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 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 sixteen (16) company-owned Field of Dreams stores;

• Our six (6) company-owned FansEdge stores;

• Our e-commerce component featuring www.FansEdge.com and others;

• Our athlete and web syndication sites;

• Our catalogues;

• Our outbound VIP call center;

• Our manufacturing/distribution of sports memorabilia products, custom acrylic display cases and framing;

• Our running of sports memorabilia /collectible trade shows;

• Our franchise program through the eight (8) Field of Dreams franchise stores presently operating; and

• Our representation and corporate marketing of individual athletes.

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.

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 million in 2004 to nearly $47 million in 2008, placing it at number 363 in 2005, number 289 in 2006 and number 216 in 2007 of the largest Internet retailers in the nation.

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.

Commencing in June, 2008 we have successfully opened and are presently operating
(6) six FansEdge stores in the greater Chicago, IL area. This is in support of our executing our Multi-channel Retailing strategy; whereby we our driving and marketing a single brand via multiple channels. We plan to add an e-commerce component to our FieldofDreams.com site to cross market our (16) company-owned Field of Dreams stores in 2009.

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 16% contribution to the individual store sales from the Kiosks.

In October 2008, Fansedge.com announced it began offering its vast array of products internationally to 34 countries.

Also, our first FansEdge catalogue was shipped in November 2008, and our latest catalogue was shipped in April 2009.

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.

We believe the implementation of our Multi-channel Retailing strategy will strengthen our brands in the marketplace.

We believe we are well positioned to capture increased activity of on-line retail purchases as industry experts and analysts state that currently, only 5-6% of all retail sales are being conducted on-line and that over the next few years, consumers may generate twice that figure in on-line purchases.

Also, 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.

Some of the important non -financial measures which management reviews are:
unique visitors to our web sites, foot traffic in our stores, sales conversion rates and average sold unit prices.

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. 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. 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, re-negotiations of our client contracts, rent economics, extended terms from key suppliers, etc.

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.

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. The Company has sought the appropriate waivers from its senior lender. However, no assurances can be made that the Company will receive the formal waivers, or if they will offer terms and conditions that are acceptable to the Company. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

Use of Estimates and Critical Accounting Policies

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.

                                               March 31,    December 31,
                                                 2009           2008
            Accounts receivable               $     2,386   $       3,389
            Allowance for doubtful accounts            51              76

            Accounts receivable, net          $     2,335   $       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.

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 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 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 and December 31, 2007 in accordance with SFAS 142, resulted in no impairment losses. There were no material changes in the carrying amount of goodwill for the three months ended March 31, 2009.

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), remain in deferred revenue at March 31, 2009.

RESULTS OF OPERATIONS

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



                                                  Three Months
                                                    March 31,
                                                 2009       2008
                    Net Sales                     1.00      1.00
                    COGS                           .53       .54
                    Gross Profit                   .47       .46
                    *Operating Expenses            .54       .46
                    Operating (loss)              (.10 )    (.01 )
                    (Loss) before income taxes    (.11 )    (.02 )
                    Net (loss)                    (.07 )    (.01 )

* Does not include depreciation.

** Above table may not foot due to rounding

Three Months Ended March 31, 2009 versus the Three Months Ended March 31, 2008

Revenue. Total revenues decreased 20% to $14.8 million for the three months ended March 31, 2009, from $18.5 million in the same period last year. The decrease was primarily due to the overall weakness in the economy.

Manufacturing/Distribution revenues decreased 35.3% to $4.4 million for the three months ended March 31, 2009, from $6.8 million in the same period last year. Net revenues (after eliminating intercompany sales) decreased 37.5% to $3.5 for the three months ended March 31, 2009, from $5.6 million in the same period last year. The decrease in manufacturing/distribution revenues for the period was partially attributed to the Company's participation last year in Orange Bowl Stadium asset sales as a partner with the City of Miami, a one time project that generated approximately $1.2 million during the 1st quarter of last year.

Retail operation revenues decreased 11.7% to $11.3 million for the three months ended March 28, 2009, from $12.8 million in the same period last year. Our internet retail division revenues decreased 14.9% to $8.0 million for the three months ended March 31, 2009, from $9.4 million in the same period last year. The decrease was a result of numerous retail competitors aggressively moving products for large discounts, and the overall weakness in the economy. Additionally, retail revenues generated through our sixteen company-owned Field of Dreams stores decreased 20.6% to $2.7 million for the three months ended March 31, 2009, from $3.4 in the same period last year. The decrease was attributable to the softness in the retail arena. For the first quarter of 2009, our six FansEdge stores generated $.5 in sales. These stores were opened towards the end of 2008.

Costs and expenses. Total cost of sales for the three months ended March 31, 2009, decreased 22.0% to $7.8 million, versus $10.0 million in the same period last year. The decrease is directly relates to the decrease in overall company sales. However, as a percentage of total sales, cost of sales was 52.7% for the three months ended March 31, 2009, compared to 53.8% for the same period last year.

Cost of sales of manufacturing/distribution products decreased 46.6% to $1.6 million for the three months ended March 31, 2009, versus $3.0 million in the same period last year. However, as a percentage of manufacturing/distribution revenues, cost of sales was approximately 45% for the three months ended March 31, 2009, compared to 53% for the same period last year. As a percentage of manufacturing/distribution revenues before elimination of inter-company sales, costs were 56.7% for the three months ended March 31, 2009, versus 43.6% for the same period last year.

Cost of sales of retail products decreased 11.4% to $6.2 million for the three months ended March 31, 2009, from $7.0 million in the same period last year. The decrease is a direct result of lower retail sales. As a percentage of total retail sales, costs were 55.5% for the three months ended March 31, 2009, versus 54.7% for the same period last year.

Operating expenses decreased 5.9% to $8.0 million for the three months ended March 31, 2009, from $8.5 million in the same period last year. As a percentage of sales, operating expenses were 54.0% for the three months ended March 31, 2009, versus 46% for the same period last year. The Company has instituted numerous corporate savings initiatives that will reduce operating expenses for the 2nd quarter and the remainder of the year.

Interest expense, net. Net interest expense was $175 for the three months ended March 31, 2009, versus $148 for the same period last year.

Provision for income taxes. The Company recognized an income tax benefit of $660 for the three months ended March 31, 2009, versus an income tax benefit of $119 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 March 31, 2009 and March 31, 2008. The effective tax rate for both periods was approximately 40.0%.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity during the three month period ended March 31, 2009, are the cash flows generated from our operating subsidiaries; availability under our $21.5 million senior revolving credit facility; and available cash and cash equivalents. We are unaware of any trends that may have a negative impact on our ability to continue our operations.

The balance sheet as of March 31, 2009 reflects working capital of $7.3 million versus working capital of $8.2 million at December 31, 2008. At March 31, 2009, the Company's cash and cash equivalents were $368 thousand compared to $498 thousand at December 31, 2008. Net accounts receivable at March 31, 2009 were $2.3 million compared to $3.3 million at December 31, 2008.

Use of Funds

Cash used in operations was $5.9 million for the three months ended March 31, 2009, compared to $9.0 million cash used in operations during the same period of 2008.

Cash used in investing activities was $157 thousand for the three months ended March 31, 2009, compared to $343 thousand of cash used in investing activities for the same period of 2008.

Cash provided by financing activities was $6.0 million for the three months ended March 31, 2009, compared to $9.2 million cash provided by financing activities for the same period in 2008.

Other Activity

On June 6, 2007, the Company entered into a three-year loan and security agreement with Comerica Bank. Comerica provided the company with $18 million in credit facilities; consisting of a $15 million revolver and a $3 million acquisition line for the cash portion of future strategic acquisitions. Effective May 12, 2008, Comerica Bank increased the Company's revolver from $15 million to $21.5 million. The loan is collateralized by all of the assets of the Company and its divisions. The interest rate for the revolver is floating at prime or 30 day Comerica costs of funds plus 2.00%; and prime or 30 day Comerica costs of funds plus 2.50%, for the funds drawn from the acquisition line. As of March 31, 2009, the Company's outstanding loan balance was $18.3 million, yielding $3.2 million available on the revolver and $.9 million, yielding $.6 million available on the acquisition line. Our line of credit facility requires us to maintain specified financial ratios and satisfy certain financial covenants. As of December 31, 2008, the Company was not in compliance with its covenants and has sought the appropriate waivers from its senior lender. No assurances can be made that the Company will ultimately receive the formal waivers, and if so, under acceptable terms and conditions. Also, no assurances can be made that the Company will have the ability to repay the debt when it comes due or be able to restructure the debt if waivers are obtained.

Analysis

We are continuing to review our operational expenses and examining ways to reduce costs on a going-forward basis. With the slowing economy, we are managing our capital conservatively and analyzing 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.

In addition, our stock has been, and continues to be, thinly traded despite our . . .