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Dreams Inc – ‘10-KT’ for 12/31/07

On:  Thursday, 3/27/08, at 6:10pm ET   ·   As of:  3/28/08   ·   For:  12/31/07   ·   Accession #:  1193125-8-67448   ·   File #:  1-33405

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/28/08  Dreams Inc                        10-KT      12/31/07    7:1.7M                                   Donnelley … Solutions/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-KT       Annual-Transition Report                            HTML    907K 
 2: EX-10.7     Stock Purchase Agreement                            HTML    141K 
 3: EX-21       Subsidiaries of the Company                         HTML     18K 
 4: EX-31.1     Certification of the Principal Executive Officer    HTML     15K 
                          Pursuant to Section 302                                
 5: EX-31.2     Certification of the Principal Financial Officer    HTML     14K 
                          Pursuant to Section 302                                
 6: EX-32.1     Certification of the Chief Executive Officer        HTML      8K 
                          Pursuant to Section 906                                
 7: EX-32.2     Certification of the Chief Financial Officer        HTML      8K 
                          Pursuant to Section 906                                

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/T

(Mark One)

Or

For the transition period from April 1, 2007 to December 31, 2007

Commission file number 0-15399

Dreams, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number (954) 377-0002

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

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 a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/T or any amendment to this Form 10-K/T.    x

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 and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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 Act.)    ¨  Yes    x  No

The aggregate market value of the common equity held by non-affiliates as of the closing price of such shares on the last day of the registrant’s most recent second fiscal quarter was approximately $56,900,000.

The number of shares outstanding of the registrant’s common stock as of March 1, 2008 is 37,564,114.

DOCUMENTS INCORPORATED BY REFERENCE—NONE

Table of Contents

TABLE OF CONTENTS

FORM 10-K/T

Table of Contents

Part I

Introduction.

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

Overview

Dreams, Inc., headquartered in Plantation, Florida is a Utah Corporation which was formed on April 9, 1980 and 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.

Fiscal Year

Pursuant to a Consent Resolution of the Board of Directors dated September 12, 2007, the Company has changed its fiscal year end from March 31 to December 31. Management believes this will provide greater clarity to the investment community.

Organic Growth

Key components of our organic growth strategy include building brand recognition; improving sales conversion rates both in our stores and web sites; exploring additional distribution channels for our products; and lastly, cross pollinating corporate assets among our various operating divisions.

Strategic Acquisitions

Our strategic acquisition initiatives will focus on e-commerce companies, brick and mortar retailers, other manufacturers of licensed sports and entertainment products and collectibles. These are companies that can offer incremental distribution channels for our products and whose value can be enhanced by placing them under the Dreams corporate umbrella. Hence, our ability to evaluate potential acquisition candidates and consummate these transactions will remain an integral part of our business model.

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 and profitable manner, driving and building our brands through on-line, brick and mortar, catalogue, and in-bound and out-bound call centers.

Current Landscape

Dreams presently operates in three business segments:

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Retail Segment.

Company-owned Retail Stores.

As of March 1, 2008 we own and operate sixteen (16) Field of Dreams^® retail stores and one (1) FansEdge store. During the past two years, we purchased three (3) existing Field of Dreams^® stores operating in both Las Vegas and south Florida, another store operating in Orlando, Florida and a Field of Dreams store in San Diego, CA. The Company may purchase other franchised stores from time to time as it believes is appropriate. In addition, we sold our Somerset store effective June 30, 2006 to an existing franchisee and chose not to renew a lease for our Field of Dreams store at Horton Plaza in San Diego, CA. The Company will also evaluate the opening of new retail operations, under both Field of Dreams^® and FansEdge brands, specifically in the Las Vegas and Chicago markets. Stores typically are located in high traffic areas in regional shopping malls. The stores average approximately 1,000 square feet. We pay a 1% royalty fee to MCA Universal Licensing for the use of the “Field of Dreams” trademark relating to sales generated in our stores. Effective December 31, 2005, the parties extended the exclusive licensing agreement for an additional five-year term. During the nine months ended December 31, 2007 and 2006 we incurred royalty fees of $152 and $162, respectively.

This division prides itself on being the ultimate, corporate-owned sports and celebrity gift store in the country. This goal has been achieved by:

A store typically has a full-time manager and full time assistant manager in addition to hourly personnel, most of who work part-time. The number of hourly sales personnel in each store fluctuates depending upon our seasonal needs. Our stores are generally open seven days per week and ten hours per day.

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Set forth below is a listing of our stores as of March 1, 2008, their location and the date opened or acquired.

E-Commerce Operations.

The Company sells officially licensed products and authentic autographed memorabilia of the NFL, MLB, NHL, NBA, NCAA and NASCAR. In October 2003 the Company purchased 100% of the outstanding common stock of FansEdge Incorporated and in April 2004 the Company acquired certain assets, including the website of Pro Sports Memorabilia, Inc. The e-commerce division, which includes these online properties and others, is focused on providing the best customer experience in the online sports-licensed products and memorabilia vertical.

These e-commerce operations have provided for the fastest growing area of the Company with revenues climbing from approximately $4 million in 2004 to nearly $40 million in 2007.

E-commerce products are marketed through a series of websites that offer customers a daily selection of items from more than 200 teams and over 1,300 different athletes. This division sells over 80,000 products across categories such as apparel, auto accessories, autographed memorabilia, collectibles, headwear, home and office items, jewelry and watches, tailgate and stadium gear, and DVD’s. These online properties represent several of the leading brand names in this market; including:

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In addition, FansEdge maintains strategic alliances with Amazon.com in which the FansEdge brand and its products are sold in the apparel and sporting section of the Amazon.com website. Amazon, with an audience of more than 50 million active customer accounts, affords us national brand prominence for our FansEdge.com property.

The division fulfills orders generated through website sales by shipping products from its own warehouse facilities in Sunrise, Florida, Chicago, Illinois and Denver, Colorado, and from suppliers via drop-ship agreements. Our distribution network enables us to provide immediate delivery service to our online customers. It is our goal to be the market leader by shipping orders the same day they are received.

This division’s business strategy is to be the best at what they do within the sports-licensed products and memorabilia vertical. Tactics employed to execute this strategy include:

This division will continue to expand and optimize its marketing practices exclusively within its chosen vertical by seeking strategic alliances with other companies and brands, in some cases providing expertise and technology to third-party entities, including other online marketers, professional athletes and sister divisions.

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Manufacturing/Distribution Segment.

Mounted Memories.

Mounted Memories (“MMI”) is one of the largest wholesalers of authentic sports and celebrity memorabilia products and acrylic display cases. The Company maintains many exclusive and non-exclusive agreements with numerous athletes who frequently provide autographs and / or game used memorabilia at agreed upon terms. In addition to its relationships with various athletes and their representatives, MMI holds licenses with different sports leagues which allow for the manufacture and distribution of a wide array of products. Licenses are currently held with MLB, MLBPA, NFL, Golden Bear (Jack Nicklaus), NASCAR and a variety of NASCAR teams and drivers.

Specifically, MMI strives to enhance its market leading position by executing against the following objectives:

MMI has been in business since 1989 and has achieved its industry leading status fundamentally due to a combination of its licenses and its strict authenticity policies. The only sports memorabilia products sold by MMI are those produced by MMI through private or public signings organized by MMI or purchased from an authorized agent of MMI and witnessed by an MMI representative. In addition to sports and celebrity memorabilia products, MMI manufacturers a large selection and supply of custom acrylic display cases, with over 50 combinations of materials, colors and styles. The primary raw material used in the production process is acrylic. There are many vendors who sell plastic throughout south Florida and the Company seeks to obtain the best pricing through competitive vendor bidding. The Company does not produce the helmets, footballs, baseballs or other objects which are autographed. Those products are available through numerous suppliers. No individual suppliers represented more than ten percent of the Company’s total nine months ended December 2007 or 2006 purchases.

MMI continues to work on the development of new distribution channels. In fact, in November of 2007, they announced their first significant mass market order from the Target Corporation for a series of NASCAR autographed items. MMI’s customer base varies greatly and includes transactional television, internet companies, traditional retail stores, specialty retail which sell sports and celebrity memorabilia as well as corporate account sales. MMI has worked diligently to expand and diversify its customer base and currently only one customer accounted for more than ten percent of MMI’s total nine month revenues ended December 31, 2007.

MMI has one of the most advanced and effective fulfillment processes in the industry and utilizes the most current shipping software to assist in the process. MMI operates out of a 50,000 square foot facility and will continue to invest in technologies that enhance its competitive manufacturing and distribution advantages.

Schwartz Sports

Schwartz Sports (“Schwartz”) distributes autographed sports memorabilia and collectibles. For the past eight-years, the company has provided hand-signed collectibles to retailers, corporations, charities and individual collectors with authentic products from every major sport. Once considered a competitor of Mounted Memories (see above), this Chicago based division fit our criteria for a strategic acquisition candidate and now works in concert with MMI on achieving our overall market positioning in the sports & celebrity memorabilia segment.

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The Greene Organization.

The Greene Organization since 1991 has been engaged in athlete representation and corporate sports marketing of individual athletes. This boutique division provides athletes with all “off-field” activities including but not limited to; personal appearances, product endorsements, book publishing deals, public/private autograph signings, licensing and marketing opportunities. As a result, over the years, The Greene Organization has become a portal for numerous corporate clients who regularly contract this division to identify a professional athlete to enhance their company’s profile, products and or services. In addition, the auction arm of this division, SCAC (Sports Collectibles and Auction Company) provides complete auction services to charities and organizations throughout the country. Warren H. Greene, president of The Greene Organization, is the brother-in-law of the Company’s president.

Franchise Segment.

The Company conducts its Field of Dreams^® operations through Dreams Franchise Corporation (“DFC”). On March 1, 2006, the Company announced the hiring of a new president of the franchise division. DFC will focus its attention on two principal objectives;

Improving its support structure for existing franchisees by creating “value-added” services such as:

Increasing brand awareness by opening more stores throughout the United States and Canada, and revamping the www.fieldofdreams.com website which includes adding an e-commerce component. These objectives have begun to be addressed by:

DFC licenses certain rights from Universal Studios Licensing, Inc. (“USL”) to use the name “Field of Dreams^®” in connection with retail operations and catalog sales. Field of Dreams^® is a copyright and trademark owned by Universal City Studios, Inc. with all rights reserved. Universal has authorized USL to license the marks. Neither company is in any way related to or an affiliate of the Company. The Company does not presently have a Field of Dreams^® catalog.

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Merchandising License Agreement.

DFC has acquired from USL the exclusive license to use “Field of Dreams^®” as the name of retail stores in the United States and a non-exclusive right to use the name “Field of Dreams^®” as a logo on products. DFC has also licensed from USL the exclusive right to sublicense the “Field of Dreams^®” name to franchisees for use as a retail store name. The license agreement between DFC and USL is referred to herein as the “USL License”. Under the terms of the USL License, DFC is obligated to pay to USL a 1% royalty based on gross sales of Field of Dreams^® stores. The current term of the USL License expires in December 2010. DFC has successive five-year options to renew the USL License. The USL License requires DFC to submit all uses of the Field of Dreams^® mark for approval prior to use. Ownership of the Field of Dreams^® name remains with USL and will not become that of DFC or the Company. Should DFC breach the terms of the USL License, USL may, in addition to other remedies, terminate DFC’s rights to use the “Field of Dreams^®” name. Such a termination would have an adverse effect on DFC’s and the Company’s business.

Franchising.

Our standard franchise provides a franchisee the right to open and operate a single Field of Dreams^® store at a single specified location. Franchisees pay DFC $10,000 upon execution of a standard franchise agreement and an additional $22,500 upon execution by the franchisee of a lease for the franchised store. Standard franchise agreements vary in length. It is DFC’s general practice that the term of standard franchise agreements begins with the term of the franchisee’s lease. In addition to sublicensing the right to use the Field of Dreams^® name for a single franchised store, DFC is required to provide the franchisee certain training, start-up assistance and a system for the operation of the store. Prior to opening a Field of Dreams^® store, a franchisee or its designated manager is required to attend and successfully complete a 2-week training course. For a period of five days during startup of a franchised store, DFC furnishes to a franchisee a representative to assist in the store opening. DFC does not provide an accounting system to franchisees. DFC does provide operational advice to franchisees and will, upon request, assist a franchisee in locating a site for a store. DFC reserves the right to modify at any time the system used in the store. Royalties from the largest franchisee accounted for less than one percent of the Company’s nine months ended December 31, 2007 and 2006 consolidated revenues.

DFC imposes certain controls and requirements on Field of Dreams^® franchisees in connection with site selection, site development, pre-opening purchases, initial training, opening procedures, payment of fees, compliance with operating manual procedures including purchasing through approved vendors, protection of trademark and other proprietary rights, maintenance and store appearance, insurance, advertising, owner participation in operations, record keeping, audit procedures, autograph authenticity standards and other matters. Franchisees are required to pay DFC 6% of gross revenues as an on-going royalty. Payments must be made weekly. Franchisees are required to comply with certain accounting procedures and use computer systems acceptable to DFC. Each franchisee is also required to spend 1% of its gross revenues for its own local advertising and promotion. Franchisees are required to maintain standards of quality and performance and to maintain the proprietary nature of the Field of Dreams^® name. DFC has prepared and amends from time-to-time an approved supplier list from which franchisees may purchase certain inventory and other supplies. Each franchisee is required to maintain specified amounts of liability insurance which names DFC and USL as insured parties. Franchisee’s rights under the standard franchise are not transferable without the consent of DFC and DFC has a right of first refusal to purchase any franchised store which is proposed to be sold. DFC sold no standard franchises during the nine months ended December 31, 2007.

Competition.

The Company’s retail stores compete with other retail establishments, including the Company’s franchise stores and other stores that sell sports related merchandise, memorabilia and similar products. The success of our stores depends, in part, on the quality, availability and the varied selection of authentic products as well as providing strong customer service.

Our e-commerce business competes with a variety of online and multi-channel competitors including mass merchants, fan shops, major sporting goods chains and online retailers. We believe the principal competitive factors are product selection, price, customer service and support, web site features and functionality, and delivery performance.

MMI competes with several major companies and numerous individuals in the sports and celebrity memorabilia industry. MMI believes it competes well within the industry because of the reputation it has established in its 19-year existence. MMI focuses on ensuring authenticity and providing the best possible customer service. MMI has concentrated on maintaining and selling memorabilia items of athletes and celebrities that have a broad national appeal. MMI believes it maintains its competitive edge because of its long established relationships with numerous high profile athletes, each of the major sports leagues and several of the largest sports agencies. Several of its competitors tend to focus on specific regional markets due to their relationships with sports franchises in their immediate markets. The success of those competitors typically depends on the athletic performance of those specific franchises. Additionally, MMI typically focuses on the three core sports that provide the greatest source of industry revenue, baseball, football and NASCAR.

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Within the acrylic display case line of business, MMI competes with other companies which mass produce cases. MMI does not compete with companies which custom design one-of-a-kind cases. MMI believes that because it is one of the country’s largest acrylic case manufacturers, it is price competitive due to its ability to purchase large quantities of material and pass the savings on to customers.

The Greene Organization competes with other companies which provide “off-field” services to athletes, some of which are much larger and better capitalized, including traditional sports agencies such as International Management Group.

DFC competes with other larger, more well-known and substantially better funded franchisors for the sale of franchises. Field of Dreams^® stores compete with other retail establishments of all kinds. The Company believes that the principal competitive factors in the sale of franchises are franchise sales price, services rendered, public awareness and acceptance of trademarks and franchise agreement terms.

Employees.

The Company employs 243 full-time employees and 85 part-time employees. None of our employees are represented by a labor union and we believe that our employee relations are good.

Seasonality.

Our business is highly seasonal with operating results varying from quarter to quarter. We have historically experienced higher revenues in the October – December quarter, primarily due to holiday sales. Approximately 61% and 60% of our nine month revenues were generated during this quarter for 2007 and 2006. Management believes that the percentage of revenues in the holiday quarter will increase in future years as we focus on and grow the retail segment. As a result, we may incur additional expenses during our holiday quarter, including higher inventory of product and additional staffing in anticipation of increased sales activity.

Risk Factors Relating to Dreams, Inc.

Our line of credit facility imposes significant operating and financial restrictions which may limit our ability to finance future operations or capital needs and pursue business opportunities, thereby limiting our growth.

Our line of credit facility imposes significant operating and financial restrictions on us. These restrictions, without the prior written waivers from our Bank, may limit our ability to, among other things:

These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities. In addition, our line of credit facility requires us to maintain specified financial ratios and satisfy certain financial covenants and maintain the collateral value of our borrowing base. We may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet these ratios and satisfy these covenants. A breach of any of the covenants in, or our inability to maintain the required financial ratios under our line of credit facility could result in a default. In the event of a default of our obligations under our line of credit or the security agreement, Comerica Bank may, among other things, seize and sell all of our assets or appoint a receiver for our operations.

A significant portion of our growth has come from acquisitions, and we plan to make more acquisitions in the future as part of our continuing growth strategy. This growth strategy subjects us to numerous risks.

A very important aspect of our growth strategy has been and is to pursue strategic acquisitions of related businesses that we believe can expand or complement our business. Acquisitions require significant capital resources and divert management’s attention from our existing business. Acquisitions also entail an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct pre-dating our acquisition of a business that were not known to us at the time of acquisition. We may also incur significantly greater expenditures in integrating an acquired business than we

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had anticipated at the time of its purchase. In addition, acquisitions may create unanticipated tax and accounting problems, including the possibility that we might be required to write-off goodwill which we have paid for in connection with an acquisition. A key element of our acquisition strategy has been to retain management of acquired businesses to operate the acquired business for us. Many of these individuals maintain important contacts with clients of the acquired business. Our inability to retain these individuals could materially impair the value of an acquired business. Our failure to successfully accomplish future acquisitions or to manage and integrate completed or future acquisitions could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that:

As a result of competition, and the strength of some of our competitors in the market, we may not be able to compete effectively.

The markets for our services and products are highly competitive. We compete with numerous local, regional and national companies, including certain or our suppliers, some of which possess substantially greater financial, marketing, personnel and other resources than us. Our retail stores compete with other retail establishments, including our franchise stores and other stores that sell sports related merchandise, memorabilia and similar products. Our e-commerce business competes with a variety of online and multi-channel competitors including mass merchants, fan shops, major sporting goods chains and online retailers. Mounted Memories, or MMI, competes with several major companies and numerous individuals in the sports and celebrity memorabilia industry. We also compete with various manufacturers of acrylic cases. We may not be able to compete successfully, particularly as we seek to enter into new markets.

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We have grown rapidly, and our growth has placed, and is expected to continue to place, significant demands on us.

We have grown rapidly in the past few years, including through acquisitions. Businesses that grow rapidly often have difficulty managing their growth. Our rapid growth has placed and is expected to continue to place significant demands on our management, on our accounting, financial, information and other systems and on our business. Although we have expanded our management, we need to continue recruiting and employing experienced executives and key employees capable of providing the necessary support. In addition, we will need to continue to improve our financial, accounting, information and other systems in order to effectively manage our growth. We will be required in 2008 to comply with the new annual internal control certification pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules. We cannot assure you that our management will be able to manage our growth effectively or successfully, or that our financial, accounting, information or other systems will be able to successfully accommodate our growth or that we will be able to timely comply with Section 404 of the Sarbanes-Oxley Act. Our failure to meet these challenges could materially impair our business.

If we are required to write-off goodwill or other intangible assets, our financial position and results of operations would be adversely affected.

As of December 31, 2007, we had goodwill and other intangible assets of approximately $13.9 million, which constituted approximately 27% of our total assets. We periodically evaluate goodwill and other intangible assets for impairment. Any determination requiring the write-off of a significant portion of our goodwill or other intangible assets, could adversely affect our results of operations and financial condition.

Lack of available retail store sites on terms acceptable to us, rising rents and other costs and risks relating to new store openings could severely limit our growth opportunities.

Our strategy includes opening stores in new and existing markets. We must successfully choose store sites, execute favorable leases on terms that are acceptable to us, hire competent personnel and effectively open and operate these new stores. Our plans to increase the number of our company-owned retail stores will depend in part on the availability of existing retail stores or store sites. We may not have stores or sites available to us for lease or available on terms acceptable to us. If additional retail store sites are unavailable on acceptable terms, we may not be able to carry out a significant part of our growth strategy. Rising rents in malls and other retail shopping areas could also inhibit our ability to grow. If we fail to locate desirable sites, obtain lease rights to these sites on terms acceptable to us, hire adequate personnel and open and effectively operate these new stores, our financial performance could be adversely affected.

Our business depends on anticipating consumer tastes and identifying, forming and maintaining relationships with popular athletes.

A significant portion of our revenues is generated by the sale of sports memorabilia and sports licensed products. Our success depends upon our ability to anticipate and respond in a timely manner to trends in sports memorabilia and sports licensed products and our ability to identify, form and maintain relationships with popular athletes. If we fail to anticipate changes in consumer preferences for these products or fail to identify, form and maintain relationships with these athletes, we may experience lower revenues, higher inventory markdowns and lower margins. Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These preferences are also subject to change. Sports memorabilia, licensed products and the popularity of athletes are often subject to short-lived trends, such as the short-lived popularity of certain athletes or sports teams. If we misjudge the popularity or staying power of a sports team or an athlete, we may over-stock unpopular products and force inventory markdowns that could have a negative impact on profitability, or have insufficient inventory of a popular item that can be sold at full markup.

We are dependent upon the Field of Dreams^® trademark.

Field of Dreams^® is a copyright and trademark owned by Universal City Studios, Inc. with all rights reserved. We license certain rights to use the name “Field of Dreams^®” from an affiliate of Universal City Studios in connection with retail operations and catalog sales pursuant to an agreement that expires in December 2010. We believe that the rights in the licensed name are a significant part of our business and that our ability to create demand for our products is dependent to a large extent on our ability to exploit this trademark. We cannot assure you that we will be able to renew the license agreement on favorable terms, if at all. Any inability to do so could have a material adverse effect on our business, financial condition and results of operation.

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Our retail business segment is highly seasonal.

Historically, the (October through December) holiday quarter has accounted for a greater proportion of our operating income than have each of the other three quarters of our year. In the nine month transition period ended December 31, 2007, more than 75% of the revenues from our retail business segment and a substantial portion of our operating earnings and cash flows from operations were generated in the holiday quarter. Our results of operations depend significantly upon the holiday selling season. If less than satisfactory revenues, operating earnings or cash flows from operations are achieved during the key holiday quarter, we may not be able to compensate sufficiently for the lower revenues, operating earnings, or cash flows from operations during the other three quarters of the year. Our manufacturing/distribution segment and our franchise segment are not as significantly impacted by seasonality.

The loss of key management personnel would adversely impact our business.

Our success is largely dependent upon the efforts of our key management personnel, including our chief executive officer and chairman, the loss of the services of any of them would have a material adverse effect on our business and prospects. We do not have employment agreements in effect with, or key-man life insurance in the event of the death of, our president and chief executive officer or any of our other key employees, except we have an employment agreement with one of our divisional presidents and key-man life insurance for two of our divisional presidents.

The trading price of our common stock is subject to significant volatility, which is due, in part, to the lack of liquidity of our shares. This lack of liquidity may continue for the foreseeable future.

Our common stock currently trades on the American Stock Exchange. The development of a public trading market depends upon the existence of willing buyers and sellers, the presence of which is not within the control of Dreams nor assured by listing our common stock on the American Stock Exchange. The absence of a liquid and active trading market, or the discontinuance thereof, may have an adverse effect on both the price and liquidity of our common stock.

Additionally, disclosures of our operating results, announcements of regulatory changes affecting our franchise segment, other factors affecting our operations and general conditions in the securities markets unrelated to our operating performance may cause the market price of our common stock to change significantly over short periods of time. The trading price of our common stock has been and may continue to be volatile.

Risks related to the E-commerce Industry

Government regulation of the Internet and E-commerce is evolving and unfavorable changes could harm our business.

A significant portion of our revenues are generated from our e-commerce business. Our e-commerce business is subject to regulations and laws specifically governing the Internet and e-commerce. Such existing and future laws and regulations may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel, and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business.

We buy a significant portion of our inventory from a few vendors.

Although we continue to increase our direct purchasing from manufacturers, we source a significant amount of inventory from relatively few vendors. However, no vendor accounts for 10% or more of our inventory purchases. We do not have long-term contracts or arrangements with most of our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits. If our current vendors were to stop selling to us on acceptable terms, we may not be able to acquire merchandise from other suppliers in a timely and efficient manner and on acceptable terms.

We could be liable for breaches of security on our website.

A fundamental requirement for e-commerce is the secure transmission of confidential information over public networks. Although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches may adversely affect our operating results.

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None.

We do not own any real property. The Company leases its corporate office and primary manufacturing/warehouse facility in Plantation, Florida and Sunrise, Florida, respectively. The corporate office lease is for approximately 8,000 square feet of office space and expires in June 2011, and has total occupancy costs of approximately, $18,000 per month. The Company’s principal executive and accounting offices are located at the Plantation, Florida facility.

Our primary manufacturing/warehouse facility in Sunrise, Florida has approximately 50,000 square feet of office, manufacturing and warehousing space. The lease is for a 10 year term expiring in 2012 with total occupancy costs of approximately $34,000 per month with 3% annual increases.

Our 17 company-owned stores currently lease their facilities, with lease terms (including renewal options) expiring in various years through September 2015 with initial terms of 7 to 10 years. We also lease a warehouse facility in Denver, Colorado which has approximately 1,400 square feet and a warehouse facility in Las Vegas, NV which has approximately 12,000 square feet.

To support our Internet division, we currently lease 66,000 square feet in Niles, IL with a monthly occupancy cost of approximately, $30,000. However, we will seek to add additional space for these operations when the lease expires in the summer of 2008.

All in all, we believe our current facilities are adequate for our operations for the foreseeable future.

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We are involved from time to time with legal proceedings arising in the ordinary course of business. The Company is not presently involved in any other litigation, the result of which would have a material adverse effect on the Company.

On November 8, 2007, the Company held an Annual Meeting of its Stockholders. There were two proposals voted upon at the meeting; to elect directors to each serve until the next Annual Meeting of Stockholders of the Company and until their successors have been duly elected and qualified; and to ratify the appointment of Friedman, Cohen, Taubman & Company, LLC, as independent auditors for the Company for the year ending December 31, 2007. Both proposals passed with 80% and 81% approval, respectively.

The following individuals were re-elected for another year:

Part II

As of April 16, 2007, the Company’s common stock was listed on the American Stock Exchange (Amex), an international, technologically advanced auction market, under the symbol “DRJ”. Prior to April 16, 2007, the Company’s common stock was traded on the *over-the-counter bulletin board under the symbol “DRMN.OB”. The high and low bids of the Company’s common stock for each quarter during the nine months ended December 31, 2007 and fiscal years ended March 31, 2007 and 2006 are as follows: (prices shown have been retroactively adjusted to reflect the 1 for 6 reverse stock split effective January 30, 2007)

Transition Period (April 1, 2007-December 31, 2007):

Fiscal Year Ended March 31, 2007:

Fiscal Year Ended March 31, 2006:

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Performance Graph

The information contained in this Performance Graph section of this Item 5 shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the Securities and Exchange Commission (“SEC”), or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

The graph below compares the performance of the Company’s Common Stock with the performance of the S & P 500 Index and a peer group index (the “Peer Group Index”) by measuring the respective changes in Common Stock prices from March 31, 2003 through December 31, 2007.

Pursuant to the SEC’s rules, the Company created a peer group index with which to compare its own stock performance. The Company has selected a grouping of companies that it believes share similar characteristics to its own. The following companies were included in the Peer Group Index: Collectors Universe, Inc. (CLCT) and Redenvelope, Inc. (REDE).

The graph assumes that $100 was invested on March 31, 2003 in each of the Company’s Common Stock, the S & P 500 Index and the Peer Group Index, and that all dividends, if applicable, were reinvested into additional shares of the same class of equity securities during the applicable fiscal year. The Peer Group Index weighs the returns of each constituent company according to its stock market capitalization at the beginning of each period for which a return is indicated.

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Copyright ^© 2008 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.

www.researchdatagroup.com/S&P.htm

THE STOCK PRICE PERFORMANCE SHOWN IN THE PERFORMANCE GRAPH IS NOT NECESSARILY INDICATIVE OF FUTURE PRICE PERFORMANCE. THE PERFORMANCE GRAPH WILL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE IN ANY FILING BY THE COMPANY UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934.

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The records of Fidelity Transfer, the Company’s transfer agent, indicate that there are 374 record owners of the Company’s common stock as of December 31, 2007. Because many of our shares of common stock are held by brokers, and other institutions on behalf of stockholders, we are unable to determine the total number of stockholders represented by these record holders. However, we believe there are more than 1,600 beneficial holders of our common stock. On March 1, 2008 the high bid price was $1.35 and the low bid price was $1.30 for the Company’s common stock.

Dividend Policy

The Company has never paid dividends and we intend to retain future earnings to finance the expansion of our operations and for general corporate purposes. In addition, our current loan and security agreement with Comerica Bank prohibits the Company from paying cash dividends.

Repurchase of Equity Securities during 2007

There were no issuer purchases of our common stock during 2007. However, on February 6, 2008, the Company announced that its Board of Directors has authorized the repurchase of up to $1,000,000 of the Company’s common stock as and when market prices make repurchases advantageous.

Issuance of Unregistered Securities

The Company has on two separate occasions during the nine months ended December 31, 2007 issued unregistered securities to support a particular transaction. The particulars of each of these transactions are set forth below. In addition, the Company has issued approximately 50,000 unregistered common shares as a result of options that were exercised during the reporting period.

Effective August 1, 2007, the Company entered into a stock purchase agreement with the shareholders of BKJ Consulting Corp., an Illinois corporation that owned and operated Schwartz Sports, a Chicago based sports memorabilia company. The Company acquired 100% of the outstanding shares of BKJ Consulting Corp. in exchange for 500,000 newly issued, restricted common shares of Dreams, Inc. The Company disclosed this transaction on a Form 8-K dated August 2, 2007. In connection with this agreement, an additional 182,218 newly issued, restricted common shares were issued to support debt converted to equity at closing.

Effective February 2, 2007, the Company acquired the assets of Frameart, LLC d/b/a Unique Images, a Nevada limited liability company in return for 258,333 newly issued, restricted, common shares of Dreams, Inc. This boutique custom framing firm is one of the industry’s innovators in high-end custom framing.

All of the common stock issued for the above transactions were not registered under the Securities Act of 1933 (the “Act”) and were issued pursuant to an exemption from registration under Section 4 (2) of the Act.

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EQUITY COMPENSATION PLAN INFORMATION

(Dollar amounts in thousands)

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There were no accounting changes for these five fiscal years. The Company acquired FansEdge in October 2003. This internet retailer has been the catalyst for the Company’s revenue growth. The Company’s outstanding stock options were not considered in the calculation of diluted earnings per share for fiscal years 2003 through fiscal 2006, due to their anti-dilutive effects. The Company received $3.6 million in insurance proceeds which was booked as other income in fiscal year 2006. Also, as a result of our asset purchase agreement with Pro-Stars, Inc. the Company has an on-going obligation to make quarterly distributions to limited partners on pro-rata bases depending on the actual profitability of the 3 Las Vegas based Field of Dreams stores and Stars Live 365.

Consolidated Balance Sheet Data: (Dollars in thousands)

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K/T 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; 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:

Organic Growth

Key components of our organic growth strategy include building brand recognition; improving sales conversion rates both in our stores and web sites; exploring additional distribution channels for our products; and lastly, by 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. For example, one of our focuses is to integrate technology in use at our Internet division as the basis of fueling a high tech kiosk unit positioned within our stores; thus creating an un-paralleled customer experience pertaining to the breadth and depth of product selection as our Internet’s skus (stock keeping units) portfolio consists of over 80,000 different items. As a result, we believe we should experience higher conversion rates at our stores.

In addition, we are targeting to sell more of the items that we manufacture through our own retail distribution channels on an exclusive basis whereby Dreams will enjoy the “long dollar”; or more traditionally characterized as going from manufacturing to retail. As a result, Dreams anticipates improvement in our consolidated gross margins, on a blended basis.

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 $40 million this year. Initially, we built sales by concentrating on customer acquisition and building brand awareness. Recently, we have shifted resources to applications providing more robust platforms and merchandising strategies that result in more repeat business. We

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will continue to offer technology services to third parties with the building of our SYNDICATION model; explore the leveraging of our unique visitors data base by constructing an OUTBOUND CALL CENTER and open our first FansEdge brick and mortar store in Chicago to execute our multi-channel retailing strategy by marketing a single brand (FansEdge) via multiple channels.

We believe this strategy; coupled with the significant investments made these past few years in the design, development and implementation of our proprietary platform, have us well positioned to benefit from the ever-growing increasing purchases being made directly on-line and indirectly (on-line influenced) by consumers.

Strategic Acquisitions

Our strategic acquisition initiatives will focus on e-commerce companies, brick and mortar retailers, other manufacturers of licensed sports and entertainment products and collectibles. These are companies that can offer incremental distribution channels for our products and whose value can be enhanced by placing them under the Dreams corporate umbrella. Normally, upon successfully completing these types of acquisitions, we seek to retain key management personnel while instituting a growth culture. Hence, our ability to evaluate potential acquisition candidates and consummate these transactions will remain an integral part of our business model.

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Corporate Initiatives

Some of our corporate initiatives have focused on:

We believe we have sufficient capital available under our credit facilities to fund these corporate initiatives.

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 and professional manner by driving and building our brands through on-line, brick and mortar, catalogue, 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. As the on-line retail market continues to grow, we believe that the market for our products sold over the Internet will also grow.

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 (October to December) fourth quarter has accounted for a greater proportion of our operating income than have each of the other three quarters of the 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 particularathletes 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 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 eCommerce platform, as well as our relationships with sports leagues, agents and athletes. Management believes we can become a consolidator in the highly fragmented licensed sports products industry.

GENERAL

As used in this Form 10-K/T “we”, “our”, “us”, “the Company” and “Dreams” refer to Dreams, Inc. and its subsidiaries unless the context requires otherwise. The fiscal years ended March 31, 2007 and March 31, 2006 are herein referred to as (fiscal 2007) and (fiscal 2006).

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.

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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 $67.

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 $270.

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 a $187, $187 and $187 valuation allowance as of December 31, 2007, March 31, 2007 and March 31, 2006, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized.

Goodwill and Unamortized Intangible Assets

The Company performs goodwill impairment tests on at least an annual basis and more frequently in certain circumstances. The Company cannot predict the occurrence of certain events that might adversely affect the reported value of goodwill. For example, such events may include strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the Company’s customer base, or a material negative change in its relationships with significant customers. If events occur or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount, goodwill will be tested for impairment. The Company will recognize an impairment loss if the carrying value of the asset exceeds the fair value determination. The Company performed an annual fair value assessment of its goodwill on December 31, 2007 and previously, on March 31 of each year, and no impairment was noted for the nine months ended December 31, 2007, nor in fiscal 2007 or 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.

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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 had approximately $1.0 million in orders not yet shipped as of December 31, 2007.

RESULTS OF OPERATIONS

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

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RESULTS OF OPERATIONS-NINE MONTHS ENDED DECEMBER 31, 2007 AS COMPARED TO THE NINE

MONTHS ENDED DECEMBER 31, 2006

Revenues. Total revenues increased 45% to $59.7 million during the nine months ended December 31, 2007 from $41.3 million during the same nine month period ended December 31, 2006. This is increase was primarily attributed to an increase in retail revenues generated through our e-commerce and brick and mortar components.

Manufacturing and distribution revenues increased 33.8% to $17.4 million during the nine months ended December 31, 2007 from $13.0 million during the same nine month period ended December 31, 2006. This increase was attributed to a large order received from a national mass market retailer and an acquisition completed in the current period. Net revenues, after elimination of intercompany sales increased 28.5% to $13.5 million during the current nine months, versus $10.5 million for the same nine month period the previous year.

Retail operations revenues increased 53% to $45.0 million during the nine months ended December 31, 2007 from $29.5 million during the same nine month period ended December 31, 2006. This increase was attributed to the continuing growth the Company is experiencing with its on-line properties. The Internet division contributed $32.9 million of the retail sales, up 32% from $25.0 million for the same nine month period last year. The Field of Dreams stores generated the $12.1 million balance of the nine months ended December 31, 2007 retail revenues. The store revenues were up 175% as we enjoyed the full benefit in the current period of acquiring the (3) Las Vegas based stores on December 26, 2006.

Costs and expenses. Total costs of sales for the nine months ended December 31, 2007 was $33.1 million versus $23.1 million for the same nine month period in 2006, or a 43% increase. This increase was as a result of overall greater sales generated in the current period. As a percentage of total sales, costs were 55% and 56% for the nine months ended December 31, 2007 and 2006, respectively.

Costs of sales of manufacturing/distribution products were $7.6 million for the nine month period ended December 31, 2007, versus $6.2 million for the same nine month period in 2006, or a 22.5% increase. This increase was as a result of higher manufacturing/distribution product sales in the current period. As a percentage of total manufacturing/distribution sales, costs were 42.9% and 47.6% for the nine months ended December 31, 2007 and 2006, respectively. After elimination of intercompany sales, as a percentage of total manufacturing/distribution sales, costs were 56.2% and 59.2%, respectively.

Cost of sales of retail products were $25.5 million for the nine month period ended December 31, 2007, versus $16.9 million for the same nine month period in 2006, or a 50.8% increase. This increase is attributable to an overall increase in retail sales. As a percentage of total sales, costs were 56.6% and 57.3% for the nine months ended December 31, 2007 and 2006, respectively.

Operating expenses increased 56% to $23.4 million for the nine month period ended December 31, 2007, versus $15.0 for the same nine month period in 2006. The increase is as a result of adding additional personnel to manage the (4) acquired Field of Dreams stores in the period, investments made in our new Syndication business model that will not begin to generate revenues until early 2008, initial fee requirements to have our shares listed on the American Stock Exchange, fees associated with a consulting company working on the Company Sarbanes-Oxley compliance and an increase in overall Company sales. As a percentage of sales, operating expenses were 39% and 36% for the nine month period ended December 31, 2007 and 2006, respectively.

Interest expense, net. Net interest expense was $708 for the nine months ended December 31, 2007, versus $390 for the same period last year. This increase is as a result of higher levels of borrowing to support our inventory purchases to support our sales growth, and several notes payables acquired during the period associated with the Company’s completed acquisitions.

Provision for income taxes. The Company recognized an income tax expense of $623 for the nine month period ended December 31, 2007 versus an income tax expense of $912 for the same nine month period in 2006. 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. After consideration of all of the evidence, management has determined that a valuation allowance of $187 is necessary for the nine months ended December 31, 2007 and for the nine months ended December 31, 2006. The Company expects its continuing effective tax rate to approximate 40%.

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FISCAL 2007 COMPARED TO FISCAL 2006

Revenues. Total revenues increased 31% to $56.0 million in fiscal 2007 from $42.7 million in fiscal 2006, due primarily to an increase in retail revenues, particularly retail revenues generated through our e-commerce component (approximately $12 million increase).

Manufacturing and distribution revenues decreased slightly or 4% from $18.8 million in fiscal 2006 to $18.0 million this year. Net revenues (after eliminating intercompany sales) decreased 7% from $16.2 million in fiscal 2006 to $15.0 million this year.

Retail operations revenues increased significantly from $25.1 million in fiscal 2006 to $39.4 million, or a 57% increase this year. The internet division had retail sales of $31.4 million this year versus $19.5 million in fiscal 2006, or a 61% increase. This was a result of higher volumes of orders received on our web sites. Additionally, retail sales through our company-owned Field of Dreams stores increased 43% to $8.0 million this year from $5.6 million in fiscal 2006. This was primarily due to the acquisition of the 3 Las Vegas based Field of Dreams stores on December 26, 2007. As of March 31, 2007 and March 31, 2006 we owned and operated 13 and 10 company-owned Field of Dreams stores, respectively.

Franchise royalty revenues were constant at $747 this year versus $724 in fiscal 2006. Total royalty revenues received totaled $1.1 million for both fiscal years.

The Company realized $334 in net management fee revenues for this year versus $224 in fiscal 2006, or a 49% increase.

Costs and expenses. Total cost of sales for this year was $31.8 million versus $24.4 million in fiscal 2006, a 30.0% increase. The increase relates to an increase in total Company sales. As a percentage of total sales, cost of sales was comparable in both periods at approximately 57%.

Costs of sales of manufacturing/distribution products were $10.1 million for fiscal 2006 versus $9.2 million this year, or a 9% decrease. This decrease relates to a decrease in manufacturing/distribution product sales and slightly improved margins. As a percentage of total manufacturing/distribution sales, cost of sales were 62.9% for fiscal 2006 versus 61.3% for this year.

Cost of sales of retail products were $14.3 million for fiscal 2006 versus $22.7 million for this year, or a 59% increase. This increase relates to an increase in retail sales. As a percentage of total retail sales, costs were comparable for both periods; approximately 57%.

Operating expenses increased 29% to $21.4 million this year from $16.6 million in fiscal 2006. The increase related to an increase in overall Company sales. As a percentage of total sales, operating expenses remained constant at 38%, for both years.

Interest expense, net. Net interest expense increased from $454,000 in fiscal 2006 to $528,000, due to slightly higher levels of borrowing on the Company’s line of credit.

Provision for income taxes. The Company recognized an income tax expense of $1.8 million in fiscal 2006 compared to an income tax expense of $469 for this 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. After consideration of all of the evidence, both positive and negative, management has determined that a $187 and $187 valuation allowance as of March 31, 2007 and 2006 respectively, is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized. The Company expects its continuing effective tax rate to approximate 40%.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity during the nine month period ended December 31, 2007, are the cash flow generated from our operating subsidiaries; availability under our $15 million senior revolving credit facility; availability under our $3 million acquisition line 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. In fact, with the improvement of the financial results of the Company and a further strengthening of the balance sheet, our ability to capitalize on market opportunities should be enhanced.

The balance sheet as of December 31, 2007 reflects working capital of $17.5 million versus working capital of $17.3 million at March 31, 2007. At December 31, 2007, the Company’s cash and cash equivalents were $1.6 million compared to $753 at March 31, 2007. Please note that the Company is not negatively impacted by the cash balance of $1.6 million, as it has sufficient access to capital under its revolving credit facility with its senior lender. As a lead-in to the holiday season, the Company draws down on its line of credit to make inventory purchases so it is properly positioned to support the increased sales activity experienced during the quarter ending December 31, 2007. The increased throughput results in significant pay-downs to the line balances; and the yearly cycle starts anew. Net accounts receivable at December 31, 2007 were $4.4 million compared to $2.3 million at March 31, 2007.

Use of Funds

Cash provided by operations amounted to $3.3 million for the nine months ended December 31, 2007, compared to $5.0 million provided by operations during the same period of 2006. The decrease is as a result of additional cash used for inventory purchases. Cash used in investing activities was $1.8 million for the nine months ended December 31, 2007 & $1.7 million for the nine months ended December 31, 2006 with the majority of the cash used for the purchase of property and equipment, in both periods. Cash used in financing activities was approximately $682 for the nine months ended December 31, 2007, versus $2.8 million for the same period in 2006. In the prior year period, the Company received $2 million from a private stock sale.

The Company had previously disclosed that its primary warehouse facility in Sunrise, Florida sustained damage as a result of Hurricane Wilma in the fall of 2005. The Company was unable to predict the financial impact of such damage; however, the Company believed that is had sufficient insurance coverage to protect itself. On June 28, 2006, the Company received a settlement payment of $3.6 million which was reflected as other income in the fiscal 2006 statement of operations. The Company anticipates minimal expenditures for repairs and replacement related costs in the future.

Other Activity

On November 1, 2006, the Company entered into a Securities Purchase Agreement with The Frost Group, LLC, a Florida limited liability company (“Frost”). Pursuant to the Agreement, the Company sold to Frost 5,128,205 shares of the Company’s common stock. The purchase price for the common stock was $0.39 per share in cash for an aggregate price of $2 million. As a result of the purchase, Frost owns approximately 14% of the Company’s outstanding common stock. The common stock issued in the transaction was not registered under the Securities Act of 1933 (the “Act”) and was issued pursuant to an exemption from registration under Section 4(2) of the Act.

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. 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 minus .75 or 30 day Comerica costs of funds plus 1.50%; and prime minus .25 or 30 day Comerica costs of funds plus 2.25%, for the funds drawn from the acquisition line. The Company used $6.7 million of the revolver at closing to pay-off the remaining loan balance with its prior senior lender, La Salle Bank.

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Analysis

We are currently analyzing our company-owned retail store business model and looking at the profitability of each store. We expanded this new model rapidly. Our first two company-owned stores opened in March 2002 and grew to 15 stores by June 2004. As of December 31, 2007, we owned and operated 17 stores. We have and will continue to analyze the performance of each of the store operations and determine whether they are providing the Company with its desired results. This may include additional future closings and/or conversion to franchise stores or in certain instances the re-purchasing of existing franchise stores to company-owned stores.

We are continuing to review our operational expenses and examining ways to reduce costs on a going-forward basis. With our recent change in our independent auditors and bank; we believe we will experience lower fees and costs typically associated with a smaller, yet highly regarded accounting firm; and moving away from a traditional asset-based lender to a more traditional cash-flow lender, respectively. However, we will be required in 2008 to include the attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules. There will be increased audit and other compliance costs as a result. To support our ultimate compliance with Section 404, we have engaged the services of an outside consulting company who began working with our management team in March of 2007. In addition, effective April 16, 2007, the Company’s Common shares became listed on the American Stock Exchange under the symbol “DRJ”. The Company has incurred additional costs and fees associated with this listing.

Contractual Obligations (In thousands)

Summary

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.

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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.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that will require noncontrolling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest to be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and is to be applied prospectively, except for the presentation and disclosure requirements which should be retrospectively applied. Early adoption of SFAS No. 160 is also prohibited. Accordingly, the Company will be required to adopt SFAS No. 160 as of January 1, 2009. Management does not believe that the adoption of SFAS No. 160 will have a material effect on the Company’s consolidated results of operations, cash flows or financial position.

In December 2007, the FASB also issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which requires an acquirer to recognize in its financial statements as of the acquisition date (i) the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, measured at their fair values on the acquisition date, and (ii) goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Acquisition-related costs, which are the costs the acquirer incurs to effect a business combination, will be accounted for as expenses in the periods in which the costs are incurred and the services are received, except that costs to issue debt or equity securities will be recognized in accordance with other applicable GAAP.SFAS No. 141(R) makes significant amendments to other Statements and other authoritative guidance to provide additional guidance or to conform the guidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R) also provides guidance as to what information is to be disclosed to enable users of financial statements to evaluate the nature and financial effects of a business combination. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of SFAS No. 141(R) will affect how the Company accounts for the acquisition of a business after December 31, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to measure at fair value eligible financial assets and liabilities that are not currently required to be measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item will be reported in current earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparison between the different measurements attributes the entity elects for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company will not elect the fair value option available for those assets and liabilities which are eligible under SFAS No. 159, and accordingly, there will be no impact on the Company financial position and results of operations attributable to SFAS No. 159.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157 applies to those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. Dreams does not expect the adoption of SFAS No. 157 to have a material impact on its financial position, results of operations, or cash flows.

In September 2006, the SEC Office of the Chief Accountant and Divisions of Corporation Finance and Investment Management released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in

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quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. This guidance is effective for fiscal years ending after November 15, 2006. The application of SAB No. 108 did not have any impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Stockholders’ Equity for fiscal 2007.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” The interpretation contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The interpretation is effective for the first interim period for fiscal years beginning after December 15, 2006. Dreams has adopted FIN 48 and there is no material impact on its financial condition, results of operations, cash flows or disclosures.

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.

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 December 31, 2007, we had $4.9 million of variable rate debt outstanding under our credit facility with Comerica Bank. Presently, the revolving credit line bears interest at the prime rate minus 75 basis points or 4.50%. A hypothetically 10% increase in our credit facility’s weighted average interest rate of 4.95% per annum for the nine months ended December 31, 2007 would correspondingly decrease our pre-tax earnings and our operating cash flows by approximately $60.

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 December 31, 2007 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.

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The financial statements required by this Item 8 are included at the end of this Report beginning on page F-1 as follows:

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Dreams, Inc. had elected to terminate its engagement of Grant Thornton LLP as the independent registered public accounting firm responsible for auditing the Company’s financial statements. The termination, which was effective as of March 20, 2007, was approved by the Company’s Audit Committee and the Board of Directors.

Grant Thornton’s report on the Company’s financial statements for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s two most recent fiscal years and any subsequent interim period preceding the termination of Grant Thornton, the Company did not have any disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Grant Thornton, would have caused it to make reference to the subject matter of the disagreements in connection with its report.

During the Company’s two most recent fiscal years and any subsequent interim period preceding the termination of Grant Thornton, other than as is set forth herein, Grant Thornton did not advise the Company of any of the following:

(A) That the internal controls necessary for the Company to develop reliable financial statements did not exist, with the exception of the disclosure set forth below;

(B) That information had come to Grant Thornton’s attention that had led it to no longer be able to rely on management’s representations, or that had made it unwilling to be associated with the financial statements prepared by management;

(C)(1) That Grant Thornton needed to expand significantly the scope of its audit, or that information had come to Grant Thornton’s attention that if further investigated may: (i) materially impact the fairness or reliability of either: a previously issued audit report or the underlying financial statements; or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that would have prevented it from rendering an unqualified audit report on those financial statements), or (ii) cause it to be unwilling to rely on management’s representations or be associated with the Company’s financial statements, and (2) due to Grant Thornton’s dismissal (due to audit scope limitations or otherwise), or for any other reason, the accountant did not so expand the scope of its audit or conduct such further investigation; or

(D)(1) That information has come to Grant Thornton’s attention that it had concluded materially impacted the fairness or reliability of either: (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to Grant Thornton’s satisfaction, would prevent it from rendering an unqualified audit report on those financial statements), and (2) the issue has not been resolved to Grant Thornton’s satisfaction prior to its termination.

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The Company provided Grant Thornton with a copy of the disclosures set forth in their Report on Form 8-K dated March 21, 2007, and requested that Grant Thornton furnish the Company with a letter addressed to the SEC stating whether it agrees with the statements made by the Company herein. The letter received by the Company from Grant Thornton, in which Grant Thornton states that it is in agreement with the disclosures set forth herein, is attached as an Exhibit.

Engagement of Friedman, Cohen, Taubman & Company, LLC

The Company has engaged Friedman, Cohen, Taubman & Company, LLC (“Friedman”) to serve as the independent registered public accounting firm responsible for auditing the Company’s financial statements. The engagement, which was effective as of March 19, 2007, was approved by the Company’s Audit Committee and the Board of Directors.

Neither the Company nor anyone on behalf of the Company consulted Friedman during the two most recent fiscal years and any subsequent interim period prior to engaging Friedman, regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, and either a written report was provided to the Company or oral advice was provided that Friedman concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) and the related instructions of Item 304 of Regulation S-K) or reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).

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Evaluation of Disclosure Controls, Internal Controls and Procedures. Our management has conducted an evaluation of the effectiveness of our disclosure controls, internal controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period year covered by this report on Form 10K/T.

This evaluation was done under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Rules adopted by the Securities and Exchange Commission (“SEC”) require that in this section of this Transition Report on Form 10-K, we present the conclusions of the CEO and the CFO about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

Report of Management on Internal Controls Over Financial Reporting.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, utilizing the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2007 is effective.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting. There have been no significant changes made in the registrant’s internal controls over financial reporting and there were no other factors that could significantly affect our internal controls over financial reporting during the fiscal year (the registrant’s fourth fiscal quarter in the case of an annual report) covered by this report.

None

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Part III

Directors and Officers. The Directors and Executive Officers of the Company and the positions held by each of them are as follows. All directors serve until the Company’s next annual meeting of shareholders.

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Biographical Information.

Sam D. Battistone. Sam D. Battistone has been Chairman of the Board since our inception. Mr. Battistone served as president until November 1998. He also served as the Chairman and CEO of Pro Stars, Inc. from January 2005 until he resigned his position in January 2007. He was the principal owner, founder and served as Chairman of the Board, President and Governor of the New Orleans Jazz and Utah Jazz of the National Basketball Association (NBA) from 1974 to 1986. In 1983, he was appointed by the Commissioner of the NBA to the Advisory committee of the Board of Governors of the NBA. He held that position until the Company sold its interest in the team. He served as a founding director of Sambo’s Restaurants, Inc. and in each of the following capacities, from time to time, from 1967 to 1979: President, Chief Executive Officer, Vice-Chairman and Chairman of the Board of Directors. During that period, Sambo’s grew from a regional operation of 59 restaurants to a national chain of more than 1,100 units in 47 states. From 1971 to 1973, he served on the Board of Directors of the National Restaurant Association.

Ross Tannenbaum. Mr. Tannenbaum has served as President and a Director of the Company since November 1998. From August 1994 to November 1998, Mr. Tannenbaum was President, director and one-third owner of MMI. From May 1992 to July 1994, Mr. Tannenbaum was a co-founder of Video Depositions of Florida. From 1986 to 1992, Mr. Tannenbaum served in various capacities in the investment banking division of City National Bank of Florida. Mr. Tannenbaum earned a B.A. from the University of Florida in 1984. Mr. Tannenbaum is the brother-in-law of David M. Greene, the Company’s Senior Vice President.

David M. Greene. David M. Greene has been Senior Vice President of Finance & Strategic Planning since June 2001 and our Corporate Secretary since August 2004. From May 1992 to May 2001, he was the President of Florida Tool & Gauge, Inc., an aerospace manufacturing company located in Fort Lauderdale, Florida that provided precision machined jet and rocket engine components for the Department of Defense, Pratt & Whitney Aircraft and NASA. From April 1987 to April 1992, he served as President of GGH Consultants, Inc., an investment and business consulting company that provided private and public companies with equity and debt financings, M & A advice, Initial Public Offering and Secondary Offering consultation. From May 1984 to March 1987, he worked as an investment executive at the investment banking firm of Drexel, Burnham, Lambert, Inc. in New York City and Ft. Lauderdale, Florida. Mr. Greene earned a B.A. from Tufts University in 1984 and a MBA from Nova University in 1993. Mr. Greene is the brother-in-law of Ross Tannenbaum, the Company’s President.

Dale E. Larsson. Mr. Larsson has served as Director of our Company since 1982. From 1982 until September 1998, Mr. Larsson was our Secretary-Treasurer. Mr. Larsson served as a Director and CFO of Pro Stars, Inc. from January 2005 until he resigned his positions in January 2007. Mr. Larsson graduated from Brigham Young University in 1971 with a degree in business. From 1972 to 1980, Mr. Larsson served as controller of Invest West Financial Corporation; a Santa Barbara, California based Real Estate Company. From 1980 to 1981, he was employed by Invest West Financial Corporation as a real estate representative. From 1981 to 1982, he served as the corporate controller of WMS Famco, a Nevada corporation based in Salt Lake City, Utah, which engaged in the business of investing in land, restaurants and radio stations. Since 1998, Mr. Larsson has also served as the controller of Dreamstar, Inc., an investment and Retail Sports Memorabilia Company.

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Kevin Bates. Kevin Bates founded FansEdge^® in 1998, serving as its CEO. When Dreams, Inc. acquired FansEdge in 2003, he became President of our e-commerce division and now serves as President of our retail division. From 1996 to 1999, Mr. Bates was President of Galvin and Wright, Inc., a consulting firm based in Glenview, Illinois. Prior to that he worked on a contract basis for a wide range of firms including Republic Mortgage Insurance Company of Winston-Salem, North Carolina, Allegiance Health Care of McGaw Park, Illinois, Cincinnati Bell Information Systems of Itasca, Illinois, A.C. Nielson of Bannockburn, Illinois, and others. Mr. Bates holds a B.S. degree in computer science from Northern Illinois University in DeKalb, Illinois. He also holds various technology certificates from DePaul University in Chicago, Illinois, and Internet Webmaster E-commerce Professional from Net Guru Technologies of Oak Brook, Illinois.

Mitch Adelstein. Mitch Adelstein was the founder of Mounted Memories in 1989 and has served as its president since its inception. He is considered a true pioneer of the sports collectibles industry with over 30 years of sports collectible and memorabilia knowledge. Mr. Adelstein has been responsible for all new product designs and day-to-day activities of Mounted Memories for the past 18 years. In 1998, Mounted Memories was acquired by Dreams, Inc. at which time Mr. Adelstein remained on as a member of the management team, until he was renamed its president in 2000. Under Mr. Adelstein, Mounted Memories has evolved into the leader in the autographed sports memorabilia and collectibles industry.

Dorothy Sillano. Ms. Sillano was promoted to Vice President and Chief Financial Officer of the Company in November 2007 after having served as the Company’s Controller since August 2005. From January 1987 until November 1996, Ms. Sillano was Second Vice President of Accounting at Chase Personal Financial Services, the upscale mortgage division of JP Morgan Chase. From 1997 through 1999, Ms. Sillano was the Controller of First American lending, a sub-prime auto finance company. From 2000 through May 2005, Ms. Sillano held the positions of Controller, acting CFO and CFO at three private educational institutions. Also, during this period, she served as a Sarbanes-Oxley consultant with MSI Consulting, Inc. In December 1990, Ms. Sillano earned a B.B.A. in Accounting from Florida Atlantic University, became a Certified Public Accountant in 1991 and was conferred with a MBA from DeVry University in July 2005.

David Malina. Mr. Malina was named as a director of the Company in November 2006 and is currently Vice President of Business Development for Ladenburg Thalmann & Company, Inc., a full service investment banking and brokerage firm that has recently relocated its headquarters to Miami, Florida. From 2003 to 2006, Mr. Malina was corporate Vice President in charge of Investor Relations and Corporate Communications for IVAX Corporation, a multinational pharmaceutical company, with direct operations in 39 countries, sales in over 80 countries, and over 7000 employees. IVAX was sold to Teva Pharmaceuticals Industries Ltd in January 2006 for an enterprise value of $9.9 billion. Prior to his employment at IVAX, Mr. Malina was a Managing Director at the Kriegsman Group, a boutique investment bank in Los Angles, California that specialized in health care. From 1974 to 2000, Mr. Malina was a highly regarded screenplay and teleplay writer working for the major film studios and television networks and producing luminaries such as David Geffin, Arnold Koppelson, Roger Birnbaum, Larry Turman, and Frank Price. Mr. Malina is an honors graduate of the Wharton School at the University of Pennsylvania and attended graduate school at the London School of Economics and Political Science.

Steven D. Rubin. Mr. Rubin was named a director of the Company in November 2006. Mr. Rubin has served as Executive Vice President-Administration and as a director of Opko Health, Inc. since March, 2007. He is also a member of The Frost Group. Mr. Rubin served as the Senior Vice President, General Counsel and Secretary of IVAX from August 2001 until September 2006. Before joining IVAX, from January 2000 to August 2001, Mr. Rubin served as the Senior Vice President, General Counsel and Secretary of privately-held Telergy, Inc., a provider of business telecommunications and diverse optical network solutions. He was with the Miami law firm of Stearns Weaver Miller Weissler Alhadeff & Sitterson from 1986 until 2000, in the Corporate and Securities Department. Mr. Rubin was a shareholder of that firm from 1991 until 2000 and a director from 1998 until 2000. Mr. Rubin currently serves on the board of directors of Dreams, Inc., a vertically-integrated sports products company, Modigene Inc., a development stage biopharmaceutical company, Safe Stitch Medical, Inc., a medical device company, and Longfoot Communications Corp., a shell company seeking a merger or other business partner. Mr. Rubin holds a B.A. in Economics from Tulane University and a J.D. from the University of Florida.

Manoharan Sivashanmugam. Mr. Sivashanmugam was named the Company’s Chief Information Officer in March 2007. From January 2001 to November 2006, he served in the capacity of Vice President of Technology for uBid.com; a leading retail auction and e-Commerce site specializing in computer and consumer electronic sales with nearly $1 Billion in annual revenues. The uBid.com site attracts over 5 million registered users with daily orders exceeding 10,000. From January 2000 to December 2000, he was a co-founder and Director of Development for Fansedge.com; a company that was purchased by Dreams, Inc. in October 2003. From September 1996 to January 2000, he was the Technical Project Manager for Whittman-Hart in Chicago, Illinois, the premier consulting agency providing integrated solutions across all industry verticals using emerging and legacy technologies. Mr. Sivashanmugam is an expert in application development for online auction engines, internet business-to-business and business-to-consumer, manufacturing, financial and sports information systems and online retailing. He is proficient with all major technology platforms. He received both a Master of Science degree in Computer Science and a Bachelor of Science degree in Physics from the University of Madras, India.

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Meetings of Directors

During the nine months ended December 31, 2007, the Board of Directors acted by unanimous consent on three occasions and had two meetings.

Compensation of Directors.

In addition to reimbursing outside Directors for their out-of-pocket expenses associated with attending Board and or Committee Meetings, the following compensation was paid to our outside Board and Committee Members in 2007:

Sam Battistone – $15,000

Dale Larsson – $20,000

David Malina – $10,000 and 10,000 stock options

Steven Rubin – $10,000 and 10,000 stock options

Code of Ethics.

We have adopted a code of ethics for our officers and directors. The Code of Ethics was approved by our Board of Directors in June 2004 and is posted on our web site. We will also disclose any amendments or waivers to our Code of Ethics on our website www.dreamscorp.com.

Independence of the Board.

The Board of Directors has determined that the following four individuals of its five member board are independent as defined under the federal securities laws, including Section 121 of the American Stock Exchange Guide: Mr. Battistone, Mr. Larsson. Mr. Malina and Mr. Rubin.

Committees of the Board of Directors. Until the creation and adoption of the Company’s audit committee in March of 2007, the Board of Directors has acted as our Audit Committee. In addition to the audit committee, in March of 2007, the Company has established a Compensation Committee and a Nominating and Corporate Governance Committee. Each of these charters meets the requirements of the American Stock Exchange.

Audit Committee

The Audit Committee presently consists of Messrs. Larsson, Battistone and Malina; with Mr. Larsson serving as chairman. The Audit Committee is responsible for monitoring and reviewing our financial statements and internal controls over financial reporting. In addition, they recommend the selection of the independent auditors and consult with management and our independent auditors prior to the presentation of financial statements to shareholders and the filing of our forms 10-Q and 10-K. Our Board has determined that Mr. Dale Larsson qualifies as an “audit committee financial expert” as defined under the federal securities laws. The Audit Committee’s responsibilities are set forth in an Audit Committee Charter, a copy of which is currently available from the Company and will be posted soon on our web site at www.dreamscorp.com.

Compensation Committee

The Compensation Committee presently consists of Messrs. Larsson and Malina. The Compensation Committee is responsible for reviewing and recommending to the Board of Directors the compensation and over-all benefits of our executive officers, including administering the Company’s Equity Incentive Stock Option Plan. The Compensation Committee Charter, a copy of which is currently available from the Company, will be posted soon on our web site at www.dreamscorp.com.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee presently consists of Messrs. Battistone and Rubin. The Nominating and Corporate Governance Committee is responsible for identifying prospective qualified Board of Director candidates as well as those names submitted by our shareholders. In addition, this committee provides recommendations to the Board of Directors as to a proper set of corporate governance guidelines and principles to adopt. The Nominating and Corporate Governance Committee Charter, a copy of which is currently available from the Company, will be posted soon on our web site at www.dreamscorp.com.

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Compliance With Section 16(a) of the Exchange Act. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during nine months ended December 31, 2007 and amendments thereto furnished to the Company with respect to the nine months ended December 31, 2006, the Company is not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the nine months ended December 31, 2007.

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Compensation Discussion and Analysis

Overview and Philosophy of Compensation

The Compensation Committee has the responsibility to review, recommend, and approve all executive officer compensation arrangements. The Compensation Committee has the specific responsibility to (i) review and approve corporate goals and objectives relevant to the compensation of our Chief Executive Officer (“CEO”), (ii) evaluate the performance of our CEO in light of those goals and objectives, and (iii) determine and approve the compensation level of our CEO based upon that evaluation. The Compensation Committee also has the responsibility to annually review the compensation of our other executive officers and to determine whether such compensation is reasonable under existing facts and circumstances. In making such determinations, the Compensation Committee seeks to ensure that the compensation of our executive officers aligns the executives’ interests with the interests of our shareholders. The Compensation Committee must also review and approve all forms of incentive compensation, including stock option grants, stock grants, and other forms of incentive compensation granted to our executive officers. The Compensation Committee takes into account the recommendations of our CEO in reviewing and approving the overall compensation of the other executive officers.

We believe that the quality, skills, and dedication of our executive officers are critical factors affecting our long-term value and success. Thus, one of our primary executive compensation goals is to attract, motivate, and retain qualified executive officers. We seek to accomplish this goal by rewarding past performance, providing an incentive for future performance, and aligning our executive officers’ long-term interests with those of our shareholders. Our compensation program is specifically designed to reward our executive officers for individual performance, years of experience, contributions to our financial success, and creation of shareholder value. Our compensation philosophy is to provide overall compensation levels that (i) attract and retain talented executives and motivate those executives to achieve superior results, and (ii) align executives’ interests with our corporate strategies, our business objectives, and the long-term interests of our shareholders, and (iii) enhance executives’ incentives to increase our stock price and maximize shareholder value. In addition we strive to ensure that our compensation, particularly salary compensation, is consistent with our constant focus on controlling costs. Our primary strategy for building senior management depth is to develop personnel from within our company to ensure that our executive team as a whole remains dedicated to our customs, practices, and culture, recognizing, however, that we may gain talent and new perspectives from external sources.

Elements of Compensation

Our compensation program for executive officers generally consists of the following five elements:

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The Compensation Committee has the responsibility to make and approve changes in the total compensation of our executive officers, including the mix of compensation elements. In making decisions regarding an executive’s total compensation, the Compensation Committee considers whether the total compensation is (i) fair and reasonable to us, (ii) internally appropriate based upon our culture and the compensation of our other employees, and (iii) within a reasonable range of the compensation afforded by other opportunities. The Compensation Committee also bases its decisions regarding compensation upon its assessment of the executive’s leadership, individual performance, years of experience, skill set, level of commitment and responsibility required in the position, contributions to our financial success, the creation of shareholder value, and current and past compensation. In determining the mix of compensation elements, the Compensation Committee considers the effect of each element in relation to total compensation. Consistent with our desired culture of industry leading performance and cost control, the Compensation Committee has attempted to keep base salaries at moderate levels for companies within our market and total capitalization. The Compensation Committee specifically considers whether each particular element provides an appropriate incentive and reward for performance that sustains and enhances long-term shareholder value. In determining whether to increase or decrease an element of compensation, we rely upon the Compensation Committee’s judgment concerning the contributions of each executive and, with respect to executives other than the CEO, we consider the recommendations of the CEO. We generally do not rely on rigid formulas or short-term changes in business performance when setting compensation.

The following is a discussion of each element of our compensation program, including (i) why we choose to pay each element, (ii) how we determine the specific amount to pay for each element, and (iii) how each element, and our decisions regarding each element, fit into our overall compensation objectives and affect decisions regarding other elements. We also discuss the specific decisions we made with respect to the compensation of our Chief Executive Officer, and the remaining executive officers for the nine months ended December 31, 2007 (collectively, the “Named Executive Officers” or “NEO’s”).

Base Salary

We pay base salaries at levels that reward executive officers for ongoing performance and that enable us to attract and retain highly qualified executives, but not at a level that allows them to achieve the overall compensation they desire. Base pay is a critical element of our compensation program because it provides our executive officers with stability. Such stability allows our executives to focus their attention and efforts on creating shareholder value and on our other business objectives. In determining base salaries, we consider an executive’s qualifications and experience, including, but not limited to, the executive’s industry knowledge and the quality and effectiveness of the executive’s leadership, scope of responsibilities, past performance, and future potential of providing value to our shareholders. Although we do not believe it is appropriate to establish compensation levels based solely on benchmarking because of geographic and incentive compensation differences, we consider base salaries of executives having similar qualifications and holding comparable positions in companies similarly situated to ours. We set our base salaries at a level that allows us to pay a portion of an executive officer’s total compensation in the form of perquisites, cash bonuses, and long-term incentives. We believe that such a mix of compensation helps us to provide an incentive to our executives to maximize shareholder value. We consider adjustments to base salaries annually to reflect the foregoing factors but do not apply a specific weighting to such factors.

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Base Salary of Our Chief Executive Officer

In April, 2006, the Compensation Committee, who at the time consisted of our outside Board of Directors, reviewed the overall compensation of Ross Tannenbaum, our President and CEO. As part of this review, the Compensation Committee reviewed the compensation of numerous publicly traded companies similarly situated to ours, and based upon this review set Mr. Tannenbaum’s base salary at $325,000 for periods after this date and again in June 2007, effective April 1, 2007, Mr. Tannenbaum’s base salary has been set at $350,000 for 2008.

Base Salary of Our Other Named Executive Officers

In April, 2006, after reviewing our financial performance and considering our compensation philosophy and the guidelines described above, the Compensation Committee, who at the time consisted of our outside Board of Directors, approved a $15,000 base salary increase for David Greene in continued recognition of his corporate initiative results and level of responsibilities as our Senior Vice President and Corporate Secretary.

The following table reflects the adjustments we made from Fiscal 2006 to Fiscal 2007 and from Fiscal 2007 to 2008, to the base salaries of our Named Executive Officers. Base salaries of our NEO’s are reviewed, and if warranted adjusted by the Compensation Committee and Board of Directors. The amounts reflected within the columns represent the amount of base salary for each NEO as of March 31 for Fiscal Year 2006 and Fiscal Year 2007 and December 31, 2007 of each respective year represented.

Performance-Based Annual Cash Bonuses

In April, 2006 our Board of Directors approved our Executive Cash Bonus Plan (“Cash Bonus Plan”). We use our Cash Bonus Plan to provide annual incentives to executive officers and members of our senior management team in a manner designed to (i) link increases in compensation to increases in our revenues and income in order to reinforce our focus on creating shareholder value, (ii) reinforce our desire to control costs, and (iii) link a significant portion of our executives’ compensation to the achievement of such goals. Cash bonuses are designed to reward executive officers for their contributions to our financial and operating performance and are based primarily upon our financial results with weighting apportioned between revenue and earnings growth targets, as determined by the Compensation Committee each year. The bonus remains discretionary, and may be adjusted at the sole discretion of the Board of Directors.

Performance-Based Annual Cash Bonuses Paid to Our Named Executive Officers

For the nine months ended December 31, 2007, the following named executive officers earned a cash bonus (i) Ross Tannenbaum earned a cash bonus of $50; (ii) David Greene earned a cash bonus of $35; (iii) Mitch Adelstein earned a cash bonus of $29; (iv) Kevin Bates earned a cash bonus of $112 and (v) Dorothy Sillano earned a cash bonus of $12.

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Long-Term Incentives

On January 15, 2007, our shareholders approved and ratified our 2006 Equity Incentive Plan (“Equity Plan”). Our Equity Plan is a broad-based equity compensation plan that we use to attract, motivate, and retain qualified executive officers by providing them with long-term incentives. We also use the Equity Plan to align our executives’ and shareholders’ long-term interests by creating a strong and direct link between executive pay and shareholder return.

The Equity Plan allows the Compensation Committee to link compensation to performance over a period of time by granting awards that have multiple-year vesting schedules. Awards with multiple-year vesting schedules, such as stock options, provide balance to the other elements of our compensation program that otherwise link compensation to annual performance. Awards with multiple-year vesting schedules create incentives for executive officers to increase shareholder value over an extended period of time because the value received from such awards is based on the growth of the stock price above the grant price. Such awards also provide our executives with an incentive to remain with us over an extended period of time. Thus, we believe our Equity Plan is an effective way of aligning the interests of our executive officers with those of our shareholders.

Under the Equity Plan, the Compensation Committee may grant incentive stock options or nonqualified stock options, stock purchase rights, stock appreciation rights and restricted and unrestricted stock awards as forms of executive officer compensation. To date, the Compensation Committee has not made any awards under the Equity Plan.

The Compensation Committee will consider several factors when determining the number of awards to be made to our executive officers under the Equity Plan, including, but not limited to, the following: (i) the recommendations of our CEO; (ii) the value of the award in relation to other elements of total compensation; (iii) the number of options, stock purchase rights, stock appreciation rights, and stock awards currently held by the executive; (iv) the number of options, stock purchase rights, stock appreciation rights, and stock awards granted to the executive in prior years; and (v) the executive’s position, scope of responsibility, ability to affect our profits, ability to create shareholder value, and historic and recent performance.

Other Compensation

We provide our Named Executive Officers with certain other benefits that we believe are reasonable, competitive, and consistent with our overall executive compensation program. We believe that these benefits generally allow our executives to work more efficiently. The costs of these benefits generally constitute only a small percentage of each executive’s total compensation. In setting the amount of these benefits, the Compensation Committee considers (i) each executive’s position and scope of responsibilities, and (ii) all other elements comprising the executive’s compensation. For the nine months ended December 31, 2007, we provided an automotive allowance to certain of our NEO’s. We report these costs as personal benefits for the NEO’s in the “Non-equity Deferred Compensation” and “All Other Compensation” columns in the Summary Compensation Table below.

Employee Benefits

Our NEO’s are eligible to participate in all of our employee benefit plans, such as our 401(k) Plan and medical, dental, and group life insurance plans, in each case on the same basis as our other employees.

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Employment Agreements

We do not currently have employment contracts in place with any of our Named Executive Officers, other than Kevin Bates. It is the position of the Compensation Committee to explore whether it is strategically favorable for the Company to enter into employment contracts with various key executives. Set forth below is a description of those employment contracts currently in place with our NEO’s.

Kevin Bates and the Company entered into a 3-year employment agreement, in June 2007, where Mr. Bates is to serve as the president of all of Dreams Retail operations. The base salary, effective April 1, 2007, is $350,000 with annual CPI increases. In addition, Mr. Bates is entitled to a 5% performance bonus based on the EBIT (earnings before interest and taxes) up to the first $10 million and 3% thereafter of all of Dreams Retail operations. This employment agreement replaces the 20% EBIT (earnings before interest and taxes) that the Company was contractually obligated to pay to Mr. Bates pursuant to the original stock purchase agreement when Dreams acquired FansEdge in October of 2003. For the first four years following the acquisition, the Company has provided the former shareholders of FansEdge with a 25% of the EBIT (earnings before interest and taxes) and has recorded these payments as additional purchase price consideration for fiscal years 2004 through 2007.

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2007 Compensation Tables.

Summary Compensation Table as of December 31, 2007**

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Outstanding Equity Awards At December 31, 2007 Table

OPTION EXERCISES AND STOCK VESTED

DIRECTOR COMPENSATION

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COMPENSATION COMMITTEE REPORT

The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

The members of the Compensation Committee of the Company’s Board of Directors have reviewed and discussed the Compensation Discussion and Analysis appearing in this transition report on Form 10-KT with management, and based upon such review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that such Compensation Discussion and Analysis be included herein.

The Compensation Committee – Dale Larsson, David Malina

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Principal Shareholders.

The following table sets forth as of March 1, 2008 the number of the Company’s common stock beneficially owned by persons who own five percent or more of the Company’s voting stock, by each director, by each executive officer, and by all executive officers and directors as a group. The table presented below includes shares issued and outstanding and options exercisable within 60 days.

See footnotes below.

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On January 12, 2005, the Company entered into a licensing agreement with Pro Stars, Inc., a corporation in which our chairman of the board was an executive officer. Under the terms of the agreement, we received a 10% licensing fee on the revenues generated from our 365 live marketing concepts which we licensed to Pro Stars, Inc. The license fees received in fiscal 2007 were $327 and 2006 were $350. The license fees received in fiscal 2005 were insignificant. On December 26, 2006, Dreams, Inc acquired the assets and assumed certain liabilities of ProStars, Inc., a Utah corporation, pursuant to the terms of an Asset Purchase Agreement entered into by the parties.

The assets acquired by the Company under the Agreement include, without limitation, (i) a majority equity interest in four entities that operate three Field of Dreams^® retail stores that offer unique sports and entertainment memorabilia products to consumers, (ii) at least $2 million of inventory used in the stores, (iii) substantially all other assets used by Seller in the operation of the Business, and (iv) a marketing venture know as “Stars Live 365”.

The purchase price for the Assets included 1,500,000 shares of restricted common stock of the Company, issued as follows: (i) 1,000,000 Shares at closing; (ii) 166,667 Shares to be held in escrow to satisfy any Seller obligations arising under the indemnification provisions of the Agreement, and (iii) 333,334 shares (the “Rio Shares”) to be held in escrow to secure Seller’s obligation to obtain and assign to the Company a lease with respect to Seller’s operations at the Rio Hotel in Las Vegas Nevada of which said lease was subsequently received, triggering the release of the escrow shares. The number of Shares is subject to adjustment in the event certain payables of Seller being assumed by the Company exceed $500 or certain debt Seller owes the Company exceeds $1,418,000.

The Company had agreed to assume certain liabilities of Seller, including, but not limited to, notes payable in the amount of approximately $1,422,000, and an additional note payable to Sam Battistone, a principal and shareholder of Seller and a member of the Company’s Board of Directors, in the amount of $1,029,000 which was satisfied through the issuance by the Company of 166,667 shares of the Company’s common stock (with 83,333 shares issued at closing and 83,334 shares held together with the Rio Shares to secure Seller’s obligation to provide the Company with the Rio Lease), which said lease was subsequently received, triggering the release of the escrow shares, and the transfer of all interests of Seller in and to that certain NBA litho project.

The Agreement provides the Company with certain rights of first refusal with respect to post closing sales of the Shares by Seller and/or certain of Seller’s shareholders, and the right to obtain lock up agreements from certain of Seller’s shareholders upon their receipt of Shares in a distribution by Seller.

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The shares of the Company’s common stock issued under the Agreement were not registered under the Securities Act of 1933 (the “Act”) and were issued pursuant to an exemption from registration under Section 4(2) of the Act.

The description of the terms of the Agreement set forth herein is qualified in its entirety by the terms of the Agreement which text was filed in a Form 8-K by the Company on January 3, 2007.

Director Independence

The Board of Directors has determined that four individuals of its five member board are independent as defined under federal securities laws, including rule 121 of the American Stock Exchange: Mr. Larsson, Mr. Battistone, Mr. Malina and Mr. Rubin.

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The following table shows the fees that the Company paid or accrued for the audit and other services provided by Friedman, Cohen, Taubman & Company for the nine months ended December 31, 2007 and Fiscal Year 2007.