This is a concept that has a lot of potential. I like the idea of a teddy bear defending its owner from nightmares, and the idea that collecting toys increases your powerups and that they end up in more challenging places at times. The teddy bear and nightmare graphics are nice.
This really needs maybe a softer soundtrack, because the music does tend to get quite grating after multiple listens. Maybe different instruments or something. Also, for defense games like this, pressing and holding to shoot would also be a good idea considering how later enemies take many shots to kill. I'm also not fond of the instant respawn for this - something about the lack of transitions makes it seem a bit shaky. Maybe some knockback and losing the damage you can inflict is good enough instead of spawning the player back to that one platform. The number of nightmares that appear to scare the player is challenging in that of itself.
Not to mention the graphics. Ooh boy, the background tiles do make it hard to look at. They need some different looks or something? I am not exactly sure how to describe it, but it definitely does mess with my head after playing for a while.
Other than that, the game isn't super glitchy or anything, just in need of some more polish. It's a good start and I can see this working on a GameBoy console very well.