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.

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.

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.

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,    December 31,
                                                  2009          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,     December 31,
                                                   2009           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

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

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 expensesdecreased 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 . . .