##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K





(Mark One)

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



| | For the fiscal year ended December 31, 2008
| | -------------------------------------------

Or



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



| | For the transition period from             to
| | ---------------------------------------------

Commission file number 0-15399





Dreams, Inc.

(Exact name of
registrant as specified in its charter)







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



|                                                        |  |           
|------------------------------------------------------- |  | ----------
|2 South University Drive, suite 325 Plantation, Florida |  | 33324     
|(Address of principal executive offices)                |  | (Zip Code)

Registrants telephone number (954) 377-0002

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



|                           |  |  |  |                                          
|-------------------------- |  |  |  | -----------------------------------------
|Title of each class        |  |  |  | Name of each exchange on which registered
|Common stock, no par value |  |  |  | American Stock Exchange                  

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

None

(Title of class)





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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    x  Yes     ̈  No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated
filer, non-accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the closing price of such shares on the last day of the
registrants most recently completed second fiscal quarter was approximately $29,000,000.

The number of shares outstanding of the registrants
common stock as of March 1, 2009 is 37,528,214.

DOCUMENTS INCORPORATED BY REFERENCENONE









---

##### Table of Contents

TABLE OF CONTENTS

FORM 10-K



|         |  |                                                                                                                  |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                  |  | Page
|         |  | Part I                                                                                                           |  |     
|         |  |                                                                                                                 
|Item 1.  |  | BUSINESS                                                                                                         |  | 1   
|Item 1A. |  | RISK FACTORS                                                                                                     |  | 7   
|Item 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                        |  | 10  
|Item 2.  |  | PROPERTIES                                                                                                       |  | 10  
|Item 3.  |  | LEGAL PROCEEDINGS                                                                                                |  | 11  
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              |  | 11  
|         |  |                                                                                                                 
|         |  | Part II                                                                                                          |  |     
|         |  |                                                                                                                 
|Item 5.  |  | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 11  
|Item 6.  |  | SELECTED FINANCIAL DATA                                                                                          |  | 15  
|Item 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |  | 17  
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      |  | 26  
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |  | 27  
|Item 9A. |  | CONTROLS AND PROCEDURES                                                                                          |  | 27  
|Item 9B. |  | OTHER INFORMATION                                                                                                |  | 27  
|         |  |                                                                                                                 
|         |  | Part III                                                                                                         |  |     
|         |  |                                                                                                                 
|Item 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                           |  | 28  
|Item 11. |  | EXECUTIVE COMPENSATION                                                                                           |  | 31  
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                   |  | 37  
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                        |  | 38  
|Item 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                           |  | 38  
|         |  |                                                                                                                 
|         |  | Part IV                                                                                                          |  |     
|         |  |                                                                                                                 
|Item 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                          |  | 39  
|         |  | SIGNATURES                                                                                                       |  | 40  



i



---

##### Table of Contents

Part I



|Item 1. | BUSINESS.
|------- | ---------

Introduction.

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

Overview

Dreams, Inc., headquartered in Plantation, Florida is a Utah Corporation which was formed on April 9, 1980 and has evolved into the premier vertically integrated licensed sports products firm in the industry.
This has been accomplished, in part, via organic growth and strategic acquisitions. Our continuing pursuit of this dual strategy should result in our becoming a principal leader and a consolidator in this highly fragmented industry. We believe our
senior management and corporate infrastructure is well suited to acquire both large and small industry competitors.

Specifically, we are
engaged in multiple aspects of the licensed sports products and autographed memorabilia industry through a variety of distribution channels.

We generate revenues from:



| |  |  | Our seventeen (17) company-owned Field of Dreams stores;
| | - |  | --------------------------------------------------------



| |  |  | Our six (6) company-owned FansEdge stores;
| | - |  | ------------------------------------------



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



| |  |  | Our athlete and web syndication sites;
| | - |  | --------------------------------------



| |  |  | Our catalogues;
| | - |  | ---------------



| |  |  | Our outbound VIP call center;
| | - |  | -----------------------------



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



| |  |  | Our running of sports memorabilia /collectible trade shows;
| | - |  | -----------------------------------------------------------



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



| |  |  | Our representation and corporate marketing of individual athletes.
| | - |  | ------------------------------------------------------------------

Organic Growth

Key components of our organic growth strategy include building brand recognition;
improving sales conversion rates both in our stores and web sites; continuing our execution of multi-channel retailing; exploring additional distribution channels for our products; and cross pollinating corporate assets among our various operating
divisions. Management believes that there remain significant benefits to cross pollinating the various corporate assets and leveraging the vertically integrated model that has been constructed over the years.

In particular, we have had success with the marketing of our products on-line via FansEdge.com and the complement of each of our web properties. The
Companys sales associated with these e-commerce initiatives have grown from $4 million in 2004 to nearly $47 million in 2008, placing it at number 363 in 2005, number 289 in 2006 and number 216 in 2007 of the largest Internet retailers in the
nation. (2008 rankings not yet published).

The Company has drawn on a complete spectrum of competencies it developed to support its
flagship online brand, FansEdge. This has allowed the Company to leverage the investments made during the past few years by marketing a proven range of services to third parties that include: managed hosting, custom site design and development,
customer service, order fulfillment, purchasing, inventory management, marketing, merchandising, analytics and reporting. The Company calls the compilation of e-commerce services described above as, Web Syndication,and believes there
are significant growth opportunities that exist in the marketplace.

Commencing in June, 2008, we have successfully opened and are
presently operating (6) six FansEdge stores in the greater Chicago, IL area. This is in support of our Multi-channel Retailing strategy; whereby we our driving and marketing a single brand via multiple channels. We plan to add an
e-commerce component to our FieldofDreams.com site to cross market our seventeen (17) company-owned Field of Dreams stores in 2009.



Our proprietary e-commerce platform has also enabled us to fuel a state-of-the-art in-store interactive Kioskfor ordering products. These
Kiosksare in each of the new FansEdge stores and is providing a unique shopping experience for our customers by allowing them to access the entire Company portfolio of more than 100,000 skus (stock keeping units). We have seen
approximately a 16% lift to store sales from the kiosks.

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



1



---

##### Table of Contents

Also, our first FansEdge catalogue shipped in November 2008.

We feel this expansion of our revenue producing foot-print will serve us well as we face the challenging economic environment and look to distinguish
ourselves from our competitors.

Strategic Acquisitions

Our strategic acquisitions have focused on e-commerce companies, brick and mortar retailers, and other manufacturers of licensed sports and entertainment products and collectibles. These companies have been absorbed
into our vertical model and have created incremental distribution channels for our products.

In August 2008, we acquired the assets of
StarStruck/Proteam, a catalogue-focused retailer in the sports licensed products industry. StarStruck/Proteam is one of the largest catalogue and internet retailers of licensed Major League and Minor League merchandise in the country. The company
also produces the official catalogue for the New York Mets.

Through the addition of a catalogue business, Dreams has further strengthened
its Multi-channel Retailing strategy.

Objective

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

Current Landscape

Dreams presently operates in three business segments:



| |  |  | Retail. The retail segment represents the seventeen (17) Company owned and operated Field of Dreams® retail stores, the (6) Company owned and operated FansEdge retail stores, and its e-commerce business operations featuring FansEdge.com and ProSportsMemorabilia.com. The e-commerce
component of the segment consists primarily of two e-commerce retailers along with a portfolio of athlete and syndicated web sites selling a diversified selection of sports licensed products and memorabilia on the Internet and has represented the
fastest growing area of the Company.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Manufacturing/Distribution. The manufacturing/distribution segment represents the manufacturing and wholesaling of sports memorabilia products and acrylic
display cases. These operations are principally conducted through wholly-owned subsidiaries, doing business as Mounted Memories and Schwartz Sports.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchise. This segment represents the results of the Companys franchise program. Although, as a result of
the Company acquiring eight (8) previously franchised Field of Dreams® stores in the past twenty-four months; these revenues are no longer significant to the entity as a whole.
Henceforth, franchise revenues have been reflected as a component of Other revenues in the Companys financial statements. There are currently eight (8) Field of Dreams® franchise stores open and operating.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Retail Segment.

Company-owned Retail Stores.

As of March 1, 2009 we owned and operated sixteen (16) Field of Dreams® retail stores and six (6) FansEdge stores. One of our leases for a
Field of Dreams store came to term on January 31, 2009 and was not renewed and the store was closed. The Company will continue to evaluate the opening of new retail operations, under both Field of Dreams® and FansEdge brands, specifically in the Las Vegas and Chicago markets. However, there are no new permanent store openings planned for 2009. Stores typically are located in high traffic areas in regional shopping
malls. The stores average approximately 1,000-2,500 square feet. We pay a 1% royalty fee to MCA Universal Licensing for the use of the Field of Dreams trademark relating to sales generated in our stores. Effective December 31, 2005,
the parties extended the exclusive licensing agreement for an additional five-year term. During the year ended December 31, 2008 and 2007, we incurred royalty fees of $165 and $222, respectively.

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



| |  |  | Incorporating technology into the retail shopping experience (Inter-active kiosks);
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Staying ahead of the competition by offering innovative and fresh products;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Offering unrivaled service and product knowledge communicated through the best personnel in the industry;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Implementing management, product and financial controls to ensure maximum profitability.
| | - |  | ----------------------------------------------------------------------------------------



2



---

##### Table of Contents

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

Set forth below is a listing of our stores as of March 1, 2009, their location and the date opened or acquired.

FODField of
Dreams                    FEFans Edge



|                                 |  |                   |  |                        
|-------------------------------- |  | ----------------- |  | -----------------------
|STORE NAME                       |  | LOCATION          |  | DATE OPENED OR ACQUIRED
|                                 |  |                  
|Park Meadows Mall  FOD          |  | Denver, CO        |  | March 2002             
|Woodfield Mall  FOD             |  | Schaumberg, IL    |  | October 2002           
|MacArthur Center  FOD           |  | Norfolk, VA       |  | October 2002           
|Garden State Plaza  FOD         |  | Paramus, NJ       |  | May 2003               
|Pier 39  FOD                    |  | San Francisco, CA |  | September 2003         
|Cherry Creek Mall  FOD          |  | Denver, CO        |  | May 2004               
|Scottsdale Fashion Square  FOD  |  | Scottsdale, AZ    |  | June 2004              
|Fashion Valley Mall  FOD        |  | San Diego, CA     |  | November 2006          
|The Rio Hotel  FOD              |  | Las Vegas, NV     |  | December 2006          
|Smith & Wollensky Plaza  FOD    |  | Las Vegas, NV     |  | December 2006          
|Caesars Palace Forum Shops  FOD |  | Las Vegas, NV     |  | December 2006          
|Sawgrass Mills Mall  FOD        |  | Sunrise, FL       |  | June 2007              
|Boca Town Center  FOD           |  | Boca Raton, FL    |  | June 2007              
|Wellington Green Mall  FOD      |  | Wellington, FL    |  | June 2007              
|Florida Mall  FOD               |  | Orlando, FL       |  | July 2007              
|Fox Valley Mall  FE             |  | Aurora, IL        |  | June 2008              
|Northbridge Mall  FE            |  | Chicago, IL       |  | August 2008            
|Northbridge Mall  FOD           |  | Chicago, IL       |  | September 2008         
|Orland Square  FE               |  | Orland Pk, IL     |  | September 2008         
|Lincolnwood Mall  FE            |  | Lincolnwood, IL   |  | September 2008         
|Woodfield Mall  FE              |  | Schaumberg, IL    |  | October 2008           
|River Oaks Mall  FE             |  | Calumet City, IL  |  | October 2008           

The Company sells officially licensed products and authentic autographed memorabilia of the NFL,
MLB, NHL, NBA, NCAA and NASCAR. The e-commerce division, featuring fansedge.com and others, is focused on providing the best customer experience in the online sports-licensed products and memorabilia vertical.

These e-commerce operations have provided for the fastest growing area of the Company with revenues climbing from approximately $4 million in 2004 to
nearly $47 million in 2008.

E-commerce products are marketed through a series of company-owned and syndicated websites that offer
customers a daily selection of items from more than 200 teams and over 1,300 different athletes. This division sells over 100,000 products across categories such as apparel, auto accessories, autographed memorabilia, collectibles, headwear, home and
office items, jewelry and watches, tailgate and stadium gear, and DVDs. These online properties represent several of the leading brand names in this market including, but not limited to:

Content Sites  AOL Fanhouse, Pro Football Weekly, Football.com, Covers, Topix

Fantasy Sites  Open Sports, Rotohog, Fanball, Rotowire, Fantasy Players

Newspaper Sites  Baltimore Sun, Tucson.com, OC Register, Houston Chronicle, Times Union.com

Player Sites  Dan Marino, Larry Bird, Ben Roethlisberger, Dick Butkus, Pete Rose

Miscellaneous Sites  Majestic Athletic, Orange Bowl Stadium, Fandalia, The Sporting News, Tuff Stuff

Radio Sites  The Score, The Ticket, 610 WIP, 790 The Zone, WQAM



3



---

##### Table of Contents

Beginning in January 2008, the Company began marketing its web syndication services to third parties. The
Company has drawn on a complete spectrum of competencies it developed to support its flagship online brand, FansEdge. Some of these services include: managed hosting, custom site design and development, customer service, order fulfillment,
purchasing, inventory management, marketing, merchandising, analytics and reporting. The Company calls the compilation of e-commerce services described above as, Web Syndication,and believes there are significant growth opportunities
that exist in the marketplace.

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

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

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



| |  |  | Applying critical expertise to improve logistics and provide the best possible customer experience;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Strengthening brands by continually expanding catalogs and reinforcing market positioning in response to market demand;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Efficiently transforming shoppers into customers and effectively turning customers into repeat customers; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Operating with optimal efficiencies realized through superior market expertise and technology, total commitment to both quality and accuracy, and timely
fulfillment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



4



---

##### Table of Contents

Manufacturing/Distribution Segment.

Mounted Memories.

Mounted Memories
(MMI), celebrating its 20thanniversary this year, is one of the largest wholesalers of authentic sports and celebrity memorabilia
products and acrylic display cases in the country. The Company maintains exclusive and non-exclusive agreements with numerous athletes who frequently provide autographs and/ or game used memorabilia at agreed upon terms. In addition to its
relationships with various athletes and their representatives, MMI holds licenses with different sports leagues which allow for the manufacture and distribution of a wide array of products. Licenses are currently held with MLB, MLBPA, NFL, Golden
Bear (Jack Nicklaus), Signature Product (Elvis Presley), NASCAR and a variety of NASCAR teams and drivers.

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



| |  |  | Further expand distribution channels and deepen existing customer relationships.
| | - |  | --------------------------------------------------------------------------------



| |  |  | Expand and diversify product lines by adding new licenses and bringing new products to market.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Continue to pursue exclusive licensing and memorabilia opportunities.
| | - |  | ---------------------------------------------------------------------



| |  |  | Enhance manufacturing efficiencies.
| | - |  | -----------------------------------

MMI has been in business since 1989 and has achieved its industry leading status fundamentally due to a combination of its licenses and its strict authenticity policies. The only sports memorabilia products sold by MMI are those produced by
MMI through private or public signings organized by MMI or purchased from an authorized agent of MMI and witnessed by an MMI and or league representative. In addition to sports and celebrity memorabilia products, MMI manufactures a large selection
and supply of custom acrylic display cases, with over 50 combinations of materials, colors and styles. The primary raw material used in the production process is acrylic. There are many vendors who sell plastic throughout south Florida and the
Company seeks to obtain the best pricing through competitive vendor bidding. The Company does not produce the helmets, footballs, baseballs or other objects which are autographed. Those products are available through numerous suppliers. No
individual supplier represented more than ten percent of the Companys total year ended December 31, 2008 or 2007 purchases.

MMI
continues to work on the development of new distribution channels. In fact, in August 2008, they announced their deal with Samsung whereby a Mounted Memories redemption certificate was provided to each purchaser of selected Samsung HDTVs
across the country. This venture provided for the introduction of thousands to the Mounted Memories web site and its unique collection of sports memorabilia. MMIs customer base varies greatly and includes transactional television, internet
companies, traditional retail stores, specialty retail which sell sports and celebrity memorabilia as well as corporate account sales. MMI has worked diligently to diversify its customer base and as a result, no one customer accounted for more than
ten percent of MMIs total revenues for the years ended December 31, 2008 and 2007.

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

Schwartz Sports

Schwartz Sports (Schwartz) distributes autographed sports memorabilia and collectibles. For the past nine-years, the company has provided hand-signed collectibles to retailers, corporations, charities and
individual collectors with authentic products from every major sport. Once considered a competitor of Mounted Memories (see above), this Chicago based division fit our criteria for a strategic acquisition candidate and now works in concert with MMI
on achieving our overall market positioning in the sports & celebrity memorabilia segment. The Company is targeting an April 2009 date to merge these operations completely into Mounted Memories. (This will expand the manufacturing and
distribution presence to include, Chicago, IL).



5



---

##### Table of Contents

The Greene Organization.

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

Competition.

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

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

MMI competes with several major companies and numerous individuals in the sports and
celebrity memorabilia industry. MMI believes it competes well within the industry because of the reputation it has established in its 20-year existence. MMI focuses on ensuring authenticity and providing the best possible customer service. MMI has
concentrated on maintaining and selling memorabilia items of athletes and celebrities that have a broad national appeal. MMI believes it maintains its competitive edge because of its long established relationships with numerous high profile
athletes, each of the major sports leagues and several of the largest sports agencies. Several of its competitors tend to focus on specific regional markets due to their relationships with sports franchises in their immediate markets. The success of
those competitors typically depends on the athletic performance of those specific franchises. Additionally, MMI typically focuses on the three core sports that provide the greatest source of industry revenue, baseball, football and NASCAR.

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

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

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

Employees.

The Company employs 284 full-time employees and 182 part-time employees. None of our employees are represented by a labor union and
we believe that our employee relations are good.

Seasonality.

Our business is highly seasonal with operating results varying from quarter to quarter. We have historically experienced higher revenues in the October  December quarter, primarily due to holiday sales.
Approximately 43% and 49% of our annual revenues were generated during this quarter for 2008 and 2007. Management believes that the percentage of revenues in the holiday quarter will increase in future years as we focus on and grow the retail
segment. As a result, we may incur additional expenses during our holiday quarter, including higher inventory of product and additional staffing in anticipation of increased sales activity.



6



---

##### Table of Contents

|Item 1A. | Risk Factors.
|-------- | -------------

Risk Factors Relating to Dreams, Inc.

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

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



| |  |  | Incur additional debt;
| | - |  | ----------------------

| |  |  | Create or permit certain liens, other than customary and ordinary liens;
| | - |  | ------------------------------------------------------------------------

| |  |  | Sell assets other than in the ordinary course of our business;
| | - |  | --------------------------------------------------------------

| |  |  | Create or permit restrictions on our ability to pay dividends or make other distributions;
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | Engage in transactions with affiliates; and
| | - |  | -------------------------------------------

| |  |  | Consolidate or merge with or into other companies or sell all or substantially all of our assets.
| | - |  | -------------------------------------------------------------------------------------------------

These restrictions could limit our ability to finance our future operations, make acquisitions or pursue available business opportunities.

In addition, our line of credit facility requires us to maintain specified financial ratios, satisfy certain financial covenants and maintain the
collateral value of our borrowing base. We are currently out of compliance with certain financial covenants. We are working with Comerica Bank to determine a course of action to remedy the situation, which may ultimately require us to reduce our
debt or to act in a manner that we believe to be contrary to our business objectives. In the event we fail to resolve the current event of non-compliance, or fall out of compliance with any other applicable covenants or financial ratios, Comerica
Bank may notify us that we are in default of the terms of the line of credit facility. In the event of a default Comerica Bank may, among other actions, accelerate all amounts outstanding under the facility, seize and sell all of our assets, or
appoint a receiver for our operations.

There is doubt about our ability to continue as a going concern.

Our independent public accounting firm has issued an opinion on our consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern due to the fact that the Company, as of December 31, 2008, is in breach of certain financial performance covenants with its senior lender, and that no assurances can be made that
the Company will receive the appropriate waivers, and if so, with acceptable terms and conditions.

The U.S. Economy is in a recession.

At present, the U.S. economy is in a recession due to a credit crisis and numerous other factors. We have already seen strong evidence of a decrease in
consumer confidence, reduced corporate profits and capital spending, adverse business conditions, and liquidity concerns. These conditions make it difficult for our customers and us to accurately forecast and plan for future business activities.
This has caused our customers to slow or defer spending on our products which delay and lengthen our sales cycles. We cannot predict the timing, strength, or duration of any economic slowdown or subsequent economic recovery. If the downturn in the
general economy or markets in which we operate persists or worsens from present levels, our business, financial condition, and results of operations could be materially and or adversely affected.

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

A very important aspect of our growth strategy has been and is to pursue strategic
acquisitions of related businesses that we believe can expand or complement our business. Acquisitions require significant capital resources and divert managements attention from our existing business. Acquisitions also entail an inherent risk
that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct pre-dating our acquisition of a business that were not known to us at the time of acquisition. We may also incur significantly
greater expenditures in integrating an acquired business than we had anticipated at the time of its purchase. In addition, acquisitions may create unanticipated tax and accounting problems, including the possibility that we might be required to
write-off goodwill which we have paid for in connection with an acquisition. A key element of our acquisition strategy has been to retain management of acquired businesses to operate the acquired business for us. Many of these individuals maintain
important contacts with clients of the acquired business. Our inability to retain these individuals could materially impair the value of an acquired business. Our failure to successfully accomplish future acquisitions or to manage and integrate
completed or future acquisitions could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that:



| |  |  | We will identify suitable acquisition candidates;
| | - |  | -------------------------------------------------



| |  |  | We can consummate acquisitions on acceptable terms;
| | - |  | ---------------------------------------------------



| |  |  | We can successfully integrate any acquired business into our operations or successfully manage the operations of any acquired business; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will be able to retain an acquired companys significant client relationship, goodwill and key personnel or otherwise realize the intended benefits of any
acquisition.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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



7



---

##### Table of Contents

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

We have grown rapidly in the past few years, including through acquisitions. Businesses that grow rapidly often have difficulty
managing their growth. Our rapid growth has placed and is expected to continue to place significant demands on our management, on our accounting, financial, information and other systems and on our business. Although we have expanded our management,
we need to continue recruiting and employing experienced executives and key employees capable of providing the necessary support. In addition, we will need to continue to improve our financial, accounting, information and other systems in order to
effectively manage our growth. We will be required in 2009 to comply with the new annual internal control certification pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules. We cannot assure you that our
management will be able to manage our growth effectively or successfully, or that our financial, accounting, information or other systems will be able to successfully accommodate our growth or that we will be able to timely comply with
Section 404 of the Sarbanes-Oxley Act. Our failure to meet these challenges could materially impair our business.

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

As of
December 31, 2008, we had goodwill and other intangible assets of approximately $14.1 million, which constituted approximately 24% of our total assets. We periodically evaluate goodwill and other intangible assets for impairment. Any
determination requiring the write-off of a significant portion of our goodwill or other intangible assets, could adversely affect our results of operations and financial condition.

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

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

We are dependent upon the Field of Dreams® trademark.

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



8



---

##### Table of Contents

Our retail business segment is highly seasonal.

Historically, the (October through December) holiday quarter has accounted for a greater proportion of our operating income than have each of the other
three quarters of our year. In the twelve month period ended December 31, 2008, more than 47% of the revenues from our retail business segment and all of our operating earnings and cash flows from operations were generated in the holiday
quarter. Our results of operations depend significantly upon the holiday selling season. If less than satisfactory revenues, operating earnings or cash flows from operations are achieved during the key holiday quarter, we may not be able to
compensate sufficiently for the lower revenues, operating earnings, or cash flows from operations during the other three quarters of the year. Our manufacturing/distribution segment and our franchise segment are not as significantly impacted by
seasonality.

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

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

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

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

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

Risks related to the E-commerce Industry

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

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

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

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

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

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



9



---

##### Table of Contents

|Item 1B. | Unresolved Staff Comments.
|-------- | --------------------------

None.



|Item 2. | Properties.
|------- | -----------

We do not own any real
property. The Company leases its corporate office and primary manufacturing/warehouse facility in Plantation, Florida and Sunrise, Florida, respectively. The corporate office lease is for approximately 8,000 square feet of office space and expires
in June 2011, and has total occupancy costs of approximately, $21,000 per month. The Companys principal executive and accounting offices are located at the Plantation, Florida facility.

Our primary manufacturing/warehouse facility is located in Sunrise, Florida and has approximately 50,000 square feet of office, manufacturing and
warehousing space. The lease is for a 10 year term expiring in 2012 with total occupancy costs of approximately $40,000 per month with 3% annual increases. We also lease a warehouse facility in Denver, Colorado which has approximately 1,500 square
feet and a warehouse facility in Las Vegas, NV which has approximately 12,000 square feet that have occupancy costs of $2,000 and $7,500 per month, respectively.

Our 22 company-owned stores currently lease their facilities, with lease terms (including renewal options) expiring in various years through September 2018 with initial terms of 7 to 10 years.

To support our Internet division growth, we recently leased 207,000 square feet in Northbrook, IL for the next 5-years with a monthly occupancy cost of
approximately, $90,000.

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



10



---

##### Table of Contents

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

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



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

On July 18, 2008, the Company held an Annual Meeting of its Stockholders in Las Vegas, Nevada. There were two proposals voted upon at the meeting; to elect directors to each serve until the next Annual Meeting of Stockholders of the
Company and until their successors have been duly elected and qualified; and to ratify the appointment of Friedman, Cohen, Taubman & Company, LLC, as independent auditors for the Company for the year ending December 31, 2008. Both
proposals passed with 67% and 68% approval, respectively.

The following individuals were re-elected for another year:



|                  |  |            |  |                       
|----------------- |  | ---------- |  | ----------------------
|Name              |  | Votes For  |  | Votes Against/Withheld
|Sam D. Battistone |  | 25,275,129 |  | 387,919               
|Ross Tannenbaum   |  | 25,259,739 |  | 403,309               
|Dale Larsson      |  | 25,275,129 |  | 387,919               
|David Malina      |  | 25,265,573 |  | 397,475               
|Steven Rubin      |  | 25,265,573 |  | 397,475               

Part II



|Item 5. | Market for the registrants common equity, related stockholder matters and Issuer purchases of equity securities.
|------- | -----------------------------------------------------------------------------------------------------------------

As of January 17, 2009, the Companys common stock is listed on the NYSE AMEX Exchange as a result of an acquisition by the NYSE of the American
Stock Exchange. From April 16, 2007 to January 16, 2009, the Companys common stock was listed on the American Stock Exchange (Amex), an international, technologically advanced auction market, under the symbol DRJ. Prior
to April 16, 2007, the Companys common stock was traded on the *over-the-counter bulletin board under the symbol DRMN.OB. The high and low bids of the Companys common stock for each quarter during the year ended
December 31, 2008, the nine months ended December 31, 2007 and fiscal year ended March 31, 2007 are as follows: (prices shown have been retroactively adjusted to reflect the 1 for 6 reverse stock split effective January 30, 2007)



|                                                     |  |                |      |               |   |     
|---------------------------------------------------- |  | -------------- | ---- | ------------- | - | ----
|Year Ended December 31, 2008:                        |  |                |      |               |   |     
|                                                     |  |               
|                                                     |  | High Bid Price |      | Low Bid Price
|First Quarter                                        |  | $              | 1.90 |               | $ | 1.14
|Second Quarter                                       |  |                | 1.62 |               |   | .95 
|Third Quarter                                        |  |                | 1.38 |               |   | .56 
|Fourth Quarter                                       |  |                | .90  |               |   | .24 
|                                                     |  |               
|Transition Period (April 1, 2007-December 31, 2007): |  |                |      |               |   |     
|                                                     |  |               
|                                                     |  | High Bid Price |      | Low Bid Price
|Second Quarter                                       |  | $              | 2.71 |               | $ | 2.54
|Third Quarter                                        |  |                | 2.00 |               |   | 1.85
|Fourth Quarter                                       |  |                | 1.90 |               |   | 1.60
|                                                     |  |               
|Fiscal Year Ended March 31, 2007:                    |  |                |      |               |   |     



|               |  |                |      |               |   |     
|-------------- |  | -------------- | ---- | ------------- | - | ----
|               |  | High Bid Price |      | Low Bid Price
|First Quarter  |  | $              | 1.08 |               | $ | .78 
|Second Quarter |  |                | 1.20 |               |   | .60 
|Third Quarter  |  |                | 3.54 |               |   | .54 
|Fourth Quarter |  |                | 4.03 |               |   | 2.64



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



11



---

##### Table of Contents

Performance Graph

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

The graph below compares the performance of the Companys
Common Stock with the performance of the S & P 500 Index and a peer group index (the Peer Group Index) by measuring the respective changes in Common Stock prices from March 31, 2003 through December 31, 2008.

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

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

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

LOGO



12



---

##### Table of Contents

The records of Fidelity Transfer, the Companys transfer agent, indicate that there are 376 record
owners of the Companys common stock as of December 31, 2008. Because many of our shares of common stock are held by brokers, and other institutions on behalf of stockholders, we are unable to determine the total number of stockholders
represented by these record holders. However, we believe there are more than 1,800 beneficial holders of our common stock. On March 1, 2009, the high bid price was $.43 and the low bid price was $.39 for the Companys common stock.

Dividend Policy

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

Repurchase of Equity Securities during 2008- $1,000,000 Plan approved February 6, 2008 for the year.



|                        |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|----------------------- |  | ----------------------------- |  | ----------------------- | ---- | --------------------------------------------------------------- | ------ | -------------------------------------------------- | - | -------
|                        |  | TotalNumberof SharesPurchased |  | Avg. PricePaid PerShare |      | Total Number ofSharesPurchased asPart of PubliclyAnnounced Plan |        | Max. DollarValue ThatMay Yet BePurchasedUnder Plan
|                        |  |                               |  |                         |      | (Cumulative)                                                    |        |                                                   
|Period 4/1/08-4/30/08:  |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|4/9/2008                |  | 3,000                         |  | $                       | 1.25 |                                                                 | 3,000  |                                                    | $ | 996,250
|4/15/2008               |  | 800                           |  | $                       | 1.22 |                                                                 | 3,800  |                                                    | $ | 995,274
|4/17/2008               |  | 3,000                         |  | $                       | 1.22 |                                                                 | 6,800  |                                                    | $ | 991,614
|                        |  |                               |  |                        
|Period 5/1/08-5/31/08:  |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|5/20/2008               |  | 2,500                         |  | $                       | 1.29 |                                                                 | 9,300  |                                                    | $ | 988,389
|5/21/2008               |  | 2,500                         |  | $                       | 1.25 |                                                                 | 11,800 |                                                    | $ | 985,264
|5/22/2008               |  | 100                           |  | $                       | 1.23 |                                                                 | 11,900 |                                                    | $ | 985,141
|                        |  |                               |  |                        
|Period 6/1/08-6/30/08:  |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|6/4/2008                |  | 4,000                         |  | $                       | 1.29 |                                                                 | 15,900 |                                                    | $ | 979,981
|6/5/2008                |  | 3,700                         |  | $                       | 1.28 |                                                                 | 19,600 |                                                    | $ | 975,245
|                        |  |                               |  |                        
|Period 7/1/08-7/31/08:  |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|7/3/2008                |  | 200                           |  | $                       | 1.25 |                                                                 | 19,800 |                                                    | $ | 974,995
|7/7/2008                |  | 400                           |  | $                       | 1.20 |                                                                 | 20,200 |                                                    | $ | 974,515
|7/8/2008                |  | 1,200                         |  | $                       | 1.25 |                                                                 | 21,400 |                                                    | $ | 973,015
|7/9/2008                |  | 700                           |  | $                       | 1.21 |                                                                 | 22,100 |                                                    | $ | 972,168
|7/10/2008               |  | 2,200                         |  | $                       | 1.18 |                                                                 | 24,300 |                                                    | $ | 969,572
|7/14/2008               |  | 400                           |  | $                       | 1.12 |                                                                 | 24,700 |                                                    | $ | 969,124
|7/15/2008               |  | 1,600                         |  | $                       | 1.08 |                                                                 | 26,300 |                                                    | $ | 967,396
|7/16/2008               |  | 1,600                         |  | $                       | 1.15 |                                                                 | 27,900 |                                                    | $ | 965,556
|7/17/2008               |  | 1,100                         |  | $                       | 1.15 |                                                                 | 29,000 |                                                    | $ | 964,291
|7/18/2008               |  | 1,600                         |  | $                       | 1.14 |                                                                 | 30,600 |                                                    | $ | 962,467
|7/21/2008               |  | 400                           |  | $                       | 1.11 |                                                                 | 31,000 |                                                    | $ | 962,023
|7/22/2008               |  | 600                           |  | $                       | 1.05 |                                                                 | 31,600 |                                                    | $ | 961,393
|7/28/2008               |  | 2,000                         |  | $                       | 1.10 |                                                                 | 33,600 |                                                    | $ | 959,193
|Period 8/1/08-8/30/08:  |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|8/18/2008               |  | 2,400                         |  | $                       | 1.02 |                                                                 | 36,000 |                                                    | $ | 956,745
|8/22/2008               |  | 2,400                         |  | $                       | 0.98 |                                                                 | 38,400 |                                                    | $ | 954,393
|                        |  |                               |  |                        
|Period 9/1/08-12/31/08: |  |                               |  |                         |      |                                                                 |        |                                                    |   |        
|No purchases            |  |                               |  |                         |      |                                                                 | 38,400 |                                                    | $ | 954,393



13



---

##### Table of Contents

Issuance of Unregistered Securities

There were no issuances of unregistered securities for the year ended December 31, 2008. However, the Company has on two separate occasions during
the nine months ended December 31, 2007 issued unregistered securities to support a particular transaction. The particulars of each of these transactions are set forth below. In addition, the Company has issued approximately 50,000 unregistered
common shares as a result of options that were exercised during the reporting period.

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

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

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



14



---

##### Table of Contents

EQUITY COMPENSATION PLAN INFORMATION



|                                                           |  |                                                                                         |  |                                                                            |      |                                                                                                                                        |          
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                           |  | Number of securitiesto be issued uponexercise of outstandingoptions, warrants
andrights |  | Weighted  averageexercise price ofoutstanding options,warrants and rights |      | Number of securitiesremaining availablefor future issuancesunder equitycompensation plans(excluding securitiesreflected in column (a))
|                                                           |  | (a)                                                                                     |  | (b)                                                                        |      | (c)                                                                                                                                   
|Equity Compensation Plans Approved by Security Holders     |  | 106,667                                                                                 |  | $                                                                          | 1.63 |                                                                                                                                        | 2,393,333
|Equity Compensation Plans Not Approved by Security Holders |  | *401,083                                                                                |  | $                                                                          | 0.85 |                                                                                                                                        | 0        



|* | Represents options granted during the previous four-years to employees and consultants prior to the adoption of the Companys 2006 Equity Incentive Plan which was approved by
the shareholders in January 2007.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Selected Financial Data. (Dollar amounts in thousands)
|------- | ------------------------------------------------------



|                                          |  |                       |            |   |                              |   |            |                            |  |            |      |  |            |  |           |  
|----------------------------------------- |  | --------------------- | ---------- | - | ---------------------------- | - | ---------- | -------------------------- |  | ---------- | ---- |  | ---------- |  | --------- | -
|                                          |  | Year EndedDecember 31 |            |   | Nine Months EndedDecember 31 |   |            | Fiscal Year EndedMarch 31, | 
|                                          |  | 2008                  |            |   | 2007                         |   |            | 2007                       |  |            | 2006 |  | 2005       | 
|Net Sales                                 |  | $                     | 81,982     |   |                              | $ | 59,702     |                            |  | 55,960     |      |  | 42,730     |  | 32,978    |  
|Cost of Goods Sold                        |  |                       | 44,716     |   |                              |   | 33,135     |                            |  | 31,780     |      |  | 24,460     |  | 18,237    |  
|Gross Profit                              |  |                       | 37,266     |   |                              |   | 26,567     |                            |  | 24,171     |      |  | 18,270     |  | 14,741    |  
|Operating Expenses                        |  |                       | 37,925     |   |                              |   | 24,334     |                            |  | 22,152     |      |  | 17,162     |  | 14,793    |  
|Operating Income/(Loss)                   |  |                       | (655       | ) |                              |   | 2,233      |                            |  | 2,019      |      |  | 1,1108     |  | (52       | )
|Other (Expenses)/Income                   |  |                       | (55        | ) |                              |   | (110       | )                          |  | (42        | )    |  | 3,657      |  |          |  
|Income(Loss) Before Taxes                 |  |                       | (2,987     | ) |                              |   | 1,415      |                            |  | 1,449      |      |  | 4,311      |  | (637      | )
|Provision (benefit) for income taxes      |  |                       | (1,373     | ) |                              |   | 623        |                            |  | 469        |      |  | 1,762      |  | (174      | )
|Net Income (Loss)                         |  |                       | (1,614     | ) |                              |   | 792        |                            |  | 980        |      |  | 2,549      |  | (463      | )
|Earnings (Loss) per common share, basic   |  | $                     | (.04       | ) |                              | $ | .02        |                            |  | .03        |      |  | .09        |  | (.05      | )
|Earnings (Loss) per common share, diluted |  | $                     | (.04       | ) |                              | $ | .02        |                            |  | .03        |      |  | .09        |  | (.05      | )
|Weighted Average shares Outstanding       |  |                       |            |   |                              |   |            |                            |  |            |      |  |            |  |           |  
|Basic                                     |  |                       | 37,545,576 |   |                              |   | 37,328,962 |                            |  | 32,271,327 |      |  | 27,404,645 |  | 9,393,866 |  
|Diluted                                   |  |                       | 37,669,586 |   |                              |   | 37,596,089 |                            |  | 32,271,327 |      |  | 27,404,645 |  | 9,393,866 |  



15



---

##### Table of Contents

There were no accounting changes for these five fiscal years. The Company acquired FansEdge in October
2003. This internet retailer has been the catalyst for the Companys revenue growth. The Companys outstanding stock options were not considered in the calculation of diluted earnings per share for fiscal years 2004 through fiscal 2006,
due to their anti-dilutive effects. The Company received $3.6 million in insurance proceeds which was booked as other income in fiscal year 2006. Also, as a result of our asset purchase agreement with Pro-Stars, Inc. the Company has an on-going
obligation to make quarterly distributions to limited partners on pro-rata bases depending on the actual profitability of the 3 Las Vegas based Field of Dreams stores and Stars Live 365.

Consolidated Balance Sheet Data: (Dollars in thousands)



|                                            |  |                        |  |                              |  |                            |  |        |  |       
|------------------------------------------- |  | ---------------------- |  | ---------------------------- |  | -------------------------- |  | ------ |  | ------
|                                            |  | Year EndedDecember 31, |  | Nine Months EndedDecember 31 |  | Fiscal Year EndedMarch 31,
|                                            |  | 2008                   |  | 2007                         |  | 2007                       |  | 2006   |  | 2005  
|Cash                                        |  | 498                    |  | 1,601                        |  | 753                        |  | 453    |  | 211   
|*Working Capital                            |  | 8,175                  |  | 17,548                       |  | 17,263                     |  | 13,638 |  | 7,110 
|Total Assets                                |  | 58,923                 |  | 51,386                       |  | 37,655                     |  | 28,551 |  | 22,292
|Notes and Capital Lease Payable- noncurrent |  | 14,507                 |  | 7,244                        |  | 6,731                      |  | 5,744  |  | 5,677 
|Total Shareholders Equity                  |  | 25,212                 |  | 26,760                       |  | 24,391                     |  | 16,061 |  | 10,071



|* | Total current assets minus total current liabilities.
|- | -----------------------------------------------------



16



---

##### Table of Contents

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K under
Managements Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such statements are indicated by words or phrases such as anticipates, projects, management believes, Dreams believes, intends,
expects, and similar words or phrases. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new product development and introduction schedules; acceptance of new product
offerings; franchise sales; advertising and promotional efforts; adverse publicity; expansion of the franchise chain; availability, locations and terms of sites for franchise development; changes in business strategy or development plans;
availability and terms of capital including the continuing availability of our credit facility with Comerica Bank or a similar facility with another financial institution; labor and employee benefit costs; changes in government regulations; and
other factors particular to the Company.

Should one or more of these risks, uncertainties or other factors materialize, or should
underlying assumptions prove incorrect, actual results, performance, or achievements of Dreams may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written
and oral forward-looking statements attributable to Dreams or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Dreams disclaims any obligation to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Managements Overview

Dreams, Inc., headquartered in Plantation, Florida has evolved into the premier vertically integrated licensed sports products firm in
the industry. This has been accomplished, in part, via organic growth and strategic acquisitions. Our continuing pursuit of this dual strategy should result in our becoming a principal leader and a consolidator in this highly fragmented industry.

Specifically, we are engaged in multiple aspects of the licensed sports products and autographed memorabilia industry through a variety of
distribution channels.

We generate revenues from:



| |  |  | Our seventeen (17) company-owned Field of Dreams stores;
| | - |  | --------------------------------------------------------



| |  |  | Our six (6) company-owned FansEdge stores;
| | - |  | ------------------------------------------



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



| |  |  | Our athlete and web syndication sites;
| | - |  | --------------------------------------



| |  |  | Our catalogues;
| | - |  | ---------------



| |  |  | Our outbound VIP call center;
| | - |  | -----------------------------



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



| |  |  | Our running of sports memorabilia /collectible trade shows;
| | - |  | -----------------------------------------------------------



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



| |  |  | Our representation and corporate marketing of individual athletes.
| | - |  | ------------------------------------------------------------------

Organic Growth

Key components of our organic growth strategy include building brand recognition;
improving sales conversion rates both in our stores and web sites; continuing our execution of multi-channel retailing; exploring additional distribution channels for our products; and cross pollinating corporate assets among our various operating
divisions. Management believes that there remain significant benefits to cross pollinating the various corporate assets and leveraging the vertically integrated model that has been constructed over the years.

In particular, we have had success with the marketing of our products on-line via FansEdge.com and the complement of each of our web properties. The
Companys sales associated with these e-commerce initiatives have grown from $4 million in 2004 to nearly $47 million in 2008, placing it at number 363 in 2005, number 289 in 2006 and number 216 in 2007 of the largest Internet retailers in



17



---

##### Table of Contents

the nation. Internet sales for the twelve months ended December 31, 2008 and December 31, 2007, were $47 million and $39 million, respectively.

The Company has drawn on a complete spectrum of competencies it developed to support its flagship online brand, FansEdge. This has allowed
the Company to leverage the investments made during the past few years by marketing a proven range of services to third parties that include; managed hosting, custom site design and development, customer service, order fulfillment, purchasing,
inventory management, marketing, merchandising, and analytics and reporting. The Company calls the compilation of e-commerce services described above as, Web Syndication,and believes there are significant growth opportunities that
exist in the marketplace.

Commencing in June, 2008 we have successfully opened and are presently operating (6) six FansEdge stores in
the greater Chicago, IL area. This is in support of our executing our Multi-channel Retailing strategy; whereby we our driving and marketing a single brand via multiple channels. We plan to add an e-commerce component to our FieldofDreams.com
site to cross market our (17) company-owned Field of Dreams stores in 2009.

Our proprietary e-commerce platform has also enabled us
to fuel a state-of-the-art in-store interactive Kioskfor ordering products. These Kiosksare in each of the new FansEdge stores and is providing a unique shopping experience for our customers by allowing them to access the entire
Company portfolio of more than 100,000 skus (stock keeping units). In fact, so far, we are seeing an average of 16% contribution to the individual store sales from the Kiosks.

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

Also, our first FansEdge catalogue was shipped in November 2008.

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

Strategic Acquisitions

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

In August 2008, we acquired the assets of StarStruck/Proteam, a catalogue-focused retailer in the sports licensed products industry. StarStruck/Proteam is one of the largest catalogue and internet retailers of licensed Major League and
Minor League merchandise in the country. The company also produces the official catalogue for the New York Mets.

Through the addition of a
catalogue business, Dreams will further strengthen its Multi-channel Retailing strategy.

Objective

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

Analysis

We review our operations
based on both our financial results and various non -financial measures. Managements focus in reviewing performance begins with growth in sales, margin integrity and operating income. On the expense side, with a majority of our sales being
achieved as an on-line retailer of licensed sports products, we spend a disproportionate amount of our operating expenses in internet marketing. Therefore, we continuously monitor the return on investment of these particular expenses.

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

We believe we are well positioned to capture increased activity of on-line retail purchases as industry experts and analysts state that currently, only
4-5% of all retail sales are being conducted on-line and that over the next few years, consumers may generate twice that figure in on-line purchases.

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

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



18



---

##### Table of Contents

Historically, the fourth quarter of the fiscal year (October to December) has accounted for a greater
proportion of our operating income than have each of the other three quarters of our fiscal year. This is primarily due to increased activities as a result of the holiday season. We expect that we will continue to experience quarterly variations and
operating results principally as a result of the seasonal nature of our industry. Other factors also make for a significant fluctuation of our quarterly results, including the timing of special events, the general popularity of a specific team that
wins a championship or an individual athlete who enters their respective sports Hall of Fame, the amount and timing of new sales contributed by new stores, the timing of personal appearances by particular athletes and general economic
conditions. Additional factors may cause fluctuations and expenses, including the costs associated with the opening of new stores, the integration of acquired businesses and stores into our operations , the over-all strength of the economy, and
corporate expenses to support our expansion and growth strategy.

Conclusion

We set ourselves apart from other companies with our diversified product and services line, our proprietary e-commerce platform, as well as our
relationships with sports leagues, agents and athletes. Management believes we can continue to capture market share and become a consolidator in the highly fragmented licensed sports products industry. During the slowing economy, we have been
proactive as it relates to our corporate over-head and expenses and have instituted several savings initiatives including; lay-offs, management and employee salary reductions, re-negotiations of our client contracts, rent economics, extended terms
from key suppliers, etc.

GENERAL

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

Use of Estimates and Critical Accounting Policies

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

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

Collectibility of Accounts Receivable

The Companys allowance for doubtful accounts is based on managements estimates of the creditworthiness of its customers, current economic
conditions and historical information, and, in the opinion of management, is believed to be an amount sufficient to respond to normal business conditions.Should business conditions deteriorate or any major customer default on its obligations
to the Company, this allowance may need to be significantly increased, which would have a negative impact upon the Companys operations. The Companys current allowance for doubtful accounts is $76.



|                                |  |                  |       |                  |   |      
|------------------------------- |  | ---------------- | ----- | ---------------- | - | -----
|                                |  | December 31,2008 |       | December 31,2007
|Accounts receivable             |  | $                | 3,389 |                  | $ | 4,416
|Allowance for doubtful accounts |  |                  | 76    |                  |   | 67   
|                                |  |                  |       |                  |   |      
|Accounts receivable, net        |  | $                | 3,313 |                  | $ | 4,395

Reserves on Inventories

The Company establishes a reserve based on historical experience and specific reserves when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to operations
results when the estimated net realizable value of inventory items declines below cost. Management regularly reviews the Companys investment in inventories for declines in value. The Companys current reserve for inventory obsolescence is
$334.

Income Taxes

Significant
management judgment is required in developing the Companys provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. The
Company evaluates quarterly its ability to realize its deferred tax assets and adjusts the amount of its valuation allowance, if necessary. The Company provides a valuation allowance against its deferred tax assets when it believes that it is more
likely than not that the asset will not be realized. The Company has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to realize its net deferred tax asset. After consideration of all the
evidence, both positive and



19



---

##### Table of Contents

negative, management has determined that a valuation allowance of $187 as of December 31, 2008 and as of December 31, 2007, was necessary.

Goodwill and Unamortized Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142), the Company evaluates the carrying value of goodwill as of December 31 of each year and
between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a
significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of
the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be
calculated by comparing the implied fair value of the reporting units goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and
liabilities of that unit based on their fair value. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the
carrying amount of goodwill exceeds it implied fair value.

The Companys evaluations of the carrying amount of goodwill were
completed as of December 31, 2008 and December 31, 2007, in accordance with SFAS 142, resulted in no impairment losses. There were no material changes in the carrying amount of goodwill for the year ended December 31, 2008.

Revenue Recognition

The Company
recognizes retail (including e-commerce sales) and wholesale/distribution revenues at the later of (a) the time of shipment or (b) when title passes to the customers, all significant contractual obligations have been satisfied and
collection of the resulting receivable is reasonably assured. Retail revenues and wholesale/distribution are recognized at the time of sale. Return allowances, which reduce gross sales, are estimated using historical experience.

Revenues from the sale of franchises are deferred until the Company fulfills its obligations under the franchise agreement and the franchised unit opens.
The franchise agreements provide for continuing royalty fees based on a percentage of gross receipts.

Management fee revenue related to
the representation and marketing of professional athletes is recognized when earned and is reflected net of its related costs of sales. The majority of the revenue generated from the representation and marketing of professional athletes relates to
services as an agent. In these arrangements, the Company is not the primary obligor in these transactions but rather only receives a net agent fee.

Revenues from industry trade shows are recognized at the time of the show when tickets are submitted for autographs or actual product purchases take place. In instances when the Company receives pre-payments for show autographs, the Company
records these amounts as deferred revenue until the products are signed and shipped/delivered to the customer; at which time the revenue is recognized.

The Company partnered in a corporate rebate program with a national consumer goods retailer. The Company issued rebate coupons for which it was pre-paid 50% of the coupon value. Certificates redeemed through December
31, 2008, were recognized as revenue in the current period. Additionally, a breakage model was projected for the programs eight month term, based upon redemption totals through March 15, 2009. Thus, the Company recognized four (4) months of
breakage revenue for the year-ended December 31, 2008.

The Company had approximately $673 in orders not yet shipped as of December 31, 2008.



20



---

##### Table of Contents

RESULTS OF OPERATIONS

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



|                          |  |                           |   |  |                                   |  |                                    
|------------------------- |  | ------------------------- | - |  | --------------------------------- |  | -----------------------------------
|                          |  | Year EndedDecember 312008 |   |  | Nine Months EndedDecember 31,2007 |  | Twelve Months EndedDecember 31,2007
|Net Sales                 |  | 1.00                      |   |  | 1.00                              |  | 1.00                               
|COGS                      |  | .54                       |   |  | 0.55                              |  | 0.57                               
|Gross Profit              |  | .46                       |   |  | 0.45                              |  | 0.43                               
|*Operating Expenses       |  | .46                       |   |  | 0.39                              |  | 0.38                               
|Operating Income/(Loss)   |  | (.02                      | ) |  | 0.05                              |  | 0.04                               
|Other (Expenses)/Income   |  | .00                       |   |  | 0.00                              |  | 0.00                               
|Income(Loss) Before Taxes |  | (.04                      | ) |  | 0.03                              |  | 0.03                               
|Net Income (Loss)         |  | (.02                      | ) |  | 0.01                              |  | 0.02                               



|* | Does not include depreciation.
|- | ------------------------------

|** | The above table may not foot due to rounding.
|-- | ---------------------------------------------



21



---

##### Table of Contents

RESULTS OF OPERATIONS-TWELVE MONTHS ENDED DECEMBER 31, 2008 AS COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31,
2007.

Revenues. Total revenues increased 10.5% to $82.0 million during the twelve months ended December 31, 2008
from $74.2 million during the same period ended December 31, 2007. This increase was attributed to an increase in retail revenues generated through on-line sales.

Manufacturing and distribution revenues were constant at $23 million for both twelve month periods ended December 31, 2008 and December 31, 2007. Net revenues reported, after elimination of intercompany
sales were also constant at $18 million for the same twelve month periods ended December 31, 2008 and December 31, 2007.

Retail
operation revenues increased 15.3% to $63.3 million during the twelve months ended December 31, 2008 from $54.9 million during the same period ended December 31, 2007. This increase was attributed to the continuing growth the Company is
experiencing with its on-line properties, specifically, their web syndication services. The Internet division contributed $46.9 million for the twelve months ended December 31, 2008 of the retail sales, up 19.9% from $39.2 million for the same
period last year. The Field of Dreams and FansEdge stores generated the $16.4 million balance of the twelve months ended December 31, 2008 retail revenues. During the same period in 2007, our Stores generated $16 million.

Costs and expenses.Total costs of sales for the twelve months ended December 31, 2008 was $44.7 million versus $41.8 million for the
same period in 2007, or a 6.9% increase. This increase was as a result of overall greater sales generated in the current period. As a percentage of total sales, costs were 54.5% and 56.3% for the twelve months ended December 31, 2008 and
December 2007, respectively.

Costs of sales of manufacturing/distribution products were $9.3 million for the twelve month period ended
December 31, 2008, versus $10.5 million for the same twelve month period in 2007, or an 11.4% decrease. This decrease was as a result of higher gross margins achieved with the reported revenues in the period from their venture with Samsung. As
a percentage of total manufacturing/distribution sales, costs were 40.2% and 46% for the twelve months ended December 31, 2008 and December 31, 2007, respectively. After elimination of intercompany sales, as a percentage of total
manufacturing/distribution sales, costs were 51.3% and 57.6%, respectively.

Cost of sales of retail products were $35.3 million for the
twelve month period ended December 31, 2008, versus $31.3 million for the same twelve month period in 2007, or a 12.7% increase. This increase is attributable to an overall increase in retail sales. As a percentage of total sales, costs were
55.7% and 57.0% for the twelve months ended December 31, 2008 and December 2007, respectively.

Operating expenses increased 28% to
$37.9 million for the twelve month period ended December 31, 2008, versus $29.6 million for the same period in 2007. The increase is a result of additional expenses associated with the opening, staffing and managing of (6) six FansEdge
stores in the period, higher staffing levels overall to support projected growth, and investments made to support our new Web Syndication model. As a percentage of sales, operating expenses were 46.2% and 40% for the twelve month periods ended
December 31, 2008 and December 31, 2007, respectively. The Companys fourth quarter revenues fell short of projections due to the economic recession.

Interest expense, net.Net interest expense was $926 for the twelve months ended December 31, 2008, versus $829 for the same period last year. This increase is a result of higher levels of borrowing
and a notes payable acquired during the current period associated with the Companys completed acquisition of StarStruck/ProTeam.

Provision for income taxes.The Company recognized an income tax benefit of $1.4 million for the twelve month period ended December 31, 2008, versus an income tax expense of $218 for the same period in 2007. Each quarter,
the Company evaluates whether the realizability of its net deferred tax assets is more likely than not. Should the Company determine that a valuation reserve is necessary, it would have a material impact on the Companys operations. The Company
has prepared an analysis based upon historical data and forecasted earnings projections to determine its ability to realize its net deferred tax asset. After consideration of all of the evidence, management has determined that a valuation allowance
of $187 is necessary for the twelve months ended December 31, 2008, and $187 for the twelve months ended December 31, 2007. The Company expects its continuing effective tax rate to approximate 40%.



22



---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity during the twelve months period ended December 31, 2008, are the cash flows generated from our operating subsidiaries; availability under our $21.5 million senior revolving credit
facility; availability under our $1.5 million acquisition line and available cash and cash equivalents. We are unaware of any trends that may have a negative impact on our ability to continue our operations.

The balance sheet as of December 31, 2008 reflects working capital of $8.2 million versus working capital of $17.5 million at December 31,
2007. At December 31, 2008, the Companys cash and cash equivalents were $498 thousand compared to $1.6 million at December 31, 2007. Please note that the Company is not negatively impacted by the cash balance of $498 thousand as it
has sufficient access to capital under its revolving credit facility with its senior lender. As a lead-in to the holiday season, the Company draws down on its line of credit to make inventory purchases so it is properly positioned to support the
increased sales activity experienced during the quarter ended December 31, 2008. The increased throughput results in significant pay-downs to the line balances; and the yearly cycle starts anew. Net accounts receivable at December 31, 2008
were $3.3 million compared to $4.4 million at December 31, 2007.

Use of Funds

Cash used in operations amounted to $5.9 million for the twelve months ended December 31, 2008, compared to $2.3million used in operations during the
same period of 2007. The increase is a result of paying off $3.6 million of trade payables (expand). Cash used in investing activities was $2.9 million for the twelve months ended December 31, 2008 & $2.0 million for the same period
ended December 31, 2007, with the majority of the cash used for the purchase of property and equipment, in both periods. Cash used in financing activities was approximately $7.6 million for the twelve months ended December 31, 2008, versus
$5.0 million for the same period in 2007.

Other Activity

On June 6, 2007, the Company entered into a three-year loan and security agreement with Comerica Bank. Comerica provided the company with $18 million in credit facilities; consisting of a $15 million revolver and
a $3 million acquisition line for the cash portion of future strategic acquisitions. Effective May 12, 2008, Comerica Bank increased the Companys revolver from $15 million to $21.5 million. The loan is collateralized by all of the assets
of the Company and its divisions. The interest rate for the revolver is floating at prime or 30 day Comerica costs of funds plus 2.00%; and prime or 30 day Comerica costs of funds plus 2.50%, for the funds drawn from the acquisition line. As of
December 31, 2008, the Companys outstanding loan balance was $9.3 million, yielding $12.2 million available on the revolver and $1.1 million, yielding $.4 million available on the acquisition line. Our line of credit facility requires us
to maintain specified financial ratios and satisfy certain financial covenants. As of December 31, 2008, the Company was not in compliance with its covenants and has sought the appropriate waivers from its senior lender. No assurances can be made
that the Company will ultimately receive the formal waivers, and if so, under acceptable terms and conditions.

Analysis

We are continuing to review our operational expenses and examining ways to reduce costs on a going-forward basis. With the slowing economy, we are
managing our capital conservatively and analyzing each of our commitments to identify areas where we can improve the profitability and or cash flow of our business. To date, we have been successful with restructuring many of our rent commitments,
player contracts and vendor pricing. Also, we have reduced our workforce and implemented management and employee salary reductions to lower our operating expenses. In addition, our stock has been, and continues to be, thinly traded despite our
listing on the American Stock Exchange, and our public and investor relations initiatives, therefore providing little liquidity for many of our shareholders. Accordingly, we believe we may have been unable to realize many of the principal benefits
of being a public company; all the while, continuing to incur many of the additional costs associated with being a public company, including, but not limited to, listing fees, SEC filings, enhanced legal and accounting fees and Sarbanes-Oxley. We
expect that these and other compliance costs of a public company will continue to increase. As a result of the foregoing, we expect to consider from time to time, strategic alternatives to maximize shareholder value, including terminating our status
as a public company, going private, and delisting our common stock from the American Stock Exchange.

Contractual Obligations (In
thousands)



|                            |  |       |        |                |        |         |       |         |       |                 |      
|--------------------------- |  | ----- | ------ | -------------- | ------ | ------- | ----- | ------- | ----- | --------------- | -----
|                            |  | Total |        | Less than 1-yr |        | 1-3 yrs |       | 3-5 yrs |       | More than 5-yrs
|Long-term debts:*           |  | $     | 15,687 |                | 13,794 |         | 600   |         | 1,293 |                 |     
|Capital (finance leases):   |  | $     | 75     |                | 23     |         | 45    |         | 7     |                 |     
|Operating leases:           |  | $     | 21,655 |                | 4,162  |         | 7,161 |         | 6,171 |                 | 4,161
|Purchase obligations        |  |       |       |                |       |         |      |         |      |                 |     
|Other long-term liabilities |  | $     | 2,446  |                | 1,410  |         | 1,006 |         | 30    |                 |      



|* | Does not include interest payable
|- | ---------------------------------

Summary

Management believes that future funds generated from our operations and available borrowing capacity will be sufficient to fund our
debt service requirements, working capital requirements and our budgeted capital expenditure requirements for the foreseeable future.



23



---

##### Table of Contents

Off-balance sheet arrangements

We have not created and are not a party to any special purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or
operating our business.

Except as described herein, our management is not aware of any known trends or demands, commitments, events or
uncertainties, as they relate to liquidity which could negatively affect our ability to operate and grow as planned, other than those previously disclosed.

NEW ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements presented in conformity
with GAAP. SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (the PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles.

In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 (Statement 161). Statement 161 requires enhanced disclosures about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133) and its
related interpretations and (iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. Statement 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Company will adopt Statement 161 in the first quarter of 2009.

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

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

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

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). This statement provides a single definition of fair value, a framework for measuring fair value, and expanded
disclosures concerning fair value. Previously,



24



---

##### Table of Contents

different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS
No. 157 applies to those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and pronouncements that require or permit measurement similar to fair
value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 did not have a material impact on its financial position, results of
operations, or cash flows.

In September 2006, the SEC Office of the Chief Accountant and Divisions of Corporation Finance and
Investment Management released SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB No. 108), which provides interpretive guidance
on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income
statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. This guidance is effective for fiscal years ending after
November 15, 2006. The application of SAB No. 108 did not have any impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Stockholders Equity for fiscal 2007.

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

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these
proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk.
|-------- | -----------------------------------------------------------

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

Interest Rate Risk. We have interest rate risk, in that borrowings under our credit facility with Comerica Bank are based on variable market
interest rates. As of December 31, 2008, we had $11.4 million of variable rate debt outstanding under our credit facility with Comerica Bank. Presently, the revolving credit line bears interest at the prime rate or 3.25%. A hypothetically 10%
increase in our credit facilitys weighted average interest rate of 3.58% per annum for the year ended December 31, 2008 would correspondingly decrease our pre-tax earnings and our operating cash flows by approximately $37.

Intangible Asset Risk. We have a substantial amount of intangible assets. We are required to perform goodwill impairment tests
whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. As a result of our periodic evaluations, we may determine that the intangible asset values need to be written down to their
fair values, which could result in material changes that could be adverse to our operating results and financial position. Although at December 31, 2008 we believed our intangible assets were recoverable, changes in the economy, the business in
which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. We continue to monitor those assumptions and their effect on the estimated recoverability of our intangible assets.

Foreign Currency Exchange Rate Risk.

None.

Commodity Price Risk.

None.



25



---

##### Table of Contents

|Item 8. | Financial Statements and Supplementary Data.
|------- | --------------------------------------------

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



|                                                                                                                                                              |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                              |  | Page
|                                                                                                                                                              | 
|AUDITED FINANCIAL STATEMENTS:                                                                                                                                 |  |     
|                                                                                                                                                              | 
|Report of Independent Registered Public Accounting Firm                                                                                                       |  | F-1 
|                                                                                                                                                              | 
|Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007                                                                                     |  | F-2 
|                                                                                                                                                              | 
|Consolidated Statements of Operations for the year ended December 31, 2008, year ended December 
31, 2007 and the nine months ended December 31, 2007         |  | F-3 
|                                                                                                                                                              | 
|Consolidated Statement of Stockholders Equity for the year ended December 31, 2008, year ended December 
31, 2007 and the nine months ended December 31, 2007 |  | F-4 
|                                                                                                                                                              | 
|Consolidated Statement of Cash Flows for the year ended December 31, 2008, the year ended December 
31, 2007 and the nine months ended December 31, 2007      |  | F-5 
|                                                                                                                                                              | 
|Notes to Consolidated Audited Financial Statements                                                                                                            |  | F-6 
|                                                                                                                                                              | 
|Quarterly Financial Information                                                                                                                               |  | F-25



26



---

##### Table of Contents

|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

None.



|Item 9A. | Controls and Procedures.
|-------- | ------------------------

Conclusion Regarding the
Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in
our periodic SEC filings as of December 31, 2008.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, as amended, (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal accounting and financial officer) as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Report of Management on Internal Controls Over Financial Reporting.

Management conducted an
assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2008, utilizing the framework established in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Companys internal control over financial reporting as of December 31, 2008, is effective.

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

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

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



|Item 9B. | Other Information.
|-------- | ------------------

None



27



---

##### Table of Contents

Part III



|Item 10. | Directors, Executive Officers and Corporate Governance.
|-------- | -------------------------------------------------------

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.



|                        |  |     |  |                                                 |  |                                     
|----------------------- |  | --- |  | ----------------------------------------------- |  | ------------------------------------
|Name                    |  | Age |  | Serving as Director/Officerof the Company Since |  | Position Held Withthe Company       
|Sam D. Battistone       |  | 69  |  | 1982                                            |  | Chairman/Director                   
|Ross Tannenbaum         |  | 46  |  | 1998                                            |  | President/CEO/Director              
|David M. Greene         |  | 46  |  | 2001                                            |  | Senior V. P. /Corporate Secretary   
|Dale Larsson            |  | 64  |  | 1982                                            |  | Director                            
|Kevin Bates             |  | 41  |  | 2006                                            |  | Divisional President - Retail       
|Mitch Adelstein         |  | 43  |  | 2006                                            |  | Divisional President - Manufacturing
|Dorothy Sillano         |  | 52  |  | 2006                                            |  | V.P. / Chief Financial Officer      
|David Malina            |  | 64  |  | 2006                                            |  | Director                            
|Steven Rubin            |  | 48  |  | 2006                                            |  | Director                            
|Manoharan Sivashanmugam |  | 38  |  | 2007                                            |  | Chief Information Officer           

Biographical Information.

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

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



28



---

##### Table of Contents

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

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

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

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

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



29



---

##### Table of Contents

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

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

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

Meetings of Directors

During the twelve months ended December 31, 2008, the Board of Directors acted by unanimous consent on one occasion and had two meetings.

Compensation of Directors.

In addition to
reimbursing outside Directors for their out-of-pocket expenses associated with attending Board and or Committee Meetings, the following compensation was paid to our outside Board and Committee Members in 2008:

Sam Battistone  $15,000

Dale Larsson
 $20,000

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

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

Code of Ethics.

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



30



---

##### Table of Contents

Independence of the Board.

The Board of Directors has determined that the following four individuals of its five member board are independent as defined under the federal securities laws, and the rules of the NYSE AMEX Equities Exchange:
Mr. Battistone, Mr. Larsson. Mr. Malina and Mr. Rubin.

Committees of the Board of Directors.

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

Audit Committee

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

Compensation Committee

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

Nominating and Corporate Governance Committee

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

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 twelve months ended December 31, 2008 and amendments thereto furnished to the Company with respect to the twelve months ended
December 31, 2007, 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 year ended December 31, 2008.



|Item 11. | Executive Compensation.
|-------- | -----------------------

Compensation Discussion and
Analysis

Overview and Philosophy of Compensation

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



We believe that the quality, skills, and dedication of our executive officers are critical factors affecting our long-term value and success. Thus, one
of our primary executive compensation goals is to attract, motivate, and retain qualified executive officers. We seek to accomplish this goal by rewarding past performance, providing an incentive for future performance, and aligning our executive
officers long-term interests with those of our shareholders. Our compensation program is specifically designed to reward our executive officers for individual performance, years of experience, contributions to our financial success, and
creation of



31



---

##### Table of Contents

shareholder value. Our compensation philosophy is to provide overall compensation levels that (i) attract and retain talented executives and motivate
those executives to achieve superior results, and (ii) align executives interests with our corporate strategies, our business objectives, and the long-term interests of our shareholders, and (iii) enhance executives incentives
to increase our stock price and maximize shareholder value. In addition we strive to ensure that our compensation, particularly salary compensation, is consistent with our constant focus on controlling costs. Our primary strategy for building senior
management depth is to develop personnel from within our company to ensure that our executive team as a whole remains dedicated to our customs, practices, and culture, recognizing, however, that we may gain talent and new perspectives from external
sources.

Elements of Compensation

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



| |  |  | Base salary;
| | - |  | ------------



| |  |  | performance based annual cash bonuses;
| | - |  | --------------------------------------



| |  |  | long-term equity incentives in the form of stock options and other stock-based awards and grants;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | specified perquisites; and
| | - |  | --------------------------



| |  |  | employee benefits available generally to all of our employees.
| | - |  | --------------------------------------------------------------

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

The following is a discussion of each element of our compensation program, including (i) why we choose to pay each element, (ii) how we
determine the specific amount to pay for each element, and (iii) how each element, and our decisions regarding each element, fit into our overall compensation objectives and affect decisions regarding other elements. We also discuss the
specific decisions we made with respect to the compensation of our Chief Executive Officer, and the remaining executive officers for the twelve months ended December 31, 2008 (collectively, the Named Executive Officers or
NEOs).

Base Salary

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



32



---

##### Table of Contents

Base Salary of Our Chief Executive Officer

The Compensation Committee reviewed the compensation of numerous publicly traded companies similarly situated to ours, and based upon this review set
Ross Tannenbaums, our President & CEO, base salary at $350,000 effective April 1, 2007, and $370,000 effective April 1, 2008. However, Mr. Tannenbaums base salary has been reduced to $333,000 for 2009 to
coincide with a company-wide, management and employee salary reduction effort to lower operating expenses for the year.

Base Salary of Our Other Named
Executive Officers

The Compensation Committee approved the base salary of David Greene, our Senior Vice-President of Finance and
Corporate Secretary of $165,000 effective April 1, 2007, and $175,000 effective April 1, 2008. They approved the base salary of Dorothy Sillano, our V.P. and Chief Financial Officer of $145,000, effective January 1, 2008 in continued
recognition of their corporate initiative results and level of responsibilities as our Senior Vice President and Corporate Secretary and V.P. and CFO, respectively. However, Mr. Greenes and Ms. Sillanos salaries have been
reduced to $157,500 and $130,500, respectively to coincide with a company-wide, management and employee salary reduction effort to lower operating expenses for the year.

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



|                                     |  |            |         |           |   |           |  |   |        
|------------------------------------ |  | ---------- | ------- | --------- | - | --------- |  | - | -------
|Named Executive Officer and Position |  | FY 07 Base |         | 2007 Base |   | 2008 Base
|Ross Tannenbaum, President and CEO   |  | $          | 325,000 |           | $ | 350,000   |  | $ | 370,000
|David Greene, Senior V.P.            |  | $          | 140,000 |           | $ | 165,000   |  | $ | 175,000
|Dorothy Sillano, V.P. and CFO        |  |            |         |           |   |           |  | $ | 145,000

Performance-Based Annual Cash Bonuses

In April, 2006 our Board of Directors approved our Executive Cash Bonus Plan (Cash Bonus Plan). We use our Cash Bonus Plan to provide annual
incentives to executive officers and members of our senior management team in a manner designed to (i) link increases in compensation to increases in our revenues and income in order to reinforce our focus on creating shareholder value,
(ii) reinforce our desire to control costs, and (iii) link a significant portion of our executives compensation to the achievement of such goals. Cash bonuses are designed to reward officers for their contributions to our financial
and operating results. The bonus remains discretionary, and may be adjusted at the sole discretion of the Board of Directors.

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

For the year ended December 31, 2008, there were no bonuses earned.



33



---

##### Table of Contents

Long-Term Incentives

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

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

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

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

Other
Compensation

We provide our Named Executive Officers with certain other benefits that we believe are reasonable, competitive, and
consistent with our overall executive compensation program. We believe that these benefits generally allow our executives to work more efficiently. The costs of these benefits generally constitute only a small percentage of each executives
total compensation. In setting the amount of these benefits, the Compensation Committee considers (i) each executives position and scope of responsibilities, and (ii) all other elements comprising the executives compensation.
For the twelve months ended December 31, 2008, we provided an automotive allowance to certain of our NEOs. We report these costs as personal benefits for the NEOs in the Non-equity Deferred Compensation and All
Other Compensation columns in the Summary Compensation Table below.

Employee Benefits

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

Employment Agreements

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

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



34



---

##### Table of Contents

2008 Compensation Tables.

Summary Compensation Table as of December 31, 2008



|                                   |  |      |  |           |  |          |  |                |  |                 |  |                          |  |         
|---------------------------------- |  | ---- |  | --------- |  | -------- |  | -------------- |  | --------------- |  | ------------------------ |  | --------
|Name and Principal Position        |  | Year |  | Salary($) |  | Bonus($) |  | StockAwards($) |  | OptionAwards($) |  | All OtherCompensation($) |  | Total($)
|Ross Tannenbaum PEO                |  | 2008 |  | 370,000   |  |          |  |                |  |                 |  | 9,600                    |  | 379,600 
|                                   |  |      |  |           |  |          | 
|David M. Greene Senior V.P Finance |  | 2008 |  | 175,000   |  |          |  |                |  |                 |  | 7,200                    |  | 182,200 
|                                   |  |      |  |           |  |          | 
|Kevin Bates Division President     |  | 2008 |  | 360,000   |  |          |  |                |  |                 |  |                          |  | 360,000 
|                                   |  |      |  |           |  |          | 
|Mitch Adelstein Division President |  | 2008 |  | 216,000   |  |          |  |                |  |                 |  | 7,200                    |  | 223,200 
|                                   |  |      |  |           |  |          | 
|Dorothy Sillano V.P, PFO           |  | 2008 |  | 145,000   |  |          |  |                |  |                 |  |                          |  | 145,000 
|                                   |  |      |  |           |  |          | 
|Mano Sivashanmugam CIO             |  | 2008 |  | 180,000   |  |          |  |                |  |                 |  |                          |  | 180,000 

Outstanding Equity Awards At December 31, 2008 Table



|                   |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|------------------ |  | -------------------------------------------------- |  | -------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ---------------------- |  | -------------------- |  | ----------------------------------------------------- |  | ---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|                   |  | Option Awards                                      |  | Stock Awards                                      
|                   |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) |  | EquityIncentivePlanAwards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions(#) |  | OptionExercisePrice($) |  | OptionExpirationDate |  | Number ofShares orUnits ofStock ThatHave NotVested(#) |  | MarketValue ofShares orUnits ofStock ThatHave NotVested($) |  | EquityIncentivePlanAwards:Number ofUnearnedShares,Units orOther rightsThat HaveNot Vested(#) |  | EquityIncentivePlanAwards:Market orPayoutValue ofUnearnedShares,Units orOther rightsThat HaveNot Vested($)
|Name               |  | Exercisable                                        |  | Unexercisable                                      |  |                                                                                      |  |                        |  |                      | 
|Ross Tannenbaum    |  | 28,283                                             |  |                                                    |  |                                                                                      |  | 1.50                   |  | 8/09                 |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|PEO                |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|David Greene       |  | 4,128                                              |  |                                                    |  |                                                                                      |  | 1.50                   |  | 8/09                 |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Senior V.P.        |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Kevin Bates        |  | 166,667                                            |  |                                                    |  |                                                                                      |  | .60                    |  | 2/11                 |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Division President |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Mitch Adelstein    |  | 7,942                                              |  |                                                    |  |                                                                                      |  | 1.50                   |  | 8/09                 |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Division President |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|Mano Sivashanmugam |  |                                                    |  |                                                    |  | 16,667                                                                               |  | 2.75                   |  | 6/11                 |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           
|CIO                |  |                                                    |  |                                                    |  |                                                                                      |  |                        |  |                      |  |                                                       |  |                                                            |  |                                                                                              |  |                                                                                                           

DIRECTOR COMPENSATION



|               |  |      |  |                               |  |                |  |                 |  |         
|-------------- |  | ---- |  | ----------------------------- |  | -------------- |  | --------------- |  | --------
|Name           |  | Year |  | Fees Earned or Paidin Cash($) |  | StockAwards($) |  | OptionAwards($) |  | Total($)
|Sam Battistone |  | 2008 |  | 15,000                        |  |                |  |                 |  | 15,000  
|Dale Larsson   |  | 2008 |  | 20,000                        |  |                |  |                 |  | 20,000  
|Steven Rubin   |  | 2008 |  | 10,000                        |  |                |  | 9,766           |  | 19,766  
|David Malina   |  | 2008 |  | 10,000                        |  |                |  | 9,766           |  | 19,766  



35



---

##### Table of Contents

COMPENSATION COMMITTEE REPORT

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

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

The Compensation Committee  Dale Larsson, David Malina



36



---

##### Table of Contents

|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- | -----------------------------------------------------------------------------------------------

Principal Shareholders.

The following table sets
forth as of March 1, 2009 the number of the Companys common stock beneficially owned by persons who own five percent or more of the Companys voting stock, by each director, by each executive officer, and by all executive officers
and directors as a group. The table presented below includes shares issued and outstanding and options exercisable within 60 days.



|                                                                   |  |                       |        |  |                 |  
|------------------------------------------------------------------ |  | --------------------- | ------ |  | --------------- | -
|Name and Address of Beneficial Owner(1)                            |  | Number ofShares Owned |        |  | Percentof Class |  
|Sam D. Battistone                                                  |  | 1,902,839             | (2)(3) |  | 5.0             | %
|                                                                   |  |                      
|Ross Tannenbaum                                                    |  | 7,673,823             | (4)    |  | 20.4            | %
|                                                                   |  |                      
|Mano Sivashanmugam                                                 |  | 21,667                | (5)    |  | *               |  
|                                                                   |  |                      
|Dorothy Sillano                                                    |  | 750                   |        |  | *               |  
|                                                                   |  |                      
|Dale Larsson 1776 North State Street, ste #160 Orem, UT 84057      |  | 94,809                |        |  | *               |  
|                                                                   |  |                      
|Mitch Adelstein                                                    |  | 352,512               | (6)    |  | *               |  
|                                                                   |  |                      
|Kevin Bates                                                        |  | 188,184               | (7)    |  | *               |  
|                                                                   |  |                      
|David M. Greene                                                    |  | 400,000               | (8)    |  | 1.0             | %
|                                                                   |  |                      
|Steven Rubin 4400 Biscayne Blvd Miami, FL 33137                    |  | 52,051                | (9)    |  | *               |  
|                                                                   |  |                      
|David Malina 4400 Biscayne Blvd Miami, FL 33137                    |  | 20,000                | (10)   |  | *               |  
|                                                                   |  |                      
|The Frost Group, LLC 4400 Biscayne Blvd, 15thFloor Miami, FL 33137 |  | 5,373,569             | (11)   |  | 14.3            | %
|                                                                   |  |                      
|All Executive Officers and Directors as a group (10 persons)(12)   |  | 10,483,301            |        |  | 27.9            | %

See footnotes below.



|* | Less than 1.0%
|- | --------------

|(1) | Unless otherwise indicated, the address for each person is 2 South University Drive, suite 325 Plantation, Florida
33324.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes 597,703 shares owned by the following family members of which Mr. Battistone disclaims beneficial
ownership:
|--- | ---------------------------------------------------------------------------------------------------------------------



|                      |  |                       
|--------------------- |  | ----------------------
|Name                  |  | Number of Shares Owned
|Kelly Battistone      |  | 90,702                
|Dann Battistone       |  | 106,157               
|Brian Battistone      |  | 63,652                
|Mark Battistone       |  | 75,797                
|Cindy Battistone Hill |  | 81,700                
|Signature, Inc.       |  | 176,695               



|(3) | Excludes 11,725 shares which are the subject of stock options.
|--- | --------------------------------------------------------------

|(4) | Excludes 28,283 shares which are the subject of stock options.
|--- | --------------------------------------------------------------

|(5) | Includes 16,667 shares which are the subject of stock options.
|--- | --------------------------------------------------------------

|(6) | Excludes 7,942 shares which are the subject of stock options.
|--- | -------------------------------------------------------------

|(7) | Includes 166,667 shares which are the subject of stock options.
|--- | ---------------------------------------------------------------

|(8) | Excludes 4,128 shares which are the subject of stock options.
|--- | -------------------------------------------------------------

|(9) | Mr. Rubin is a member of The Frost Group, LLC. He disclaims beneficial ownership of the securities held by The
Frost Group, LLC except to the extent of his pecuniary interest therein. Also, includes 20,000 shares which are the subject of stock options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 20,000 shares which are the subject of stock options.
|---- | --------------------------------------------------------------

|(11) | Includes 245,364 shares owned by Frost Gamma.
|---- | ---------------------------------------------

|(12) | The directors and officers have sole voting and investment power as to the shares beneficially owned by them.
|---- | -------------------------------------------------------------------------------------------------------------



37



---

##### Table of Contents

|Item 13. | Certain Relationships and Related Transactions, and Director Independence.
|-------- | --------------------------------------------------------------------------

None.

Director Independence

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



|Item 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------

The
following table shows the fees that the Company paid or accrued for the audit and other services provided by Friedman, Cohen, Taubman & Company for the year ended December 31, 2008 and the nine months ended December 31, 2007.



|                   |  |                       |        |                         |   |       
|------------------ |  | --------------------- | ------ | ----------------------- | - | ------
|                   |  | Year Ended12/31/ 2008 |        | Nine Mths Ended12/31/07
|Audit Fees         |  | $                     | 44,836 |                         | $ | 86,135
|Audit-Related Fees |  |                       |       |                         |   |      
|Tax Fees           |  |                       |       |                         |   |      
|All Other Fees     |  |                       |       |                         |   |      
|                   |  |                       |        |                         |   |       
|Total              |  | $                     | 44,836 |                         | $ | 86,135

Audit FeesThis category includes the audit of the Companys annual financial
statements, review of financial statements included in the Companys Form 10-Q Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements for those years.

Audit-Related FeesN/A

Tax
FeesN/A

OverviewThe Companys Audit Committee, reviews, and in its sole discretion pre-approves, our
independent auditors annual engagement letter including proposed fees and all audit and non-audit services provided by the independent auditors. Accordingly, all services described under Audit Fees, Audit-Related Fees,
and Tax Fees were pre-approved by our Companys Audit Committee. The Audit Committee may not engage the independent auditors to perform the non-audit services proscribed by law or regulation. The Companys Audit Committee may
delegate pre-approval authority to a member of the Board of Directors, and authority delegated in such manner must be reported at the next scheduled meeting of the Board of Directors.



38



---

##### Table of Contents

Part IV



|Item 15. | Exhibits, Financial Statement Schedules.
|-------- | ----------------------------------------

(a) Financial Statements.



Financial Statements Included in this Report

PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007

F-2Consolidated Statements of Operations for the year ended December 31, 2008, year ended December 31, 2007 and the nine months ended
December 31, 2007

F-3Consolidated Statement of Stockholders Equity for the year ended December 31, 2008, year ended December 31, 2007 and the nine months
ended December 31, 2007

F-4Consolidated Statement of Cash Flows for the year ended December 31, 2008, the year ended December 31, 2007 and the nine months
ended December 31, 2007

F-5Notes to Consolidated Audited Financial Statements

F-6Quarterly Financial Information

F-25


(b) Exhibits



Exhibit No.3.1

Restated Articles of Incorporation, dated June 8, 1989 (1)3.2

Articles of Amendment, dated March 28, 1996 (1)3.3

Articles of Amendment, dated January 14, 1999 (1)3.4

Articles of Amendment to the Revised Articles of Incorporation, dated April 5, 2005 (2)3.5

Certificate of Amendment to the Certificate of Incorporation, dated January 25, 2007 (3)3.6

Bylaws (1)4

Dreams, Inc. Equity Incentive Plan (3)21

Subsidiaries of the Company31.1

Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of
the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or
by the Security Exchange Act of 1934, as amended.)32.2

Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of
the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the
Security Exchange Act of 1934, as amended.)




|(1) | Filed with the Companys Form 10-SB on September 7, 1999, and incorporated by this reference.
|--- | ---------------------------------------------------------------------------------------------

|(2) | Filed with the Companys Form SB-2/A on April 5, 2005, and incorporated by this reference.
|--- | ------------------------------------------------------------------------------------------

|(3) | Filed as an exhibit with the Companys Form 8-k on January 29, 2007, and incorporated herein by this reference.
|--- | ---------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



DREAMS, INC., a Utah corporationBy:

/s/  Ross TannenbaumRoss Tannenbaum President, Chief Executive Officer  Dated: April 15, 2009


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



By:

/s/  Ross TannenbaumRoss Tannenbaum, Chief Executive Officer and a Director (principal executive officer )Dated: April 15, 2009




By:

/s/  Dorothy SillanoDorothy Sillano, V.P. and Chief Financial Officer (principal financial officer)Dated: April 15, 2009




By:

/s/  Sam BattistoneSam Battistone, DirectorDated: April 15, 2009




By:

/s/  Dale E. LarssonDale E. Larsson, DirectorDated: April 15, 2009




By:

/s/  David MalinaDavid Malina, DirectorDated: April 15, 2009




By:

/s/  Steven RubinSteven Rubin, DirectorDated: April 15, 2009




40



---

##### Table of Contents

Friedman, Cohen, Taubman and Company, LLC Letterhead

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Dreams, Inc. and Subsidiaries:

We have audited the
accompanying consolidated balance sheets of Dreams, Inc. and Subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders equity, and cash flows for the year
ended December 31, 2008 and the nine months ended December 31, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
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, such consolidated financial statements present fairly, in all material respects, the financial position of Dreams, Inc. and Subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for the year ended December 31, 2008 and the nine months ended December 31, 2007, in conformity with accounting principles generally accepted in the
United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 18 to the consolidated financial statements, the Company incurred a netloss in 2008, is in violation of its debt covenants, and is experiencing difficulty generating sufficient cash flows to sustain its operations.
These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to this matter are also described in Note 19. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 1 to the consolidated financial statements,
effective September 12, 2007 the Company changed its fiscal year to begin on January 1 and end on December 31.

/s/ Friedman, Cohen, Taubman
and Company

Friedman, Cohen, Taubman and Company, LLC

April
14, 2009



F-1



---

##### Table of Contents

Dreams, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in Thousands, except share
amounts)



|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                                 |  | December 31,2008 |         |   | December 31,2007 |  
|ASSETS                                                                                                                                                                                                                           |  |                  |         |   |                  |   |        |  
|Current assets:                                                                                                                                                                                                                  |  |                  |         |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                        |  | $                | 498     |   |                  | $ | 1,601  |  
|Accounts receivable, net                                                                                                                                                                                                         |  |                  | 3,313   |   |                  |   | 4,395  |  
|Inventories                                                                                                                                                                                                                      |  |                  | 31,121  |   |                  |   | 24,319 |  
|Prepaid expenses and deposits                                                                                                                                                                                                    |  |                  | 1,863   |   |                  |   | 1,999  |  
|Deferred tax asset                                                                                                                                                                                                               |  |                  | 636     |   |                  |   | 645    |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total current assets                                                                                                                                                                                                             |  |                  | 37,431  |   |                  |   | 32,959 |  
|Property and equipment, net                                                                                                                                                                                                      |  |                  | 5,476   |   |                  |   | 3,891  |  
|Deferred loan costs                                                                                                                                                                                                              |  |                  | 44      |   |                  |   | 51     |  
|Goodwill, net                                                                                                                                                                                                                    |  |                  | 8,715   |   |                  |   | 8,727  |  
|Other intangible assets, net                                                                                                                                                                                                     |  |                  | 5,472   |   |                  |   | 5,465  |  
|Deferred tax asset                                                                                                                                                                                                               |  |                  | 1,776   |   |                  |   | 284    |  
|Other assets                                                                                                                                                                                                                     |  |                  | 9       |   |                  |   | 9      |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total Assets                                                                                                                                                                                                                     |  | $                | 58,923  |   |                  | $ | 51,386 |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                             |  |                  |         |   |                  |   |        |  
|Current liabilities:                                                                                                                                                                                                             |  |                  |         |   |                  |   |        |  
|Accounts payable                                                                                                                                                                                                                 |  | $                | 7,522   |   |                  | $ | 11,113 |  
|Accrued liabilities                                                                                                                                                                                                              |  |                  | 6,060   |   |                  |   | 2,400  |  
|Current portion of long-term debt                                                                                                                                                                                                |  |                  | 1,255   |   |                  |   | 712    |  
|Borrowings against line of credit                                                                                                                                                                                                |  |                  | 12,556  |   |                  |   |       |  
|Deferred credits                                                                                                                                                                                                                 |  |                  | 1,863   |   |                  |   | 1,186  |  
|Deferred tax liability                                                                                                                                                                                                           |  |                  |        |   |                  |   |       |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total current liabilities                                                                                                                                                                                                        |  |                  | 29,256  |   |                  |   | 15,411 |  
|Long-term debt, less current portion                                                                                                                                                                                             |  |                  | 1,876   |   |                  |   | 2,199  |  
|Capital lease obligation                                                                                                                                                                                                         |  |                  | 75      |   |                  |   | 93     |  
|Long-term deferred tax liability                                                                                                                                                                                                 |  |                  | 2,500   |   |                  |   | 1,967  |  
|Borrowings against line of credit                                                                                                                                                                                                |  |                  |        |   |                  |   | 4,952  |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total Liabilities                                                                                                                                                                                                                |  |                  | 33,707  |   |                  |   | 24,622 |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Minority Interest in subsidiary                                                                                                                                                                                                  |  |                  | 4       |   |                  |   | 4      |  
|Stockholders equity:                                                                                                                                                                                                            |  |                  |         |   |                  |   |        |  
|Preferred stock authorized 10,000,000 shares; issued and outstanding 0 shares as of December 31, 2008 and December 31,
2007.                                                                                                     |  |                  |        |   |                  |   |       |  
|Common stock and additional paid-in capital, no par value; authorized 100,000,000, and 100,000,000 shares; issued and outstanding 37,566,614
and 37,528,214 shares as of December 31, 2008, and December 31, 2007, respectively. |  |                  | 35,339  |   |                  |   | 35,213 |  
|Treasury stock 38,400 issued and 0 shares as of December 31, 2008 and December 31, 2007.                                                                                                                                         |  |                  | (46     | ) |                  |   | (     | )
|Accumulated deficit                                                                                                                                                                                                              |  |                  | (10,081 | ) |                  |   | (8,453 | )
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total stockholders equity                                                                                                                                                                                                       |  |                  | 25,212  |   |                  |   | 26,760 |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  
|Total liabilities and stockholders equity                                                                                                                                                                                       |  | $                | 58,923  |   |                  | $ | 51,386 |  
|                                                                                                                                                                                                                                 |  |                  |         |   |                  |   |        |  



F-2



---

##### Table of Contents

Dreams, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Year Ended
December 31, 2008, The Year Ended December 31, 2007 and the Nine Months Ended December 31, 2007

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



|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|----------------------------------------- |  | -------------------------- | ---------- | - | ------------------------------------- | - | ---------- | ------------------------------ |  | - | ---------- | -
|                                          |  | Year endedDecember 31,2008 |            |   | (unaudited)Year endedDecember 31,2007 |   |            | 9 months endedDecember 31,2007 | 
|Revenues:                                 |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Manufacturing/Distribution                |  | $                          | 18,116     |   |                                       | $ | 18,191     |                                |  | $ | 13,554     |  
|Retail                                    |  |                            | 63,320     |   |                                       |   | 54,971     |                                |  |   | 45,068     |  
|Other                                     |  |                            | 546        |   |                                       |   | 1,107      |                                |  |   | 1,080      |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Total revenues                            |  |                            | 81,982     |   |                                       |   | 74,269     |                                |  |   | 59,702     |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Expenses:                                 |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Cost of salesmanufacturing/distribution  |  |                            | 9,348      |   |                                       |   | 10,518     |                                |  |   | 7,611      |  
|Cost of salesretail                      |  |                            | 35,368     |   |                                       |   | 31,317     |                                |  |   | 25,524     |  
|Operating expenses                        |  |                            | 37,925     |   |                                       |   | 29,595     |                                |  |   | 23,406     |  
|Depreciation and amortization             |  |                            | 1,347      |   |                                       |   | 1.121      |                                |  |   | 928        |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Total expenses                            |  |                            | 83,988     |   |                                       |   | 72.551     |                                |  |   | 57,469     |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Income (loss) from operations             |  |                            | (2,006     | ) |                                       |   | 1,718      |                                |  |   | 2,233      |  
|Interest (expense), net                   |  |                            | (926       | ) |                                       |   | (829       | )                              |  |   | (708       | )
|Other (expense) / income                  |  |                            | (55        | ) |                                       |   | (152       | )                              |  |   | (110       | )
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Income (loss) before income taxes         |  |                            | (2,987     | ) |                                       |   | 737        |                                |  |   | 1,415      |  
|Income tax benefit/(expense)              |  |                            | 1,373      |   |                                       |   | (218       | )                              |  |   | (623       | )
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Net income (loss)                         |  | $                          | (1,614     | ) |                                       | $ | 519        |                                |  | $ | 792        |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Basic and diluted income (loss) per share |  | $                          | (0.04      | ) |                                       | $ | 0.02       |                                |  | $ | 0.02       |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  
|Weighted average shares outstanding       |  |                            | 37,545,576 |   |                                       |   | 37,328,962 |                                |  |   | 37,328,962 |  
|                                          |  |                            |            |   |                                       |   |            |                                |  |   |            |  

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



F-3



---

##### Table of Contents

Dreams, Inc. and Subsidiaries

Consolidated Statements of Stockholders Equity

For the Year
Ended December 31, 2008, The Year Ended December 31, 2007 and the Nine Months Ended December 31, 2007 (Dollars in Thousands, except share and earnings per share amounts)



|                                      |  |                    |   |  |                                         |        |   |               |   |     |                    |  |   |                          |   |  |   |        |  
|------------------------------------- |  | ------------------ | - |  | --------------------------------------- | ------ | - | ------------- | - | --- | ------------------ |  | - | ------------------------ | - |  | - | ------ | -
|                                      |  | Shares Outstanding |   |  | Common Stock& AdditionalPaid-In-Capital |        |   | TreasuryStock |   |     | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|Balance as of March 31,2006           |  | 29,683,787         |   |  | $                                       | 26,286 |   |               |   |     |                    |  | $ | (10,225                  | ) |  | $ | 16,061 |  
|                                      |  |                    |   |  |                                         |        |   |               |   |     |                    |  |   |                          |   |  |   |        |  
|Share Based Compensation Expense      |  |                   |   |  |                                         | 32     |   |               |   |    |                    |  |   |                         |   |  |   | 32     |  
|Stock Options Converted/shares Issued |  | 272,857            |   |  |                                         | 180    |   |               |   |    |                    |  |   |                         |   |  |   | 180    |  
|Settlement of debt                    |  | 109,763            |   |  |                                         | 312    |   |               |   |    |                    |  |   |                         |   |  |   | 312    |  
|Shares Issued-Investor                |  | 5,128,205          |   |  |                                         | 1,992  |   |               |   |    |                    |  |   |                         |   |  |   | 1,992  |  
|Shares Issued-Acquisition (1)         |  | 1,666,667          |   |  |                                         | 4,500  |   |               |   |    |                    |  |   |                         |   |  |   | 4,500  |  
|Shares Held back-acquisition (1)      |  | (166,667           | ) |  |                                         | (400   | ) |               |   |    |                    |  |   |                         |   |  |   | (400   | )
|Shares Issued-Acquisition (2)         |  | 258,333            |   |  |                                         | 734    |   |               |   |    |                    |  |   |                         |   |  |   | 734    |  
|Net Income                            |  |                    |   |  |                                         | 0      |   |               |   |    |                    |  |   | 980                      |   |  |   | 980    |  
|                                      |  |                    |   |  |                                         |        |   |               |   |     |                    |  |   |                          |   |  |   |        |  
|Balance as of March 31, 2007          |  | 36,952,945         |   |  | $                                       | 33,636 |   |               |   |    |                    |  | $ | (9,245                   | ) |  | $ | 24,391 |  
|Share Based Compensation Expense      |  |                   |   |  |                                         | 76     |   |               |   |    |                    |  |   |                         |   |  |   | 76     |  
|Stock Options Converted/shares Issued |  | 47,967             |   |  |                                         |       |   |               |   |    |                    |  |   |                         |   |  |   |       |  
|Reinstatement of debt                 |  | (109,763           | ) |  |                                         | (312   | ) |               |   |    |                    |  |   |                         |   |  |   | (312   | )
|Shares Issued-Acquisition (3)         |  | 500,000            |   |  |                                         | 1,075  |   |               |   |    |                    |  |   |                         |   |  |   | 1,075  |  
|Shares Issued-Acquisition (1)         |  | 129,246            |   |  |                                         | 310    |   |               |   |    |                    |  |   |                         |   |  |   | 310    |  
|Shares Held back-acquisition (3)      |  | 182,218            |   |  |                                         | 428    |   |               |   |    |                    |  |   |                         |   |  |   | 428    |  
|Net Income                            |  |                   |   |  |                                         |       |   |               |   |    |                    |  |   | 792                      |   |  |   | 792    |  
|                                      |  |                    |   |  |                                         |        |   |               |   |     |                    |  |   |                          |   |  |   |        |  
|Balance as of December 31, 2007       |  | 37,702,523         |   |  | $                                       | 35,214 |   |               |   |    |                    |  | $ | (8,468                   | ) |  | $ | 26,746 |  
|Share Based Compensation Expense      |  |                   |   |  |                                         | 47     |   |               |   |    |                    |  |   |                         |   |  |   | 47     |  
|Stock Options Converted/shares Issued |  | 2,499              |   |  |                                         | 2      |   |               |   |    |                    |  |   |                         |   |  |   | 2      |  
|Treasury stock                        |  | (38,400            | ) |  |                                         |       |   |               |   | (46 | )                  |  |   |                         |   |  |   | (46    | )
|Pro Stars Acquisition                 |  | (139,408           | ) |  |                                         | 39     |   |               |   |    |                    |  |   |                         |   |  |   | 39     |  
|BoD Stock Option Expense              |  |                   |   |  |                                         | 20     |   |               |   |    |                    |  |   |                         |   |  |   | 20     |  
|Acquisition Stock Option Expense      |  |                   |   |  |                                         | 18     |   |               |   |    |                    |  |   |                         |   |  |   | 18     |  
|Net Income/(loss)                     |  |                   |   |  |                                         |       |   |               |   |    |                    |  |   | (1,614                   | ) |  |   | (1,614 | )
|                                      |  |                    |   |  |                                         |        |   |               |   |     |                    |  |   |                          |   |  |   |        |  
|Balance as of December 31, 2008       |  | 37,527,214         |   |  | $                                       | 35,337 |   |               | $ | (46 | )                  |  | $ | (10,081                  | ) |  | $ | 25,212 |  



|(1) | Acquisition of Pro Stars
|--- | ------------------------

|(2) | Acquisition of Unique Images
|--- | ----------------------------

|(3) | Acquisition of Schwartz Sports
|--- | ------------------------------

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



F-4



---

##### Table of Contents

Dreams, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Year Ended
December 31, 2008, and the Year Ended December 31, 2007, and the nine months ended December 31, 2007.

Dollars in Thousands



|                                                                                                   |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -------------------------------- |  | - | ------- | -
|                                                                                                   |  |                            |         |   | (unaudited)                |   |         |                                  | 
|                                                                                                   |  | Year EndedDecember 31,2008 |         |   | Year EndedDecember 31,2007 |   |         | Nine MonthsEndedDecember 31,2007 | 
|Cash Flows from Operating Activities                                                               |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Net (Loss) Income                                                                                  |  | $                          | (1,614  | ) |                            | $ | 346     |                                  |  | $ | 792     |  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                            |         |   |                            |   |       |                                  |  |   |         |  
|Depreciation                                                                                       |  |                            | 1,288   |   |                            |   | 1,101   |                                  |  |   | 893     |  
|Amortization                                                                                       |  |                            | 59      |   |                            |   | 51      |                                  |  |   | 35      |  
|Loan cost amortization                                                                             |  |                            | 49      |   |                            |   | (28     | )                                |  |   | 40      |  
|Net loss from the sale of property and equipment                                                   |  |                            | (2      | ) |                            |   |        |                                  |  |   |        |  
|Stock based compensation                                                                           |  |                            | 48      |   |                            |   | 65      |                                  |  |   | 76      |  
|Deferred tax benefit, net                                                                          |  |                            | (823    | ) |                            |   | (9      | )                                |  |   | 113     |  
|(Increase) decrease in:                                                                            |  |                            |         |   |                            |   |        |                                  |  |   |         |  
|Accounts receivable                                                                                |  |                            | 1,081   |   |                            |   | (2,013  | )                                |  |   | (2,108  | )
|Notes receivable                                                                                   |  |                            |        |   |                            |   | 5       |                                  |  |   |        |  
|Inventories                                                                                        |  |                            | (6,802  | ) |                            |   | (7,630  | )                                |  |   | (6,452  | )
|Prepaid expenses and deposits                                                                      |  |                            | 136     |   |                            |   | (432    | )                                |  |   | (662    | )
|Other assets                                                                                       |  |                            | (0      | ) |                            |   | (9      | )                                |  |   | (9      | )
|Increase (decrease) in:                                                                            |  |                            |         |   |                            |   |        |                                  |  |   |         |  
|Accounts payable                                                                                   |  |                            | (3,592  | ) |                            |   | 5,475   |                                  |  |   | 7,547   |  
|Accrued liabilities                                                                                |  |                            | 3,660   |   |                            |   | 343     |                                  |  |   | 2,166   |  
|Deferred revenues                                                                                  |  |                            | 677     |   |                            |   | 445     |                                  |  |   | 942     |  
|                                                                                                   |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Net cash (used in) provided by operating activities                                                |  |                            | (5,835  | ) |                            |   | (2,290  | )                                |  |   | 3,373   |  
|Cash Flows from Investing Activities                                                               |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Payment of contingent consideration                                                                |  |                            |        |   |                            |   | (454    | )                                |  |   | (454    | )
|Sold/disposal of Property and equipment                                                            |  |                            |        |   |                            |   | 78      |                                  |  |   |         |  
|Minority Interest in Subsidiary                                                                    |  |                            |        |   |                            |   |        |                                  |  |   | (110    | )
|Acquisition costs-Fashion Valley                                                                   |  |                            |        |   |                            |   | (5      | )                                |  |   |         |  
|Purchase of property and equipment                                                                 |  |                            | (2,873  | ) |                            |   | (1,563  | )                                |  |   | (1,280  | )
|                                                                                                   |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Net cash used in investing activities                                                              |  |                            | (2,873  | ) |                            |   | (1,944  | )                                |  |   | (1,844  | )
|Cash Flows from Financing Activities                                                               |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Proceeds from Line of Credit                                                                       |  |                            | 37,765  |   |                            |   | 55,008  |                                  |  |   | 37,854  |  
|Paydown on Line of Credit                                                                          |  |                            | (30,262 | ) |                            |   | (51,145 | )                                |  |   | (37,379 | )
|Proceeds from stock option exercise                                                                |  |                            |        |   |                            |   |         |                                  |  |   |        |  
|Deferred loan costs                                                                                |  |                            | (38     | ) |                            |   | (61     | )                                |  |   | (48     | )
|Payment of minority interest                                                                       |  |                            | (61     | ) |                            |   | (68     | )                                |  |   |        |  
|Borrowingscapital lease                                                                           |  |                            |        |   |                            |   | 114     |                                  |  |   |        |  
|Repayment of Capital lease                                                                         |  |                            | (18     | ) |                            |   | (21     | )                                |  |   |        |  
|Cash received from stock offering, net                                                             |  |                            |        |   |                            |   | (7      | )                                |  |   |        |  
|Borrowings on notes payable                                                                        |  |                            | 1,399   |   |                            |   | 2,633   |                                  |  |   |        |  
|Repayment of Notes payable                                                                         |  |                            | (1,180  | ) |                            |   | (1,501  | )                                |  |   | (1,108  | )
|                                                                                                   |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Net cash provided by (used in) financing activities                                                |  |                            | 7,605   |   |                            |   | 4,952   |                                  |  |   | (681    | )
|Net increase (decrease) in cash and cash equivalents                                               |  |                            | (1,103  | ) |                            |   | 718     |                                  |  |   | 848     |  
|Cash and cash equivalents at beginning of period                                                   |  |                            | 1,601   |   |                            |   | 883     |                                  |  |   | 753     |  
|Cash and cash equivalents at end of period                                                         |  | $                          | 498     |   |                            |   | 1,601   |                                  |  |   | 1,601   |  
|                                                                                                   |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Cash paid for interest                                                                             |  |                            | 916     |   |                            |   | 786     |                                  |  |   | 673     |  
|Cash paid for income taxes                                                                         |  |                            | 101     |   |                            |   | 80      |                                  |  |   | 80      |  
|Non-cash transaction                                                                               |  |                            |         |   |                            |   |         |                                  |  |   |         |  
|Reversed NP to Fashion Valley                                                                      |  |                            | 50      |   |                            |   |         |                                  |  |   |         |  
|Notes Payable for Inventory acquisition                                                            |  |                            | 899     |   |                            |   |         |                                  |  |   |         |  
|Purchase of M&S store inventory and accounts payable                                               |  |                            |        |   |                            |   | 48      |                                  |  |   | 48      |  
|Cashless exercise of stock options                                                                 |  |                            |        |   |                            |   | 129     |                                  |  |   | 129     |  
|Common stock issued in acquisition of Schwartz Sports                                              |  |                            |        |   |                            |   | 1,503   |                                  |  |   | 1,503   |  
|Debt incurred in acquisition of Schwartz Sports                                                    |  |                            |        |   |                            |   | 1,168   |                                  |  |   | 1,168   |  
|Debt incurred in acquisition of Chicago Sun-Times Show rights                                      |  |                            |        |   |                            |   | 1,375   |                                  |  |   | 1,375   |  
|Debt incurred to buyout minority shareholder                                                       |  |                            |        |   |                            |   | 40      |                                  |  |   | 40      |  
|Debt incurred in acquisition of Florida Mall                                                       |  |                            |        |   |                            |   | 50      |                                  |  |   | 50      |  
|Note Receivable for Somerset sale                                                                  |  |                            |        |   |                            |   | 5       |                                  |  |   | 5       |  
|Goodwill adjustment to Fasnedge acquisition price                                                  |  |                            |        |   |                            |   | 30      |                                  |  |   | 30      |  
|Goodwill adjustment to Dreams Unique acquisition price                                             |  |                            |        |   |                            |   | 42      |                                  |  |   | 42      |  



F-5



---

##### Table of Contents

Dreams, Inc. and Subsidiaries

Notes to Consolidated Audited Financial Statements

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



|1. | Nature of Business and Summary of Significant Accounting Policies
|-- | -----------------------------------------------------------------

Description of Business

Dreams, Inc. and its subsidiaries
(collectively the Company) are principally engaged in the manufacturing, distributing, retailing and selling of sports licensed products, memorabilia and acrylic display cases via multiple channels. The Company is also in the business of
selling Field of Dreams® retail store franchises and operates retail stores and websites selling memorabilia and licensed sports products, as well as athlete representation and corporate
marketing of individual athletes. The Companys customers are located throughout the United States of America.

Fiscal Year Change

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

Principals of Consolidation

The accompanying consolidated audited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
material inter-company transactions and accounts have been eliminated in consolidation.

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.

Stock Split

The Company
received approval from a majority of its shareholders on January 25, 2007 to effectuate a reverse stock split of its common shares. Consequently, the Board determined that a 1 for 6 reverse stock split would be effective on January 30,
2007. All share and per share amounts have been retroactively adjusted to reflect this reverse stock split.

Accounts Receivable

The Companys accounts receivable principally result from uncollected royalties from Field of
Dreams® franchisees and from credit sales to third-party customers from its wholesale operations and credit card transactions from the internet division. The Companys allowance for
doubtful accounts is based on managements estimates of the creditworthiness of its customers, current economic conditions and historical information, and, in the opinion of management is believed to be set at an amount sufficient to respond to
normal business conditions. Should such conditions deteriorate or any major credit customer default on its obligations to the Company, this allowance may need to be increased which may have an adverse impact on the Companys operations. The
Company reviews its accounts receivable aging on a regular basis to determine if any of the receivables are past due. The Company writes off all uncollectible trade receivables against its allowance for doubtful accounts. As of December 31,
2008 and December 31, 2007, the allowance for doubtful accounts was $76 and $67, respectively.

Revenue Recognition

The Company recognizes retail (including e-commerce sales) and wholesale/distribution revenues at the later of (a) the time of shipment or
(b) when title passes to the customers, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Retail revenues and wholesale/distribution revenues are recognized at the time
of sale.

Revenues from the sale of franchises are deferred until the Company fulfills its obligations under the franchise agreement and
the franchised unit opens. The franchise agreements provide for continuing royalty fees based on a percentage of gross receipts.

Management fee revenue related to the representation and marketing of professional athletes is recognized when earned and is reflected net of its related costs of sales. The majority of the revenue generated from the representation and
marketing of professional athletes relates to services as an agent. In these arrangements, the Company is not the primary obligor in these transactions but rather only receives a net agent fee.

Revenues from industry trade shows are recognized at the time of the show when tickets are submitted for autographs or actual product purchases take
place. In instances when the Company receives pre-payments for show autographs, the Company records these amounts as deferred revenue.

The
Company partnered in a corporate rebate program with a national consumer goods retailer. The Company issued rebate coupons for which it was pre-paid 50% of the coupon value. Certificates redeemed through December 31, 2008, were recognized as
revenue in the current period. Additionally, a breakage model was projected for the programs eight month term, based upon redemption totals through March 15, 2009. Thus, the Company recognized four (4) months of breakage revenue for the
year-ended December 31, 2008.



F-6



---

##### Table of Contents

Shipping and Handling Costs

Costs incurred for shipping and handling associated with a sale are included in cost of sales in the period when the sale occurred. Amounts billed to a customer for shipping and handling is reported as revenue.

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 and included in operating expenses. For the years ended December 31,
2008, December 31, 2007, and March 31, 2007, these expenses were $7.1 million, $4.4 million and $3.4 million, respectively.

Inventories

Inventories, consisting primarily of licensed sports products, sports memorabilia products and acrylic cases, are valued at the lower
of cost or market. Inventory value is determined using the specific identification and average cost methods.

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Leasehold improvements are amortized over the remaining 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.

Goodwill and Intangible Assets

In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS 142, Goodwill and Other Intangible Assets, which
established accounting and reporting requirements for goodwill and other intangible assets. The standard requires that all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged must be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer amortized, but are subject to an annual assessment for impairment by applying a fair value
based test.

The Company applied the provisions of SFAS 142 beginning on April 1, 2001 and during the years ended December 31,
2008 and December 31, 2007, and performed fair value based impairment tests on its goodwill and other indefinite lived intangible assets and determined no impairment was necessary.

Long-Lived Assets

Long-lived assets and certain non-amortizable intangible assets to be held and
used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting
from the use of such asset and eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived
assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Fair
Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, pre paid expenses, accounts
payable, accrued liabilities and deferred credits; 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 December 31, 2008 and December 31, 2007, the aggregate fair value of the Companys notes payable and long-term
debt approximated its carrying value.

Income Taxes

Income tax expense includes United States and state income taxes. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting and the tax basis
of existing assets and liabilities per SFAS 109. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year in which the differences are expected to reverse. Valuation allowances are recorded to
reduce deferred tax assets to the amount that will more likely than not be realized. In 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (Interpretation No. 48) to
account for uncertainty in income taxes recognized in the Companys financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. Refer to Note 11.



F-7



---

##### Table of Contents

Earnings (Loss) Per Share

Basic earnings (loss) per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted EPS is
computed by dividing net income by the sum of the weighted average number of common shares outstanding including the dilutive effect of common stock equivalents. There was no dilutive effect of common stock equivalents in 2008, as all of the
outstanding stock options had exercise prices greater than the average 2008 stock price.

Potential common stock equivalents at
December 31, 2008 were stock options to purchase 486,748 shares of common stock with exercise prices ranging from $.60 to $2.75 per share.

Stock
Compensation

On April 1, 2006, the Company adopted Statement of Financial Accounting Standards 123(R), Share-Based
Payment. Accordingly, the Company is now recognizing share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. The Company adopted FAS No. 123(R) under
the modified prospective transition method and, consequently, prior period results have not been restated. Under this transition method, in fiscal 2007, the Companys reported share-based compensation expense will include expense related
to share-based compensation awards granted subsequent to April 1, 2006, which is based on the grant date fair value estimated in accordance with the provisions of FAS No. 123(R), as well as any unrecognized compensation expense related to
non-vested awards that were outstanding as of the date of adoption. Prior to April 1, 2006, the Company applied APB Opinion No. 25 Accounting for Stock Issued to Employees in accounting for its employee share-based
compensation and applied FAS No. 123 Accounting for Stock Issued to Employees for disclosure purposes only. Under APB 25, the intrinsic value method was used to account for share-based employee compensation plans and
compensation expense was not recorded for awards granted with no intrinsic value. The FAS No. 123 disclosures include pro forma net earnings (loss) and earnings (loss) per share as if the fair value-based method of accounting had been
used. Determining the appropriate fair value model and calculating the fair value of share-based compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the share-based
compensation awards, the Companys common stock price volatility, and the rate of employee forfeitures. The assumptions used in calculating the fair value of share-based compensation awards represent managements best estimates, but
these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, share-based compensation expense could be materially different from
what has been recorded in the current period.

For the year ended December 31, 2008, the Company recorded $48 of pre-tax share-based
compensation expense under FAS No. 123(R), as part of operating expense in the Companys Consolidated Statement of Operations. This expense was offset by a $19 deferred tax benefit for non-qualified sharebased compensation.

Share-Based Compensation Awards

The
following disclosure provides information regarding the Companys share-based compensation awards, all of which are classified as equity awards in accordance with FAS No. 123(R): (Which the Company adopted effective Fiscal Year 2007).

Stock OptionsThe Company grants stock options to employees that allow them to purchase shares of the Companys common
stock. Options may also be granted to outside members of the Board of Directors of the Company as well as independent contractors. The Company determines the fair value of stock options at the date of grant using the Black-Scholes
valuation model. Options generally vest immediately, however, the Company has granted options that vest over three and five years. There were 70,000 options granted during the twelve months ended December 31, 2008 with a weighted
average issue price of $1.08. Awards generally expire three to five years after the date of grant.

During the twelve months ended
December 31, 2008, 100,664 options vested. The Total Weighted Average (TWA) of shares vested for the year was 53,196. The TWA price vested during the period was $.49.

As of December 31, 2008, there were 486,748 options outstanding with a weighted average exercise price of $.98 Vested options totaled 431,411 with a
weighted average exercise price of $.98. Total outstanding options that were in the money at December 31, 2008 were 0 with an average price per option of $.0. Of those options, the vested in the money options totaled 0
with an average price of $.0 and the in the money unvested options totaled 55,337.



F-8



---

##### Table of Contents

The following table summarizes the stock option activity from April 1, 2007 through December 31, 2008:



|                  |  |         |   |  |                |              |                              |   |     
|----------------- |  | ------- | - |  | -------------- | ------------ | ---------------------------- | - | ----
|                  |  | Shares  |   |  | Exercise Price |              | Weighted Avg. Exercise Price
|April 1, 2007     |  | 493,582 |   |  | $              | .60 - $1.50  |                              | $ | .89 
|Granted           |  | 36,667  |   |  | $              | 2.64 - $2.75 |                              | $ | 2.69
|Expired           |  | (3,166  | ) |  |                | $  .90       |                              | $ | .90 
|Cancelled         |  | (5,000  | ) |  |                | $  .90       |                              | $ | .90 
|Exercised         |  | (84,333 | ) |  |                | $1.20        |                              | $ | 1.07
|December 31, 2007 |  | 437,750 |   |  |                | $.60 - $2.75 |                              | $ | .97 
|Granted           |  | 70,000  |   |  |                | 1.08         |                              |   | 1.08
|Expired           |  |        |   |  |                |             |                              |   |    
|Cancelled         |  | (18,503 | ) |  |                | .60          |                              |   | .60 
|Exercised         |  | (2,499  | ) |  |                | .60          |                              |   | .60 
|December 31, 2008 |  | 486,748 |   |  |                | .60 - 2.75   |                              |   | .98 

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



|               |  |                    |  |                          |  |                            |  |               |  |                       
|-------------- |  | ------------------ |  | ------------------------ |  | -------------------------- |  | ------------- |  | ----------------------
|               |  | [Outstanding]      |  | [Exerciseable]          
|Range          |  | OutstandingOptions |  | RemainingContractualLife |  | WAOutstandingExercisePrice |  | VestedOptions |  | WA VestedExercisePrice
|$0.60 to $1.19 |  | 368,993            |  | 2.2                      |  | .69                        |  | 321,990       |  | .70                   
|$1.20 to $2.14 |  | 81,088             |  | .6                       |  | 1.50                       |  | 81,088        |  | 1.50                  
|$2.15 to $2.75 |  | 36,667             |  | 2.5                      |  | 2.69                       |  | 28,333        |  | 2.67                  
|               |  |                    |  |                          | 
|$0.60 to $2.75 |  | 486,748            |  | 1.9                      |  | .98                        |  | 431,411       |  | .98                   

At December 31, 2008, exercisable options had aggregate intrinsic values of $0.



F-9



---

##### Table of Contents

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements presented in conformity with GAAP. SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (the
PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133
(Statement 161). Statement 161 requires enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133) and its related interpretations and (iii) how derivative instruments and related hedged items affect an entitys financial
position, financial performance and cash flows. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt Statement 161 in the first quarter of 2009.

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

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

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



F-10



---

##### Table of Contents

are eligible under SFAS No. 159, and accordingly, there will be no impact on the Company financial position and results of operations attributable
to SFAS No. 159.

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

In September 2006,
the SEC Office of the Chief Accountant and Divisions of Corporation Finance and Investment Management released SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB No. 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes
that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. This guidance is effective for fiscal years ending after November 15, 2006. The application of SAB No. 108 did not have any impact on our Consolidated Balance Sheet, Statement of Operations or Statement of
Stockholders Equity for fiscal 2007.

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

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.

Reclassifications

Certain reclassifications have
been made to the prior year consolidated financial statements to conform to the current year presentation.



|2. | Acquisition of Businesses
|-- | -------------------------

General Statement

Upon the closing of an acquisition, management estimates the fair values of the acquired assets and liabilities and consolidates the acquisition as
quickly as possible. However, it routinely takes time to obtain all of the pertinent information to finalize the acquired companys balance sheet and supporting schedules and to adjust the acquired companys accounting policies,
procedures, books and records to the Companys standards. As a result, it may take several quarters before the Company is able to finalize those initial fair value estimates. Accordingly, it is not uncommon for initial estimates to be
subsequently revised.

The Company considers the following transactions to be significant in nature but, not material to the business overall.

Chicago Sun-Times Collectibles Show

Effective September 4, 2007, the Company purchased all of the rights, title and interests in the Chicago Sun-Times Collectibles Show from Sportsnews Productions, Inc. The Agreement grants the Company the exclusive right to produce
and operate the Chicago Sun-Times Collectibles Show from the date of the agreement in perpetuity and to receive all revenues and all other benefits and interests from those shows. As a result of the transaction, the Company recorded intangible
assets of approximately $1.4 million in 2007. The intangible assets consist of a five year non-compete agreement which management estimates to be valued at $150. The remaining amount has been recorded as non-amortizable rights as management believes
the asset has an indefinite useful life. In connection with the acquisition, a consulting agreement was executed with the president of the seller of the show for a term of five years.



F-11



---

##### Table of Contents

Schwartz Sports

Effective August 1, 2007, the Company entered into a stock purchase agreement with the shareholders of BKJ Consulting Corp., an Illinois corporation that owned and operated Schwartz Sports, a Chicago based sports
memorabilia Company. The Company acquired 100% of the outstanding shares of BKJ Consulting Corp. in exchange for 500,000 newly issued, restricted common shares of Dreams, Inc. The Company disclosed this transaction on a Form 8-K dated August 2,
2007. As a result of the acquisition, the Company recorded approximately $1.8 million of inventory and $867 of Goodwill on its books in 2007. Subsequently, the Goodwill figure was reduced to $812. Additionally, $1.2 million in notes payable and $1.5
million in common stock or 682,128 restricted shares were issued in 2007 to complete this transaction.

Florida Mall

Effective July 14, 2007, the Company entered into an asset purchase agreement with The
Pentagon Group of Orlando, Inc., a Florida corporation that owned and operated a franchised Field of Dreams® store in Orlando, Florida. The Company paid $50 at closing and provided a $50
one-year promissory note, without interest in return for approximately $50 in inventory and all lease-hold improvements and other tangible assets used in the operation. As a result of the acquisition, the Company recorded $6 of Goodwill in 2007.
Subsequently, the Goodwill figure was increased to $48.

M & S, Inc.

Effective June 16, 2007, the Company entered into an asset purchase agreement with M & S,
Inc. The agreement calls for the Company to acquire certain assets associated with the retail operations of existing Field of Dreams® stores at The Mall at Wellington Green, Sawgrass Mills
Mall, Town Center at Boca Raton, the PGA Gardens Mall (all located in South Florida) and Menlo Park in New Jersey. An executive of the Company is also a 25% owner of the selling group. The assets acquired consist of all inventory located at these
stores, all interests in the leases which have been or are to be assigned, all other tangible properties and assets used or held for use at the Field of Dreams stores, including equipment, furniture and fixtures and all intellectual property assets
of the Seller. However, leases associated with the PGA Gardens Mall and Menlo Park was not assumed by the Company. The purchase price was the assumption of debts and trade payables up to an equivalent amount of actual inventory which approximated
$450.



|3. | Concentration of Credit Risk
|-- | ----------------------------

Cash and Cash Equivalents

The Company maintains cash accounts in financial institutions that are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) up to $100; and now, as of October 2008, up to $250. At times, cash balances may be in excess of the amounts insured by the FDIC. The Company had not experienced any losses in such accounts until it was notified on
September 24, 2008 that the Silver State Bank in Henderson, Nevada was closed by the FDIC. As a result of this notification, the Company booked a $50 reserve against the $240 Certificate of Deposit held at this institution. The Company received
the $100 insured portion during the first quarter of 2009 and will continue to receive pro-rata distributions upon the liquidation of Bank assets in the future.

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.



|4. | Inventories
|-- | -----------

The components of inventories as of:



|                    |  |                  |        |                  |   |       
|------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                    |  | December 31,2008 |        | December 31,2007
|Raw materials       |  | $                | 362    |                  | $ | 363   
|Work in process     |  |                  | 78     |                  |   | 76    
|Finished goods, net |  |                  | 30,681 |                  |   | 23,880
|                    |  |                  |        |                  |   |       
|Total               |  | $                | 31,121 |                  | $ | 24,319
|                    |  |                  |        |                  |   |       



F-12



---

##### Table of Contents

The reserve for slow moving inventory was 334 at December 31, 2008 and $270 at December 31,
2007.



|5. | Property and Equipment
|-- | ----------------------

The components of property and equipment as
of:



|                                        |  |                  |        |   |                  |   |        |  
|--------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | -
|                                        |  | December 31,2008 |        |   | December 31,2007 |  
|Leasehold improvements                  |  | $                | 2,358  |   |                  | $ | 1,721  |  
|Machinery and equipment                 |  |                  | 1,278  |   |                  |   | 740    |  
|Office and other equipment and fixtures |  |                  | 1,219  |   |                  |   | 904    |  
|Transportation equipment                |  |                  | 72     |   |                  |   | 72     |  
|Computer Software                       |  |                  | 2,705  |   |                  |   | 1,758  |  
|Computer equipment                      |  |                  | 2,040  |   |                  |   | 1,630  |  
|                                        |  |                  |        |   |                  |   |        |  
|                                        |  |                  | 9,672  |   |                  |   | 6,825  |  
|Less accumulated depreciation           |  |                  | (4,196 | ) |                  |   | (2,934 | )
|                                        |  |                  |        |   |                  |   |        |  
|                                        |  | $                | 5,476  |   |                  | $ | 3,891  |  
|                                        |  |                  |        |   |                  |   |        |  

The depreciation expense for the year ended December 31, 2008 was 1.3 million and 1.1 million for
the same period last year.



F-13



---

##### Table of Contents

|6. | Goodwill and Other Intangible Assets
|-- | ------------------------------------

The changes in the carrying
amounts of goodwill are as follows:



|                                |  |       |       |  
|------------------------------- |  | ----- | ----- | -
|                                |  | Total |      
|Balance  March 31, 2007        |  | $     | 7,497 |  
|Acquisition of businesses       |  |       | 867   |  
|Adjustment to purchase price    |  |       | 363   |  
|                                |  |       |       |  
|Balance as of December 31, 2007 |  | $     | 8,727 |  
|Adjustment to purchase price    |  |       | (12   | )
|Balance as of December 31, 2008 |  | $     | 8,715 |  
|                                |  |       |       |  

The following table provides information about changes relating to intangible assets for the Year
ended December 31, 2008 and the nine months ended December 31, 2007:



|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|----------------------------------- |  | ------------------------- |  | -------------------- | ----- | ------------------- | - | ---- | --- |  | - | -----
|                                    |  | December 31, 2008         |  |                      |       |                     |  
|                                    |  | Weighted Avg. Useful Life |  | Gross Carrying Value |       | Accum. Amortization |   |      | Net
|Finite-lived intangible assets:     |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Non-compete agreement               |  | 5.4                       |  |                      | 325   |                     |   | (206 | )   |  |   | 119  
|Other                               |  | 2.2                       |  |                      | 67    |                     |   | (5   | )   |  |   | 62   
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|                                    |  |                           |  |                      | 392   |                     |   | (211 | )   |  |   | 181  
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Indefinite-lived intangible assets: |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Trademarks                          |  |                           |  |                      | 3,886 |                     |   |     |     |  |   | 3,886
|Franchise licenses                  |  |                           |  |                      | 130   |                     |   |     |     |  |   | 130  
|Other                               |  |                           |  |                      | 1,275 |                     |   |     |     |  |   | 1,275
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Total                               |  |                           |  |                      | 5,683 |                     |   | (211 | )   |  |   | 5,472
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|                                    |  |                           | 
|                                    |  | December 31, 2007         |  |                      |       |                     |  
|                                    |  | Weighted Avg. Useful Life |  | Gross Carrying Value |       | Accum. Amortization |   |      | Net
|Finite-lived intangible assets:     |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Non-compete agreement               |  | 5.4                       |  | $                    | 325   |                     |   | (151 | )   |  |   | 174  
|Other                               |  | 2.2                       |  |                      | 78    |                     |   | (78  | )   |  |   |     
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|                                    |  |                           |  |                      | 403   |                     |   | (229 | )   |  |   | 174  
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Indefinite-lived intangible assets: |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Trademarks                          |  |                           |  |                      | 3,886 |                     |   |     |     |  |   | 3,886
|Franchise licenses                  |  |                           |  |                      | 130   |                     |   |     |     |  |   | 130  
|Other                               |  |                           |  |                      | 1,275 |                     |   |     |     |  |   | 1,275
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      
|Total                               |  |                           |  | $                    | 5,694 |                     | $ | (229 | )   |  | $ | 5,465
|                                    |  |                           |  |                      |       |                     |   |      |     |  |   |      

Amortization expense for the year ended December 31, 2008 was $59. For the nine months ended
December 31, 2007, it was $35. For the calendar year ending December 31, 2007, it was $59.



F-14



---

##### Table of Contents

|7. | Line of Credit
|-- | --------------

At December 31, 2008, the
Company had a revolving line of credit with a financial institution which allowed the Company to borrow up to $21.5 million for working capital purposes based on eligible accounts receivable and inventories. The net availability as of
December 31, 2008 was $21.2 million, which consisted of $19.6 million in inventory and $1.6 million in accounts receivables. The balance outstanding on the loan as of March 1, 2009 was $16.5 million resulting in the excess availability of
$2.4 million as of March 1, 2009. The line of credit carries a floating annual interest rate at prime or fixed at 30 day Comerica costs of funds plus 2.00%. As of March 1, 2009 the interest rate on the loan was 2.96%. The line of credit is
collateralized by the Companys assets. The advanced rates as of December 31, 2008 were 80% for eligible accounts receivables and 60% for inventories. The Company also has a $1.5 million Acquisition Line with Comerica Bank of
which $400 thousand amount was available at December 31, 2008. The Loan Security Agreement also requires that certain financial performance covenants be met. These covenants include a fixed charge coverage ratio and minimum tangible net worth.
We are currently out of compliance with certain financial covenants and are working with our Bank to determine a course of action to remedy the situation. Interest expense associated with the line of credit for the year ended December 31, 2008
was $734 and for the twelve months ended December 31, 2007 was $643 and for the nine months ended December 31, 2007 was $592.



|8. | Accrued Liabilities
|-- | -------------------

Accrued liabilities consisted of the following
at:



|                                                  |  |                  |       |                  |   |      
|------------------------------------------------- |  | ---------------- | ----- | ---------------- | - | -----
|                                                  |  | December 31,2008 |       | December 31,2007
|Payroll costs (including bonuses and commissions) |  | $                | 660   |                  | $ | 777  
|                                                  |  |                 
|Professional fees                                 |  |                  |      |                  |   | 50   
|Accrued royalties                                 |  |                  | 264   |                  |   | 630  
|Other trade accruals                              |  |                  | 5,136 |                  |   | 943  
|                                                  |  |                  |       |                  |   |      
|                                                  |  | $                | 6,060 |                  | $ | 2,400
|                                                  |  |                  |       |                  |   |      



F-15



---

##### Table of Contents

|9. | Notes Payable
|-- | -------------

Notes payable consists of the following at:



|                                                                                                                                            |  |                  |  |                 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ----------------
|                                                                                                                                            |  | December 31,2008 |  | December 31,2007
|Note payable to seller of Field of Dreams store; unsecured, due December 2009, monthly payments of $5,822 including interest at 7% annually |  | 68               |  | 181             
|Note payable, unsecured, due February 2011, monthly payments $7,320 including interest at 6.0% annually.                                    |  | 178              |  | 252             
|Note payable, unsecured, due July 2008, monthly payments of $4,167, no stated interest rate                                                 |  |                 |  | 29              
|Note payable, unsecured, due January 2011, monthly payments of $8,247, including interest at 6% annually                                    |  | 193              |  | 276             
|Note payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 1 year              |  | 80               |  | 80              
|Note payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 3
years             |  | 220              |  | 220             
|Note payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 3
years             |  | 100              |  | 100             
|Note payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 1 year              |  |                 |  | 50              
|Notes payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 3
years            |  | 200              |  | 200             



F-16



---

##### Table of Contents

|                                                                                                                                                   |  |                  |   |  |                  |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | - |  | ---------------- | -
|                                                                                                                                                   |  | December 31,2008 |   |  | December 31,2007 |  
|Note payable, unsecured, due August 2012, with interest at 7%. There are no monthly payments due. Can be redeemed after 3
years                    |  | 518              |   |  | 518              |  
|Note payable, unsecured, due April 2009, with interest at 5.5%                                                                                     |  | 899              |   |  |                 |  
|Note payable, unsecured, due February 2008, with no stated interest rate                                                                           |  |                 |   |  | 30               |  
|Note payable, unsecured, due April 2012, with no stated interest rate. Payments made annually now and until maturity between $100,000 and
$300,000 |  | 675              |   |  | 975              |  
|                                                                                                                                                   |  |                  |   |  |                  |  
|                                                                                                                                                   |  | 3,131            |   |  | 2,911            |  
|Less current portion                                                                                                                               |  | (1,255           | ) |  | (712             | )
|                                                                                                                                                   |  |                  |   |  |                  |  
|                                                                                                                                                   |  | 1,876            |   |  | 2,199            |  
|                                                                                                                                                   |  |                  |   |  |                  |  

Interest expense on the notes for the year ended December 31, 2008 was $119 and for the nine months ended
December 31, 2007 was $30.

For notes that have no stated interest rates, the Company has imputed a rate of 6%.



F-17



---

##### Table of Contents

|10. | Stockholders Equity
|--- | --------------------

Common Stock:As
of December 31, 2008 and December 31, 2007, the Company had 100,000,000 and 100,000,000 shares authorized and 37,528,214 and 37,564,114 common shares issued and outstanding.

Preferred Stock:As of December 31, 2008 and December 31, 2007, the Company had 10,000,000 shares authorized and -0- preferred shares
issued and outstanding for both periods.

Stock Split

The Company received approval from a majority of its shareholders on January 25, 2007 to effectuate a reverse stock split of its common shares. Consequently, the Board determined that a 1 for 6 reverse stock
split would be effective on January 30, 2007. All share and per share amounts have been retroactively adjusted to reflect this reverse stock split.

Stock Options: The following table summarizes information about the stock options outstanding:



|                                                                  |  |               |   |  |                         |     
|----------------------------------------------------------------- |  | ------------- | - |  | ----------------------- | ----
|                                                                  |  | Stock Options
|                                                                  |  | Shares        |   |  | Wtd. Avg.Exercise Price
|Outstanding at March 31, 2006                                     |  | 806,094       |   |  |                         | .84 
|Granted                                                           |  |              |   |  |                         |    
|Exercised                                                         |  | (308,332      | ) |  |                         | .85 
|Expired/Canceled                                                  |  | (4,166        | ) |  |                         | .60 
|Less fractional shares as a result of 1 for 6 reverse stock split |  | (14           | ) |  |                         |     
|                                                                  |  |               |   |  |                         |     
|Outstanding at March 31, 2007                                     |  | 493,582       |   |  | $                       | .85 
|Granted                                                           |  | 36,667        |   |  |                         | 2.69
|Exercised                                                         |  | (84,333       | ) |  |                         | 1.20
|Expired/Canceled                                                  |  | (8,166        | ) |  |                         | .90 
|                                                                  |  |               |   |  |                         |     
|Outstanding at December 31, 2007                                  |  | 437,750       |   |  |                         | .97 
|Granted                                                           |  | 70,000        |   |  | $                       | 1.08
|Exercised                                                         |  | (2,499        | ) |  |                         | .60 
|Expired/Canceled                                                  |  | (18,503       | ) |  |                         | .60 
|                                                                  |  |               |   |  |                         |     
|Outstanding at December 31, 2008                                  |  | 486,748       |   |  |                         | .98 

Options exercisable as of December 31, 2008 and , December 31, 2007, were 431,411, and
332,246, respectively. The weighted average fair value of options granted during the twelve months ended December 31, 2008 was $1.08 for the nine months ended December 31, 2007 was $.97 and for fiscal 2007, was $.90 per share.



F-18



---

##### Table of Contents

|11. | Income Taxes
|--- | ------------

The components of the income tax
provision (benefit) are as follows:



|                               |  |                            |        |   |                          |   |                           |  |   |    
|------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ------------------------- |  | - | ---
|                               |  | Year endedDecember 31,2008 |        |   | 9 monthsDecember 31,2007 |   | 12 monthsDecember 31,2007
|Current:                       |  |                            |        |   |                          |   |                           |  |   |    
|Federal tax expense/ (benefit) |  | $                          | (459   | ) |                          | $ | 452                       |  | $ | 215
|State tax expense/ (benefit)   |  |                            | 34     |   |                          |   | 30                        |  |   | 14 
|Deferred:                      |  |                            |        |   |                          |   |                           |  |   |    
|Federal tax expense/ (benefit) |  |                            | (858   | ) |                          |   | 93                        |  |   | 44 
|State tax expense/ (benefit)   |  |                            | (90    | ) |                          |   | 48                        |  |   | 23 
|                               |  |                            |        |   |                          |   |                           |  |   |    
|                               |  | $                          | (1,373 | ) |                          | $ | 623                       |  | $ | 296
|                               |  |                            |        |   |                          |   |                           |  |   |    

Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys net deferred income taxes are as follows:

Deferred Tax Asset (Liability):



|                                     |  |                            |        |   |                          |   |        |                           |  |   |        |  
|------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ------------------------- |  | - | ------ | -
|                                     |  | Year endedDecember 31,2008 |        |   | 9 monthsDecember 31,2007 |   |        | 12 monthsDecember 31,2007 | 
|Current                              |  |                            |        |   |                          |   |        |                           |  |   |        |  
|Allowance for doubtful accounts      |  | $                          | 30     |   |                          | $ | 27     |                           |  | $ | 27     |  
|Inventory reserve                    |  |                            | 137    |   |                          |   | 109    |                           |  |   | 109    |  
|Inventory capitalization adjustment  |  |                            | 442    |   |                          |   | 344    |                           |  |   | 344    |  
|Accrued expenses                     |  |                            | 27     |   |                          |   | 165    |                           |  |   | 165    |  
|Insurance reimbursement              |  |                            |       |   |                          |   |       |                           |  |   |       |  
|                                     |  |                            |        |   |                          |   |        |                           |  |   |        |  
|                                     |  |                            | 636    |   |                          |   | 645    |                           |  |   | 645    |  
|Long-term                            |  |                            |        |   |                          |   |        |                           |  |   |        |  
|Stock options                        |  |                            | 65     |   |                          |   | 42     |                           |  |   | 42     |  
|Federal and states NOL carry-forward |  |                            | 1,535  |   |                          |   | 194    |                           |  |   | 194    |  
|Capital loss carry-forward           |  |                            | 187    |   |                          |   | 187    |                           |  |   | 187    |  
|Alternative Minimum Tax credit       |  |                            | 176    |   |                          |   | 49     |                           |  |   | 49     |  
|Charitable contributions             |  |                            |       |   |                          |   |       |                           |  |   |       |  
|Depreciation and amortization        |  |                            | (2,500 | ) |                          |   | (1,968 | )                         |  |   | (1,968 | )
|Less valuation allowance             |  |                            | (187   | ) |                          |   | (187   | )                         |  |   | (187   | )
|                                     |  |                            |        |   |                          |   |        |                           |  |   |        |  
|                                     |  | $                          | (724   | ) |                          | $ | (1,683 | )                         |  | $ | (1,683 | )

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported, if
based on the weight of evidence, it is more likely than not that some portion or the entire deferred tax asset will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation
allowance of $187, $187 and $187 as of December 31, 2008, December 31, 2007, and March 31, 2007, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in
the valuation allowance for the current year is $0.

Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with
FASB No. 109, Accounting for Income Taxes. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Companys evaluation of the implementation of FIN 48, no significant
income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the year ended December 31, 2008. The tax years subject to examination by the taxing authorities are the years
ended December 31, 2007, March 31, 2007 and March 31, 2006.

In May 2007, the FASB issued FASB Staff Position
(FSP) FIN 48-1 Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for purpose of



F-19



---

##### Table of Contents

recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective retroactively to January 1, 2007. The implementation of this standard did
not have a material impact on our consolidated financial position or results of operation.

The reconciliation of income tax computed at
the U.S. federal statutory rate to income tax expense for the year ended December 31, 2008, the nine months ended December 31, 2007 and for the year ended March 31, 2007 is as follows:



|                                    |  |                            |    |  |                               |   |  |                                |  
|----------------------------------- |  | -------------------------- | -- |  | ----------------------------- | - |  | ------------------------------ | -
|                                    |  | Year endedDecember 31,2008 |    |  | 9 monthsendedDecember 31,2007 |   |  | 12 monthsendedDecember 31,2007 |  
|Tax at U.S. statutory rate          |  | (34                        | )% |  | 34                            | % |  | 34                             | %
|State taxes, net of federal benefit |  | (6                         | )  |  | 6                             |   |  | 6                              |  
|Non-deductible items                |  | 1                          |    |  | 1                             |   |  | 1                              |  
|Other                               |  | (8                         | )  |  | (1                            | ) |  | (4                             | )
|                                    |  |                            |    |  |                               |   |  |                                |  
|                                    |  | (47                        | )% |  | 40                            | % |  | 37                             | %
|                                    |  |                            |    |  |                               |   |  |                                |  

At December 31, 2008, the company will have federal net operating loss carryforward of
approximately $2.9 million. The Company also has state operating loss carryforwards of approximately $6.1 million. The federal and state net operating losses expire by 2028.



F-20



---

##### Table of Contents

|12. | 401 (k) Plan
|--- | ------------

The Company participates in a
401 (k) defined contribution plan (the Plan) under Section 401 (k) of the Internal Revenue Code. The Plan is available to all employees over the age of 21 with at least one year of service and 1,000 hours worked. Eligible
participants may contribute up to 50% of their pretax earnings. Participants are immediately vested. The Company does not contribute to the Plan.



|13. | Commitments and Contingencies
|--- | -----------------------------

Operating Leases

As of December 31, 2008, the Company leases office, warehouse and retail space under operating leases. The leases expire over the next nine years
and some contain provisions for certain annual rental escalations. For the Chicago warehouse lease, the Company is committed to assuming additional space each year for the first three years. Of the 188,901 square feet the Company is committed to
assuming 65% of the space in year one, 75% of the space in year two, 85% of the space in year three and 100% of the space in year four until lease expiration in 2014.

The future aggregate minimum annual lease payments under the Companys non-cancellable operating leases are as follows:



|                                |  |           
|------------------------------- |  | ----------
|Calendar Year                   |  |           
|2009                            |  | 4,162,688 
|2010                            |  | 3,704,685 
|2011                            |  | 3,456,288 
|2012                            |  | 3,165,049 
|2013                            |  | 3,005,122 
|Thereafter                      |  | 4,160,587 
|                                |  |           
|Total minimum lease commitments |  | 21,654,419

Rent expense charged to operations for the year ended December 31, 2008, for the nine months
ended December 31, 2007 and fiscal 2007, were $5.3 million, $2.9 million and $2.3 million, respectively.

Capital Leases

The Company has entered into a capital lease for office equipment. The lease requires monthly payments totaling $1,902 and expires in 2012. The interest
rate on this capital lease is 5%.

Future minimum payments required under the capital leases consist of the following as of
December 31, 2008:



|                                            |  |        |  
|------------------------------------------- |  | ------ | -
|Year Ending December 31,                    |  | Amount |  
|2009                                        |  | 23     |  
|2010                                        |  | 23     |  
|2011                                        |  | 23     |  
|2012                                        |  | 17     |  
|Total                                       |  | 86     |  
|Less Amount representing interest           |  | (11    | )
|Present Value of net minimum lease payments |  | 75     |  

Future Contractual Payments to Athletes

As of December 31, 2008, the Company had several agreements with athletes to provide autographs in the future and the rights to produce and sell
certain products. The autographs are received by the Company as a part of inventory products and re sold throughout the Companys distribution channels. The future aggregate minimum payments to athletes under contractual agreements are as
follows:



|              |  |   |          
|------------- |  | - | ---------
|Calendar Year |  |  
|2009          |  |   | 1,068,665
|2010          |  |   | 489,950  
|2011          |  |   | 305,000  
|2012          |  |   | 30,000   
|              |  |   |          
|              |  | $ | 1,893,615



F-21



---

##### Table of Contents

|14. | Related Party Transactions
|--- | --------------------------

Effective June 16, 2007, the Company entered into an asset purchase agreement with M & S, Inc. The agreement calls for the Company to acquire certain assets associated with the retail operations of existing
Field of Dreams® stores at The Mall at Wellington Green, Sawgrass Mills Mall, Town Center at Boca Raton, the PGA Gardens Mall (all located in South Florida) and Menlo Park in New Jersey. An
executive of the Company is also a 25% owner of the selling group. The assets acquired consist of all inventory located at these stores, all interests in the leases which have been or are to be assigned, all other tangible properties and assets used
or held for use at the Field of Dreams stores, including equipment, furniture and fixtures and all intellectual property assets of the Seller. The purchase price was the assumption of debts and trade payables up to an equivalent amount of actual
inventory which approximates $450.



|15. | Business Segment Information
|--- | ----------------------------

The Company has two
reportable segments as identified by information reviewed by the Companys chief operating decision maker: the Manufacturing/Distribution segment and the Retail Operations segment.

The Manufacturing/Distribution segment represents the manufacturing and wholesaling of sports memorabilia products and acrylic display cases. Sales are
handled primarily through in-house salespersons that sell to specialty retailers and other distributors in the United States. The Companys manufacturing and distributing facilities are located in the United States. The majority of the
Companys products are manufactured in these facilities.

The Retail Operations segment is comprised of traditional brick and mortar
and Internet:

Brick and Mortar

As of December 31, 2008, the Company owned and operated 17 Field of Dreams® stores offering a selection of sports & entertainment memorabilia and collectibles and 6 FansEdge stores offering sports licensed products. The Company has multiple stores in the south
Florida, Chicago and Las Vegas markets.

Internet

The Internet component of the segment consists primarily of two e-commerce retailers along with a portfolio of athlete and syndicated web sites selling a diversified selection of sports licensed products and
memorabilia on the Internet and has represented the fastest growing area of the Company.

All of the Companys revenue generated
during the year ended December 31, 2008, the nine months ended December 31, 2007, and fiscal 2007, was derived in the United States and all of the Companys assets are located in the United States.

Summarized financial information concerning the Companys reportable segments is shown in the following tables. Corporate related items, results of
insignificant operations and income and expenses not allocated to reportable segments are included in the reconciliations to consolidated results table.



F-22



---

##### Table of Contents

Segment information for the year ended December 31, 2008, the nine months ended December 31,
2007 and the twelve months ended December 31, 2007, was as follows:



|                       |  |                            |        |   |                  |   |        |       |  |   |        |  
|---------------------- |  | -------------------------- | ------ | - | ---------------- | - | ------ | ----- |  | - | ------ | -
|Twelve Months Ended:   |  | Manufacturing/Distribution |        |   | RetailOperations |   |        | Total | 
|December 31, 2008      |  |                            |        |   |                  |   |        |       |  |   |        |  
|Net sales              |  | $                          | 23,122 |   |                  |   | 63,385 |       |  |   | 86,507 |  
|Intersegment net sales |  |                            | (5,006 | ) |                  |   |       |       |  |   | (5,006 | )
|Operating earnings     |  |                            | 12,600 |   |                  |   | (355   | )     |  |   | 846    |  
|Total assets           |  |                            | 17,334 |   |                  |   | 30,790 |       |  |   | 48,134 |  
|                       |  |                            |       
|Nine Months Ended:     |  | Manufacturing/Distribution |        |   | RetailOperations |   |        | Total | 
|December 31, 2007      |  |                            |        |   |                  |   |        |       |  |   |        |  
|Net sales              |  | $                          | 17,423 |   |                  | $ | 45,049 |       |  | $ | 62,472 |  
|Intersegment net sales |  |                            | (3,869 | ) |                  |   | (53    | )     |  |   | (3,922 | )
|Operating earnings     |  |                            | 2,030  |   |                  |   | 2,711  |       |  |   | 4,741  |  
|Total assets           |  |                            | 17,097 |   |                  |   | 25,725 |       |  |   | 42,822 |  



|                       |  |                            |        |   |                  |   |        |  |   |        |  
|---------------------- |  | -------------------------- | ------ | - | ---------------- | - | ------ |  | - | ------ | -
|Twelve Months Ended:   |  | Manufacturing/Distribution |        |   | RetailOperations |   | Total  | 
|December 31, 2007      |  |                            |        |   |                  |   |        |  |   |        |  
|Net sales              |  | $                          | 22,352 |   |                  | $ | 55,013 |  | $ | 77,364 |  
|Intersegment net sales |  |                            | (4,660 | ) |                  |   |       |  |   | (4,660 | )
|Operating earnings     |  |                            | 2,296  |   |                  |   | 2,196  |  |   | 3,905  |  
|Total assets           |  |                            | 17,097 |   |                  |   | 25,725 |  |   | 42,822 |  

Reconciliation to consolidated amounts is as follows:



|                                        |  |                            |        |   |                            |   |        |                               |  |   |        |  
|--------------------------------------- |  | -------------------------- | ------ | - | -------------------------- | - | ------ | ----------------------------- |  | - | ------ | -
|                                        |  | Year endedDecember 31,2008 |        |   | Year endedDecember 31,2007 |   |        | 9 monthsendedDecember 31,2007 | 
|Revenues:                               |  |                            |        |   |                            |   |        |                               |  |   |        |  
|Total revenues for reportable segments  |  | $                          | 86,507 |   |                            | $ | 77.364 |                               |  | $ | 62,472 |  
|Other revenues                          |  |                            | 481    |   |                            |   | 1,569  |                               |  |   | 1,152  |  
|Eliminations of intersegment revenues   |  |                            | (5,006 | ) |                            |   | (4,660 | )                             |  |   | (3,922 | )
|                                        |  |                            |        |   |                            |   |        |                               |  |   |        |  
|Total consolidated revenues             |  | $                          | 81,982 |   |                            | $ | 74,273 |                               |  | $ | 59,702 |  
|                                        |  |                            |       
|Pre-tax earnings / (loss):              |  |                            |        |   |                            |   |        |                               |  |   |        |  
|Total earnings for reportable segments  |  | $                          | 846    |   |                            | $ | 3,905  |                               |  | $ | 4,741  |  
|*Other (loss) / income                  |  |                            | (2,907 | ) |                            |   | (2,339 | )                             |  |   | (2,619 | )
|Interest expense                        |  |                            | (926   | ) |                            |   | (829   | )                             |  |   | (707   | )
|                                        |  |                            |        |   |                            |   |        |                               |  |   |        |  
|Total income (loss) before income taxes |  | $                          | (2,987 | ) |                            | $ | 737    |                               |  | $ | 1,415  |  



|* | These are unallocated costs and expenses that have not been allocated to the reportable segments. Some examples of these unallocated overhead costs which are consistent
with the Companys internal accounting policies are executive salaries and benefits; corporate office occupancy costs; professional fees, bank charges; certain insurance policy premiums and public relations/investor relations expenses.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-23



---

##### Table of Contents

|16. | Minority Interest
|--- | -----------------

As a result of our Asset
Purchase Agreement with Pro-Star, Inc. effective December 26, 2006, Dreams received 86.5% of the Caesars Forum Shops Field of Dreams store; 89% of the Rio Hotel Field of Dreams store; 90.5% of the Smith & Wollensky Field of Dreams
store; and 88.125% of the marketing venture known as Stars Live 365. The Company records all of the revenues generated from these operations and then records a minority interest expense representing the limited partners
earned pro-rata share of the actual profits. The minority interest expense at December 31, 2008 was approximately $55 and is included in accrued liabilities at year end. Dreams will have an on-going obligation to make quarterly distributions on
a pro-rata basis depending on the actual profitability of each of the three stores and Stars Live 365.

Effective August 29, 2007, the
Company bought back 6.5% interest in the Caesars Forum Shops Field of Dreams store from an individual for $40. As a result, the Companys interest in the Caesars store is now 93%.



|17. | Valuation and Qualifying Accounts
|--- | ---------------------------------

We maintain an
allowance for doubtful accounts that is recorded as a contra asset to our accounts receivable balance. The following table sets forth the change in each of those reserves for the year ended December 31, 2008 and for the nine months ended
December 31, 2007.



|                                |  |                                   |     |  
|------------------------------- |  | --------------------------------- | --- | -
|                                |  | Allowance for accounts receivable |    
|Balance as of December 31, 2007 |  | $                                 | 67  |  
|Provision                       |  |                                   | 31  |  
|Write offs                      |  |                                   | (22 | )
|                                |  |                                   |     |  
|Balance as of December 31, 2008 |  | $                                 | 76  |  



|18. | Going Concern
|--- | -------------

The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a loss from operations, had a decrease in operational cash flows, and is in violation of its debt covenants. These factors,
among others, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to this matter are also described in Note 19. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



|19. | Management Plan
|--- | ---------------

As a result of the Company
incurring operating losses in 2008, experiencing a reduction in operational cash flow, and having violated certain financial performance covenants with its senior lender, the Company has instituted the following plan to mitigate these occurrences
during the first quarter of 2009:

| |  |  | Substantially reduced its workforce
| | - |  | -----------------------------------

| |  |  | Reduced management and employee wages
| | - |  | -------------------------------------

| |  |  | Re-structured numerous rents at its warehouses and stores
| | - |  | ---------------------------------------------------------

| |  |  | Re-structured several athlete client agreements
| | - |  | -----------------------------------------------

| |  |  | Is managing cash conservatively
| | - |  | -------------------------------

| |  |  | Is aggressively converting existing inventory into cash
| | - |  | -------------------------------------------------------

| |  |  | Has greatly reduced our planned capital expenditures
| | - |  | ----------------------------------------------------

| |  |  | Has requested waivers from its senior lender regarding the financial covenants not met in December 31, 2008
| | - |  | -----------------------------------------------------------------------------------------------------------

| |  |  | Is actively engaged in negotiating final terms and conditions with the Bank to receive the waiver, although, no assurances can be made that we ultimately receive
Bank waivers, and if so, under acceptable terms and conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-24



---

##### Table of Contents

TWELVE MONTHS ENDED DECEMBER 31, 2008 QUARTERLY FINANCIAL INFORMATION





|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|----------------------------------------- |  | ----------------- | ---------- | - | ------------------ | ---------- | - | ------------- | ---------- | - | -------------- | ---------- | -
|Three Months Ended:                       |  | *December 31,2008 |            |   | September 30, 2008 |            |   | June 30, 2008 |            |   | March 31, 2008 |           
|Net Sales                                 |  | $                 | 35,404     |   |                    | 14,400     |   |               | 13,650     |   |                | 18,518     |  
|Cost of Goods Sold                        |  |                   | 19,251     |   |                    | 7,856      |   |               | 7,683      |   |                | 9,969      |  
|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Gross Profit                              |  |                   | 16,153     |   |                    | 6.544      |   |               | 5,967      |   |                | 8,549      |  
|Operating Expenses                        |  |                   | 13,847     |   |                    | 8,230      |   |               | 7,301      |   |                | 8,514      |  
|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Operating Income/(Loss)                   |  |                   | 2,306      |   |                    | (1,686     | ) |               | (1,334     | ) |                | 35         |  
|Other Income (Expenses)                   |  |                   | 49         |   |                    | (35        | ) |               | (32        | ) |                | (37        | )
|Interest Expense                          |  |                   | 280        |   |                    | 273        |   |               | 224        |   |                | 148        |  
|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Income (Loss) Before Taxes                |  |                   | 2,075      |   |                    | (1,994     | ) |               | (1,590     | ) |                | (150       | )
|(Provision) Benefit for income taxes      |  |                   | (181       | ) |                    | 1,004      |   |               | 763        |   |                | 119        |  
|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Net Income (loss)                         |  |                   | 1,894      |   |                    | (990       | ) |               | (827       | ) |                | (31        | )
|                                          |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Earnings (loss) per common share, basic   |  |                   | .04        |   |                    | (.04       | ) |               | (.03       | ) |                | (.00       | )
|Earnings (loss) per common share, diluted |  |                   | .04        |   |                    | (.04       | ) |               | (.03       |   |                | (.00       | )
|                                          |  |                   |            |  
|Weighted Average shares Outstanding:      |  |                   |            |   |                    |            |   |               |            |   |                |            |  
|Basic                                     |  |                   | 37,545,576 |   |                    | 37,533,238 |   |               | 37,556376  |   |                | 37,703,211 |  
|Diluted                                   |  |                   | 37,669,586 |   |                    | 37,662,780 |   |               | 37,718,100 |   |                | 37,876,886 |  



|* | The Companys business is seasonal and it generates a considerable portion of its revenues during the holiday quarter ending December 31. Therefore, quarterly operating
results are not necessarily indicative of the results that may be expected for the full fiscal year.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25



---

##### Table of Contents

TWELVE MONTHS ENDED DECEMBER 31, 2007 QUARTERLY FINANCIAL INFORMATION





|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|----------------------------------------- |  | ----------------- | ---------- | - | ------------------ | - | ---------- | ------------- |  | - | ------------- | - |  | - | ---------- | -
|Three months ended                        |  | *December 31,2007 |            |   | September 30, 2007 |   |            | June 30, 2007 |  |   | March 31 2007 |  
|Net Sales                                 |  | $                 | 36,570     |   |                    | $ | 12,584     |               |  | $ | 10,548        |   |  | $ | 14,625     |  
|Cost of Goods Sold                        |  |                   | 20,630     |   |                    |   | 6,947      |               |  |   | 5,499         |   |  |   | 8,656      |  
|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Gross Profit                              |  |                   | 15,940     |   |                    |   | 5,637      |               |  |   | 5,049         |   |  |   | 5.969      |  
|Operating Expenses                        |  |                   | 11,477     |   |                    |   | 6,684      |               |  |   | 6,192         |   |  |   | 6,561      |  
|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Operating Income/(Loss)                   |  |                   | 4,463      |   |                    |   | (1,047     | )             |  |   | (1,143        | ) |  |   | (592       | )
|Other Income (Expenses)                   |  |                   | (27        | ) |                    |   | (38        | )             |  |   | (45           | ) |  |   | (42        | )
|Interest Expense                          |  |                   | 277        |   |                    |   | 194        |               |  |   | 237           |   |  |   | 122        |  
|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Income (Loss) Before Taxes                |  |                   | 4,159      |   |                    |   | (1,279     | )             |  |   | (1,425        | ) |  |   | (756       | )
|(Provision) Benefit for income taxes      |  |                   | (1,711     | ) |                    |   | 496        |               |  |   | 552           |   |  |   | 520        |  
|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Net Income (loss)                         |  | $                 | 2,448      |   |                    | $ | (783       | )             |  | $ | (873          | ) |  | $ | (236       | )
|                                          |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Earnings (loss) per common share, basic   |  | $                 | 0.07       |   |                    | $ | (0.02      | )             |  | $ | (0.02         | ) |  | $ | (0.06      | )
|Earnings (loss) per common share, diluted |  | $                 | 0.07       |   |                    | $ | (0.02      | )             |  | $ | (0.02         | ) |  | $ | (0.06      | )
|                                          |  |                   |            |  
|Weighted Average shares Outstanding:      |  |                   |            |   |                    |   |            |               |  |   |               |   |  |   |            |  
|Basic                                     |  |                   | 37,328,962 |   |                    |   | 37,203,417 |               |  |   | 36,958,391    |   |  |   | 36,958,391 |  
|Diluted                                   |  |                   | 37,596,089 |   |                    |   | 37,491,410 |               |  |   | 37,287,900    |   |  |   | 37,287,900 |  



|* | The Companys business is seasonal and it generates a considerable portion of its revenues during the holiday quarter ending December 31. Therefore, quarterly operating
results are not necessarily indicative of the results that may be expected for the full fiscal year.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-26



---

##### Table of Contents

FISCAL 2007 QUARTERLY FINANCIAL INFORMATION



|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|----------------------------------------- |  | ------------- | ---------- | - | ------------------ | - | ------------------ |  | - | ------------- | - |  | - | ---------- | -
|Three months ended                        |  | March 31,2007 |            |   | *December 31, 2006 |   | September 30, 2006 |  |   | June 30, 2006 |  
|Net Sales                                 |  | $             | 14,626     |   |                    | $ | 24,853             |  | $ | 8,557         |   |  | $ | 7,924      |  
|Cost of Goods Sold                        |  |               | 8,658      |   |                    |   | 13,929             |  |   | 4,700         |   |  |   | 4,511      |  
|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Gross Profit                              |  |               | 5,968      |   |                    |   | 10,924             |  |   | 3,857         |   |  |   | 3,413      |  
|Operating Expenses                        |  |               | 6,562      |   |                    |   | 7,411              |  |   | 4,229         |   |  |   | 3,826      |  
|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Operating Income/(Loss)                   |  |               | (594       | ) |                    |   | 3,513              |  |   | (372          | ) |  |   | (413       | )
|Other Income (Expenses)                   |  |               | (42        | ) |                    |   |                   |  |   |              |   |  |   |           |  
|Interest Expense                          |  |               | 138        |   |                    |   | 104                |  |   | 134           |   |  |   | 152        |  
|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Income (Loss) Before Taxes                |  |               | (774       | ) |                    |   | 3,409              |  |   | (506          | ) |  |   | (565       | )
|Provision (Benefit) for income taxes      |  |               | (327       | ) |                    |   | 1,328              |  |   | (202          | ) |  |   | (214       | )
|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Net Income (loss)                         |  | $             | (447       | ) |                    | $ | 2,081              |  | $ | (304          | ) |  | $ | (351       | )
|                                          |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Earnings (loss) per common share, basic   |  | $             | (.01       | ) |                    | $ | 0.06               |  | $ | (.01          | ) |  | $ | (.01       | )
|Earnings (loss) per common share, diluted |  | $             | (.01       | ) |                    | $ | 0.06               |  | $ | (.01          | ) |  | $ | (.01       | )
|                                          |  |               |            |  
|Weighted Average shares Outstanding:      |  |               |            |   |                    |   |                    |  |   |               |   |  |   |            |  
|Basic                                     |  |               | 36,744,642 |   |                    |   | 33,045,843         |  |   | 29,683,787    |   |  |   | 29,683,787 |  
|Diluted                                   |  |               | 36,744,642 |   |                    |   | 33,045,843         |  |   | 29,683,787    |   |  |   | 29,683,787 |  



|* | The Companys business is seasonal and it generates a considerable portion of its revenues during the holiday quarter ending December 31. Therefore, quarterly operating
results are not necessarily indicative of the results that may be expected for the full fiscal year.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-27



---

##### Table of Contents

Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|21          |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|31.1        |  | Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|31.2        |  | Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|32.1        |  | Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by
the Security Exchange Act of 1934, as amended.)
|            | 
|32.2        |  | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18 of the
Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the
Security Exchange Act of 1934, as amended.)