<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 10-KSB

                           ANNUAL REPORT PURSUANT TO
           Section 13 or 15(d) of the Securities Exchange Act of 1934

                      For Fiscal Year ended March 31, 2001

                                 Dreams, Inc.
                   -----------------------------------------
                 (Name of Small Business Issuer in its charter)

              Utah                                   87-0368170
  ---------------------------             -----------------------------
  (State or other jurisdiction of                 (I.R.S. Employer
   incorporation or organization)                Identification No.)


  2 South University Drive, Plantation, Florida                33324
----------------------------------------------------      -----------------
   (Address of principal executive offices)                   (Zip Code)

Issuer's telephone number (  954  )       377    -    0002
                           ---------   ---------    --------

Securities registered under Section 12(b) of the Act:

          Title of each class                 Name of each exchange on which
                                                each class is registered

                None                                      N/A
----------------------------------------      --------------------------

Securities registered under Section 12(g) of the Act:


                          Common stock, no par value
------------------------------------------------------------------------------
                               (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Act during the past 12 months (or for such 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.
                                              Yes    X      No
                                                   -----  ------

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.    X
                                       -----

State issuer's revenues for its most recent fiscal year:    $15,012,000
                                                            -----------

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days.  Based on the closing price of the
common stock quoted on the OTC Bulletin Board as reported on June 22, 2001 the
aggregate market value of the 25,498,024 shares of common stock held by persons
other than officers, directors and parties known to the Registrant to be the
beneficial owner (as that term is defined under the runes of the Securities and
Exchange Commission) of more than five percent of the Common Stock on that date
was $15,043,834.  By the foregoing statement, the Registrant does not intend to
imply that any of these officers, directors or beneficial owners are affiliates
of the Registrant or that the aggregate market value, as computed pursuant to
rules of the Securities and Exchange Commission, is in any way indicative of the
amount which could be obtained for such shares of common stock of the
Registrant.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  55,652,835.

Transitional Small Business Disclosure Format (check one): _____ Y    X  N
                                                                    -----

                           FORWARD LOOKING STATEMENTS

The Registrant cautions readers that certain important factors may affect actual
results and could cause such results to differ materially from any forward-
looking statements that may have been made in this Form 10-KSB or that are
otherwise made by or on behalf of the Registrant.  For this purpose, any
statements contained in the Form 10-KSB that are not statements of historical
fact may be deemed to be forward-looking statements.  Without limiting the
generality of the foregoing, words such as "may," "expect,"  "believe,"
"anticipate," "intend," "could," "estimate," "plan," or "continue" or the
negative other variations thereof or comparable terminology are intended to
identify forward-looking statements.
<PAGE>

                               TABLE OF CONTENTS
                                  FORM 10-KSB
<TABLE>
<CAPTION>
                                                                Page
                                                                ----
                                     Part I
                                     ------
<S>                                                            <C>
Item 1     DESCRIPTION OF BUSINESS.............................    1

Item 2.    DESCRIPTION OF PROPERTY.............................    7

Item 3.    LEGAL PROCEEDINGS...................................    7

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.    7

                                    Part II
                                    -------

Item 5.    MARKET FOR COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS.................................    8

Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR
           PLAN OF OPERATION...................................    9

Item 7.    FINANCIAL STATEMENTS................................   12

Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE..............   32

                                    Part III
                                    --------

Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
           CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
           OF THE EXCHANGE ACT.................................   32

Item 10.    EXECUTIVE COMPENSATION.............................   34

Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT..............................   37

Item 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....   38

Item 13.    EXHIBITS AND REPORTS ON FORM 8-K...................   38

SIGNATURES.....................................................   39
</TABLE>

                                       i
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                                    Part I
                                    ------

Item 1.   Description of Business
          -----------------------

General.
-------

     Dreams, Inc. (the "Company") is a Utah Corporation which was formed in
April 1980. During fiscal year ended March 31, 2001, the Company's primary lines
of business were the offer and sale of Field of Dreams(R) franchises through its
subsidiary Dreams Franchise Corporation ("DFC") and the manufacture and sale of
sports and celebrity memorabilia products through DFC's wholly-owned subsidiary
Dreams Products, Inc. ("DPI") which employs the trademark "Mounted Memories".
There are currently 36 Field of Dreams(R) franchise stores open and operating.
Additionally, three Area Development Agreements which are currently effective
have been sold to franchisees. Included among the total 36 Field of Dreams(R)
franchise stores are five franchised stores which have been opened pursuant to
those three agreements. An additional seven franchised stores may be opened
under those agreements. DPI has two manufacturing, distribution and warehousing
facilities located in Sunrise, Florida and a distribution center in Denver,
Colorado. See "Mounted Memories" for information regarding the reorganization of
the Company which resulted in the acquisition of the assets and business now
employed by DPI. See "Consolidated Financial Statements" for financial
information.

Field of Dreams(R) Franchising Background.
-----------------------------------------

     The Company conducts its Field of Dreams(R) operations through its
subsidiary DFC. DFC licenses certain rights from MCA/Universal Merchandising
Inc. ("MCA") to use the name "Field of Dreams(R)" in connection with retail
operations and catalog sales. Field of Dreams(R) is a copyright and trademark
owned by Universal City Studios, Inc. with all rights reserved. Universal has
authorized MCA to license the marks. Neither company is in any way related to or
an affiliate of the Company. The Company does not own or operate any Field of
Dreams(R) stores. The Company does not presently have a Field of Dreams(R)
catalog.

Merchandising License Agreement.
-------------------------------

     DFC has acquired from MCA the exclusive license to use "Field of Dreams(R)"
as the name of retail stores in the United States and a non-exclusive right to
use the name "Field of Dreams(R)" as a logo on products. DFC has also licensed
from MCA the exclusive right to sublicense the "Field of Dreams(R)" name to
franchisees for use as a retail store name. The license agreement between DFC
and MCA is referred to herein as the "MCA License". Under the terms of the MCA
License, DFC is obligated to pay to MCA a 1% royalty based on gross sales of
Field of Dreams(R) stores. DFC must pay MCA a $2,500 advance on royalties for
each company-owned store which is opened. DFC is obligated to pay $5,000 to MCA
upon the opening of each franchised store. The $5,000 fee is not an advance on
royalties. DFC guarantees to pay MCA a minimum yearly royalty of $2,500
regardless of the amount of gross sales. The current term of the MCA License
expires in 2005. DFC has successive five-year options to renew the MCA License.
The MCA License requires DFC to submit all uses of the Field of Dreams(R) mark
for approval prior to use. Ownership of the Field of Dreams(R) name

                                       1
<PAGE>

remains with MCA and will not become that of DFC or the Company. Should DFC
breach the terms of the MCA License, MCA may, in addition to other remedies,
terminate DFC's rights to use the "Field of Dreams(R)" name. Such a termination
would have a seriously adverse effect on DFC's and the Company's business.

     If DFC is in compliance with the terms of the MCA License and if MCA wishes
to open and operate or license third parties to open and operate Field of
Dreams(R) stores outside of the United States, DFC has a right of first refusal
to obtain the license for such non-United States territory. The Company may
exercise its right of first refusal by notifying MCA of its desire to undertake
a proposed new territory and paying to MCA a non-refundable advance license fee
of $10,000. Following such notice and payment, the Company and MCA must
negotiate in good faith to reach a definitive license agreement for the
additional territory. If the Company fails to send notification, make the
$10,000 payment or if a definitive license cannot be reached, MCA may offer the
new territory to another party.

     DFC is required to indemnify MCA for certain losses and claims, including
those based on defective products, violation of franchise law and other acts and
omissions of DFC. DFC is required to maintain insurance coverage of $3,000,000
per single incident. The coverage must name MCA as an insured party. The Company
has guaranteed the monetary obligations of DFC pursuant to the MCA License. In
September 1997, DFC and MCA settled and released claims in connection with the
payment of royalties pursuant to the MCA license.

Franchising.
-----------

     In June 1991 DFC began offering franchises for the development and
operation of Field of Dreams(R) stores in the United States. The laws of each
state vary regarding regulation of the sale of franchises. Certain states
require compliance with the regulations of the Federal Trade Commission (the
"FTC Regulations") prior to commencement of sales activity (the "FTC States").
Other states require compliance with specific additional registration procedures
which vary in complexity. DFC is currently offering franchises in FTC States and
a limited number of other states. It will offer franchises in other states as
compliance with each states' regulation is completed. Compliance with the FTC
Regulations and various state regulations requires preparation of an extensive
offering circular and the filing of such circular in certain states. Compliance
with some state regulations requires significant time in connection with
satisfying comments of franchise offering circular examiners. Compliance with
FTC Regulations and certain state laws significantly limits the means by which
the Company offers and sells franchises. In the future, DFC intends to acquire
from MCA the rights to open and franchise stores in Canada and other countries.
As summarized below, DFC offers five types of franchises: Individual Standard
Store ("Standard"), Individual Kiosk ("Kiosk"), Area Development ("Area
Development"), Conversion ("Conversion"), and Seasonal ("Seasonal"). The Company
does not depend on any one or a few franchisees for a material portion of its
revenues. Royalties from the largest franchisee accounted for only one percent
of the Company's consolidated revenues.

                                       2
<PAGE>

Standard Franchises:

     Pursuant to a Standard franchise, a franchisee obtains the right to open
and operate a single Field of Dreams(R) 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 concur with the
term of the franchisee's lease. In addition to sublicensing the right to use the
Field of Dreams(R) 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(R) store, a
franchisee or its designated manager is required to attend and successfully
complete a 2-week training course. The course is conducted at a DFC designated
site. DFC also makes the same training available to a reasonable number of the
franchisee's employees. 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 loans to each franchisee a copy of its operations manual which sets
out the policies and procedures for operating a Field of Dreams(R) store. 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. DFC also reserves the right to change the name used in
the system from Field of Dreams(R) to any other name and require all franchisees
to discontinue any use of any aspect of the system or the name Field of
Dreams(R). DFC has reserved this right in its franchise agreements to provide
for the event that it determines that another name would be better for its
franchise system, that the royalty it pays to MCA in connection with use of the
name is excessive or if DFC should breach the terms of the MCA license and lose
the right to use the Field of Dreams(R) name.

     DFC imposes certain controls and requirements on Field of Dreams(R)
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. Franchisees
are also required to contribute an additional 1.5% of gross revenues to a
marketing and development fund which is administered by DFC for the promotion of
the Field of Dreams(R) system. Each franchisee is also required to spend 1% of
its gross revenues for its own local advertising and promotion. During its first
90 days of operation, each franchisee is required to spend a minimum of $2,500
for promotion and advertising. Franchisees are required to maintain standards of
quality and performance and to maintain the proprietary nature of the Field of
Dreams(R) name. Franchisees must commence operation of the franchised stores
within 180 days after execution of the Standard franchise agreement. DFC has
prepared and amends from time-to-time an

                                       3
<PAGE>

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 MCA 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.

Kiosk:

     Pursuant to a Kiosk franchise, a franchisee acquires the same rights as a
Standard franchise, except that the franchisee is licensed to open a
freestanding Kiosk for an initial franchise fee of $19,000 rather than $32,500.
Other fees paid by Kiosk franchisees, including ongoing royalties, and marketing
and development fund contributions are the same as under a Standard franchise
agreement.

Area Development:

     Under an Area Development agreement, DFC grants rights to develop a minimum
of four Field of Dreams(R) stores in a designated area. The stores are required
to be open pursuant to a specified time schedule. The Developer must execute
separate Standard franchise agreements for each store as it is opened. Upon
execution of the Area Development agreement, the Developer is required to pay
DFC $5,000 for each store to be opened, with a minimum payment upon execution of
$20,000. The Developer must obtain DFC's approval for each store site the
Developer proposes to open. Developer then pays DFC an additional $20,000 for
each store upon execution by the Developer of a lease for that store.
Development Agreements are not transferrable without the consent of DFC.

Conversion:

     DFC offers Conversion franchises to certain operators of businesses which
currently sell sport related merchandise, memorabilia, trading cards and similar
products. Among other conditions to the granting of a Conversion franchise, an
operator must have run such a business for a minimum of three months. Such a
business owner will execute a Standard franchise agreement as well as a
Conversion franchise addendum. A Conversion franchisee is required to pay DFC
$32,500 upon execution of the Standard franchise and the Conversion addendum.
The Conversion franchisee is required to pay to DFC all amounts required in the
Standard franchise. Conversion franchises are not transferable without the
consent of DFC.

Seasonal:

     DFC offers existing franchisees the right to open one or more temporary
holiday Seasonal location stores during the period beginning October 15 and
ending not later than the Monday following the second full calendar week in
January of the following year.

                                       4
<PAGE>

Seasonal franchisees must pay the Company an initial fee of $2,500 for each
seasonal location. As Seasonal franchises are open for a very limited period of
time, DFC offers very limited service to such franchisees. Consequently,
Seasonal franchises are available only to existing Field of Dreams(R)
Franchisees.

     DFC has sold only Standard franchises, Area Development rights, and
Seasonal franchises. It has sold no Kiosk or Conversion Franchises. It is not
anticipated that Kiosk or Conversion Franchises will be a substantial portion of
DFC's business in the future. DFC does not actively market Kiosk and Conversion
Franchises and there appears to be little interest in those types of franchises
from potential purchases.

Franchise Broker.
----------------

     DFC does not currently employ a franchise broker. The officers of DFC
currently act as sales agents for Field of Dreams(R) franchises. The Company may
engage an outside Franchise broker in the future. DFC advertises Field of
Dreams(R) franchises in a very limited number of business magazines. Most
persons expressing an interest in purchasing a Field of Dreams(R) franchise have
visited a Field of Dreams(R) store and have subsequently contacted DFC.

Mounted Memories.
----------------

     Mounted Memories ("MMI") is a wholesaler of sports and celebrity
memorabilia products and acrylic cases. MMI also organizes, operates and
participates in hobby and collectible shows. The Company has non-exclusive
informal agreements with numerous well-known athletes who frequently provide
autographs at agreed-upon terms. The Company also enters into exclusive
agreements with athletes. The Company has entered into an exclusive arrangement
with Dan Marino who is also a member of the board of directors and employee of
the Company. Through its relationships with athletes, agents and other persons
and entities in the sporting industry, MMI is able to arrange for the appearance
of popular athletes and celebrities at collectible shows, and at the same time,
generate inventory for future sales from the warehouse. The Company negotiates
directly with the athlete or with the athlete's agent to determine contract
specifics. These contracts are formal in that they stipulate the logistic
specifics, payment terms and number of autographs to be received. The Company
generally receives a fee when it arranges an athlete for a corporate event.

     MMI has been in business since 1989 and has achieved its industry leading
status partly due to its strict authenticity policies. The only 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 offers a very large selection and supply of acrylic
cases, with over 50 combinations of materials, colors and styles. The primary
raw material used in the production process is plastic. 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.

                                       5
<PAGE>

     MMI's customer base varies greatly and includes, for example, internet
companies, traditional catalog retailers and retail stores which sell sports and
celebrity memorabilia products and cases. Field of Dreams(R) franchise stores
purchase products from MMI and have historically provided approximately eleven
percent of MMI's revenues. No other customer provides greater than ten percent
of MMI's total revenue.

     The sports memorabilia industry faces several challenges, most notably the
assurance of product authenticity. Through its caution in only selling items
produced internally or purchased from authorized agents, witnessed by an MMI
representative, MMI avoids significant authenticity problems. MMI feels the way
it has achieved a competitive advantage over its competitors is through accurate
and timely shipping. MMI uses approximately 4,000 square feet of its warehousing
facilities for shipping. MMI has achieved a significant positive reputation in
its industry for timely and accurate shipments and commits to shipping orders
within 72 hours of order receipt. Additionally, through the implementation of
advanced and effective fulfillment techniques and processes, and utilization of
the most current shipping software, MMI has experienced a very low breakage
ratio over the past several years.

MMI Background.
--------------

     In November 1998, the Company through its wholly-owned subsidiary, DPI,
purchased all of the assets of Mounted Memories, Inc., a Florida corporation.
The purchase price for the MMI assets was $2,275,000 in cash and 15,000,000
shares of the Company's common stock. MMI since 1989 had engaged in the
manufacture and wholesale of sports and celebrity memorabilia products. Upon the
acquisition of MMI's assets, the Company, through DPI continued the business of
MMI and uses the Mounted Memories trademark.

Financing of MMI Acquisition.
----------------------------

     In connection with the purchase of the MMI assets, the Company and all of
its subsidiaries borrowed $3.0 million from a lender ("Lender"), and granted to
Lender warrants to purchase a number of shares of the Company's common stock.
The long term debt was secured by all of the Company's assets. In October 2000,
the Company utilized part of the proceeds from a $4.4 million private placement
of its Common Stock to repay in full the $3.0 million loan and to repurchase and
cancel all warrants issued to Lender.

Competition.
-----------

     DFC competes with other larger, more well-known and substantially better
funded franchisors for the sale of franchises. Field of Dreams(R) 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.

     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 ten-year
existence. MMI focuses on ensuring authenticity

                                       6
<PAGE>

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. 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 two core sports that provide the greatest source of industry
revenue, baseball and football.

     Within the acrylic 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 very price competitive due to its
ability to purchase large quantities of material and pass the savings to
customers.

Employees.
---------

     The Company employs sixty-one (61) full-time employees and six (6) part-
time employees.

Item 2.       Description of Property.
              -----------------------

     The Company leases approximately 30,500 square feet of office,
manufacturing and warehouse space between four locations in Sunrise, Florida
(approximately 23,000 square feet), Plantation, Florida (approximately 4,500
square feet), and Denver, Colorado (approximately 3,000 square feet). The
Company's principal executive offices are located at its Plantation, Florida
facility.

     The Company has two locations in Sunrise, Florida with leases that
terminate in April 2003. Combined rent in Sunrise, Florida is approximately
$17,700 per month plus certain expenses and escalates to approximately $19,700
in the final year.

     The Company's Plantation, Florida lease terminates in April 2002.
Plantation, Florida rent is approximately $7,500 per month plus common area
expenses.

     The Company's Colorado lease terminates in September 2002. Colorado rent is
approximately $3,500 per month and escalates to approximately $3,800 per month
in its final year.

Item 3.       Legal Proceedings.
              -----------------

     None.

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

     None.

                                       7
<PAGE>

                                    Part II
                                    -------

Item 5.        Market for Common Equity and Related Stockholder Matters.
               --------------------------------------------------------

     The Company's common stock is listed on the OTC Bulletin Board, an
electronic screen based market available to brokers on desk-top terminals. The
high and low bids of the Company's common stock for each quarter during fiscal
years ended March 31, 2000 and 2001 are as follows:

Fiscal Year Ended March 31, 2000:         High Bid Price  Low Bid Price
                                          --------------  -------------

          First Quarter                          $  .75            .312
          Second Quarter                            .512           .344
          Third Quarter                             .625           .25
          Fourth Quarter                           1.031           .25

     Fiscal Year Ended March 31, 2001:

          First Quarter                          $ 2.25            .781
          Second Quarter                           1.812           .75
          Third Quarter                            1.75            .937
          Fourth Quarter                           1.25            .438

     On June 22, 2001, the high bid price was $0.59 and the low bid price was
$0.59 for the Company's common stock.

     Such over-the-counter quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.

     The records of Fidelity Transfer, the Company's transfer agent, indicate
that there are three hundred sixty-six (366) record owners of the Company's
common stock.

     The Company has paid no dividends in the past two fiscal years. The Company
has no intention of paying dividends in the future.

     On October 12, 2000, the Company completed a private placement in which it
issued 14,554,335 shares of its common stock for $4.4 million. The investors in
the private placement were all accredited investors (within the meaning of Rule
501(a) of Regulation D), and included Roger Shiffman, a Director, John Walrod,
the Company's Divisional President of Field of Dreams, and two individual
franchise owners. The private placement was made in reliance on the exemption
from the registration requirements under the Securities Act of 1933 set forth in
Section 4(2) of such Act and Rule 506 of Regulation D promulgated thereunder.

                                       8
<PAGE>

Item 6.   Management's Discussion and Analysis of Financial Condition and
          ---------------------------------------------------------------
          Results of Operations.
          ----------------------

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements in this Form 10-KSB 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 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.

GENERAL

     The Company's fiscal year ends each March 31, and the fiscal years ended
March 31, 2001 and March 31, 2000 are referred to as "fiscal 2001" and "fiscal
2000", respectively.

     The Company operates through its wholly-owned subsidiary DFC and through
DPI and Dreams Entertainment, Inc. ("DEI"), wholly-owned subsidiaries of DFC.
DFC is the franchisor of Field of Dreams(R) retail units that sell sports and
celebrity memorabilia products. As of June 20, 2001, there were 36 Field of
Dreams(R) franchises operating in 18 states and in the District of Columbia.

     DPI is a wholesaler of sports memorabilia products and acrylic cases. It
sells to a wide customer base, which includes internet companies, traditional
catalog companies and other retailers of sports and celebrity memorabilia
products, including Field of Dreams(R). Approximately 13 percent of DPI's
revenues are generated through sales to Field of Dreams(R) franchises. DPI is
licensed by the National Football League and Major League Baseball as a
distributor of autographed products. DEI was incorporated in fiscal 1999 and has
been inactive since its inception.

     The Company believes that the factors that will drive the future growth of
its business will be through acquisitions of synergistic businesses, the opening
of new Field of Dreams(R) units and, to some extent, capitalizing on our
relationships with certain entities, such as the National Football League, Major
League Baseball and Universal Studios, and with certain well-known athletes, as
those relationships and agreements will allow. Consistent with its planned
growth, the Company plans to resume opening Field of Dreams stores on an annual
basis. There can be no assurance, however, that any such units will open or that
they will be successful.

                                       9
<PAGE>

RESULTS OF OPERATIONS

Fiscal 2001 Compared to Fiscal 2000
-----------------------------------

     Revenues. Total revenues increased 12.0% from $13.4 million in fiscal 2000
to $15.0 million in fiscal 2001.

     Retail and wholesale revenues increased 7.9% from $12.1 million in fiscal
2000 to $13.1 million in fiscal 2001, due primarily to increased product
offerings, continued development of business from existing customers and an
overall increase in the Company's distribution channels. DPI increased its sales
staff by 40% in late fiscal 2001 and we plan to expand further in fiscal 2002 in
an effort to continue increasing sales.

     Franchise fees and royalty revenues increased 5.2% from $1.2 million in
fiscal 2000 to $1.3 million in fiscal 2001. The base number of franchises was
similar throughout both fiscal years.

     The Company realized approximately $600,000 in revenues generated through
athlete representation and marketing fees, a new line of business entered into
after December 2000. We are experimenting with representation and corporate
marketing of athletes to assess whether it can be an on-going business for the
Company. We feel that it is a natural extension of our overall business because
of our relationships with athletes, corporations and other entities. As a result
of the initial success, we anticipate continuing in our efforts in these new
revenue-generating areas.

     Costs and expenses. Cost of sales for wholesale and retail products were
$8.6 million in fiscal 2001 versus $8.0 million in fiscal 1999. As a percentage
of wholesale and retail revenues, cost of sales was comparable to the prior year
(65.8% in fiscal 2001 versus 65.9% in fiscal 2000). Operating expenses increased
39.8% from $1.1 million in fiscal 2000 (8.1% of total revenue) to $1.5 million
in fiscal 2001 (10.1% of total revenue). The increase mostly relates to greater
promotional expenses associated with new and creative efforts to promote and
advertise events throughout the Field of Dreams chain.

     General and administrative expenses increased 11.2% from $2.5 million in
fiscal 2000 to $2.8 million in fiscal 2001. However, as a percentage of total
revenue, fiscal 2001 was comparable to prior year (18.5% versus 18.6%).
Depreciation and amortization increased slightly from $274,000 in fiscal 2000 to
$278,000 in fiscal 2001.

     Interest expense, net. Net interest expense decreased 37.5% from $538,000
in fiscal 2000 to $336,000 in fiscal 2001, due primarily to the elimination of a
$3.0 million note payable in October 2000 which had monthly interest of $35,000
(see Liquidity and Capital Resources).

     Provision for income taxes. At March 31, 2001, the Company had available
net operating loss carry-forwards of approximately $3.0 million, which expire in
various years beginning in 2009 through 2018. Accordingly, a valuation allowance
was provided for the full amount of federal taxes as of the end of both fiscal
2000 and fiscal 2001. However, a provision

                                       10
<PAGE>

for state income taxes was provided for in both fiscal 2000 and fiscal 2001 for
applicable taxes. See Note 9 to the Consolidated Financial Statements of the
Company.

     Extraordinary item.  The Company recognized a one-time, net extraordinary
charge of $465,000 during fiscal 2001 relating to the early extinguishment of
debt in October 2000.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2001, the Company's cash and cash equivalents were $190,000,
compared to $203,000 at March 31, 2000.  Net accounts receivable at March 31,
2001 were $1.9 million compared to $1.6 million at March 31, 2000.

     Cash used by operations amounted to $2.1 million for fiscal 2001, compared
to $150,000 in fiscal 2000. The net borrowings against our line of credit, which
was classified in the financing section of the Statement of Cash Flows, was $2.0
million at March 31, 2001.  The line of credit is used for working capital
purposes. The net cash used by operations, including line of credit borrowings,
was $84,000 in fiscal 2001.

     During October 2000 the Company filed a Form 8-K announcing that it raised
$4.4 million in a private equity financing transaction.  The proceeds of the
transaction were used to retire $3.0 million of long-term debt and repurchase
warrants owned by the lender.  The retirement of that debt and termination of
the warrant rights significantly improved the Company's financial condition and
will allow for more aggressive growth.  Elimination of the $3.0 million note
also eliminated $420,000 of annual interest expense for the Company.

     The Company presently does not operate or own any Field of Dreams(R) units.
We plan to sell franchised units to prospective and current third-party
franchisees in fiscal 2002 and beyond.  There are no major capital expenditures
planned for in the foreseeable future, nor any payments planned for off-balance
sheet obligations or other demands or commitments for which payments become due
after the next 12 months.

     The Company believes its current available cash position, coupled with its
cash forecast for the year and periods beyond, is sufficient to meet its cash
needs on both a short-term and long-term basis.  The balance sheet has a strong
working capital ratio and its long-term debt obligations require payments
totaling approximately $8,000 per month.  The Company's management is not aware
of any known trends or demands, commitments, events, or uncertainties, as they
relate to liquidity which could negatively affect the Company's ability to
operate and grow as planned.

                                       11
<PAGE>

Item 7.     Financial Statements.
            --------------------

                                  DREAMS, INC.
                               Table of Contents

                                                             Page
                                                             ----

     REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS        13

     CONSOLIDATED FINANCIAL STATEMENTS:

          Consolidated Balance Sheets                          14

          Consolidated Statements of Income                    15

          Consolidated Statements of Stockholders' Equity      16

          Consolidated Statements of Cash Flows                17

          Notes to Consolidated Financial Statements           18

                                       12
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Dreams, Inc.

We have audited the accompanying consolidated balance sheets of Dreams, Inc. and
subsidiaries as of March 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended.  These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dreams,
Inc. and subsidiaries as of March 31, 2001 and 2000 and the consolidated results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.

/s/ Margolies, Fink and Wichrowski
    Certified Public Accountants

Pompano Beach, Florida
May 22, 2001

                                       13
<PAGE>

Dreams, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except earnings per share amounts)

                                              March 31,   March 31,
                                                2001        2000
                                                ----        ----
ASSETS
------

Current assets:
 Cash and cash equivalents                     $    190    $    203
 Restricted cash                                      -          33
 Accounts receivable, net                         1,948       1,577
 Notes receivable                                   188           -
 Inventories                                      6,643       4,029
 Prepaid expenses and deposits                      232          75
                                               --------    --------
  Total current assets                            9,201       5,917

Property and equipment, net                         255         195
Intangible assets, net                            2,495       2,635
Deferred loan costs, net                              -         215
Debt issuance costs, net                              -         353
                                               --------    --------

                                               $ 11,951    $  9,315
                                               ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
 Accounts payable                              $  1,567    $  1,132
 Accrued liabilities                                316         690
 Current portion of long-term debt                   44           -
 Borrowings against line of credit                1,982           -
 Deferred franchise fees                             35          95
                                               --------    --------
  Total current liabilities                       3,944       1,917

Long-term debt, less current portion                383       3,443
Detachable stock warrants                             -         300
                                               --------    --------
  Total liabilities                               4,327       5,660
                                               --------    --------

Commitments and contingencies                         -           -

Stockholders' equity :
 Common stock, no par value; authorized
 100,000,000 shares; issued 55,252,835 and
 40,148,500 shares, respectively                 22,021      18,084
 Accumulated deficit                            (13,900)    (14,429)
                                               --------    --------
                                                  8,121       3,655
 Less: deferred compensation                       (497)          -
                                               --------    --------
  Total stockholders' equity                      7,624       3,655
                                               --------    --------

                                               $ 11,951    $  9,315
                                               ========    ========

The accompanying notes are an integral part of these consolidated financial
statements.

                                       14
<PAGE>

Dreams, Inc. and Subsidiaries
Consolidated Statements of Income
For the Years Ended March 31, 2001 and 2000
(Dollars in Thousands, except earnings per share amounts)
<TABLE>
<CAPTION>

                                                     Fiscal        Fiscal
                                                      2001          2000
                                                  -----------   -----------
<S>                                               <C>           <C>
Revenues:
  Retail / Wholesale                                 $ 13,081      $ 12,128
  Management fees                                         598             -
  Franchise fees and royalties                          1,324         1,258
  Other                                                     9            20
                                                  -----------   -----------
    Total revenues                                     15,012        13,406
                                                  -----------   -----------

Expenses:
  Cost of sales                                         8,606         7,995
  Cost of sales - athlete appearance costs                421             -
  Operating expenses                                    1,521         1,088
  General and administrative expenses                   2,774         2,495
  Depreciation and amortization                           278           274
                                                  -----------   -----------
    Total expenses                                     13,600        11,852
                                                  -----------   -----------

Income from continuing operations before interest,
 income taxes and extraordinary item                    1,412         1,554

Interest, net                                             336           538
                                                  -----------   -----------

Income from continuing operations before
 income taxes and extraordinary item                   1,076         1,016

Income taxes:
  Current tax expense                                    473           452
  Deferred tax expense                                  (391)         (372)
                                                 -----------   -----------

Income before extraordinary item                         994           936

Extraordinary item:
  Loss on early extinguishment of debt,
   net of income tax benefit of $ 24                    (465)            -
                                                 -----------   -----------
Net income                                       $       529   $       936
                                                 ===========   ===========

Earnings per share:
Basic:Income from continuing operations          $      0.02   $      0.02
                                                 ===========   ===========
     Extraordinary item                          $    ( 0.01)  $         -
                                                 ===========   ===========
     Net income                                  $      0.01   $      0.02
                                                 ===========   ===========
     Weighted average shares outstanding          47,102,723    40,148,500
                                                 ===========   ===========

Diluted: Income from continuing operations       $      0.02   $      0.02
                                                 ===========   ===========
     Extraordinary item                          $     (0.01)  $         -
                                                 ===========   ===========
     Net income                                  $      0.01   $      0.02
                                                 ===========   ===========
     Weighted average shares outstanding         53,158,810    47,110,730
                                                 ===========   ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       15
<PAGE>

Dreams, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 2001 and 2000
(Dollars in Thousands, except earnings per share amounts)
<TABLE>
<CAPTION>

                                 Total
                                 Shares       Common     Accumulated     Deferred    Stockholders'
                              Outstanding      Stock       Deficit     Compensation     Equity
                              ------------  -----------  ------------  ------------  -------------
<S>                           <C>           <C>          <C>           <C>           <C>

Balance at April 1, 1999       40,148,500    $   18,084      $(15,365) $          -         $2,719

Net income for the year
  ended March 31, 2000                  -             -           936             -            936
                               ----------    ----------  ------------  ------------  -------------

Balance at March 31, 2000      40,148,500        18,084       (14,429)            -          3,655

Common stock sold              14,554,335         4,356                                      4,356

Repurchase of redeemable
   warrants                                        (950)                                      (950)

Shares issued for services        550,000           531                         (497)           34

Net income for the year
  ended March 31, 2001                  -             -           529              -           529
                               ----------    ----------  -------------   ------------  -----------

Balance at March 31, 2001      55,252,835    $   22,021  $    (13,900)   $      (497)  $     7,624
                               ==========    ==========  =============   ============  ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       16
<PAGE>

Dreams, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2001 and 2000
(Dollars in Thousands, except earnings per share amounts)

<TABLE>
<CAPTION>
                                                                     Fiscal      Fiscal
                                                                      2001        2000
                                                                     ------      ------
<S>                                                                <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                                   $    529    $    936
      Adjustments to reconcile net income to net cash used
       in operating activities:
        Depreciation and amortization:
         Property and equipment                                          55          40
         Goodwill                                                       140         136
         Deferred compensation                                           34           -
         Debt issuance and debt discount costs                           79         158
        Extraordinary item                                              489           -
        Provision for losses on accounts and notes receivable           (10)       (103)
      Change in assets and liabilities:
        Increase in accounts receivable                                (371)       (208)
        Increase in inventories                                      (2,614)     (1,205)
        Increase in prepaid expenses                                   (157)        (41)
        (Increase) decrease in notes receivable                        (188)         19
        Increase in accounts payable                                    435         249
        Decrease in accrued liabilities                                (374)       (175)
        Decrease in deferred franchise fees                             (60)        (33)
        Other                                                           (53)         77
                                                                   ---------   ---------

        Net cash used in operating activities                        (2,066)       (150)
                                                                   ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Release of restricted cash                                          -        (325)
      Purchase of property and equipment                               (115)       (115)
                                                                   ---------   ---------

        Net cash used in investing activities                          (115)       (440)
                                                                   ---------   ---------

 CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from line of credit                                1,982           -
      Proceeds from sale of stock                                     4,419           -
      Repurchase of warrants                                         (1,250)          -
      Repayments on notes payable                                    (3,016)          -
      Financing costs capitalized                                         -         (14)
                                                                   ---------   ---------

        Net cash provided by (used in) financing activities           2,135         (14)
                                                                   ---------   ---------

Net decrease in cash, cash equivalents and restricted cash              (46)       (604)

Cash, cash equivalents and restricted cash at beginning of period       236         840
                                                                   ---------   ---------

Cash, cash equivalents and restricted cash at end of period        $    190    $    236
                                                                   =========   =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       17
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


1. Nature of Business and Summary of Significant Accounting Policies

   Description of Business

   Dreams, Inc. (the "Company") operates through its wholly-owned subsidiary,
   Dreams Franchise Corporation ("DFC") and through Dreams Entertainment, Inc.
   ("DEI") and Dreams Products, Inc. ("DPI"), wholly-owned subsidiaries of DFC.
   DFC is in the business of selling Field of Dreams retail store franchises and
   generates revenues through the sale of those franchises and continuing
   royalties. DEI was incorporated in fiscal 1999 and has been inactive since
   inception, and as of March 31, 2001. DPI is a wholesaler of sports
   memorabilia products and acrylic cases. DPI pays annual fees to Major League
   Baseball and the National Football League which officially licenses DPI's
   baseball and football memorabilia products.

   Basis of Presentation

   The accompanying consolidated financial statements include the accounts of
   the Company and its subsidiaries. All material intercompany transactions and
   accounts have been eliminated in consolidation. Results of operations of
   acquired companies accounted for as purchases are included from their
   respective dates of acquisition. The fiscal years ended March 31, 2001 and
   March 31, 2000 are herein referred to as "fiscal 2001" and "fiscal 2000",
   respectively.

   Cash and Cash Equivalents

   Cash and cash equivalents are defined as highly
   liquid investments with original maturities of three months or less and
   consist of amounts held as bank deposits.

   Restricted Cash

   Field of Dreams franchisees pay advertising royalties to DFC to be used for
   designated franchise advertising and promotional activities. These restricted
   funds are held by the Company. Restricted cash relating to advertising
   royalties paid by franchisees was $0 and $33 at March 31, 2001 and 2000,
   respectively.

   Accounts Receivable

   The Company's accounts receivable principally result from uncollected
   royalties and advertising royalties from Field of Dreams franchisees and from
   credit sales to third-party customers.

   Retail and Wholesale Revenues

   Retail and wholesale revenues are recognized as the products are sold and
   shipped to customers. DPI had wholesale sales to Field of Dreams franchises
   of $1.7 million and $1.3 million in fiscal 2001 and 2000, respectively.



                                                                     (Continued)

                                       18
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


1. Nature of Business and Summary of Significant Accounting Policies (Continued)

   Franchise Fees and Royalty Revenues

   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.

   Advertising and Promotional Costs

   All advertising and promotional costs associated with advertising and
   promoting the Company's lines of business are expensed in the period
   incurred.

   Inventories

   Inventories, consisting primarily of sports memorabilia products and acrylic
   cases, are valued at the lower of cost or market. Cost is determined using
   the first-in, first-out (FIFO) method for both raw materials and finished
   goods.

   Property and Equipment

   Property and equipment are stated at cost. Depreciation is provided for using
   the straight-line method over the estimated useful lives of the assets
   ranging from three to ten years. Leasehold improvements are amortized over
   the lease period or the estimated useful life of the improvements, whichever
   is less.

   Maintenance and repairs are charged to expense as incurred and major renewals
   and betterments are capitalized. Gains and losses are credited or charged to
   earnings upon disposition.

   Intangible Assets

   The excess of cost over the fair value of net assets of purchased companies
   (goodwill and trademarks) are being amortized by the straight-line method
   over 20 years. As of March 31, 2001, unamortized intangible assets were $2.5
   million, net of accumulated amortization of $328. Goodwill and other
   intangibles are reassessed annually to determine whether any potential
   impairment exists.

   Costs relating to the issuance of debt were capitalized and amortized over
   the term of the related debt. The unamortized portion of the debt issuance
   costs comprise a portion of the extraordinary loss on the early debt
   retirement.

   Impairment of Long-Lived Assets

   In the event that facts and circumstances indicate that the carrying value of
   long-lived assets, including associated intangibles, may be impaired, an
   evaluation of recoverability is performed by comparing the estimated future
   undiscounted cash flows associated with the asset to the asset's carrying
   amount to determine if a write-down to market value or discounted cash flow
   is required.


                                                                     (Continued)

                                       19
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


1. Nature of Business and Summary of Significant Accounting Policies (Continued)

   Fair Value of Financial Instruments

   The carrying values of cash and cash equivalents, accounts receivable,
   accounts payable and accrued liabilities approximated their fair values
   because of the short maturity of these instruments. The fair value of the
   Company's notes payable and long-term debt is estimated based on quoted
   market prices for the same or similar issues or on current rates offered to
   the Company for debt of the same remaining maturities. At March 31, 2001 and
   2000, the aggregate fair value of the Company's notes payable and long-term
   debt approximated its carrying value.

   Income Taxes

   The Company accounts for income taxes in accordance with SFAS No. 109,
   "Accounting for Income Taxes." Under the asset and liability method with SFAS
   No. 109, deferred income taxes are required for the tax consequences of
   temporary differences by applying enacted statutory rates applicable to
   future years to the difference between the financial statement carrying
   amounts and the tax bases of existing assets and liabilities. Under SFAS No.
   109, the effect on deferred taxes of a change in tax rates is recognized in
   income in the period that includes the enactment date.

   Net Income Per Share

   Prior to fiscal 1999, the Company adopted the provisions of SFAS No. 128,
   "Earnings Per Share." SFAS No. 128 requires companies to present basic
   earnings per share ("EPS") and diluted EPS, instead of the primary and fully
   diluted EPS presentations that were formerly required by the Accounting
   Principles Board Opinion No. 15, "Earnings Per Share." Basic EPS is computed
   by dividing net income available to common stockholders by the weighted
   average of common shares outstanding during the year. Diluted EPS was
   computed by dividing net income by the sum of the weighted average of common
   shares outstanding plus all additional common shares that would have been
   outstanding if potentially dilutive securities or common stock equivalents
   had been issued.

   Stock Based Compensation

   Statement of Financial Accounting Standard No. 123, "Accounting for Stock
   Based Compensation," is effective for fiscal years beginning after December
   15, 1995. Statement No. 123 provides companies with a choice to follow the
   provisions of No. 123 in determination of stock based compensation expense or
   to continue with the provisions of APB 25, "Accounting for Stock Issued to
   Employees." The Company will continue to follow APB 25 and will provide pro
   forma disclosure as required by Statement No. 123 in the notes to the
   consolidated financial statements.



                                                                     (Continued)

                                       20
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


1. Nature of Business and Summary of Significant Accounting Policies (Continued)

   Use of Estimates

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the amounts reported in the consolidated financial statements and
   related notes to the financial statements. Estimates are used when accounting
   for uncollectible accounts receivable, inventory obsolescence, depreciation,
   taxes, contingencies, among others. Actual results could differ from those
   estimated by management and changes in such estimates may affect amounts
   reported in future periods.

   Reclassification

   Certain items previously reported in specific financial statement captions
   have been reclassified to conform with the fiscal 2001 presentation.

2. Concentration of Credit Risk

   Financial instruments that potentially subject the Company to concentrations
   of credit risk are cash and cash equivalents and accounts receivable arising
   from its normal business activities.

   Franchisee receivables subject the Company to credit risk. The Company's
   franchisee receivables are derived primarily from royalties on franchisee
   sales, sales of merchandise to franchisees and the reimbursement of various
   costs incurred on behalf of franchisees.

   Regarding retail accounts receivable, the Company believes that credit risk
   is limited due to the large number of entities comprising the Company's
   customer base and the diversified industries in which the Company operates.
   The Company performs certain credit evaluation procedures and does not
   require collateral. The Company believes that credit risk is limited because
   the Company routinely assesses the financial strength of its customers, and
   based upon factors surrounding the credit risk of customers, establishes an
   allowance for uncollectible accounts and, as a consequence, believes that its
   accounts receivable credit risk exposure beyond such allowances is limited.
   The Company had a consolidated allowance for doubtful accounts at March 31,
   2001 and March 31, 2000 of approximately $86 and $108, respectively. The
   Company believes any credit risk beyond this amount would be negligible.



                                                                     (Continued)

                                       21
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


3.   Inventories

     The components of inventories are as follows:

                                               March 31,   March 31,
                                                 2001        2000
                                                 ----        ----

          Memorabilia products                  $5,404      $3,147
          Licensed products                        829         572
          Acrylic cases and raw materials          510         360
                                                ------      ------
                                                 6,743       4,079
          Less reserve for obsolescence           (100)        (50)
                                                ------      ------

                                                $ 6,643     $4,029
                                                =======     ======

4.   Property and Equipment

     The components of property and equipment as of March 31 are as follows:

                                                2001        2000
                                                ----        ----



          Leasehold improvements               $    30     $   26
          Machinery and equipment                   95         76
          Office and other equipment               432        340
          Transportation equipment                  47         47
                                                ------      -----
                                                   604        489
          Less accumulated depreciation
          and amortization                        (349)      (294)
                                                ------      -----

                                               $   255     $  195
                                                ======     ======

5.   Line of Credit

     The Company entered into a formula-based revolving line of credit during
     fiscal 2001. The line of credit allows the Company to borrow up to $3.5
     million for working capital purposes. The balance outstanding as of March
     31, 2001 was approximately $2.0 million. The line of credit carries a
     floating annual interest rate based on adding a fixed interest charge of
     2.4% to the thirty day "Dealer Commercial Paper" rate. The average thirty
     day rate approximated 6.5% during fiscal 2001. Interest expense on the line
     of credit approximated $36 during fiscal 2001. The agreement contains
     certain financial covenants that require the Company to maintain minimum
     tangible net worth and cash flows. The Company was in compliance with these
     financial covenants as of March 31, 2001.

                                                                     (Continued)

                                       22
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


6. Accrued Liabilities

  Accrued liabilities consisted of the following at March 31:


                                                            2001     2000
                                                          ------   ------

     Payroll costs (including commissions)                $   74   $  164
     Interest                                                  -       35
     Sales taxes                                              29       19
     Income taxes, penalties, and interest (see Note 9)        -      313
     Royalties                                               177       30
     Other                                                    36      129
                                                          ------   ------

                                                          $  316   $  690
                                                          ======   ======

7. Long-Term Debt

   Long-term debt consists of the following at March 31:

                                                                   2001   2000
                                                                   ----   ----
     Note payable to a lending institution at 14% interest,
      with monthly interest only payments of $35 through
      November 2003.  Principal balance of $3.0 million due
      November 2003.  Secured by all of the assets of the
      Company and Company stock pledged by the
      Company's Chairman, President and other key
      employees, family members and associated persons
      and entities. The note was repaid on October 12, 2000.  $     -    $3,000


     Note payable to an individual at 12% interest, with
      principal and interest payments of $8 through
      November 2007, and is secured through a personal
      guarantee of the Company's Chairman.                        427       443
                                                               ------    ------

                                                                  427     3,443
     Less current portion                                         (44)      (-)
                                                               ------    ------

                                                              $   383    $3,443
                                                               ======    ======



                                                                     (Continued)

                                       23
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


7. Long-Term Debt (Continued)

   Future maturities of long-term debt are summarized as follows:



                 Fiscal year
                 -----------

                    2002            $      44
                    2003                   49
                    2004                   55
                    2005                   63
                    2006                   70
                    Thereafter            146
                                    ---------

                                    $     427
                                    =========

8.  Stockholders' Equity

    Common Stock
    The Company sold 14,554,335 shares of its common stock during October, 2000,
    in a private transaction. The stock was sold at an average of $0.30 per
    share, and provided net proceeds of approximately $4.4 million to the
    Company. These proceeds were used to retire $3.0 million of long-term debt
    and repurchase stock warrants owned by the lender.

    On January 1, 2001, the Company issued 50,000 shares of its common stock in
    conjunction with a personal services contract, for a term of two years.
    Deferred compensation in the amount of $63 (fair market value was $1.25 on
    that date), was recorded and will be amortized over the term of the
    contract.

    On January 17, 2001, the Company issued 500,000 shares of its common stock
    in conjunction with a personal services contract, for a term of three years.
    Deferred compensation in the amount of $469 (fair market value was $0.94 on
    that date), was recorded and will be amortized over the term of the
    contract.

     Warrants
     The Company had granted the lending institution which loaned the Company
     $3.0 million in fiscal 1999 warrants to purchase approximately 6,658,000
     shares of the Company's common stock. During fiscal 2001, these warrants
     were repurchased by the Company for $1.3 million, when the debt was
     retired.


                                                                     (Continued)

                                       24
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


8. Stockholders' Equity (Continued)

   Stock Options

   During fiscal 1999, the Company's Board of Directors adopted a stock option
   plan for certain employees and franchisees ("Optionees") whereby Optionees
   are granted the right to purchase shares of the Company's common stock at a
   price of 100% of the fair market value of the shares at the date of grant,
   110% in the case of a holder of more than 10% of the Company's stock. The
   options generally vest between two and five years.

   Transactions and other information relating to the plan are summarized as
   follows:

                                               Stock Options
                                               -------------
                                          Shares    Wtd. Avg. Price
                                        ----------  ----------------

       Outstanding at April 1, 1999       950,000          $.38
          Granted                       2,500,250          $.25
          Exercised                             -
                                        ---------

       Outstanding at March 31, 2000    3,450,250          $.29
          Granted                         225,000          $.75
          Exercised                             -
          Expired/Canceled               (450,000)         $.25
                                        ---------

       Outstanding at March 31, 2001    3,225,250          $.36
                                        =========

   The exercise prices of the stock options discussed below were the fair market
   value of the common stock on the date the options were granted.

     On August 25, 1998, the Company issued options to purchase 500,000 shares
     at $.4375 per share to a former employee, officer, and director of the
     Company.  The options expire on September 25, 2003 and 250,000 were
     exercisable upon issuance.  The remaining 250,000 vest ratably over five
     years beginning on the first anniversary date of the grant.

     On September 4, 1998, the Company issued options to purchase 250,000 shares
     at $.4375 per share to an employee and officer of the Company.  The options
     expire on October 1, 2003.  The options vest ratably over three years
     beginning on the first anniversary date of the grant.



                                                                     (Continued)

                                       25
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


8. Stockholders' Equity (Continued)

     On January 1, 1999, the Company issued options to purchase 200,000 shares
     at $.1875 per share to an employee of the Company.  The options expire on
     January 1, 2002 and 100,000 were exercisable upon issuance.  These options
     were canceled on October 12, 2000.

     On January 31, 2000, the Company issued options to purchase 1,800,000
     shares at $.25 per share to two employees of the Company, who are also both
     officers of the Company.  The options expire as follows - 1,500,000 on
     January 31, 2003 and 300,000 on February 28, 2003.  The options vest as
     follows - 750,000 during fiscal 2000, 850,000 during the year ended March
     31, 2001, 100,000 during the year ended March 31, 2002 and 100,000 during
     the year ended March 31, 2003.

     On January 31, 2000, the Company issued options to purchase 200,250 shares
     at $.25 per share to various employees of the Company.  The options expire
     on February 28, 2005.  The options vest ratably over two years beginning on
     the first anniversary date of the grant.

     On January 31, 2000, the Company issued options to purchase 250,000 shares
     at $.25 per share to a consultant of the Company.  The options expire on
     January 31, 2005 and 125,000 were exercisable upon issuance.  The remaining
     125,000 vest on the first anniversary date of the grant.

     On February 1, 2000, the Company granted options to purchase 250,000 shares
     at $.30 per share to a consultant of the Company.  The options expired on
     March  31, 2001.

     On September 6, 2000, the Company granted options to purchase 125,000
     shares at $.75 per share in conjunction with an exclusive services
     agreement that was entered into with an outside individual and his agent.
     The options expire on September 6, 2003.

     On November 1, 2000, the Company granted options to purchase 100,000 shares
     at $.75 per share in conjunction with a personal services agreement that
     was entered into with an outside individual.  The options expire on
     December 31, 2003.



                                                                     (Continued)

                                       26
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


8. Stockholders' Equity (Continued)

   The following table summarizes information about all of the stock options
   outstanding at March 31, 2001:


                            Outstanding options             Exercisable options
                     ------------------------------------  ---------------------
                                  Weighted
                                   average
      Range of                    remaining     Weighted               Weighted
   exercise prices    Shares     life (years)  avg. price   Shares    avg. price
   ---------------   ---------   ------------  ----------  ---------  ----------
   $ .15 - .25       2,250,250      2.40         $  .25    1,950,125     $ .25
     .26 - .75         975,000      1.88            .51      741,666       .53

   ------------      ---------   -------         ------    ---------     -----
   $ .15 - .75       3,225,250      2.24         $  .33    2,691,791     $ .33
   ============      =========   =======         ======    =========     =====

   For purposes of the following pro forma disclosures, the weighted average
   fair value of each option has been estimated on the date of grant using the
   Black-Scholes options-pricing model with the following weighted average
   assumptions used for grants in fiscal 2001and 2000: no dividend yield;
   volatility of .61% and 113%; risk-free interest rate of 6% and 7%; and an
   expected term of five years. The weighted average Black-Scholes value of
   options granted during fiscal 2001 and 2000 was $.52 and $.98, respectively,
   per option. Had compensation cost for the Company's fixed stock-based
   compensation plan been determined based on the fair value at the grant dates
   for awards under this plan consistent with the method of SFAS 123, the
   Company's pro forma net income and pro forma net income per share would have
   been as indicated below:


                                     Fiscal         Fiscal
                                      2001           2000
                                    --------       --------
       Net income -
        As reported                 $    529       $    936
                                    ========       ========

        Pro forma                   $    546       $    300
                                    ========       ========

       Basic income per share -
        As reported                 $    .01       $    .02
                                    ========       ========

        Pro forma                   $    .01       $    .01
                                    ========       ========

       Diluted income per share -
        As reported                 $    .01       $    .02
                                    ========       ========

        Pro forma                   $    .01       $    .01
                                    ========       ========


                                                                     (Continued)

                                       27
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


9. Income Taxes

     The provision (benefit) for income taxes consisted of the following:

                                                        Fiscal    Fiscal
                                                         2001      2000
                                                       --------  -------
     Current:
       Federal tax expense                             $   407   $   387
       State tax expense                                    66        65
     Deferred:
       Federal tax expense                                (391)     (372)
       State tax expense                                     -         -
                                                       -------   -------

                                                       $    82   $    80
                                                       =======   =======

     The Company's deferred tax balances consist of the following at March 31:

                                                        Fiscal    Fiscal
                                                         2001      2000
                                                       --------  -------
     Deferred tax assets:
       Net operating loss carryforward                 $   998   $ 1,247
       Accrued liabilities                                   -        89
       Deferred revenue                                     14        37
       Inventory capitalization adjustment                  62        18
       Allowance for doubtful accounts                      34        24
                                                       -------   -------
                                                         1,108     1,415
     Deferred tax liability:
       Deferred loan costs                                 (82)        -
       Goodwill amortization                               (10)       (8)
       Accelerated depreciation for tax purposes            (9)       (9)
                                                       -------   -------
                                                         1,007     1,398

     Valuation allowance                                (1,007)   (1,398)
                                                       -------   -------

                                                       $     -   $     -
                                                       ========  =======

     SFAS No. 109 requires a valuation allowance to be recorded when it is more
     likely than not that some or all of the deferred tax assets will not be
     realized.  At March 31, 2001, a valuation allowance for the full amount of
     the net deferred tax asset was recorded because of pre-2001 losses and
     uncertainties as to the amount of taxable income that would be generated in
     future years.  The net change in the valuation allowance for the years
     ended March 31, 2001 and 2000 was $391 and $372, respectively.



                                                                     (Continued)

                                       28
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


9.  Income Taxes (Continued)

    A reconciliation of the Company's effective tax rate compared to the
    statutory federal tax rate for the years ended March 31, 2001 and 2000 is as
    follows:


                                                      2001    2000
                                                      ----    ----

          Federal income taxes at statutory rate        34%     34%
          State taxes, net of federal benefit            6       6
          Net operating loss carryforwards             (34)    (34)
          Extraordinary item                            (2)      -
          Other                                          4       2
                                                      ----    ----
                                                         8%      8%
                                                      ====    ====

    The Company at March 31, 2001 and 2000 had $10 and $263, respectively, owing
    to certain states for income taxes, penalties and fees, and interest. The
    amount has been accrued by the Company and is included in accrued
    liabilities (see Note 6).

    At March 31, 2001, the Company had available net operating loss
    carryforwards of approximately $3.0 million which expire in various years
    beginning in 2009 through 2018.

    The Company closed operations of its B.B. O'Brien's sports bar ("BB's")
    during July 1995. Since operations have ceased, it is doubtful that these
    tax benefits will ever be realized. If certain substantial changes in the
    Company's ownership should occur, there would be an annual limitation on the
    amount of carryforwards that could be utilized. BB's had pre-acquisition tax
    net operating loss carryforwards which arose prior to becoming a member of
    the consolidated group on November 1, 1990, which were available to offset
    future taxable income of BB's. The possible benefit to be recognized from
    the realization of these amounts has not been recorded, as there is no
    assurance as to their ultimate realization. The tax benefits, which may
    ultimately be realized, are limited to approximately $100 per year. BB's
    pre-acquisition tax net operating loss carryforwards total approximately
    $1.5 million, which expire in various years through 2005.

10. Commitments and Contingencies

    As of March 31, 2001, the Company leases office and warehouse space under
    operating leases in Florida (approximately 31,000 square feet) and Colorado
    (approximately 3,000 square feet). The leases for these four facilities
    expire at various dates through April 2003. Rent expense charged to
    operations for fiscal 2001 and fiscal 2000 was approximately $300 and $226,
    respectively.



                                                                     (Continued)

                                       29
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


10. Commitments and Contingencies (Continued)

    The aggregate minimum annual lease payments under noncancellable operating
    leases are as follows:

                    Fiscal
                    ------

                    2002                       $ 336
                    2003                         344
                    2004                          28
                                               -----
          Total minimum lease commitments      $ 708
                                               =====

    The Company has executed employment agreements with several of its key
    employees. The most significant agreement is with its President. This
    employment agreement, which expires in November 2003, calls for a salary of
    $250 per year and an annual car allowance of $10.

11. Related Party Transactions

    The Company's Chairman has made advances to the Company in the past, which
    were non-interest bearing and payable upon demand. These net advances
    totaled $0 and $52 at March 31, 2001 and 2000, respectively, and have been
    included in accrued liabilities on the balance sheet for those respective
    dates.

12. DFC Franchise Information

    DFC licenses the right to use the proprietary name Field of Dreams from
    Universal Studios Licensing, Inc. ("USL"), formerly known as Universal
    Merchandising, Inc. Pursuant to the license agreement, DFC pays USL one
    percent of each company-owned unit's gross sales, with a minimum annual
    royalty of $3 per store. DFC pays royalties to USL of $5 for each new
    franchised unit opened and one percent of each franchised unit's gross
    sales. This $5 fee is not an advance against royalties. At March 31, 2001,
    DFC had 37 units owned by franchisees and had no company-owned units.

    Effective June 1, 1991, DFC has the right to use and display the Field of
    Dreams service mark in company-owned or franchised retail units located in
    the United States. It also provides for the non-exclusive right to affix the
    Field of Dreams trademark to approved licensed articles for resale. DFC also
    has certain rights of first refusal related to the use of the service mark
    outside the United States. There is an exception of the right to transfer
    this licensing agreement to Dreams, Inc. or to a newly incorporated
    majority-owned subsidiary of Dreams, Inc. within a six-month period; these
    licensing rights are non-transferable and non-assignable.



                                                                     (Continued)

                                       30
<PAGE>

Dreams, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in Thousands, except earnings per share amounts)


12. DFC Franchise Information (Continued)

    The license agreement expires December 2005. The agreement may be renewed
    for additional five-year terms, provided that DFC is in compliance with all
    aspects of the agreement. If DFC fails to comply with the license
    requirements of the agreement, either during the initial term of during an
    option term, the agreement may be terminated by USL. Termination of the
    license agreement would eliminate DFC's right to use the Field of Dreams
    service mark.

    DFC may be precluded from offering franchises in certain states where USL
    may be deemed to be a franchisor under the laws of the applicable states.
    Accordingly, before offering franchises in said states, DFC shall notify USL
    of its intent, and USL must conclude that it will not be deemed a franchisor
    in those states, or the rights to sell franchises may be withheld.

    DFC is required to indemnify USL from certain losses and claims, including
    those based on defective products, violation of franchise law and other acts
    and omissions of DFC. DFC is required to maintain insurance coverage of $3
    million per single incident. The coverage must name USL as an insured party.
    At March 31, 2001, DFC had the required insurance coverage.

    The Company has entered into a continuing guarantee agreement with USL,
    whereby the Company has guaranteed the full and prompt payment to USL of all
    amounts due under this agreement. Royalty expense for the years ended March
    31, 2001 and 2000 was $186 and $188, respectively.

    DFC franchise activity is summarized as follows for the years ended March
    31:

                                                 2001     2000
                                                 ----     ----
          In operation at year end                37       35
          Opened during the year                   4        6
          Closed during the year                   2        5
          Under development at year end            -        1

13. Supplemental Cash Flow Information

    Cash paid for interest during fiscal 2001 and 2000 was $309 and $480,
    respectively. The Company paid $118 during fiscal 2001 and $104 during
    fiscal 2000 for income taxes. There were no non-cash items in fiscal 2000.
    The information for fiscal 2001 is detailed as follows:

          Issuance of common stock in exchange for services    $    531
                                                               ========

                                       31
<PAGE>

Item 8.   Changes In and Disagreements With Accountants on Accounting and
          ---------------------------------------------------------------
          Financial Disclosure.
          --------------------

     None.

                                   Part III
                                   --------

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          -------------------------------------------------------------
          Compliance With Section 16(a) of the Exchange Act.
          --------------------------------------------------

     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.


                                     Serving as
                                     Director of        Position Held With
     Name                       Age  the Company Since  the Company
     -------------------------------------------------------------------------

     Sam D. Battistone           61         1983        Chairman/Director

     Ross Tannenbaum             39         1998        President/CEO/Director

     Dan Marino                  39         2000        Director of Business
                                                        Development/Director

     Dale Larsson                57         1999        Director

     Mark Viner                  34            -        Secretary/Treasurer/
                                                        Chief Financial Officer

     Roger Shiffman              48         2000        Director

     Biographical Information.
     ------------------------

     Sam D. Battistone.  For more than the past five years, Sam D. Battistone
     -----------------
has been majority shareholder, Chairman, Chief Executive Officer, and a Director
of the Company.  Mr. Battistone served as president until November, 1998.  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

                                       32
<PAGE>

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.

     Dan Marino.  Dan Marino is one of the most recognizable and popular sports
     ----------
figures in the entire world and has served as the Company's Director of Business
Development since January 2000.  In April 2000, Mr. Marino announced his
retirement from professional football after 17 consecutive seasons with the
Miami Dolphins of the National Football League.  He holds twenty NFL records and
is considered by many as the most prolific passer in NFL history.  His ongoing
work for the community is centered on the Dan Marino Foundation for children's
charities of South Florida.

     Dale E. Larsson.  For more than five years until September 1998, Dale E.
     ---------------
Larsson was the Secretary-Treasurer.  Mr. Larsson has been a Director of the
Company for over five years.  Mr. Larsson was re-elected a director in August
1999.  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.

     Mark Viner.  Mr. Viner has been Secretary, Treasurer and Chief Financial
     ----------
Officer of the Company since September 1998.  He is a Certified Public
Accountant.  From June 1994 to October 1997, Mr. Viner was the Director of
Financial Reporting for Planet Hollywood International, Inc. and was
instrumental in every phase of that company's 1996 initial public offering.
From May 1992 to May 1994, Mr. Viner was a financial manager for the Walt Disney
Company, responsible for all financial activities of Pleasure Island, a $75
million nighttime entertainment district.

     Roger Shiffman.  Mr. Shiffman has served as a director since October 2000.
     --------------
Mr. Shiffman is the Chief Executive Officer and President of Tiger Electronics,
Ltd., a wholly owned subsidiary of Hasbro, Inc. (NYSE: HAS), a worldwide leader
in children's and family leisure time entertainment products and services.  Mr.
Shiffman received a bachelor degree in marketing from the University of
Illinois.  Mr. Shiffman is active in several charitable foundations and
currently serves on the International board of Directors of the Starlight
Children's Foundation.

     During fiscal year 2001, the Board of Directors acted by unanimous consent
on five occasions.

                                       33
<PAGE>

     Committees of the Board of Directors.  The Board of Directors does not have
     ------------------------------------
an Audit Committee.

     Audit Fees.  The independent auditors of the Company during the year ended
     ----------
March 31, 2001 were Margolies, Fink and Wichrowski.  The aggregate fees,
including expenses, billed by Margolies, Fink and Wichrowski in connection with
the audit of the Company's annual financial statements for the most recent
fiscal year and for the review of the Company's financial information included
in its annual report on Form 10-KSB and its quarterly reports on Form 10-QSB
during fiscal year 2001 were $21,600.

     All Other Fees.  The aggregate fees, including expenses, billed for all
     --------------
other services rendered to the Company by Lundy & Shacter, P.A., our tax
accountants, during fiscal year 2001 were approximately $5,000.  These non-audit
fees relate to corporate compliance, tax and registration filing services
performed for the Company.

     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 the fiscal year ended March 31, 2001 and Forms 5 and amendments
thereto furnished to the Company with respect to the fiscal year ended March 31,
2001, as well as any written representation from a reporting person that no Form
5 is required, 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 fiscal year ended March 31, 2001.

Item 10.  Executive Compensation.
          ----------------------

     The following table sets forth information concerning compensation for
services in all capacities by the Company and its subsidiaries for fiscal years
ended March 31, 1999, 2000 and 2001 of those persons who were, at March 31,
2001, the Chief Executive Officer of the Company and executive officers of the
Company whose compensation exceeded $100,000.

                                       34
<PAGE>

                          Summary Compensation Table

<TABLE>
<CAPTION>

                                 Annual Compensation                                Long-Term
                                                                                  Compensation
                                                                                    Securities
Name and principal                                                Other Annual      Underlying
Position                    Year      Salary         Bonus      Compensation/(3)/  Options/SARs
----------------------------------------------------------------------------------------------
<S>                         <C>     <C>              <C>        <C>                <C>
Ross Tannenbaum,            1999    $ 93,750/(1)/           -           4,000              -
CEO and Director            2000     250,000                -           9,600              -
                            2001     250,000            5,000           9,600              -

Sam D. Battistone           1999           -                -               -              -
Chairman and Director       2000           -           90,000           9,600              -
                            2001      75,000           90,000           9,600              -

Mark Viner, Chief           1999      63,000/(2)/      16,000           3,500        250,000
Financial Officer,          2000     113,250            5,000           7,500        300,000
Secretary & Treasurer       2001     124,583            5,000           7,500              -
</TABLE>

___________________________________
/(1)/  Mr. Tannenbaum's employment commenced on November 10, 1998.
/(2)/  Mr. Viner's employment commenced on September 4, 1998.
/(3)/  Other annual compensation represents automobile allowances.

     The Company and Ross Tannenbaum entered into an Employment Agreement on
November 10, 1998.  Under the terms of that Agreement, Mr. Tannenbaum is
employed for a five-year period at a base salary rate of $250,000 per year.  Mr.
Tannenbaum also receives certain benefits including car allowance and insurance.
The Employment Agreement may be terminated for cause prior to expiration of its
full term.

     The Company and Mark Viner entered into an Employment Agreement on
September 4, 2000.  Under the terms of that Agreement, Mr. Viner is employed for
a three year period at a base salary rate of $130,000 per year with minimum ten
percent per year increases.  Mr. Viner has been issued options to purchase
550,000 shares of the Company's common stock at exercise prices between $0.25
and $0.4375 per share, the closing prices of the common stock at the date of the
grants.  The options are conditioned upon continued employment by the Company of
Mr. Viner and vest throughout his employment term.  Mr. Viner also receives
certain benefits including car allowance and insurance.  The Employment
Agreement may be terminated for cause prior to expiration of its full term.

                     Option/SAR Grants in Last Fiscal Year

     There were no Option/SAR Grants to executive officers in the fiscal year
ended March 31, 2001.

                                       35
<PAGE>

           Aggregated Option/SAR Exercises In Fiscal Year and FY-End
                               Option/SAR Values


<TABLE>
<CAPTION>

                                                                  Number of
                                                                  Securities           Value of
                                                                  Underlying           Unexercised
                                                                  Unexercised          In-The-Money
                                                                  Options/SARs At      Options/SARs
                                                                  FY-End (#)           At FY-End ($)
                        Shares Acquired           Value           Exercisable/         Exercisable/
Name                    On Exercise (#)        Realized ($)       Unexercisable        Unexercisable
----                    ---------------        ------------       -------------        -------------
<S>                     <C>                    <C>                <C>                  <C>
Ross Tannenbaum         0                      N/A                 0                   0

Mark Viner              0                      N/A                 266,667/            $18,750/$37,500
                                                                   283,333

Sam D. Battistone       0                      N/A                 0
</TABLE>

     At March 31, 2001, the closing bid price of the Company's common stock was
$0.4375, and on June 22, 2001, was $0.59.

                                       36
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management.
          --------------------------------------------------------------

Principal Shareholders.
----------------------

     The following table sets forth as of June 22, 2001, 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 warrants to purchase shares
and options exercisable within 60 days.

            Name and Address              Number of           Percent
                   Of                      Shares               Of
          Beneficial Owner/(1)/            Owned               Class
          ---------------------            -----               -----

          Sam D. Battistone            11,129,511/(2)/         20.0%
          Ross Tannenbaum              12,500,000              22.5%
          Dale Larsson                    425,300               0.8%
          3230 North University Ave.
          Provo, UT  84604

          Roger Shiffman                6,100,000/(4)/         11.0%
          Dan Marino                    1,500,000/(5)/          2.7%
          Mark Viner                      266,667/(6)/          0.5%
          All Executive Officers and   31,921,478              57.1%
          Directors as a
          Group (6 persons)/(3)/

     (1)  Unless otherwise indicated, the address for each person is 2 South
          University Drive, Plantation, Florida 33324.

     (2)  Excludes 3,100,000 shares owned by the following family members of
          which Mr. Battistone disclaims beneficial ownership:


          Name                      Number of Shares Owned
          ------------------------------------------------
          J. Roger Battistone                  1,000,000
          Justin Battistone                      350,000
          Kelly Battistone                       350,000
          Dann Battistone                        350,000
          Brian Battistone                       350,000
          Mark Battistone                        350,000
          Cynthia Battistone Hill                350,000

                                       37
<PAGE>

     (3)  The directors and officers have sole voting and investment power as to
          the shares beneficially owned by them.

     (4)  Includes 6,100,000 shares held by DI Partnership, a partnership of
          which Mr. Shiffman is a principal.

     (5)  Includes 1,500,000 shares which are the subject of stock options.

     (6)  Includes options to purchase 266,667 shares of common stock.  Mr.
          Viner has options to purchase an additional 283,333 shares, which are
          not presently vested.

Item 12.  Certain Relationships and Related Transactions.
          ----------------------------------------------

     In January 2000, the Company and Dan Marino entered into an exclusive
arrangement pursuant to which Mr. Marino provides autographs and certain
services.

     Ross Tannenbaum, the Chief Executive Officer and a Director, and Sam
Battistone, the Chairman and a Director, each have ownership interests in
franchised Field of Dreams stores.  Mr. Tannenbaum is a 25% owner in M&S, Inc.,
a Florida Corporation that owns and operates two Field of Dreams franchised
stores in the state of Florida.  Mr. Battistone is a principal in FOD Las Vegas,
LLC which owns and operates four Field of Dreams franchised stores in the state
of Nevada.  Mr. Tannenbaum and Mr. Battistone, through their partnerships with
M&S, Inc. and FOD Las Vegas, LLC, respectively, have entered into the Company's
standard franchise agreements, in an arms length transaction on commercially
reasonable terms.  In fiscal year 2001, M&S, Inc. and FOD Las Vegas, LLC paid
the Company $79,828 and $217,565 in royalties, respectively.

Item 13.  Exhibits and Reports on Form 8-K.
          --------------------------------

     Exhibit
     Number        Exhibit
     ------        -------

     2.1           Articles of Incorporation(1)
     2.2           Bylaws (1)
     10.1          Ross Tannenbaum Employment Agreement (1)
     10.2          Merchandise License Agreement (1)
     10.3          Standard Franchise Documents (1)
     10.4          Line of Credit Agreement with Merrill Lynch Business
                   Financial Services, Inc.(2)
     10.5          Employment Agreement with Mark Viner (2)

          (1)  Filed with the Company's Form 10-KSB dated September 7, 1999 and
               incorporated by this reference.
          (2)  Filed herewith.

                                       38
<PAGE>

                                  SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        DREAMS, INC., a Utah corporation

                                        By: /s/ Ross Tannenbaum
                                           -------------------------------------
                                           Ross Tannenbaum, President

                                           Dated:      June 28, 2001
                                                 -------------------------------

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.


                                        By: /s/ Mark Viner
                                           -------------------------------------
                                           Mark Viner, Chief Financial Officer

                                           Dated:      June 28, 2001
                                                 -------------------------------


                                        By: /s/ Sam Battistone
                                           -------------------------------------
                                           Sam Battistone, Director

                                           Dated:      June 28, 2001
                                                 -------------------------------


                                        By: /s/ Dale E. Larsson
                                           -------------------------------------
                                           Dale E. Larsson, Director

                                           Dated:      June 28, 2000
                                                 -------------------------------


                                        By: /s/ Roger Shiffman
                                           -------------------------------------
                                           Roger Shiffman, Director

                                           Dated:      June 28, 2000
                                                 -------------------------------


                                        By: /s/ Dan Marino
                                           -------------------------------------
                                           Dan Marino, Director

                                           Dated:      June 28, 2000
                                                 -------------------------------

                                       39