)
Purchase of treasury stock		—			(25	)
Repayment of Notes payable		(804	)		(457	)
Net cash provided by financing activities		6,743			12,018
Net increase (decrease) in cash		135			(798	)
Cash at beginning of period		498			1,601
Cash at end of period	$	633		$	803
Cash paid for interest		314			319
Cash paid for income taxes		—			101
Supplemental Disclosure of Non Cash Financing Activity
Additional common stock issued in acquisition of Prostars		—			39

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 10-K, for the calendar year ended December 31, 2008, filed with the SEC on April 15, 2009.

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. Due to the seasonality of our business, the results of operations for such interim periods are not necessarily indicative of the results expected for future quarters or the full calendar year.

2. Description of Business and Summary of Significant Accounting Policies

Description of Business

Dreams, Inc. and its subsidiaries (collectively the “Company”) are principally engaged in the manufacture, distribution and retailing of sports memorabilia and licensed sports products and acrylic display cases through multiple distribution channels; including brick & mortar, catalogue, kiosks, trade shows and internet. The Company is also in the business of selling Field of Dreams^® store franchises, as well as athlete representation and corporate marketing of individual athletes. The Company’s customers are located throughout the United States of America.

Going Concern

The Company incurred a loss from operations, has a decrease in operational cash flows, and as of December 31, 2008, the Company was not in compliance with its debt covenants. These factors, among others, have raised substantial doubt about the Company’s ability to continue as a going concern.

Effective, June 30, 2009, the Company received its waivers from its senior lender for performance covenant breaches in 2008 and extended its revolving credit facility with its Bank through June 2010. In addition, management continues to implement aggressive cost-cutting measures in order to reduce operating costs and maintain future compliance with financial performance covenants with its lender as specifically addressed in Part 1 Item 2 of the 10Q.

Principals of Consolidation

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 June 30, 2009, weighted average shares outstanding for basic earnings per share purposes was 37,528,214. For the six months ended June 30, 2009, weighted average shares outstanding for diluted earnings per share purposes was 37,528,214. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. All common stock equivalent shares were excluded in the computation for the three and six months ended June 30, 2009 since their effect was antidilutive.

For the six months ended June 30, 2008, weighted average shares outstanding for basic earnings per share purposes was 37,560,590. For the six months ended June 30, 2008, weighted average shares outstanding for diluted earnings per share purposes was 37,728,136.

For the three months ended June 30, 2009, weighted average shares outstanding for basic earnings per share purposes was 37,528,214. For the three months ended June 30, 2009, weighted average shares outstanding for the diluted earnings per share purposes was 37,528,214. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. All common stock equivalent shares were excluded in the computation for the three and six months ended June 30, 2009 since their effect was antidilutive.

4

For the three months ended June 30, 2008, weighted average shares outstanding for basic earnings per share purposes was 37,556,376. For the three months ended June 30, 2008, weighted average shares outstanding for the diluted earnings per share purposes was 37,718,100.

Stock Compensation

Effective April 1, 2006, the Company adopted the provisions of, and accounted for stock-based compensation in accordance with SFAS No. 123 - revised 2004 (“SFAS 123R”), “Share-Based Payment”, which replaced SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” Under the fair value recognition provisions of SFAS 123R, 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 SFAS 123R apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified.

For the six and three months ended June 30, 2009, the Company recorded $38 and $1 of pre-tax share-based compensation expense under FAS No. 123(R), recorded in selling and administrative expense in the Condensed Consolidated Statement of Operations, respectively. This expense was offset by approximately a $15 and $.3 in a deferred tax benefit for non-qualified share–based compensation, respectively.

Share-Based Compensation Awards

The following disclosure provides information regarding the Company’s share-based compensation awards, all of which are classified as equity awards in accordance with FAS No. 123(R):

Stock Options - The Company grants stock options to employees that allow them to purchase shares of the Company’s 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.

On June 19, 2009, the Company granted 1,164,352 incentive stock options (ISO’s) under the Company’s Equity Compensation Plan to employees (1,045,058 options), outside Directors (90,000 options) and independent contractors (29,294 options). Each of the stock options have a (3) three-year term and are immediately vested. All of these options have an exercise price between $.41- $.45. These options were granted as a result of a voluntary deferred compensation program.

Vested options totaled 1,619,261 with an average price of $.57. Unvested options totaled 22,171. Total outstanding options that were “in the money” at June 30, 2009 were 0 with an average price per option of $0. Of those options, the vested “in the money” options totaled 0 with an average price of $0 and the “in the money” unvested options totaled 0.

There were no options exercised during the period ended June 30, 2009. There were 9,668 options cancelled during the period ended June 30, 2009.

The following table summarizes the stock option activity from January 1, 2009, through June 30, 2009:

	Options	Exercise Price		Weighted Avg. Exercise Price
January 1, 2009	486,748	$	.60 - $2.75	$	.97
Granted	1,164,352		.41-.45		.42
Expired	—		—		—
Cancelled	9,668		.60-2.75		2.24
Exercised	—		—		—
June 30, 2009	1,641,432	$	.41 - $2.75	$	.57

5

The following table breaks down the number of outstanding options with their corresponding contractual life as well as the exerciseable weighted average (WA), outstanding exercise price, number of vested options with the corresponding exercise price by price range.

Options Breakdown by Range at 6/30/09

Outstanding			Exerciseable
Range	Outstanding Options	Remaining Contractual Life	WA Outstanding Exercise Price		Vested Options	WA Vested Exercise Price
$0.41 to $1.19	1,532,011	2.7	$	.48	1,509,840	$	.48
$1.20 to $2.14	81,088	.1		1.50	81,088		1.50
$2.15 to $2.75	28,333	1.9		2.67	28,333		2.67
$.41 to $2.75	1,641,432	2.5		.57	1,619,261		.57

At June 30, 2009, exercisable options had aggregate intrinsic values of $0.

Deferred Compensation

During the quarter ended June 30, 2009, the Company entered into a deferred compensation agreement with participating employees, through a voluntary program, which provides for a 12% accrued annual interest rate and incentive stock options (ISO’s). The deferred compensation which will total $1,100, along with accrued interest amounts are scheduled to be paid on December 18, 2009. As a result, the Company recorded $1 in interest expense and $187 in deferred compensation for the period.

Income Taxes

SFAS No. 109 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 a valuation allowance of $187 as of December 31, 2008, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current fiscal year is $0.

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” 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 de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation of the implementation of FIN 48, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the year ended December 31, 2008. The tax years subject to examination by the taxing authorities are the years ended December 31, 2008, December 31, 2007, and March 31, 2007.

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). FSP FIN 48-1 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.

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.

Certain prior period amounts have been reclassified to conform to current period’s presentation.

3. Business Segment Information

The Company has two reportable segments as identified by information reviewed by the Company’s chief operating decision maker (CODM) and is comprised of our CEO and SVP Finance of Dreams, Inc. The divisions whose customers are reseller’s of our goods have their results reflected in the manufacturing/distribution segment. The divisions whose customers are the end users of our goods have their results reflected in our retail segment.

6

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 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 is comprised of traditional brick and mortar stores and Internet sites:

Brick and Mortar

As of June 30, 2009, the Company owned and operated (13) thirteen Field of Dreams^® stores offering a selection of sports & entertainment memorabilia and collectibles and (6) six FansEdge stores offering an array of sports licensed products. The Company has multiple stores in the South Florida, Chicago and Las Vegas markets.

Internet

The Company’s e-commerce components feature FansEdge.com and ProSportsMemorabilia.com along with a complement of athlete and syndicated web sites including, but not limited to: www.peterose.com, www.danmarino.com, and www.dickbutkus.com. These e-commerce retailers 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.

All of the Company’s revenue generated in the six months ended June 30, 2009 and June 30, 2008, was derived in the United States and all of the Company’s assets are located in the United States.

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.

7

3. Business Segment Information

Segment information for the six month periods ended June 30, 2009 and June 30, 2008 was as follows:

Six Months Ended:	Manufacturing/ Distribution			Retail Operations			Total
June 30, 2009
Net sales	$	7,556		$	21,397		$	28,953
Intersegment net sales		(2,097	)		—			(2,097	)
Operating earnings / (loss)		245			(1,905	)		(1,660	)
Total Assets	$	19,240		$	29,523		$	48,763
June 30, 2008
Net sales	$	11,838		$	22,232		$	34,070
Intersegment net sales		(2,233	)		—			(2,233	)
Operating earnings / (loss)		1,134			(1,616	)		(482	)
Total Assets	$	16,632		$	27,445		$	44,077

Reconciliation to consolidated amounts is as follows:

	Six Months Ended
	6/30/09			6/30/08
Revenues:
Total revenues for reportable segments	$	28,953		$	34,070
Other revenues		181			330
Eliminations of intersegment		(2,097	)		(2,233	)
Total consolidated revenues	$	27,037		$	32,167
Pre-tax (loss):
Total operating loss for reportable segments	$	(1,660	)	$	(482	)
*Other (Loss)		(1,401	)		(1,415	)
Less: Interest expense		371			372
Total consolidated (loss) before taxes	$	(3,432	)	$	(2,269	)

* 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 Company’s internal accounting policies are executive salaries and benefits; corporate office occupancy costs; professional fees, bank charges; certain insurance policy premiums, public relations/investor relations expenses and running the franchise business.

8

Segment information for the three month periods ended June 30, 2009 and June 30, 2008 was as follows:

Three Months Ended:	Manufacturing/ Distribution			Retail Operations			Total
June 30, 2009
Net sales	$	3,081		$	10,164		$	13,245
Intersegment net sales		(1,145	)		—			(1,145	)
Operating earnings / (loss)		(182	)		(697	)		(879	)
Total assets	$	19,240		$	29,523		$	48,763
June 30, 2008	$	4,991		$	9,534		$	14,525
Net sales		(998	)		—			(998	)
Intersegment net sales		(52	)		(1,063	)		(1,115	)
Operating earnings / (loss)	$	16,632		$	27,445			44,077
Total assets

Reconciliation to consolidated amounts is as follows:

	Three-Months Ended
	6/30/09			6/30/08
Revenues:
Total revenues for reportable segment	$	13,245		$	14,525
Other revenues		92			123
Eliminations of intersegment		(1,145	)		(998	)
Total consolidated revenues	$	12,192		$	13,650
Pre-tax (loss) :
Total operating (loss) for reportable segments		(879	)		(1,115	)
*Other (loss)		(707	)		(583	)
Less: Interest expense		197			224
Total consolidated (loss) before taxes	$	(1,783	)	$	(1,922	)

* 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 Company’s internal accounting policies are executive salaries and benefits; corporate office occupancy costs; professional fees, bank charges; certain insurance policy premiums, public relations/investor relations expenses and running the franchise business.

9

4. Inventories

The components of inventories are as follows:

	June 30, 2009		December 31, 2008
Raw materials	$	472	$	362
Work in process		65		78
Finished goods, net		28,120		30,681
Total	$	28,657	$	31,121

5. Goodwill and Unamortized Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), 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 unit’s 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 Company’s evaluations of the carrying amount of goodwill were completed as of December 31, 2008 in accordance with SFAS 142, resulted in no impairment losses. During the quarter ended June 30, 2009, the Company closed one of its retail stores. As a result of the store closing, the Company wrote off approximately $64 of goodwill recorded in the original acquisition of this store in November of 2006.

6. Acquisition of Business

Upon the closing of an acquisition, management estimates the fair values of assets and liabilities, acquired and consolidates the acquisition as quickly as possible. However, it routinely takes time to obtain all of the pertinent information to finalize the acquired company’s balance sheet and supporting schedules and to adjust the acquired company’s accounting policies, procedures, books and records to the Company’s 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.

7. Commitments and Contingencies

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

8. New Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. SFAS No. 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This SFAS is effective for our interim reporting period ending on September 30, 2009. This SFAS is not expected to have a material impact on our consolidated financial position, results of operations and cash flows.

10

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.

9. Line of Credit

Effective June 30, 2009, the Company extended its credit facilities of $21,000 with its senior lender until June 2010, had its 2009 business plan approved and funded, and received waivers for its fourth quarter 2008 covenant breaches. By way of background, during the first quarter of 2009, the Company disclosed that it was out of compliance with certain financial performance covenants with its Bank from the fourth quarter of 2008 and that it was determining a course of action to remedy the situation. On June 6, 2007, the Company entered into a three-year loan and security agreement with Comerica Bank. Comerica provided the Company with $18,000 in credit facilities; consisting of a $15,000 revolver and a $3,000 “acquisition line” to fund the cash portion of future strategic acquisitions. Effective May 12, 2008 Comerica Bank increased the Company’s revolver from $15,000 to $21,500 to support the Company’s 2008 projected growth and business plan. The loan remains secured by all of the assets of the Company and its divisions. The interest rate on outstanding loan balances was prime but, with the new extension has been increased to prime plus a 3.25% margin, currently 6.5%. The credit facility requires that certain performance financial covenants be met on a monthly and or quarterly basis. These modified financial covenants consist of a maximum quarterly Debt to Tangible Net Worth ratio, a minimum monthly EBITDA figure, and a minimum quarterly Tangible Net Worth amount. All of which have been met for the first six months of this year. The advance rates for eligible accounts receivable is 80% and 62.5% for the Company’s eligible inventories. As of June 30, 2009, the Company had $19,300 outstanding on the revolver and $777 outstanding on the acquisition line.

11

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-Q 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 including the continuing availability of our credit facility with Comerica 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.

Management’s Overview

Dreams, Inc., headquartered in Plantation, Florida has evolved into the premier vertically integrated licensed sports products firm in the industry. This has previously been accomplished, in part, via organic growth and strategic acquisitions. Our continuing pursuit of this dual strategy should result in our becoming a principal leader and a consolidator in this highly fragmented industry. We believe our senior management and corporate infrastructure is well suited to acquire both large and small industry competitors.

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 from:

• Our thirteen (13) company-owned Field of Dreams stores; (reported in retail segment)

• Our six (6) company-owned FansEdge stores; (reported in retail segment)

• Our e-commerce component featuring www.FansEdge.com and others; (reported in retail segment)

• Our athlete and web syndication sites; (reported in retail segment)

• Our catalogues; (reported in retail segment)

• Our outbound VIP call center*; (reported in retail segment)

• Our manufacturing/distribution of sports memorabilia products, custom acrylic display cases and framing; (reported in mfg/wholesale segment)

• Our running of sports memorabilia /collectible trade shows; (reported in mfg/wholesale segment)

• Our franchise program through the eight (8) Field of Dreams franchise stores presently operating*; (reported in other income) and

• Our representation and corporate marketing of individual athletes*(reported in other income).

*revenues not material to the overall consolidated results

Organic Growth

Key components of our organic growth strategy include building brand recognition; improving sales conversion rates both in our stores and web sites; continuing our execution of multi-channel retailing; 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.

12

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 Company’s sales associated with these e-commerce initiatives have grown from $4,000 in 2004 to nearly $47,000 in 2008, placing it at number 363 in 2005, number 289 in 2006, number 216 in 2007, and number 217 in 2008 of the largest Internet retailers in the nation. This remains the fastest growing area of the Company.

The Company has drawn on a complete spectrum of competencies it developed to support its flagship online brand, FansEdge. This has allowed the Company to leverage the investments made during the past few 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 as, 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 AOL Sports, Majestic Athletic and the Philadelphia Eagles, to name a few.

We are pleased with the results to date of our FansEdge brick & mortar stores. They have performed well during the slowing economy as we believe they offer approachable price points for the consumer. Commencing in June 2008 and continuing throughout the fall of last year, we opened (6) six FansEdge stores in the greater Chicago, IL area. This was in support of our Multi-channel Retailing strategy; whereby we market a single brand via multiple channels.

During the period, the Company closed (3) three under-performing Field of Dreams stores (Pier 39, Scottsdale Fashion, Fashion Valley) in addition to the (1) one Field of Dream store closed in January 2009 (Westfarms). We will continue to monitor the results of the existing stores to ensure that they are providing us with the desired results.

Our proprietary e-commerce platform has also enabled us to fuel a state-of-the-art in-store interactive Kiosk for ordering products. These Kiosks are in each of the new FansEdge stores and are providing a unique shopping experience for our customers by allowing them to access the entire Company portfolio of more than 100,000 sku’s (stock keeping units). In fact, so far, we are seeing an average of 14% contribution to the individual store sales from the Kiosks. The Company believes it can seek joint venture deals with national retailers who are seeking to add a broader range of merchandising options to their customers by placing our kiosks within their store footprint. In August 2009, we will be installing our kiosks in (6) Philadelphia Eagles team stores in the greater Philadelphia market.

We believe this expansion of our revenue producing foot-print will serve us well as we navigate our business models through the challenging economy and look to distinguish ourselves from our competitors.

Objective

Our overall objective is to establish a market leading totally licensed, sports and entertainment products enterprise and true multi-channel retailer. That is, to service the customer by every possible means necessary in an efficient, profitable, and professional manner, driving and building our brands through on-line, brick and mortar, catalogue, kiosk, trade shows, and in-bound and out-bound call centers.

Analysis

We review our operations based on both our financial results and various non -financial measures. Management’s 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.

We believe the implementation of our Multi-channel Retailing strategy will strengthen our brands 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 5-6% of all retail sales are being conducted on-line and are anticipated to increase.

With the continued growth of our Web Syndication business model, we are leveraging the Company’s investment in its broad inventory by offering the items to multiple sites simultaneously. This should improve our inventory turns, increase our absorption rates and reduce inventory carrying costs.

13

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 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. Other factors also make for a significant fluctuation of our quarterly results, including the timing of special events, the general popularity of a specific team that wins a championship or an individual athlete who enters their respective sports’ Hall of Fame, the amount and timing of new sales contributed by new stores, the timing of personal appearances by particular athletes and general economic conditions. Additional factors may cause fluctuations and expenses, including the costs associated with the opening of new stores, the integration of acquired businesses and stores into our operations , the over-all strength of the economy, and corporate expenses 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, as well as our relationships with sports leagues, agents and athletes. Management believes we can continue to capture market share and become a consolidator in the highly fragmented licensed sports products industry, especially on-line. During the slowing economy, we have been proactive as it relates to our corporate over-head and expenses and have instituted several savings initiatives including: lay-offs, management and employee salary reductions and deferrals, commitment modifications, rent deferrals, and reduced pricing and or extended terms from key suppliers and service professionals.

In the aftermath of the recession that was so prevalent during the fourth quarter of 2008, management’s task was to more methodically align expenditures with anticipated revenues. Remember, even in one of the most challenging economic environments ever witnessed, the Company was able to produce healthy profits and near record revenues for its fourth quarter of 2008, and recorded record revenue for the year in 2008 of $82,000. Our ability to generate revenues through traditional means, capturing market share from fallen competitors, and creating new sources of revenues (i.e. trade shows, kiosks, catalogues, web syndication, new stores- all new sources introduced in 2008), remained intact. Therefore, controlling costs and expenses became the primary focus. For years, we managed the business from a top-line perspective, and it showed. Our consolidated revenues have quadrupled in a few short years. With a new economy and consumer spending trends off considerably, managements focus on controlling expenses and reducing overhead was elevated to maximum importance. For that reason, beginning in 2009, it was imperative that we found ways to reduce overhead and overall operating expenses to diminish the non-holiday quarter operating losses and leverage the busier quarters to attain maximum profitability. Below is an outline of corporate savings initiatives and cash flow improvements already enacted with various execution dates and economic impact. (savings are approximates and on an annualized basis)

Corporate Savings Initiatives

Our reduction in work force was implemented in stages. In February, our employee count, as a result of lay-offs, went from 401 to 338 with an estimated savings of approximately $2,400 with benefits. In March, April and May, the reductions continued to yield our current employee level of 280. This next wave of lay-offs provided the Company with approximately another $2,000 in savings with benefits.

Salary reductions targeted the 23 top wage earners who were subjected to a 10% reduction in pay, which yielded a savings to the Company of approximately $365. In March, we included the remaining workforce in a 10% reduction in pay which yielded approximately $1,200 in additional savings.

We were proactive with each of our landlords and were able to re-negotiate 17 of our leases during the period, along with closing (4) under-performing Field of Dreams stores for an approximate savings of $500. In four other instances, we were able to shift current rent amounts to the end of the year which was an improvement in cash flow. The Company also reached out to key vendors and service providers and was able to reduce costs of about $100.

A material expense for the Company each year is the premiums associated with offering health insurance to its employees. In 2008, we incurred nearly $1,000 in fees associated with this expense. Effective May 1, 2009, we reduced our premiums for the next twelve months by $275 as a result of a large plan re-design.

14

GENERAL

As used in this Form 10-Q “we”, “our”, “us”, “the Company” and “Dreams” refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise.

Use of Estimates

The preparation of our financial statements in conformity with generally accounting principles accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the period. Future events and their effects cannot be determined with absolute certainty; therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to our financial statements. Management continually evaluates its estimates and assumptions, which are based on historical experience and other factors that are believed to be reasonable under the circumstances.

Management believes that the following may involve a higher degree of judgment or complexity:

Collectibility of Accounts Receivable

The Company’s allowance for doubtful accounts is based on management’s 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 Company’s operations. The Company’s current allowance for doubtful accounts is $51.

	June 30, 2009		December 31, 2008
Accounts receivable	$	1,815	$	3,389
Allowance for doubtful accounts		51		76
Accounts receivable, net	$	1,764	$	3,313

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 Company’s investment in inventories for declines in value. The Company’s current reserve for inventory obsolescence is $335.

	June 30, 2009		December 31, 2008
Inventory	$	28,992	$	31,456
Reserves for inventory obsolescence		335		335
Inventory, net	$	28,657	$	31,121

Income Taxes

Significant management judgment is required in developing the Company’s 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 June 30, 2009, March 31, 2009 and December 31, 2008, was necessary.

Goodwill and Unamortized Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), 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

15

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 unit’s 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 Company’s evaluations of the carrying amount of goodwill were completed as of December 31, 2008 in accordance with SFAS 142, resulted in no impairment losses. During the quarter ended June 30, 2009, the Company closed one of its retail stores. As a result of the store closing, the Company wrote off approximately $64 of goodwill recorded in the original acquisition of this store in November of 2006.

Revenue Recognition

The Company recognizes retail (including e-commerce 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 partnered in a corporate rebate program with a national consumer goods retailer. The Company issued rebate coupons for which it was pre-paid 50% of the coupon value. Certificates redeemed through March 31, 2009, were recognized as revenue in the period. Additionally, a breakage model was projected for the program’s eight month term, based upon redemption totals redeemed through April 27, 2009, the program’s termination date. Thus, the Company recognized breakage revenue over the seven months (September 2008 – March 09), of the program. The balance of certificates redeemed during the program’s last month (April 09), were relieved from deferred revenue and recognized in our manufacturing/wholesale revenues for the reporting period.

RESULTS OF OPERATIONS

The following table presents our historical operating results for the periods indicated as a percentage of net sales:

	Six months ended June 30,				Three months ended June 30,
	2009		2008		2009		2008
Net Sales	1.00		1.00		1.00		1.00
COGS	.53		.55		.52		.56
Gross Profit	.47		.45		.48		.44
*Operating Expenses	.55		.49		.57		.53
Operating (loss)	(.08	)	(.04	)	(.10	)	(.10	)
(Loss) before income taxes	(.13	)	(.07	)	(.15	)	(.14	)
Net (loss)	(0.08	)	(.04	)	(.09	)	(.09	)

* Does not include depreciation.

** Above table may not foot due to rounding

16

Six Months Ended June 30, 2009 versus the Six Months Ended June 30, 2008

Revenue. Total revenues decreased 16.1% to $27,000 for the six months ended June 30, 2008, from $32,200 in the same period last year. The decrease was primarily due to the slow economy; our strategic decision to stop selling our manufactured products to third party on-line retailers who compete against our own internet sites; and the closing of 4 Field of Dreams stores during the first six months of the year.

Manufacturing/Distribution revenues decreased 35.5% to $7,600 for the six months ended June 30, 2009, from $11,800 in the same period last year. Net revenues (after eliminating intercompany sales) decreased 42.7% to $5,500 for the six months ended June 30, 2009, from $9,600 in the same period last year. The decrease was primarily due to the slow economy and our strategic decision to stop selling our manufactured products to third party on-line retailers who compete against our own internet sites.

Retail operation revenues decreased 3.6% to $21,400 for the six months ended June 30, 2009, from $22,200 in the same period last year. Our internet division revenues decreased 4.5% to $14,800 for the six months ended June 30, 2009, from $15,500 in the same period last year. Additionally, retail revenues generated through our Field of Dreams and FansEdge stores was approximately $6,600 for both the first six months of June 30, 2009 and June 30, 2008. However, same store sales at Field of Dreams were down approximately 24%, while the (6) six FansEdge stores produced $1,400 in the period. Also, we closed (4) four underperforming Field of Dreams stores in the period.

Costs and expenses. Total cost of sales for the six months ended June 30, 2009 decreased 19.9% to $14,100, from $17,600 in the same period last year. The decrease directly relates to a reduction in overall sales and an improvement in manufacturing/distribution gross margins enhanced by a corporate rebate program the Company partnered in with a national consumer goods retailer. As a percentage of total sales, costs of sales were 52.1% for the six months ended June 30, 2009, compared to 54.7% for the same period last year.

Costs of sales of manufacturing/distribution products decreased 54.5% to $2,500 for the six months ended June 30, 2009, from $5,500 in the same period last year. The decrease directly relates to a reduction in manufacturing/distribution sales and an improvement in manufacturing/distribution gross margins enhanced by a corporate rebate program the Company partnered in with a national consumer goods retailer. As a percentage of manufacturing/distribution revenues, costs of sales were approximately 46.0% for the six months ended June 30, 2009, compared to 57.3% for the same period last year. As a percentage of manufacturing/distribution revenues before elimination of inter-company sales, costs were 61.0% for the six months ended June 30, 2009, versus 65% for the same period last year.

Costs of sales of retail products decreased 4.9% to $11,600 for the six months ended June 30, 2009, from $12,200 in the same period last year. The decrease is a direct result of slightly lower retail sales. As a percentage of total retail sales, costs were 54.2% for the six months ended June 30, 2009, versus 54.9% for the same period last year.

Operating expenses decreased 5.0% to $15,000 for the six months ended June 30, 2009, from $15,800 in the same period last year. As a percentage of sales, operating expenses were 55.5% for the six months ended June 30, 2009, versus 49% for the same period last year. The corporate savings initiatives implemented in early 2009, will just begin to materialize during the second quarter and have a greater impact towards the final two quarters of the year.

Interest expense, net. Net interest expense was $371 for the six months ended June 30, 2009, versus $372 for the same period last year.

Provision for income taxes. The Company recognized an income tax benefit of $1,400 for the six months ended June 30, 2009, versus an income tax benefit of $870 for the same period last year. Each quarter, the Company evaluates whether the realizability of its net deferred tax asset is more likely than not. Should the Company determine that a valuation reserve is necessary, it would have a material impact on the Company’s 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 that 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 June 30, 2009 and June 30, 2008. The effective tax rate for both periods was approximately 40%.

Three Months Ended June 30, 2000 versus the Three Months Ended June 30, 2008

Revenue. Total revenues decreased 10.2% to $12,200 for the three months ended June 30, 2009, from $13,600 in the same period last year. The decrease was primarily due to the slow economy, off- set by an increase in on-line revenues; our strategic decision to stop selling our manufactured products to third party on-line retailers who compete against our own internet sites; and the closing of (3) three Field of Dreams stores during the second quarter of 2009.

Manufacturing/Distribution revenues decreased 38% to $3,100 for the three months ended June 30, 2009, from $5,000 in the same period last year. Net revenues (after eliminating intercompany sales) decreased 52.5% to $1,900 for the three months ended June 30, 2009, from $4,000 in the same period last year. The decrease was primarily due to the slow economy and our strategic decision to stop selling our manufactured products to third party on-line retailers who compete against our own internet sites.

17

Retail operation revenues increased 7.3% to $10,200 for the three months ended June 30, 2009, from $9,500 in the same period last year. Our internet retail division revenues increased 11.6% to $6,700 for the three months ended June 30, 2009, from $6,000 in the same period last year. The overall increase is a result of fewer retailers liquidating inventories as was experienced in the first quarter 2009 environment. The increase in Internet sales is a result of our providing more robust platforms, improving our user interface, better merchandising of our products on-line, increased traffic and better conversion rates, and the early success of our web syndication model. Additionally, retail revenues generated through our company-owned ((13) thirteen company-owned Field of Dreams and (6) six FansEdge) stores were up 6.2% to $3,400 for the three months ended June 30, 2009, from $3,200 in the same period last year. However, same store sales at Field of Dreams were down approximately 24%, while our (6) FansEdge stores generated $880 for the quarter. Also, in the period, we closed (3) three underperforming Field of Dreams stores.

Costs and expenses. Total cost of sales for the three months ended June 30, 2009, decreased 18.1% to $6,300, versus $7,700 in the same period last year. The decrease directly relates to a decrease in overall company sales. However, as a percentage of total sales, cost of sales was 51.4% for the three months ended June 30, 2009, compared to 56.0% for the same period last year.

Cost of sales of manufacturing/distribution products decreased 64.0% to $933 for the three months ended June 30, 2009, versus $2,500 in the same period last year. However, as a percentage of manufacturing/distribution revenues, cost of sales was 48.2% for the three months ended June 30, 2009, compared to 62.5% for the same period last year. As a percentage of manufacturing/distribution revenues before elimination of inter-company sales, costs were 67.4% for the three months ended June 30, 2009, compared to 70.0% for the three month period ended June 30, 2008.

Cost of sales of retail products increased 1.9% to $5,300 for the three months ended June 30, 2009, from $5,200 in the same period last year. . The increase is a direct result of incremental retail sales and continued downward pressure on pricing at our company-owned stores. As a percentage of total retail sales, costs were 51.9% for the three months ended June 30, 2009, versus 54.7% for the same period last year.

Operating expenses decreased 4.1% to $7,000 for the three months ended June 30, 2009, from $7,300 in the same period last year. The reduction in overall operating expenses is a result of numerous corporate savings initiatives enacted earlier this year that just began to materialize during the period. The Company believes a trend of lower operating expenses as a percentage of sales, will be material for the remaining six months of the year. Also, in the period, we were subjected to a one-time non-cash operating expense associated with the write-down of assets due to early terminations of (3) three Field of Dreams stores and a lease buy-out. As a percentage of sales, operating expenses were 57.3% for the three months ended June 30, 2009, versus 53.2% for the same period last year.

Interest expense net. Net interest expense was $197 for the three months ended June 30, 2008, versus $224 for the same period last year.

Provision for income taxes. The Company recognized an income tax benefit of $710 for the three months ended June 30, 2009, versus an income tax benefit of $763 for the same period last year. 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 Company’s 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 that 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 June 30, 2009 and June 30, 2008. The effective tax rate for both periods was approximately 40.0%.

18

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity during the six month period ended June 30, 2009, are the cash flows generated from our operating subsidiaries; availability under our $20,000 senior revolving credit facility; and available cash.

The balance sheet as of June 30, 2009 reflects working capital of $6,600 versus working capital of $8,200 at December 31, 2008. At June 30, 2009, the Company’s cash was $633 compared to $498 at December 31, 2008. Net accounts receivable at June 30, 2009 were $1,800 compared to $3,300 at December 31, 2008.

Use of Funds

Cash used in operations was $6,100 for the six months ended June 30, 2009, compared to $11,700 cash used in operations during the same period of 2008. The Company’s improvement in operational cash flows for the first six months of 2009 is primarily attributable to a reduction in inventory levels, lower accounts payable balances, and lower operating expenses.

Cash used in investing activities was $500 for the six months ended June 30, 2009, compared to $1,100 of cash used in investing activities for the same period of 2008. The Company reduced its capital expenditures during the first six months of 2009.

Cash provided by financing activities was $6,700 for the six months ended June 30, 2009, compared to $12,000 cash provided by financing activities for the same period in 2008. The decrease in cash provided by financing activities during the first six months of 2009, was primarily a result of lower over-all operating expenses, the reduction in inventory levels and reduction in accounts payable balances.

Other Activity

Effective June 30, 2009, the Company extended its credit facilities of $21,000 with its senior lender until June 2010, had its 2009 business plan approved and funded, and received waivers for its fourth quarter 2008 covenant breaches. (Amended and restated letter agreement filed as Exhibit 10.1 with this 10-Q) By way of background, during the first quarter of 2009, the Company disclosed that it was out of compliance with certain financial performance covenants with its Bank from the fourth quarter of 2008 and that it was determining a course of action to remedy the situation. On June 6, 2007, the Company entered into a three-year loan and security agreement with Comerica Bank. Comerica provided the Company with $18,000 in credit facilities; consisting of a $15,000 revolver and a $3,000 “acquisition line” to fund the cash portion of future strategic acquisitions. Effective May 12, 2008 Comerica Bank increased the Company’s revolver from $15,000 to $21,500 to support the Company’s 2008 projected growth and business plan. The loan remains secured by all of the assets of the Company and its divisions. The interest rate on outstanding loan balances was prime but, with the new extension has been increased to prime plus a 3.25% margin, currently 6.5%. The credit facility requires that certain performance financial covenants be met on a monthly and or quarterly basis. These modified financial covenants consist of a maximum quarterly Debt to Tangible Net Worth ratio, a minimum monthly EBITDA figure, and a minimum quarterly Tangible Net Worth amount. All of which have been met for the first six months of this year. The advance rates for eligible accounts receivable is 80% and 62.5% for the Company’s eligible inventories. As of June 30, 2009, the Company had $19,300 outstanding on the revolver and $777 outstanding on the acquisition line.

Analysis

We are continuing to review our operational expenses and examining ways to reduce costs on a going-forward basis. With the slow economy, we continue to manage our capital conservatively and analyze each of our commitments to identify areas where we can improve the profitability and or cash flow of our business. To date, we have been successful with restructuring many of our rent commitments, player contracts and vendor pricing. Also, we have reduced our workforce and implemented management and employee salary reductions to lower our operating expenses. Each of these initiatives was enacted during the first quarter of this year and is providing the Company with the desired results, i.e. reducing operating expenses and general corporate overhead, and improving cash-flow.

In addition, our stock has been, and continues to be, thinly traded despite our listing on the American Stock Exchange, and our public and investor relations initiatives, therefore providing little liquidity for many of our shareholders. Accordingly, we believe we may have been unable to realize many of the principal benefits of being a public company; all the while, continuing to incur many of the additional costs associated with being a public company, including, but not limited to, listing fees, SEC filings, enhanced legal and accounting fees and Sarbanes-Oxley. We expect that these and other compliance costs of a public company will continue to increase. As a result of the foregoing, we expect to consider from time to time, strategic alternatives to maximize shareholder value.

19

Contractual Obligations (dollars in thousands)

	Total		Less than 1-yr		1-3 yrs		3-5 yrs		More than 5-yrs
Long-term debts:	$	2,330	$	704	$	508	$	1,118	$	0
Operating leases:		16,394		3,275		5,661		4,685		2,773
Other long-term liabilities:		1,743		989		724		30

Summary

With our 2008 results providing a loss from operations, management’s challenge was to methodically align expenditures with anticipated revenues. We believe this has been accomplished with the cost cutting and commitment modifications enacted earlier this year. Our previously disclosed issues with our senior lender have been resolved and our results for the second quarter of 2009 reflect an overall improvement. We believe this trend will continue throughout the balance of the year. Therefore, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk generally represents the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates and market prices. We do not currently have any trading derivatives nor do we expect to have any in the future. We have established policies and internal processes related to the management of market risks, which we use in the normal course of our business operations.

Interest Rate Risk. We have interest rate risk, in that borrowings under our credit facility with Comerica Bank are based on variable market interest rates. As of June 30, 2009, we had $19,300 of variable rate debt outstanding under our current credit facility with Comerica Bank. A hypothetical 10% increase in our credit facility’s weighted average interest rate of 6.5% per annum for the quarter ended June 30, 2009, would correspondingly decrease our pre-tax earnings and our operating cash flows by approximately $13.

Intangible Asset Risk. We have a substantial amount of intangible assets. We are required to perform goodwill impairment tests whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. As a result of our periodic evaluations, we may determine that the intangible asset values need to be written down to their fair values, which could result in material changes that could be adverse to our operating results and financial position. Although at June 30, 2009, we believed our intangible assets were recoverable, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. We continue to monitor those assumptions and their effect on the estimated recoverability of our intangible assets.

Foreign Currency Exchange Rate Risk.

None.

Commodity Price Risk.

None.

20

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act) as of the end of the period covered by the report.

Based upon that evaluation, the Company’s CEO and CFO concluded that as of June 30, 2009 the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by the Company in the Report that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by the Company in the reports that its files or submits under the Exchange Act is accumulated and communicated to its management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

During the quarter ended June 30, 2009, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There are no material changes to the Company’s risk factors as previously reflected in the form 10-K that was filed on April 15, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

a. N/A

b. N/A

c. N/A

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to Vote of Security Holders.

None.

Item 5. Other Information.

None.

21

Item 6. Exhibits.

No.
10.1	Amended and Restated Letter Agreement dated June 30, 2009
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
32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

22

SIGNATURE

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 thereunto duly authorized on August 14, 2009.

DREAMS, INC.
By:	/s/ Ross Tannenbaum
	Ross Tannenbaum, Chief Executive Officer, Principal Executive Officer

23

Exhibit Index

Exhibit No.	Description
10.1	Amended and Restated Letter Agreement dated June 30, 2009
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 202
32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

24

EX-10.1

Exhibit 10.1

June 30, 2009

Dreams, Inc.

2 S. University Drive, Suite 325

Plantation, FL 33324

Re: Amended and Restated Letter Agreement

Ladies and Gentlemen:

This letter (“Agreement”) constitutes an agreement by and between COMERICA BANK, (herein called “Bank”), and (i) Dreams, Inc., a Utah corporation, registered in Florida as a foreign corporation under the name Dreams of Utah, Inc. and dba Dreams, Inc. (individually “Dreams”, and as authorized agent for each of the other Borrowers “Authorized Agent”), (ii) Dreams Franchise Corporation, a California corporation (“Franchise”), (iii) Dreams Entertainment, Inc., a Utah corporation (“Entertainment”), (iv) Dreams Products, Inc., a Utah corporation, Inc. (“Products”), (v) Dreams Retail Corporation, a Florida corporation (“Retail”), (vi) Dreams/Pro Sports, Inc., a Florida corporation (“Pro Sports”), (vii) Fansedge Incorporated, a Delaware corporation (“Fansedge”), (viii) The Greene Organization, Inc., a Florida corporation (“Greene”), (ix) The Sports Collectibles & Auction Company, Inc., a Florida corporation (“Collectibles”), (x) Dreams Unique, Inc., a Florida corporation (“Unique”), (xi) StarsLive365, LLC, a Nevada limited liability corporation (“StarsLive”), (xii) 365 Las Vegas, L.P., a Nevada limited partnership (“Las Vegas”) and (xiii) BKJ Consulting Corp., an Illinois corporation (“BKJ” and collectively with Dreams, Franchise, Entertainment, Products, Retail, Pro Sports, Fansedge, Greene, Collectibles, Unique, StarsLive and Las Vegas referred to herein as the “Borrowers” and individually, a “Borrower”), pertaining to certain loans and other credit which Bank has made and/or may from time to time hereafter make available to Borrowers, or any of them.

This Agreement amends, restates and replaces that certain letter agreement dated May 15, 2007, among Borrowers and Bank, as amended (the “Prior Agreement”).

In consideration of all present and future loans, advances and other credit from time to time made available by Bank to or in favor of any of the Borrowers, and in consideration of all present and future Liabilities of any of the Borrowers to Bank, each Borrower represents, warrants, covenants and agrees as follows:

1. (a) As used in this Agreement, the following terms shall have the following respective meanings:

“Affiliate” shall mean, when used with respect to any Person, any other Person, or group acting in concert in respect of such Person, that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person or group of persons, shall mean the possession, directly or indirectly, of

the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall mean this letter agreement, as the same may be amended from time to time.

“Business Day” shall mean any day, other than a Saturday, Sunday or holiday, on which Bank is open for all or substantially all of its domestic and international business (including dealings in foreign exchange) in Detroit, Michigan and Fort Lauderdale, Florida.

“Capital Expenditure” shall mean, without duplication, with respect to any Person, any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property or equipment which in accordance with GAAP would be added as a debit to the fixed asset account of such Person, including, without limitation, amounts paid or payable under any conditional sale or other title retention agreement or under any lease or other periodic payment arrangement which is of such a nature that payment obligations of such Person thereunder would be required by generally accepted accounting principles to be capitalized and shown as liabilities on the balance sheet of such Person.

“Consolidated” and “Consolidating” shall mean when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated basis in accordance with GAAP.

“Debt” shall mean with respect to any Person as of any date of determination all items of indebtedness, obligation or liability of that Person, whether matured or unmatured, liquidated or unliquidated direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP.

“Default” shall mean any condition or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.

“EBITDA” shall mean, for any period, net income (loss) of Dreams and its Consolidated Subsidiaries before interest expense, income tax expense and depreciation and amortization expense for such period, all as determined on a Consolidated basis in accordance with GAAP.

“Environmental Laws” shall mean all laws, codes, ordinances, rules, regulations, orders, decrees and directives issued by any federal, state, local, foreign or other governmental or quasi-governmental authority or body (or any agency, instrumentality or political subdivision thereof) pertaining to hazardous or toxic materials, including, without limitation, any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos, and/or other similar materials; any so-called “superfund” or “superlien” law pertaining to hazardous or toxic materials on or about any property at any time owned, leased or otherwise used by any Borrower, or any portion thereof, including, without limitation, those relating to soil, surface, subsurface groundwater conditions and the condition of the ambient air; and any other federal, state, foreign or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, radioactive, flammable or dangerous waste, substance or material, as now or at any time hereafter in effect.

2

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.

“Event of Default” shall mean the occurrence or existence of any of the conditions or events set forth in Section 8 of this Agreement.

“GAAP” shall mean generally accepted accounting principles consistently applied.

“Guaranty” shall mean a guaranty in form and substance satisfactory to Bank pursuant to which a Guarantor guaranties payment of all or any portion of the Liabilities.

“Hazardous Materials” shall mean all of the following: any asbestos, petroleum, petroleum by-products, flammable explosives, radioactive materials, and any hazardous or toxic materials, as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), or in any other Environmental Law.

“Liabilities” shall mean all present and future liabilities, obligations and indebtedness of Borrowers, or any of them, to Bank, howsoever created, existing, evidenced or arising, whether direct or indirect, absolute or contingent, joint or several, now or hereafter existing or arising, whether due or to become due, and all amendments, restatements, extensions and/or renewals thereof.

“Licensing Agreements” shall mean the Licensing Agreements described in Schedule 1 annexed hereto.

“Loan Documents” shall mean this Agreement and any and all notes, instruments, documents, guarantees, security agreements and written agreements at any time evidencing, governing, securing or supporting any of the Liabilities.

“Material Adverse Effect” shall mean any material adverse change in or effect upon (i) the business, operations, condition (financial or otherwise), performance or properties of any Borrower(s), or (ii) the ability of any. Borrower(s) to pay and perform their obligations under this Agreement or otherwise in respect of any of the Liabilities, or (iii) the enforceability of this Agreement or any of the other Loan Documents.

“PBGC” shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.

“Permitted Acquisition” shall mean the acquisition of (i) all outstanding equity interests of an entity pursuant to which such entity becomes a wholly-owned subsidiary of the Borrower (and, if required by Bank, such Subsidiary shall have duly executed a guaranty of payment of the Liabilities and/or agreements granting Bank a security interest in all present and future assets of such Subsidiary as collateral security for the Liabilities) or (ii) substantially all assets of an entity by the Borrower or one of the Borrower’s subsidiaries free and clear of liens and encumbrances other than Permitted Encumbrances; so long as in each case, the Bank has given its prior written consent to such acquisition.

“Permitted Encumbrances” is defined in Section 7(c) of this Agreement.

3

“Person” or “person” shall mean any individual, corporation, partnership, limited liability company, trust, incorporated or unincorporated organization, joint venture, joint stock company, a government, or any agency or political subdivision thereof, or any other entity of any kind.

“Revolving Credit Amount” shall mean from the date hereof through August 31, 2009, $19,500,000, (ii) from September 1, 2009 through December 30, 2009, $20,000,000, (iii) on December 31, 2009, $13,000,000, (iv) from January 1, 2010 through February 28, 2010, $15,000,000, and.(v) from March 1,2010 and thereafter $19,500,000.

“Revolving Credit Maturity Date” shall mean the “Maturity Date” as set forth in the Revolving Note.

“Revolving Note” shall mean that certain Master Revolving Note dated June 30, 2009 made by in the original principal amount of $20,000,000 by Borrowers payable to Bank, as may be amended, restated, supplemented or replaced from time to time.

“Subsidiary(ies)” shall mean, in respect of any Person, any corporation, association, joint stock company, limited liability company, partnership (whether general, limited or both), or business trust (in any case, whether now existing or hereafter organized or acquired), of which more than fifty percent (50%) of the outstanding voting stock or other ownership interest is owned either directly or indirectly by such Person and/or one or more of its Subsidiaries, or the management of which is otherwise controlled either directly or indirectly by such Person and/or one or more of its Subsidiaries. Unless otherwise specified to the contrary herein or the context otherwise expressly requires, the term Subsidiary(ies) shall refer to the Subsidiary(ies) Dreams.

“Tangible Net Worth” shall mean, as of any date of determination (i) the net book value of the assets of Dreams and its Consolidated Subsidiaries as of such date (excluding all amounts owing to Dreams and/or its Consolidated Subsidiaries by officers, directors, shareholders and other Affiliates and all patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill and all other intangible assets of Dreams and/or its Consolidated Subsidiaries), after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization) minus (ii) the total Debt of Dreams and its Consolidated Subsidiaries as of such date, all as determined in accordance with GAAP.

(b) Unless expressly provided to the contrary, all accounting and financial terms and calculations hereunder or pursuant hereto shall be defined and determined in accordance with GAAP.

2. Each loan, advance or other extension of credit made by Bank to or otherwise in favor of Borrowers, or any of them, shall be evidenced by and subject to a promissory note or other agreement or evidence of indebtedness acceptable to Bank, in each case, executed and delivered by Borrowers unto Bank. The funding and disbursement of any loan or advance, and the extension of any other credit, to or in favor of Borrowers shall be subject to the execution and/or delivery unto Bank of such Loan Documents as Bank may reasonably require, and shall be further subject to the satisfaction of such other conditions and requirements as Bank, and its counsel, may from time to time require.

4

3.(a) Borrowers agree to pay Bank a non-refundable, unused fee on the average daily balance of the unused portion of the Revolving Credit Amount at the rate per annum equal to one quarter of one percent (0.25%) of the Revolving Credit Amount for the average number of days elapsed using a year of 360 days. The commitment fee shall be payable quarterly in arrears on the first Business Day of each March, June, September and December, commencing September 1, 2009, and on the Revolving Credit Maturity Date.

(b) Borrowers also agree to pay Bank a non-refundable, annual credit facility fee of $50,000. $37,500 of the credit facility fee for 2009 was paid by Borrower prior to the date hereof. The $12,500 balance of the 2009 credit facility fee shall be paid by Borrower upon execution of this Agreement. $25,000 of the credit facility fee for 2010 shall be paid by Borrower to Bank on January 4, 2010. In the event the Revolving Credit Maturity Date is extended to any date beyond June 3, 2010, the $25,000 balance of the 2010 credit facility fee shall be paid by Borrower to Bank on July 1, 2010. In the event the Revolving Credit Maturity Date is not extended beyond June 30, 2010, the second $25,000 installment of the 2010 credit facility fee shall be deemed waived by Bank.

(c) Borrowers shall pay Bank a non-refundable restructuring fee of $270,000, which fee shall be deemed fully earned upon execution of the Agreement by Borrowers and Bank. Payment of the restructuring fee be made by Borrowers on or before the earlier to occur of: (i) January 4, 2010, or (ii) the first occurrence of an Event of Default.

4. The proceeds of advances of the revolving line of credit evidenced by the Revolving Note shall be used for working capital purposes.

5. Each Borrower hereby represents and warrants, and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement, and thereafter, so long as any Liabilities remain unpaid and outstanding:

(a) It and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the State of its organization, is duly qualified and authorized to do business in each jurisdiction where the character of its assets or the nature of its activities makes such qualification necessary and where the failure to so qualify could have a Material Adverse Effect, and it has the legal power and authority to own its properties and assets and to carry out its business as now being conducted in each such jurisdiction wherein such qualification is necessary; execution, delivery and performance of this Agreement, and any and all other Loan Documents to which such Borrower or any of its Subsidiaries is a party or by which it is otherwise bound, are within its powers and authorities, have been duly authorized by all requisite corporate or other necessary or appropriate action, and are not in contravention or violation of law or the terms of its organizational or other governing documents, and do not require the consent or approval of any governmental body, agency or authority; and this Agreement, and any other Loan Documents contemplated hereby, when executed, issued and/or delivered, will be valid and binding and legally enforceable in accordance with their terms.

5

(b) Each Borrower, and any other business or organization to which such Borrower became the successor by merger, consolidation, acquisition or change in form, conducts business and operates under its exact legal name set forth on the signature page below.

(c) The execution, delivery and performance of this Agreement, and any other Loan Documents required under or contemplated by this Agreement to which such Borrower or any of its Subsidiaries is a party or by which it is otherwise bound, and the issuance of this Agreement and any such other Loan Documents, and the borrowings and other transactions contemplated hereby and thereby, are not in contravention or violation of the unwaived terms of any indenture, agreement or undertaking to which such Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets is bound, and will not result in the creation or imposition of any lien or encumbrance of any nature whatsoever upon any of the property or assets of Borrowers or any of their Subsidiaries, except to or in favor of Bank.

(d) No litigation or other proceeding before any court or administrative agency is pending, or, to the knowledge of such Borrower or any of its officers, is threatened against such Borrower or any of its Subsidiaries, the outcome of which could result in a Material Adverse Effect.

(e) There are no security interests in, or liens, mortgages, or other encumbrances on, any of such Borrower’s or any of its Subsidiaries’ property or assets, except Permitted Encumbrances.

(f) As of the date of this Agreement and after giving effect to the waiver set forth in paragraph 18 below, there exists no Default or Event of Default under any of the Liabilities.

(g) The most recent financial statements with respect to Dreams and its Consolidated Subsidiaries delivered to Bank fairly present the financial condition of Dreams and its Consolidated Subsidiaries as of the date thereof and for the period(s) covered thereby in accordance with GAAP, and since December 31, 2008, there has been no Material Adverse Effect.

(h) Neither such Borrower nor any Subsidiary has used Hazardous Materials on, in, under or otherwise affecting any real or personal property now or at any time owned, occupied or operated by such Borrower or any Subsidiary or upon which such Borrower or any Subsidiary has a place of business (collectively and severally the “Property”) in any manner which violates any Environmental Law(s), to the extent that any such violation could result in a Material Adverse Effect; and that, to the best of such Borrower’s knowledge, no prior owner, occupant or operator of any of the Property, or any current or prior owner, occupant or operator thereof, has used any Hazardous Materials on or affecting the Property in any manner which violates any Environmental Law(s), to the extent that any such violation could result in a Material Adverse Effect.

6

To the best of its knowledge neither such Borrower nor any Subsidiary has ever received any notice of any violation of any Environmental Law(s), and to the best of such Borrower’s knowledge, there have been no actions commenced or threatened by any party against such Borrower or any Subsidiary or any of the Property for non-compliance with any Environmental Law(s), which, in any case, could result in a Material Adverse Effect.

(i) As of the date of this Agreement, Schedule 5(i) is a true and complete list of all of the Subsidiaries of Dreams, and each such Subsidiary’s address, place of incorporation or organization and percentage of ownership of such Borrower in each such Subsidiary.

(j) As of the date of this Agreement, all current real estate rental obligations of Borrowers are have been paid in full and no payments are overdue.

6. So long as Bank shall have any commitment or obligation, if any, to make any loans or extend credit to or in favor of Borrowers, or any of them, and so long as any Liabilities remain unpaid and outstanding, each Borrower covenants and agrees that it shall and it shall cause each of its Subsidiaries to:

(a) Furnish to Bank, or cause to be furnished to Bank, in each case, in form and detail and on a reporting basis satisfactory to Bank, the following:

(i) as soon as available, and in any event not later than ninety (90) days after and as of the end of each fiscal year of Dreams, beginning with the fiscal year ending December 31, 2009, (A) Dreams’ 10K as of such date and (B) the financial statement of Dreams and its Consolidated Subsidiaries for and as of the end of each such fiscal year, containing the balance sheets of Dreams and its Consolidated Subsidiaries as of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such financial statements shall be prepared on a consolidated and consolidating basis in accordance with GAAP, shall be in such detail as Bank may reasonably require, and shall be audited by independent certified public accountants of recognized standing selected by Dreams and acceptable to Bank (Bank acknowledges that as of the date hereof, Freidman, Cohen, Taubman & Co., LLC is acceptable to Bank);

(ii) as soon as available, and in any event not later than forty five (45) days after and as of the end of each fiscal quarter of Dreams, (A) Dreams’ 10-Q for such fiscal quarter and (B) the financial statement for Dreams and its Consolidated Subsidiaries, containing the balance sheet of Dreams and its Consolidated Subsidiaries as of the end of each such quarter, statements of income and retained earning and a statement of cash flows for Dreams and its Consolidated Subsidiaries for such quarter and for the portion of the fiscal year of Dreams and its Consolidated Subsidiaries through the end of the fiscal quarter then ending. Such financial statements shall be prepared by

7

Dreams on a consolidated and consolidating basis in accordance with GAAP, and shall be certified as to accuracy and fairness by the chief executive or chief financial officer of Dreams;

(iii) as soon as available, and in any event not later than forty five (45) days after and as of the end of each month, the financial statements for the Borrowers, containing the balance sheets of the Borrowers as of the end of each such month, statements of income and retained earning and a statement of cash flows for the Borrowers for such month and for the portion of the fiscal year of the Borrowers through the end of the month then ending, and such other comments and financial details as are usually included in similar reports. Such financial statements shall be in the form previously furnished to Bank, shall be prepared by Borrowers in accordance with GAAP, and shall be certified as to accuracy and fairness by the chief executive or chief financial officer of Borrowers;

(iv) simultaneous with the delivery to Bank of the respective financial statements required in sub-sections (i) and (iii) above, a compliance certificate in form annexed hereto as Exhibit “B”, certified by the chief executive or chief financial officer of Dreams, for itself and as Authorized Agent for all of the other Borrowers;

(v) as soon as available, and in any event within fifteen (15) days after and as of the end of each month, agings of each Borrower’s accounts receivable, agings of each Borrower’s account payable and an inventory report of each Borrower, each in form and substance satisfactory to Bank, certified by a duly authorized officer of Dreams;

(vi) by the close of business on Wednesday of each week, and as of the immediately preceding Sunday, a borrowing base report for the 7-day period week ending on such Sunday, in form satisfactory to Bank, certified by a duly authorized officer of Dreams;

(vii) on or before January 31 of each year, commencing January 31, 2010, EBITDA projections for such year on a quarter-by-quarter basis, which projections shall be reasonable in all material respects taking into account all facts and information known or reasonably available to Borrowers; and

(viii) as soon as possible, and in any event within four (4) Business Days after becoming aware of the occurrence or existence of any Default or Event of Default, or of any other condition or occurrence which has had or could reasonably be expected to have a Material Adverse Effect, a written statement of the chief executive or chief financial officer of such Dreams, for itself and as Authorized Agent for all of the other Borrowers setting forth the details of such Default or Event of Default, or such other condition or occurrence, and the action which Dreams or such Borrower has taken or caused to be taken, or proposes to take or cause to be taken, with respect thereto; and

8

(ix) promptly, at such times US Bank may reasonably require, in form and detail satisfactory to Bank, such other information and reports as may be required under the terms of any Loan Documents or as Bank may reasonably request from time to time.

(b) Keep proper books of record and account in which full and correct entries shall be made of all of its financial transactions and its assets and businesses so as to permit the presentation of financial statements (including, without limitation, those financial statements to be delivered to Bank pursuant to Section 6(a) above) prepared in accordance with GAAP; permit Bank, or its representatives, at reasonable times and intervals, to visit all of such Borrower’s and its Subsidiaries’ offices and to make inquiries as to such Borrower’s and its Subsidiaries’ financial matters with their respective directors, officers, employees, and independent certified public accountants; and permit Bank, through Bank’s authorized attorneys, accountants and representatives, to inspect, audit, appraise and examine such Borrower’s and its Subsidiaries’ books, accounts, records, ledgers and assets and properties of every kind and description, wherever located, at all reasonable times during normal business hours. Such Borrower shall reimburse Bank for all reasonable costs and expenses incurred by Bank in connection with such inspections, examinations and audits, and to pay to Bank such fees as Bank may reasonably charge in respect of such inspections, examinations and audits, or as otherwise mutually agreed upon by such Borrower and Bank; provided, however, so long as no Default or Event of Default shall have occurred and be continuing, Borrowers shall not be required to reimburse Bank for more than three (3) such inspections, examinations and audits per Borrower per year. In addition, Bank shall have the right to conduct or obtain an appraisal of each of the Borrowers’ inventory from time to time; provided, that so long as no Default or Event of Default shall have occurred and be continuing, Borrowers shall not be required to reimburse Bank for more than one (1) such inventory appraisal per Borrower, per year. Notwithstanding the foregoing, Borrowers shall be required to reimburse Bank for a limited scope appraisal (the scope of such appraisal to be determined by Bank) of the Borrowers’ inventory which shall be completed on or before August 31, 2009 and the next full appraisal of the Borrowers’ inventory shall be completed by January 31, 2010.

(c) Keep its insurable properties (including, without limitation, any collateral at any time securing all or any part of the Liabilities) adequately insured and maintain (i) insurance against fire and other risks customarily insured against under an “all- risk” policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of such Borrower and its Subsidiaries, (ii) necessary workers’ compensation insurance, (iii) public liability and product liability insurance, and (iv) such other insurance as may be required by law or as may be reasonably required in writing by Bank, all of which insurance shall be in such amounts, contain such terms, be in such form, be for such

9

purposes, prepaid for periods of not less than six (6) months, and written by such companies as may be satisfactory to Bank. All such policies shall contain a provision whereby they may not be canceled or materially amended except upon thirty (30) days’ prior written notice to Bank. Such Borrower will promptly deliver to Bank, at Bank’s request, evidence satisfactory to Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to Bank. If such Borrower or any Subsidiary fails to maintain satisfactory insurance as herein provided, Bank shall have the option (but not the obligation) to do so, and such Borrower agrees to repay Bank, upon demand, with interest at the highest rate of interest applicable to any of the Liabilities, all amounts so expended by Bank. Such Borrower hereby appoints Bank, or any employee or agent of Bank, as such Borrower’s attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes Bank, or any employee or agent of Bank, on behalf of such Borrower; to do either of the following after an Event of Default and during the continuance thereof, (i) adjust and compromise any loss under said insurance and (ii) to endorse any check or draft payable to such Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected may be applied toward satisfaction of the Liabilities; provided, however, that Bank shall not be required hereunder so to act.

(d) Pay promptly and within the time that they can be paid without late charge, penalty or interest, all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon such Borrower, any Subsidiary and/or any of their respective property, except to the extent being contested in good faith and, if requested by Bank, bonded in an amount and manner satisfactory to Bank (“Contested Taxes”), If such Borrower or any Subsidiary fails to pay such taxes and assessments (excluding Contested Taxes) within the time they can be paid without penalty, late charge or interest, Bank shall have the option (but not the obligation) to do so, and such Borrower agrees to repay Bank, upon demand, with interest at the highest rate of interest applicable to any of the Liabilities, all amounts so expended by Bank.

(e) Do or cause to be done all things necessary to preserve and keep in full force and effect such Borrower’s and each Subsidiary’s existence, rights and franchises and comply with all applicable laws; continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year; at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property and keep the same in good repair, working order and condition; and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, (however, upon not less than thirty (30) days prior written notice to Bank, Borrowers may close stores and/or terminate franchises in their sole, but reasonable, business judgment so long as no such closing or termination could reasonably be expected to have a Material Adverse Effect.

10

(f) Maintain, as of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2009; a ratio of Debt to Tangible Net Worth (for the four quarter period ending on such date) of not more than the following:

March 31,2009	3.2 to 1.0
June 30, 2009	3.7 to 1.00
September 30, 2009	4.35 to 1.0
December 31,2009 and the last day of each fiscal quarter thereafter	2.8 to 1.0

(g) Maintain, as of the last day of each month, commencing April 30, 2009, EBITDA (on a year to date basis) of not less the following;

April 30, 2009	(1,367,000	)
May 31, 2009	(2,278,000	)
June 30, 2009	(2,576,000	)
July 31, 2009	(2,835,000	)
August 31, 2009	(3,099,000	)
September 30, 2009	(3,069,000	)
October 31, 2009	(2,926,000	)
November 30, 2009	(2,008,000	)
December 31, 2009	1,998,000

(h) Maintain, as of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2009, Tangible Net Worth of not less than the following:

March 31, 2009	$	10,000,000
June 30, 2009	$	8,600,000
September 30, 2009	$	7,600,000
December 31, 2009 and the last day of each fiscal quarter thereafter	$	10,200,000

(i) At all times meet the minimum funding requirements of ERISA with respect to such Borrower’s and its Subsidiary’s employee benefit plans subject to ERISA; promptly after such Borrower knows or has reason to know of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or that the PBGC, such

11

Borrower or any of its Subsidiaries has instituted or will institute proceedings to terminate an employee pension plan, deliver to Bank a certificate of an authorized officer of such Borrower setting forth details as to such event or proceedings and the action which such Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and upon the request of Bank, furnish to Bank (or cause the plan administrator to furnish Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by such Borrower or any of its Subsidiaries, as applicable, not later than ten (10) days after such report has been so filed. Each such Borrower shall be permitted to voluntarily terminate employee pension or benefit plans, so long as any such voluntary termination is done in accordance with ERISA and does not result in a material liability or obligation to such Borrower.

(j) Comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required under applicable Environmental Laws, where the failure to do so could result in a Material Adverse Effect; and promptly provide to Bank, immediately upon receipt thereof, copies of any material correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a violation of any Environmental Laws by such Borrower or any of its Subsidiaries, or of any circumstance or condition which requires or may require a financial contribution by such Borrower or any of its Subsidiaries, or a clean-up, removal, remedial action or other response by or on behalf of such Borrower or any of its Subsidiaries under applicable Environmental Law(s), or which seeks damages or civil, criminal, or punitive penalties from such Borrower or any of its Subsidiaries for any violation or alleged violation of any Environmental Law(s) by such Borrower or any of its Subsidiaries. Each Borrower hereby indemnifies, saves and holds Bank, and any of Bank’s past, present and future officers, directors, shareholders, employees, representatives and consultants, harmless from any and all losses, damages, suites, penalties, costs, liabilities and expenses (including, without limitation, reasonable legal expenses and attorneys’ fees) incurred or arising out of any claim, loss or damage of any property, injuries to or death of any persons, contamination of or adverse effects on the environment, or other violation of any applicable Environmental Law(s), in any case, caused by such Borrower or any of its Subsidiaries, or in any way related to any property owned or operated by such Borrower or any of its Subsidiaries, or due to any acts of such Borrower or any of its Subsidiaries, or any of their respective officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnification shall not be applicable, and such Borrower shall not be liable for any such losses, damages, suits, penalties, costs, liabilities or expenses, to the extent (but only to the extent) the same arise or result from any gross negligence or willful misconduct of Bank or any of its agents or employees.

(k) Maintain all of its deposit accounts with Bank, except (i) those accounts set forth on Schedule 6(k) annexed hereto and (ii) such other deposit accounts at such other financial institutions opened by Borrowers after obtaining Bank’s prior written consent (which such consent shall not be unreasonably withheld or delayed).

12

(l) Comply in all material respects with all terms of the Licensing Agreements.

(m) Within five (5) Business Days thereof, notify Bank if any party to a Licensing Agreement terminates, attempts to terminate or gives notice of termination of such Licensing Agreement.

(n) Within five (5) Business Days thereof, notify Bank if any party to an Occupancy Agreement terminates, attempts to terminate or gives notice of termination under or commits an event of default, under the Occupancy Agreement, “Occupancy Agreement” shall mean any lease, warehousing agreement or any other agreement granting a Borrower occupancy, warehousing or storage rights on or with respect to any real property or portion thereof.

(o) Pay promptly and within the before or on the scheduled payment due date, all real estate rental obligations, including, without limitation, lease payments of any Borrower, any Subsidiary, except to the extent being contested in good faith and, if requested by Bank, bonded in an amount and manner satisfactory to Bank.

(p) Furnish Bank with (i) written notice (“Lease Payment Default Notice”) if any payment owing by any Borrower under any Occupancy Agreement remains unpaid for more than 10 days (not including periods of notice and cure), such Lease Payment Default Notice to be delivered to Bank within three (3) days, and (ii) written notice (“Lease Covenant Default Notice”) of the occurrence of any non-monetary default under any Occupancy Agreement, such Lease Covenant Default Notice to be delivered to Bank within three (3) days of the occurrence of such default.

7. So long as Bank shall have any commitment or obligation, if any, to make any loans or extend credit to or in favor of Borrowers, or any of them, and so long as any Liabilities remain unpaid and outstanding, each Borrower covenants and agrees that it shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Bank:

(a) Declare or pay any dividends on, or make any other distribution (whether by reduction of capital or otherwise) with respect to, any shares of its capital stock, except (i) cash dividends payable to Dreams or one of its Subsidiaries and (ii) dividends payable solely in capital stock of such Borrower.

(b) Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so.

13

(c) Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets, whether now owned or hereafter acquired, other than the following (collectively, “Permitted Encumbrances”):

(i) liens, mortgages, security interests and encumbrances to or in favor of Bank;

(ii) liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings diligently pursued and, if requested by Bank, bonded in an amount and manner satisfactory to Bank;

(iii) liens, not delinquent, created by statute in connection with workers’ compensation, unemployment insurance, social security, old age pensions (subject to the applicable provisions of this Agreement) and similar statutory obligations;

(iv) purchase money security interests to secure purchase money indebtedness of Dreams and/or its Consolidated Subsidiaries permitted under Section 7(d)(vi) of this Agreement, so long as such security interests arise or are created substantially contemporaneously with the purchase or acquisition by Dreams and/or its Consolidated Subsidiaries, as applicable, of the respective property or assets to which such security interests relate and the incurrence of the respective purchase money indebtedness which such security interests secure, secure only the respective purchase money indebtedness so incurred by Dreams and/or its Consolidated Subsidiaries to enable it to so purchase or acquire such property or assets, and no other Debt, and encumber only the respective property or assets so purchased or acquired, and no other property or assets of Dreams and/or its Consolidated Subsidiaries;

(v) liens in favor of mechanics, materialmen; carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and

(vi) the liens described on Schedule 9(c).

(d) Incur, create, assume or permit to exist any Debt of any kind or nature whatsoever, except for (i) the Liabilities, (ii) existing indebtedness to the extent set forth on attached Schedule 9(d) attached hereto, (iii) unsecured trade indebtedness incurred and paid in the ordinary course of business, (iv) indebtedness secured by Permitted Encumbrances, and (v) purchase money indebtedness and lease obligations (whether in respect of capitalized leases, operating leases or otherwise), not otherwise disclosed in said Schedule 9(d), not to exceed Two Hundred Thousand Dollars ($200,000), in the aggregate, at any time,

14

(e) Make or allow to remain outstanding any investment (whether such investment shall be or the character of investment in shares of stock, evidence of indebtedness or other securities or otherwise) in, or any loans or advances or extensions of credit to, any person, firm, corporation or other entity or association, except:

(i) investments in existing Subsidiaries;

(ii) advances made for expenses or purchases in the ordinary course of business;

(iii) loans or advances made to officers, directors, or employees of Company, not to exceed in the aggregate Twenty Five Thousand Dollars ($25,000) at any one time outstanding;

(iv) (A) certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000.00, and (B) direct obligations of the United States Government maturing within one year from the date of acquisition thereof;

(v) unfinanced (cash) acquisitions of (A) all outstanding equity interests of an entity pursuant to which such entity becomes a wholly-owned subsidiary of the Borrower (“New Subsidiary”) or (B) substantially all assets of an entity by the Borrower or one of the Borrower’s subsidiaries free and clear of liens and encumbrances other than Permitted Encumbrances; not to exceed for any such acquisition $350,000 in the aggregate, and in any case, so long as not less than ten (10) days before the effective date of any such acquisition Bank shall have received an executed copy of the purchase agreement relating to such acquisition and, if required by Bank in the exercise of its sole discretion, within ten (10) days after the effective date of such acquisition, the New Subsidiary shall have duly executed a guaranty of payment of the Liabilities and/or agreements granting Bank a security interest in all present and future assets of such New Subsidiary as collateral security for the Liabilities.

(f) Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except (i) guaranties in favor of Bank; and (ii) the endorsement of negotiable instruments in the ordinary course of business for deposit or collection.

(g) Subordinate any indebtedness due to it from any Person to indebtedness of other creditors of such Person.

(h) (i) sell, lease (as lessor), transfer or otherwise dispose of any of its properties or assets, except as to the sale of inventory in the ordinary course of business; (ii) change its name, consolidate with or merge into any other Person, permit any other

15

Person to merge into it (except that each New Subsidiary may be merged into a Borrower); (iii) enter into any reorganization or recapitalization; or (iv) enter into any sale-leaseback transaction.

(i) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plan established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan; or permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) which may result in a liability of Borrower to the PBGC which, in the opinion of Bank), will have a Material Adverse Effect.

(j) Furnish Bank with any certificate or other document that knowingly contains any untrue statement of a material fact or omits to state a material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished.

(k) Apply any of the proceeds of any loan, advance or other extension of credit by Bank to or in favor of such Borrower, to the purchase or carrying of any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder.

(l) Enter into any transaction or series of transactions with any Affiliate other than on terms and conditions as favorable to Borrower as would be obtainable in a comparable arms-length transaction with a Person other than an Affiliate.

(m) Create or acquire any Subsidiary except to the extent permitted under Section 7(e) above.

(n) Amend or modify any document evidencing any Subordinated Debt or make any payment with respect to any Subordinated Debt except as permitted pursuant to the applicable subordination agreement related to such Subordinated Debt.

8. An “Event of Default” shall be deemed to have occurred or exist under this Agreement upon the occurrence and/or existence of any of the following conditions or events:

(a) The Borrowers shall fail to pay the principal of or interest on or shall otherwise fail to pay any other amount owing by Borrowers, or any of them, to Bank, when due, under any of the Liabilities, and such default in payment shall continue unremedied or uncured beyond any applicable period of grace provided with respect thereto, if any, in the relevant Loan Document(s); or

(b) any representation, warranty, certification or statement made or deemed to have been made by Borrowers herein, or by any Person(s) (including, without limit, any Borrower) in any certificate, financial statement or other written document or agreement delivered by or on behalf of Borrowers, or any of them in connection with the Liabilities or any of the Loan Documents, shall prove to be materially untrue or incomplete; or

16

(c) Borrowers, or any of them, shall fail to observe or perform any condition, covenant or agreement of Borrowers, or any of them, set forth herein; or

(d) Any loss, theft, substantial damage or destruction to or of any Collateral, or the issuance or filing of any attachment, levy, garnishment or the commencement of any proceeding in connection with any Collateral or of any other judicial process of, upon or in respect of any Collateral; or

(e) there is any revocation, termination or attempted revocation or termination of termination, or notice of termination, or breach of any guaranty, pledge, collateral assignment or subordination agreement relating to all or any part of the Liabilities; or

(f) Sale or other disposition by Borrowers, or any of them, or any Guarantor of any substantial portion of its assets or property or voluntary suspension of the transaction of business by Borrowers, or any of them, or any Guarantor, or death, dissolution, termination of existence, merger, consolidation, insolvency, business failure, or assignment for the benefit of creditors of or by Borrower or Borrowers, or any of them, or any Guarantor; or commencement of any proceedings under any state or federal bankruptcy or insolvency laws or laws for the relief of debtors by or against Borrowers, or any of them, or any Guarantor (and if such proceeding is involuntary, continuance thereof for more than 30 days); or the appointment of a receiver, trustee, court appointee, sequestrator or otherwise, for all or any part of the property of Borrowers, or any of them, or any Guarantor; or

(g) if there is any failure by Borrowers, or any of them, or any Guarantor to pay, when due, any of its indebtedness in excess of $25,000 in the aggregate (other than to the Bank) or in the observance or performance of any term, covenant or condition in any document evidencing, securing or relating to such indebtedness; or

(h) Bank deems the margin of Collateral insufficient or itself insecure, in good faith believing that the prospect of payment of the Liabilities or performance of this Agreement is impaired or shall fear deterioration, removal, or waste of Collateral; or

(i) An event of default shall occur under any instrument, agreement or other document evidencing, securing or otherwise relating to any of the Liabilities; or

(j) Any judgment(s) for the payment of money in excess of $50,000 in the aggregate shall be rendered against the Borrowers or any of them or any Guarantor and such judgment(s) shall remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of thirty (30) consecutive days from the date of its entry and such judgment(s) is (are) not covered by insurance from a solvent insurer who is defending such action without reservation of rights; or

17

(k) if Dreams shall fail, for any reason whatsoever, to own and control, directly or indirectly, 100% of the equity interests in any of the other Borrowers (other than Las Vegas) or shall fail, for any reason whatsoever, to own and control, directly or indirectly, at least 75% of the equity interest in Las Vegas; or

(1) the occurrence of any “reportable event”, as defined in ERISA, which (i) is determined to constitute grounds for (A) termination by the PBGC of any pension plan of any Borrower or (B) the appointment by the appropriate United States District Court of a trustee to administer such plan and (ii) is reasonably likely to result in a Material Adverse Effect, and (iii) such reportable event is not corrected and such determination is not revoked within thirty (30) days after (A) notice thereof has been given to the plan administrator or any Borrower; or (B) the institution of proceedings by the PBGC to terminate any such pension plan or to appoint a trustee to administer such plan; or (C) the appointment of a trustee by the appropriate United States District Court to administer any such pension plan; or

(m) any default by any party under any Occupancy Agreement and such failure continues beyond any period of grace provided with respect thereto.

9. Upon the occurrence and at any time during the continuance or existence of any Event of Default, Bank may give notice to Borrowers declaring all outstanding Liabilities to be due and payable, whereupon all such Liabilities then outstanding shall immediately become due and payable, without further notice or demand, and any commitment or obligation, if any, on the part of Bank to make loans or otherwise extend credit to or in favor of any of the Borrowers shall immediately terminate. Upon the occurrence and at any time during the continuance or existence of any Event of Default under Section 8(j) of this Agreement, then the Liabilities and all indebtedness then outstanding thereunder shall automatically become immediately due and payable without any notice by Bank to any of the Borrowers and any commitment or obligation, if any, on the part of Bank to make loans or otherwise extend credit to or in favor of any of the Borrowers shall immediately terminate. Further, upon the occurrence or at any time during the continuance or existence of any Event of Default hereunder, Bank may collect, deal with and dispose of all or any part of any security in any manner permitted or authorized by the Michigan Uniform Commercial Code or other applicable law (including public or private sale), and after deducting expenses (including, without limitation, reasonable attorneys’ fees and expenses), Bank may apply the proceeds thereof in part or full payment of any of the Liabilities, whether due or not, in any manner or order Bank elects. In addition to the foregoing, upon the occurrence and at any time during the continuance or existence of any Event of Default hereunder, Bank may exercise any and all rights and remedies available to it as a result thereof, whether by agreement, by law, or otherwise.

10. Each of the Borrowers hereby acknowledges and agrees that in the event that any of the Liabilities shall at any time be on a demand basis, the Borrowers’ compliance with the terms and conditions set forth herein, and the absence of any Event of Default hereunder, shall not, in any way whatsoever, limit, restrict or otherwise affect or impair Bank’s right or ability to make demand for payment of any or all of such Liabilities which may be on a demand basis at any such time, in Bank’s sole and absolute discretion, with or without reason or cause, and the existence of any Event of Default hereunder

18

shall not be the sole reason or basis for enabling Bank to make demand for payment of all or any part of such Liabilities.

11. No forbearance on the part of the Bank in enforcing any of its rights or remedies under this Agreement or any other Loan Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by Borrower hereunder or any such other Loan Document, shall constitute a waiver of any of the terms of this Agreement or such Loan Document or of any such right or remedy.

12. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Michigan.

13. All covenants, agreements, representations and warranties by or on behalf of Borrower made in connection with this Agreement and any other Loan Documents shall survive the borrowing hereunder or thereunder and shall be deemed to have been relied upon by Bank. All statements contained in any certificate or other document delivered to Bank at any time by or on behalf of Borrowers pursuant hereto shall constitute representations and warranties by Borrowers.

14. Each of the Borrowers agrees to reimburse Bank, upon within five (5) Business Days after demand by Bank, for all costs and expenses (including, without limitation, reasonable attorneys’ fees, whether in-house or outside counsel) incurred by Bank in connection with the documentation and preparation of this Agreement, the other Loan Documents, and otherwise in respect of the Liabilities, and the consummation and the closing of the transactions contemplated hereby or thereby, any default or events of default under or in respect of any of the Liabilities or in collecting or in attempting to collect any of the Liabilities, in perfecting, maintaining or defending any of the Bank’s liens or security interests (or the priority thereof), if any, in any collateral securing any part of any of the Liabilities, or otherwise in enforcing any of Bank’s rights or remedies under any of the Loan Documents or otherwise in respect of any of the Liabilities.

15. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that none of the Borrowers shall assign or transfer any of its rights or obligations hereunder or otherwise in respect of any of the Liabilities without the prior written consent of Bank.

16. The obligations and liabilities of the Borrowers under this Agreement shall constitute the joint and several obligations and liabilities of the Borrowers.

17. Each reference in any of the Loan Documents or any borrowing or supporting resolution (i) to StarsLive365, LLC as a “limited liability corporation”, is amended to mean a “limited liability company”, (ii) to “Dream/Pro Sports, Inc,” is amended to mean “Dreams/Pro Sports, Inc.”, (iii) to “Fansedge Corporation” is amended to mean “Fansedge Incorporated”.

18. Borrowers have advised Bank that they failed to comply with the provisions of Section 8(f), 8(g) and 8(h) of the Prior Agreement for the fiscal quarters ending September 30, 2008 and December 31, 2008 and also failed to comply with the provisions of Section 8(f) of the Prior Agreement for the fiscal quarter ending March 31, 2009 (the “Covenant Violations”). Borrowers have

19

requested that the Bank waive any Event of Default existing under the Agreement resulting from the Covenant Violations. Bank hereby Waives any Event of Default existing under the Agreement resulting from the Covenant Violations. This waiver shall not be deemed to amend or alter in any respect the terms and conditions of the Agreement or any of the other Loan Documents, or to constitute a waiver or release by the Bank of any right, remedy or Event of Default under the Agreement or any of the other Loan Documents, except to the extent specifically set forth herein.

19. BACH OF THE BORROWERS AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE LIABILITIES.

[Remainder of Page Intentionally Left Blank]

20

If the foregoing is acceptable to Borrowers, please indicate such with the authorized signatures of Borrowers as provided below.

Very truly yours,
COMERICA BANK
By:	/s/    Paul G. Russo
Its:	Vice President

ACCEPTED AND AGREED:

DREAMS, INC., on its own behalf and as

Authorized Agent for and on behalf of all other

Borrowers:

DREAMS FRANCHISE CORPORATION,

DREAMS ENTERTAINMENT, INC.

DREAMS PRODUCTS, INC.

DREAMS RETAIL CORPORATION

DREAMS/PRO SPORTS, INC.

FANSEDGE INCORPORATED

THE GREENE ORGANIZATION, INC.

THE SPORTS COLLECTIBLES & AUCTION COMPANY, INC.

DREAMS UNIQUE, INC.

STARSLIVE365, LLC

365 LAS VEGAS, L.P.

BKJ CONSULTING CORP.

By:	/s/     David M. Gleene
Its:	Senior V. P.

Dated: June 30 , 2009

21

SCHEDULE 1

Licensing Agreements

1. Merchandising License Agreement between Universal Studios Licensing, Inc. and Dreams Franchise Corporation, dated August 27,1992, as amended, for “Field of Dreams”.

2. License Agreement between NFL Properties, Inc. and Dreams Products, Inc. dated April 1, 2008.

3. License Agreement between MLB and Dreams Products, Inc. (operating under an expired, undated license agreement).

4. License Agreement between National Association for stock Car Auto Racing, Inc. and dreams, Inc., d/b/a Mounted Memories, dated September 1, 2002.

TO BE UPDATED BY BORROWERS

SCHEDULE 5(i)

TO BE UPDATED BY BORROWERS

Direct Subsidiaries of Dreams, Inc.

The address of each entity is:

2 S. University Drive, Suite #325

Plantation, FL 33324

Name and Address	Place of Incorporation/ Organization	Percent Owned by Dreams
Dreams Franchise Corporation	CA	100	%
Dreams Retail Corporation	FL	100	%
The Greene Organization, lnc.	FL	100	%
Dreams Unique, Inc.	FL	100	%

Direct Subsidiaries of each other Borrower

Name and Address	Place of Incorporation/ Organization	Subsidiary of	Percent Owned
Dreams Entertainment, Inc.	UT	Dreams Franchise	100	%
Dreams Products, Inc.	UT	Dreams Franchise	100	%
Dreams Paramus, LLC	FL	Dreams Retail	100	%
Dreams/Pro Sports, Inc.	FL	Dreams Retail	100	%
Fansedge Incorporated	DE	Dreams Retail	100	%
RIOFOD, L.P.		Dreams Retail	73	%
	NV	365 Las Vegas, L.P.	21	%
CAEFOD, L.P.		Dreams Retail	63.5	%
	NV	365 Las Vegas, L.P.	30	%
SWFOD, L.P.		Dreams Retail	60	%
	NV	365 Las Vegas, L.P.	40	%
StarsLive 365, LLC	NV	Dreams Retail	100	%
365 Las Vegas, L.P.	NV	StarsLive 365, LLC	76.25	%
The Sports Collectibles & Auction Company, Inc.	FL	The Greene Organization	100	%
BKJ Consulting Corp.	IL

SCHEDULE 6

Approved non-Comerica Deposit Accounts

Dreams Finance Corp

Dreams Retail Corp

FE-DRC501(Fox Valley)

FOD Boca Town Center

FOD Caesar’s

FOD Fashion Valley

FOD Garden State Mall

FOD M&M/CCLV

FOD MacArthur Center

FOD Northbridge

FOD Orlando

FOD Pier 39

FOD RIO

FOD S&W

FOD Sawgrass

FOD Scottsdale

FOD SL 365

FOD Warehouse

FOD Wellington

FOD Woodfield

Las Vegas Outlet

FOD West Farms

FE Woodfield

FE Orland

FE Lincolnwood

FE River Oak

FE Northbridge

Fans Edge

FansEdge-Kiosk

ProSports Memorabilia

Dreams Products Inc (Mounted Memories)

SCAC(the Greene Org.)

BKJ Cons, d/b/a Schwartz Sports

Dreams Unique, Inc.

FANSEDGE/PROSPORTS MEMORIBILIA

FANSEDGE/PROSPORTS MEMORIBILIA

schwartzsports@aol.com

FOD Cherry Creek

FOD Park Meadows

Schedule 7 (c)

Dreams Inc.

Capital leases

Advantage Leasing Corp         $83,432.90

Packaging equipment

Schedule 7(d)

Dreams Inc.

Notes Payable

Joseph Casey	$	309,608
Fashion Valley	$	43,929
George Johnson	$	575,000
Brian Schwartz	$	200,000
Kevin Schwartz	$	300,000
Joel Schwartz	$	100,000
Mark Schwartz	$	518,000
Ken Karlan	$	300,000
	$	2,346,538

EXHIBIT “B”

COVENANT COMPLIANCE CERTIFICATE

To:

Comerica Bank

Re:

Letter Agreement dated June             , 2009, as may be amended, restated, replaced or supplemented from time to time (the “Agreement”) among Dreams, Inc., Dreams Franchise Corporation, Dreams Entertainment, Inc., Dreams Products, Inc., Dreams Retail Corporation, Dreams/Pro Sports, Inc., Fansedge Incorporated, The Greene Organization, The Sports Collectibles & Auction Company, Inc., Dreams Unique, Inc., StarsLive365 LLC, 365 Las Vegas, L,P., and BKJ Consulting Corp. (collectively, “Borrowers”) and Comerica Bank (“Bank”).

This Compliance Certificate (“Certificate”) is furnished pursuant to Section 6(a)(iv) of the Agreement and sets forth various information as of             , 200    (the “Computation Date”).

1. Debt to Tangible Net Worth Ratio. On the Computation Date, the Debt to Tangible Net Worth Ratio, which is required to be not more than             to 1.0, was              to 1.0 as computed in the supporting documents attached hereto as Schedule 1.

2. EBITDA. On the Computation Date, EBITDA, which is required to be not less than $            , was $            as computed in the supporting documents attached hereto as Schedule 2.

3. Tangible Net Worth. On the Computation Date, the Consolidated Tangible Net Worth of Dreams and its Consolidated Subsidiaries, which is required to be not less than $            , was

$             as computed in the supporting documents attached hereto as Schedule 3.

The undersigned officer of the Dreams hereby certifies that:

A. All of the information set forth in this Certificate (and in any Schedule attached hereto) is true and correct in all material respects.

B. As of the Computation Date, Borrowers have observed and performed all of their covenants and other agreements contained in the Agreement and in any other Loan Documents to be observed, performed and satisfied by Borrowers.

C. The undersigned has reviewed the Agreement and this Certificate is based on an examination sufficient to assure that this Certificate is accurate.

D. Except as stated in Schedule 4 hereto (which shall describe any existing Default Event of Default and the notice and period of existence thereof and any action taken with respect thereto or contemplated to be taken by Borrowers), no Default or Event of Default has occurred and is continuing on the date of this Certificate.

E. Borrowers are not past due on any payments for real estate rental obligations and have attached as Schedule 5 a schedule containing a list of payment due dates and dates payments were paid for such real estate rental obligations, as of the date hereof.

Capitalized terms used in this Certificate and in the schedules hereto, unless specifically defined to the contrary, have the meanings given to them in the Agreement and Note.

IN WITNESS WHEREOF, Dreams has caused this Certificate to be executed and delivered by its duly authorized officer this             day of             20        .

DREAMS, INC., on its own behalf and as

Authorized Agent for and on bebalf of all

other Borrowers:

DREAMS FRANCHISE CORPORATION,

DREAMS ENTERTAINMENT, INC,

DREAMS PRODUCTS, INC,

DREAMS RETAIL CORPORATION

DREAMS/PRO SPORTS, INC.

FANSEDGE INCORPORATED

THE GREENE ORGANIZATION

THE SPORTS COLLECTIBLES &

AUCTION COMPANY, INC.

DREAMS UNIQUE, INC,

STARS LIVE 365 LLC

365 LAS VEGAS, L.P.

BKJ CONSULTING CORP.

By:

Its:

_

2

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO SECTION 302

I, Ross Tannenbaum, certify that:

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

2. Based on my knowledge, this Quarterly 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 Quarterly Report.

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

4. The Registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 Quarterly Report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures presented in this Quarterly Report are 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

d) disclosed in this Quarterly 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 Second Fiscal Quarter” in the case of this Quarterly Report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

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

a) all significant deficiencies and material weaknesses in the design or operation or internal control over financial reporting which are reasonably likely to adversely effect 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; and

Date: August 14, 2009	/s/ Ross Tannenbaum
	Ross Tannenbaum
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

PURSUANT TO SECTION 302

I, Dorothy Sillano, certify that:

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

2. Based on my knowledge, this Quarterly 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 Quarterly Report.

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly 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 Quarterly Report;

4. The Registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 Quarterly Report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures presented in this Quarterly Report are 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

d) disclosed in this Quarterly 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 Second Fiscal Quarter” in the case of this Quarterly Report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

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

a) all significant deficiencies and material weaknesses in the design or operation or internal control over financial reporting which are reasonably likely to adversely effect 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 controls; and

Date: August 14, 2009	/s/ Dorothy Sillano
	Dorothy Sillano
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

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 accompanying Quarterly Report of Dreams, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ross Tannenbaum, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(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 fully presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Ross Tannenbaum
	Ross Tannenbaum
	Principal Executive Officer
	August 14, 2009

EX-32.2

Exhibit 32.2

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 accompanying Quarterly Report of Dreams, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dorothy Sillano, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(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 fully presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Dorothy Sillano
	Dorothy Sillano
	Principal Financial Officer
	August 14, 2009