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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
--------------------------

/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-15586

dreamlife, inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 52-1373960
- --------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

888 SEVENTH AVENUE, 13TH FLOOR, NEW YORK, NEW YORK 10106
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 887-6869
- --------------------------------------------------------------------------------
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE

425 WEST 15TH STREET, 3RD FLOOR, NEW YORK, NEW YORK 10011
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMAL FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)

INDICATE BY CHECK 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 SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES / / NO /X/

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY AS OF DECEMBER 14, 2001 WAS AS FOLLOWS: 56,132,098 SHARES OF COMMON
STOCK

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DREAMLIFE, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------

September 30, December 31,
2001 2000
------------ ------------
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $ 1,707,000 $ 10,927,000
Accounts receivable, net 782,000 435,000
Inventory 5,180,000 4,079,000
Prepaid expenses and other current assets 776,000 363,000
------------ ------------
Total current assets 8,445,000 15,804,000

Property and equipment, net 944,000 968,000
Other assets 110,000 52,000
------------ ------------

Total assets $ 9,499,000 $ 16,824,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:

Accounts payable $ 1,544,000 $ 1,795,000
Accrued liabilities 3,832,000 4,597,000
Line of credit 3,006,000 1,250,000
------------ ------------
Total current liabilities 8,382,000 7,642,000

Deferred revenues -- 1,681,000
Note payable 3,209,000 2,950,000
Accrued liabilities 3,000,000 --
Negative goodwill 3,806,000 4,199,000
------------ ------------
18,397,000 16,472,000
------------ ------------

Commitments

Stockholders' equity (deficit):
Common stock, $0.01 par value; 78,540,494 and 25,036,044
shares issued at September 30, 2001 and December 31, 2000 561,000 250,000
Treasury stock, 22,408,396 and 0 shares at cost at
September 30, 2001 and December 31, 2000 -- --
Paid-in capital (deficit) (8,172,000) 541,000
Retained earnings (deficit) (1,287,000) (439,000)
------------ ------------
Total stockholders' equity (deficit) (8,898,000) 352,000
------------ ------------

Total liabilities and stockholders' equity (deficit) $ 9,499,000 $ 16,824,000
============ ============
</Table>

See accompanying notes to financial statements.

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DREAMLIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
- ----------------------------------------------------------------------------------------------------------

Three Months Ended Nine Months Ended
------------------------------------------ -----------------------------------------
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
-------------------- -------------------- ------------------- --------------------

SALES $ 8,123,000 $ 9,042,000 $ 22,800,000 $ 22,648,000

COST OF SALES 4,940,000 5,731,000 13,756,000 14,441,000
------------ ------------ ------------ ------------

Gross profit 3,183,000 3,311,000 9,044,000 8,207,000

OPERATING EXPENSES:
Sales and marketing 1,950,000 1,977,000 4,599,000 4,355,000
General and administrative 2,479,000 2,126,000 7,186,000 6,729,000
Amortization of negative goodwill (131,000) (131,000) (393,000) (393,000)
------------ ------------ ------------ ------------

Operating loss (1,115,000) (661,000) (2,348,000) (2,484,000)
------------ ------------ ------------ ------------

OTHER INCOME (EXPENSE):
Interest income 3,000 90,000 165,000 309,000
Interest expense (176,000) (160,000) (630,000) (476,000)
Other income, net 1,000 207,000 2,057,000 505,000
------------ ------------ ------------ ------------

LOSS BEFORE INCOME TAXES (1,287,000) (524,000) (756,000) (2,146,000)

INCOME TAX PROVISION -- -- (7,000) --
------------ ------------ ------------ ------------

NET LOSS $ (1,287,000) $ (524,000) $ (749,000) $ (2,146,000)
============ ============ ============ ============

NET LOSS PER SHARE:
Basic and diluted $ (0.03) $ (0.02) $ (0.02) $ (0.08)
============ ============ ============ ============

WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic and diluted 50,500,000 25,300,000 33,500,000 25,300,000
============ ============ ============ ============
</Table>

See accompanying notes to financial statements.

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DREAMLIFE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
RETAINED
COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
----------- ----------- ----------- ----------- -----------

Balance at December 31, 2000 25,036,044 $ 250,000 $ 541,000 $ (439,000) $ 352,000

Repurchase of common stock - Avon (2,589,764) (26,000) (1,430,000) -- (1,456,000)

Dividend -- -- (4,401,000) (99,000) (4,500,000)

Repurchase of common stock (86,325) (1,000) (28,000) (29,000)

Shares issued to Discovery Toys'
shareholders (See Note 1) 33,772,143 338,000 (2,854,000) (2,516,000)

Net loss -- -- -- (749,000) (749,000)
----------- ----------- ----------- ----------- -----------

Balance at September 30, 2001 56,132,098 $ 561,000 $(8,172,000) $(1,287,000) $(8,898,000)
=========== =========== =========== =========== ===========
</Table>

See accompanying notes to financial statements.

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DREAMLIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------

Nine months ended Nine months ended
September 30, September 30,
2001 2000

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (749,000) $ (2,146,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 424,000 343,000
Provision for doubtful accounts (3,000) 28,000
Amortization of discount on note payable 132,000 132,000
Amortization of negative goodwill (393,000) (393,000)
Changes in:
Accounts receivable (344,000) (738,000)
Inventory, net (1,101,000) (432,000)
Prepaid expenses and other current assets (397,000) (269,000)
Deposits and other assets 31,000 7,000
Accounts payable (554,000) (440,000)
Accrued expenses (1,476,000) (331,000)
Deferred revenues (1,681,000) 505,000
Other -- (28,000)
------------ ------------

Net cash used in operating activities (6,111,000) (3,762,000)
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition of dreamlife net assets 1,309,000 --
Purchases of property and equipment (189,000) (29,000)
------------ ------------

Net cash provided by (used in) investing activities 1,120,000 (29,000)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for repurchase of common stock (1,485,000) (17,000)
Payment of common stock dividends (4,500,000) (1,000,000)
Proceeds from line of credit 1,756,000 --
------------ ------------

Net cash used in financing activities (4,229,000) (1,017,000)
------------ ------------

NET DECREASE IN CASH (9,220,000) (4,808,000)

CASH AT BEGINNING OF PERIOD 10,927,000 10,500,000
------------ ------------

CASH AT END OF PERIOD $ 1,707,000 $ 5,692,000
============ ============

SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 279,000 $ 101,000
============ ============
Income taxes $ 6,000 $ 1,300
============ ============
</Table>

See accompanying notes to financial statements.

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1. ORGANIZATION AND BASIS OF PRESENTATION

On July 18, 2001, dreamlife, inc. ("dreamlife") acquired all of the
outstanding capital stock of Discovery Toys, Inc. pursuant to a Stock
Purchase Agreement dated as of July 18, 2001, by and among dreamlife,
Discovery Toys, Inc. and the holders of all of the issued and outstanding
capital stock of Discovery Toys, Inc. (the "Discovery Toys Stockholders").
Discovery Toys, Inc. will operate as a wholly owned subsidiary of dreamlife.
Pursuant to the Stock Purchase Agreement, dreamlife issued an aggregate of
33,772,143 shares of common stock to the Discovery Toys Stockholders in
exchange for all of the issued and outstanding shares of capital stock of
Discovery Toys, Inc. The consideration paid by dreamlife for the acquisition
of Discovery Toys, Inc. was determined through arms-length negotiation by the
management of dreamlife and the majority stockholders of Discovery Toys, Inc.
Subsequent to the acquisition, the Discovery Toys Stockholders hold a
majority of the voting interests in dreamlife. As dreamlife, inc., prior to
the merger, was a public shell with no viable business operations of its own,
the transaction has been accounted for as a recapitalization of Discovery
Toys, Inc. Accordingly, the pro forma disclosures required by Statement of
Financial Accounting Standards ("SFAS") No. 141 and APB No. 16 are not
presented.

The accompanying consolidated financial statements of dreamlife, inc. include
the accounts of Discovery Toys, Inc., a California corporation ("DT") and its
wholly-owned subsidiary (collectively, DT and its subsidiary are hereinafter
referred to as "Discovery Toys") for all periods and dreamlife since July 18,
2001, and have been prepared pursuant to the rules of the Securities and
Exchange Commission ("SEC") for Quarterly reports on Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles in the United States of America. These statements
should be read in conjunction with the audited financial statements of
Discovery Toys and notes thereto for the year ended December 31, 2000
included in dreamlife's Form 8-K/A filed with the SEC on December 17, 2001.

In the opinion of management, all adjustments considered necessary for a fair
presentation have been included consisting only of normal recurring accruals.
Operating results for the three and nine-month periods ended September 30, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.

2. LIQUIDITY

dreamlife's operations are constrained by an insufficient amount of working
capital. At September 30, 2001, dreamlife has working capital of $63,000.
Further, dreamlife has experienced negative cash flows and net operating
losses for the nine months ended September 30, 2001. Due to the seasonal
nature of Discovery Toys' business, it expects to generate positive operating
cash flows during the fourth quarter. However, there can be no assurances
that future revenues of Discovery Toys will be sufficient to fund future
operations of Discovery Toys. In addition, Discovery Toys has restrictions
from its primary lender and the holder of its note payable that prohibit any
advances or dividends to dreamlife, its parent. Therefore, dreamlife is not
permitted to fund its corporate overhead or operating expenses from any
dividends or advances of Discovery Toys. Discovery Toys intends to commence
negotiations with its primary lender and the holder of its note payable to
amend the terms of the respective restrictions which prohibit Discovery Toys
from making advances, intercompany loans or paying dividends to dreamlife.
There can be no assurance that Discovery Toys' primary lender or the holder
of its note payable will agree to modify or amend the respective
restrictions. dreamlife will need additional financing to meet cash
requirements for its operations. The availability of such financing when
needed, on terms acceptable to dreamlife, if at all, is uncertain. If
dreamlife is unable to raise additional financing or generate sufficient cash
flow, dreamlife may be unable to continue as a going concern. There can be no
assurance that additional financing will be available to dreamlife or
Discovery Toys to fund its operations. For these reasons, there is
uncertainty as to whether dreamlife can continue as a going concern beyond
February 28, 2002 and as to whether Discovery Toys can continue as a going
concern through the third quarter of 2002.

3. SHARES OUTSTANDING AND NET LOSS PER SHARE

All share data has been retroactively restated based on the share exchange
rate implicit in the Discovery Toys transaction of approximately 53 shares of
dreamlife common stock for each share of Discovery Toys common stock
outstanding. The weighted-average number of shares outstanding for the three
and nine month periods ended September 30, 2001 and 2000 represent the
weighted-average number of shares outstanding based on the restated
historical shares outstanding. For the purposes of computing diluted net loss
per share, weighted average common share equivalents do not include stock
options with an exercise price that exceeds the average fair market value of
dreamlife common stock for the periods presented because the effect would be
antidilutive. Because losses were incurred for the three and nine months
ended September 30, 2001 and 2000, all options are excluded from the

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computations of diluted pro forma net loss per share because they are
antidilutive.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement No. 141, "Business Combinations", and
Statement No. 142, "Goodwill and Other Intangible Assets". Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.

dreamlife has adopted the provisions of Statement 141 as of July 1, 2001 and
will adopt Statement 142 effective January 1, 2002. When Statement 142 is
adopted, remaining unamortized negative goodwill must be written off as the
cumulative effect of a change in accounting principle. As a result, dreamlife
expects to record a benefit of approximately $3.7 million on January 1, 2002
resulting from the write-off of negative goodwill. dreamlife does not believe
there will be any additional impact from the implementation of these statements
on dreamlife financial statements.

In August 2001, the FASB also issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement, which is effective
for fiscal years beginning after December 15, 2001, addresses financial
accounting and reporting for the impairment of long-lived assets, excluding
goodwill and intangible assets, to be held and used or disposed of. dreamlife
does not expect the implementation of this standard to have a significant effect
on its results of operations or financial condition.

In April 2001, the Emerging Issues Task Force issued No. 00-25 ("EITF 00-25"),
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products", which states that consideration
from a vendor to a reseller of the vendor's products is presumed to be a
reduction of the selling prices of the vendor's products and, therefore, should
be characterized as a reduction of revenue when recognized in the vendor's
income statement. That presumption is overcome and the consideration can be
categorized as a cost incurred if, and to the extent that, a benefit is or will
be received from the recipient of the consideration. That benefit must meet
certain conditions described in EITF 00-25. The consensus should be applied no
later than in annual or interim financial statements for periods beginning after
December 15, 2001. The financial statements currently comply with EITF
00-25.

5. BALANCE SHEET COMPONENTS

Inventory consists of the following (in thousands of dollars):

SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED)
-------------- --------------

Finished goods $ 4,871,000 $3,855,000
Supplies 309,000 224,000
-------------- --------------
Net Inventory $ 5,180,000 $4,079,000
============== ==============
</Table>

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Other accrued liabilities consist of the following (in thousands):

SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED)
------------ ------------

Accrued compensation - sales consultants $ 687,000 $ 1,842,000
Accrued compensation and related expenses 830,000 629,000
Sales and use taxes payable 442,000 414,000
Deferred revenues, current portion - 393,000
Other 1,873,000 1,319,000
------------ ------------
$ 3,832,000 $ 4,597,000
============ ============
</Table>

6. BORROWING ARRANGEMENTS

In June 2001, Discovery Toys amended its line of credit agreement to extend the
maturity date of the agreement to May 2003 and eased borrowing base restrictions
by $1,250,000 from June 2001 through December 2001.

In June 2001, Discovery Toys amended its note payable agreement with Avon to
accelerate the maturity date of the note. Under the amended note agreement,
principle and related accrued interest will be due in June 2003. The remaining
unamortized discount on the note payable at June 30, 2001 of $787,000 is being
amortized into interest expense over the remaining term of the note.

Discovery Toys' line of credit agreement and the its note payable to Avon
contain restrictions that prohibit Discovery Toys from making advances to
dreamlife to cover dreamlife's overhead and operating expenses. Discovery
Toys intends to commence negotiations with its primary lender and the holder
of its note payable to amend the terms of the respective restrictions which
prohibit Discovery Toys from making advances, intercompany loans or paying
dividends to dreamlife. There can be no assurance that Discovery Toys'
primary lender or the holder of its note payable will agree to modify or
amend the respective restrictions.

7. EMPLOYMENT ARRANGEMENT

In July 2000, dreamlife entered into a employment arrangement with Peter A.
Lund, its former Chief Executive Officer pursuant to the terms of an Offer
Letter (the "Offer Letter"). The agreement also provided for a discretionary
bonus of up to $3,000,000. As a condition to the closing of the acquisition
of Discovery Toys, Inc. (see note 2), dreamlife and Peter A. Lund agreed to
amend the compensation arrangement. The amendment accelerated the vesting of
the unvested portion of the $3 million bonus provided for in the Offer Letter
and extended the payment dates of such bonus. Under the amendment, the bonus
is payable in three equal annual payments of $1 million beginning in July
2003 provided dreamlife is successful at meeting certain fundraising
targets. Otherwise, the bonus is payable in five equal payments of $600,000
beginning in July 2003. Payment of the bonus is automatically accelerated
upon Mr. Lund's employment termination, if other than for cause. The entire
$3 million liability was accrued by dreamlife on July 18, 2001 as part of
the reverse acquistion with Discovery Toys on that date.

8. EQUITY TRANSACTIONS

On June 28, 2001, Discovery Toys redeemed 2,589,764 shares of its common
stock held by Avon Products, Inc. in exchange for $1,456,000.

On June 29, 2001, Discovery Toys made a cash distribution to holders of the
Company's common stock in the aggregate amount of $4,500,000.

On July 6, 2001, Discovery Toys redeemed 86,325 shares of its common stock
held by an employee in exchange for $29,000.

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9. STOCK OPTIONS AND WARRANTS

Certain stock options granted to dreamlife employees and directors prior to
July 18, 2001 remain outstanding subsequent to Discovery Toys' reverse
acquisition of dreamlife. No value was assigned to outstanding stock options
in the accounting for the acquisition since their exercise prices were
significantly higher than the market value of dreamlife common stock at the
time of the acquisition. A summary of outstanding options is as follows:

Weighted
Average
Options Exercise
Outstanding Price
----------- --------

July 18, 2001 4,672,000 $ 6.78

Cancellations 290,000 $ 9.62
---------

September 30, 2001 4,382,000 $ 6.59
--------- -------
</Table>

Outstanding warrants to purchase dreamlife common stock on both July 18, 2001
and September 30, 2001 are as follows:

Warrants Exercise
Outstanding Price
----------- --------

400,000 $7.00
200,000 $0.75
</Table>

10. MERCHANDISING AND PROMOTION AGREEMENT

Discovery Toys entered into a merchandising and promotion agreement effective
November 1, 1999 with an internet retailer. The original term of the
agreement was 62 months. Discovery Toys received payments of $1,000,000 in
1999 and $1,500,000 in 2000 per the terms of the agreement. In 2001, the
agreement was terminated as a result of the bankruptcy of the internet
retailer. As a result, the remaining unearned revenue of $2,074,000 was
recognized as other income during the quarter ended March 31, 2001.

11. SUBSEQUENT EVENT

On December 14, 2001, dreamlife completed the acquisition of the Regal
Greetings & Gift division of MDC Corporation, Inc. for $25.4 million
thorugh its wholly owned subsidiary RGG Acquisitions, Inc. The
acquisition was made through a leveraged transaction for cash and other
compensation. dreamlife will initially own approximately 75% of Regal
Greetings & Gifts, Inc.(Canada) following the transaction. In connection with
this acquisition, dreamlife borrowed approximately $6.5 million pursuant to
short term notes payable in April 2002. dreamlife invested the $6.5 million
into Regal Greatings & Gifts, Inc.(Canada). Additional indebtedness of
approximately $17.0 million was incurred by Regal Greeting & Gifts,
Inc.(Canada).

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS, WHICH
INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS
QUARTERLY REPORT ON FORM 10-Q THAT ARE NOT PURELY HISTORICAL MAY BE CONSIDERED
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING
WITHOUT LIMITATION, STATEMENTS REGARDING THE 10-Q EXPECTATIONS, BELIEFS,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS.

OVERVIEW

On July 18, 2001, dreamlife, inc. ("dreamlife") acquired all of the
outstanding capital stock of Discovery Toys, Inc. Discovery Toys, Inc.
pursuant to a Stock Purchase Agreement dated as of July 18, 2001, by and
among dreamlife, Discovery Toys, Inc. and the holders of all of the issued
and outstanding capital stock of Discovery Toys, Inc. (the "Discovery Toys
Stockholders"). Discovery Toys, Inc. will operate as a wholly owned
subsidiary of dreamlife. Pursuant to the Stock Purchase Agreement, dreamlife
issued an aggregate of 33,772,143 shares of common stock to the Discovery
Toys Stockholders in exchange for all of the issued and outstanding shares of
capital stock of Discovery Toys, Inc. (the "Acquisition"). The consideration
paid by dreamlife for the acquisition of Discovery Toys, Inc. was determined
through arms-length negotiation by the management of dreamlife and the
majority stockholders of Discovery Toys, Inc. Subsequent to the acquisition,
the Discovery Toys Stockholders hold a majority of the voting interests in
dreamlife. As dreamlife, inc., prior to the merger, was a public shell with
no viable business operations of its own, the transaction has been accounted
for as a recapitalization of Discovery Toys, Inc. Accordingly, the pro forma
disclosures required by Statement of Financial Accounting Standards ("SFAS")
No. 141 and APB No. 16 are not presented.

Discovery Toys is a multi-level marketer of approximately 200 products
including toys, games, books, and software through a network of approximately
30,000 independent educational consultants ("EC's") in the United States and
Canada. Lane Nemeth, a former daycare director, who recognized the need for
high quality educational toys in the market place, founded Discovery Toys in
1978. Discovery Toys' principal offices are located in Livermore, California,
and its geographic markets primarily encompass the United States and Canada.

Discovery Toys uses a sales force of independent sales representatives to
distribute products directly to consumers. This technique uses catalogs
developed by Discovery Toys and live product demonstrations given at hostess
parties to promote product sales. Discovery Toys uses a multi-level marketing
plan to provide career opportunities to parents and others who are recruited
as educational consultants while providing them the flexibility of being an
independent sales representative.

Products are developed and designed in-house or sourced from an independent
designer or vendor. Product is sourced domestically as well as from Asia and
Europe. Products are tested to ensure educational quality, play value,
durability and safety. Products are also categorized by age level with a focus
to grow a child's natural interests, developmental level, and evolving learning
style.

Products are distributed from Discovery Toys' automated warehouse facility in
Livermore, California. Orders from educational consultants are received via
phone, fax, mail and internet, fulfilled from inventory by its automated
line, and shipped to the educational consultants or party hostess for final
distribution to the consumer.

Prior to January 15, 1999, Discovery Toys was a wholly owned subsidiary of Avon
Products, Inc. ("Avon"). On January 15, 1999, in accordance with the terms of a
Stock Transfer Agreement, Avon transferred 90% of the outstanding stock of
Discovery Toys to a new shareholder group. No consideration was paid in
connection with the transfer. Immediately prior to the transfer, Avon
contributed $3.8 million in additional working capital to Discovery

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Toys, forgave $6.9 million in inter-company debt, and provided financing to
Discovery Toys in the amount of $3.5 million (Note 6).

RESULTS OF OPERATIONS

Sales. Sales for the three months ended September 30, 2001 and the nine
months ended September 30, 2001 were $8,123,000 and $22,800,000,
respectively, compared to sales of $9,042,000 and $22,648,000 for the
comparable periods in 2000. Sales were primarily generated through the sales
of educational toys, books, games, software and related shipping charges. Due
to the seasonal nature of the Discovery Toys' business, approximately 50% of
annual sales are made in the fourth quarter.

Sales for the three-month period ended September 30, 2001 declined
approximately 10% or $919,000 from the comparable period during the prior
year. Sales in the prior year quarter included sales to an internet retailer
of $569,000 while no sales were realized in the current quarter by Discovery
Toys as such internet retailer filed for bankruptcy and Discovery Toys
terminated its agreement with such internet retailer. There was also a
decline in order count of approximately 7% largely attributable to a decline
in recruiting as measured by sales of new EC kits for the three month period,
part of which was offset by a slight improvement in the average dollar amount
of orders. dreamlife believes that sales in late September were hindered to
some extent by the terrorist attack of September 11, 2001.

Sales for the year-to-date period ended September 30, 2001 exceeded the
comparable period of the prior year by $152,000 or 1% mainly through an
increase in average order value of approximately 5% that more than offset a
less than 1% drop in total number of orders and the $627,000 or 3% loss of
sales to the internet retailer who was active in the prior year. Sales of this
year's new product introductions have exceeded those introduced during the
prior year-to-date period.

dreamlife believes that the recruitment of new EC's and the number of EC's
that generate sales are two key measures of sales activity. While recruiting
as reflected by sales of new EC kits was down by approximately 18% during the
year-to-date period ending September 30, 2001 from recruiting in the
comparable period of 2000, the total number of EC's generating sales was down
less than 6%, indicating more activity from those EC's recruited. Total order
count was down less than 1% for the nine months ended September 30, 2001 as
compared to total order count during the comparable period of 2000.

Cost of sales. Cost of sales declined as a percent of sales for the three
months ended September 30, 2001 compared to the three months ended September
30, 2000 from 63.3 to 60.8 of sales. Less promotional discounting of products
along with improvements in shipping and handling costs contributed to the
improvement. Costs of sales for the nine month period ended September 30,
2001 showed a similar trend declining from 63.8 percent of sales in the first
nine months of 2000 to 60.3 percent for the first nine months of 2001.

Sales and marketing. Sales and marketing expenses for the quarter ended
September 30, 2001 were $1,950,000, a 1% decline from the quarter ended
September 30, 2000. The slight decrease was mostly due to lower salary
expense resulting from an open executive position at Discovery Toys that we
expect to fill in the near future.

For the nine months ended September 30, 2001 sales and marketing expenses
increased by $244,000 compared to the comparable period for 2001 due to
increased noncash incentives offered to our EC's in connection with the
Company's annual conference and increased credit card processing fees
resulting from a rise in orders placed through the internet by the EC's in
2001.

General and Administrative. General and administrative expenses increased
from $2,126,000 to $2,479,000 from the quarter ended September 30, 2000 to
the quarter ended September 30, 2001. Additional expenses were largely
related to corporate overhead costs associated with the maintenance of
dreamlife of $350,000. dreamlife expects to continue to incur higher
administrative costs due to dreamlife overhead and other costs associated
with dreamlife's obligation to make public filings pursuant to applicable
securities laws, but will continue to make efforts to streamline such costs.

General and Administrative expenses for the nine months ended September 30,
2001 were $7,186,000, a $457,000 increase over costs incurred in the same
period for 2000. Again additional overhead related to dreamlife after the
Acquisitiion was the major contributor.

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Amortization of negative goodwill. Negative Goodwill represents the excess of
the fair value of the net assets over the purchase price resulting from the
acquisition of Discovery Toys in January 1999. dreamlife is amortizing
negative goodwill over a ten-year period using the straight-line method.

Interest Expense and Interest Income - Interest expense, net of interest income,
for the third quarter of 2001 was $173,000 and $465,000 for the first nine
months of 2001 compared to net interest expense of $70,000 for the third quarter
of 2000 and $167,000 for the first nine months of 2000. The increase in net
interest expense is primarily due to increased line of credit use and lower cash
balances due to the stock repurchase and shareholder distribution prior to the
dreamlife acquisition.

Other Income (Expense) - Other income for the third quarter 2001 was
insignificant. For the nine months ended September 30, 2001 other income was
primarily attributable to the recognition of the remaining $2,074,000 of
unearned revenue due to the default of the internet retailer which
effectively terminated the merchandising and promotion agreement with
Discovery Toys (Note 10).

Other income of $207,000 for the third quarter of 2000 and $505,000 for the
first nine months of 2000 are primarily related to the ratable recognition of
revenue resulting from the merchandising and promotion agreement.

Provision for Income Taxes - Provisions for taxes were immaterial for the
current and prior years third quarter and nine months ended as credits
generated by pretax losses were offset by valuation allowances based on the
ability to use such credits.

LIQUIDITY AND CAPITAL RESOURCES

During the nine-month period ended September 30, 2001, we used approximately
$6.1 million of cash in operating activities, primarily due to net losses
incurred during the period and purchases of inventory in anticipation of
fourth quarter sales, which historically have amounted to roughly 50% of
annual revenue. As a result of the Acquistion in July 2001, we began
incurring increased expenditures for facility rent and salaries. These
additional costs are expected to be no more than $350,000 per quarter.

During the nine-month period ended September 30, 2001, we used approximately
$3.1 million for investing and financing activities. This is comprised of
$4.5 million of dividends paid to the common stockholders of Discovery Toys
prior to the Acquisition, $1.5 million paid to repurchase common stock of
Discovery Toys prior to the Acquisition. The use of funds were partially
offset by the receipt of $1.3 million in cash as part of the Acquisition. We
also had net borrowings of $1,756,000 from the Discovery Toys line of credit,
which we renegotiated in June 2001. Under the terms of the renegotiated line
of credit, the maturity date of the agreement was

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extended to May 2003 and borrowing base restrictions were eased by $1,250,000
from June 2001 through December 2001.

At September 30, 2001, we had working capital of approximately $63,000,
compared to $8.1 million at December 31, 2000. The primary reasons for the
lower working capital position at September 30, 2001 are: i) the $4.5 million
dividend paid to common stockholders of Discovery Toys prior to the
Acquisition; ii) the $1.5 million paid to repurchase common stock from
Discovery Toys' stockholders prior to the Acquisition during the period; and
iii) an increased seasonal investment in inventory. We expect that our
investment in inventory will decline during the fourth quarter based on our
historic seasonal sales patterns.

Discovery Toys has restrictions from its primary lender and Avon that
prohibit advances to dreamlife to cover its corporate overhead and operating
expenses. Discovery Toys intends to commence negotiations with its primary
lender and the holder of its note payable to amend the terms of the
respective restrictions which prohibit Discovery Toys from making advances,
intercompany loans or paying dividends to dreamlife. There can be no
assurance that Discovery Toys' primary lender or the holder of its note
payable will agree to modify or amend the respective restrictions. dreamlife
had $788,000 of separately available cash as of September 30, 2001, and
separate current liabilities of $900,000. Based on dreamlife's current
overhead expenses, it may not have cash available to operate beyond February
28, 2002, unless it is able to modify the terms of the bank line of credit
and note payable to Avon to allow cash advances from Discovery Toys to
dreamlife. dreamlife will need additional financing to meet cash requirements
for its operations. The availability of such financing when needed, on terms
acceptable to dreamlife, if at all, is uncertain. If dreamlife is unable to
raise additional financing or generate sufficient cash flow, dreamlife may be
unable to continue as a going concern. dreamlife is also attempting to
generate funds through the sale of assets no longer in use and is continuing
to attempt to reduce operating expenses.

dreamlife must raise additional capital to execute its new strategy as a
holding company for consumer products companies. Discovery Toys is a highly
seasonal business and was able to negotiate relaxed borrowing requirements
from its primary lender through December 31, 2001. Discovery Toys anticipates
the need for some relief of its borrowing requirements from its lender during
the next twelve month business cycle or the receipt of cash advances from
dreamlife should dreamlife be able to raise additional capital. There can be
no assurance that dreamlife will be able raise any additional capital.

As of September 30, 2001, Discovery Toys' principal sources of liquidity
consisted of approximately $900,000 of cash and cash equivalents, and
borrowings available of approximately $300,000 under its existing banking
line of credit, subject to borrowing base restrictions.

dreamlife does not have any material commitments for capital equipment.

On December 14, 2001, dreamlife completed the acquisition of the Regal
Greetings & Gift division of MDC Corporation, Inc. for approximately $25.4
million through its wholly owned subsidiary RGG Acquisitions, Inc. The
acquisition was made through a leveraged transaction for cash and other
compensation. dreamlife will initially own approximately 75% of Regal
Greetings & Gifts, Inc.(Canada) following the transaction. In connection with
this acquisition, dreamlife borrowed approximately $6.5 million pursuant to
short term notes payable in April 2002. dreamlife invested the $6.5 milllion
into Regal Greetings & Gifts, Inc.(Canada). Additional indebtedness of
approximately $17.0 million was incurred by Regal Greeting & Gifts,
Inc.(Canada). Regal Greetings & Gifts, Inc.(Canada) is currently a profitable
operation and dreamlife expects the profitability to continue into the
future. Management believes that the Regal Greetings & Gifts, Inc.(Canada)
acquisition will facilitate dreamlife's ability to execute its new strategy
as an acquisition and management corporation for consumer product companies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

dreamlife is exposed to changes in foreign currency exchange rates as a
result of its subsidiary in Canada. dreamlife uses the U.S. dollar as its
functional currency. Foreign currency assets and liabilities are re-measured
into the U.S. dollar functional currency using end-of-period exchange rates
for monetary assets and liabilities and historical exchange rates for
non-monetary assets and liabilities. Gains and losses from remeasurement of
monetary assets and liabilities are included in net earnings. Foreign
currency revenues and expenses are remeasured at average exchange rates in
effect during each period. dreamlife does not hedge currency risk.

dreamlife determines its market risk from fluctuations in foreign currency
exchange rates utilizing sensitivity analysis, which measures the potential
losses in fair value resulting from one or more selected hypothetical changes
in foreign currency exchange rates. dreamlife does not presently believe it
has material exposure to potential changes in foreign currency exchange
rates. dreamlife outstanding debt bears interest at a fixed rate and
dreamlife is not exposed to changes in interest rates.

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PART II
OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Discovery Toys' line of credit and its note payable to Avon prohibit
Discovery Toys from making advances or paying dividends to dreamlife for
dreamlife's working capital purposes. Discovery Toys intends to commence
negotiations with its primary lender and the holder of its note payable to
amend the terms of the respective restrictions which prohibit Discovery Toys
making advances, intercompany loans or paying dividends to dreamlife. There
can be no assurance that Discovery Toys' primary lender or the holder of its
note payable will agree to modify or amend the respective restrictions.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

Exhibit
Number Description and Method of Filing
--------- --------------------------------

2.1 Stock Purchase Agreement dated as of July 18, 2001,
among dreamlife, inc., Discovery Toys, Inc. and the
Discovery Toys, Inc. shareholders named therein (1)

2.2 Note Exchange Agreement dated as of July 18, 2001,
between dreamlife, inc. and CYL Development Holdings,
LLC (1)

3.1(i) Restated Certificate of Incorporation (2)

3.1(ii) Amended and Restated By-laws (1)

3.2(i) Certificate of Amendment to Certificate of Incorporation
dated June 18, 1987 (3)

3.3(i) Certificate of Amendment to Certificate of Incorporation
dated November 17, 1989 (4)

3.4(i) Certificate of Amendment to Certificate of Incorporation
filed November 3, 1999 (5)

3.5(i) Certificate of Amendment to Certificate of Incorporation
filed December 13, 1999 (6)

4.1 Registration Rights Agreement dated as of July 18, 2001,
among dreamlife, inc. and the Discovery Toys, Inc.
shareholders named therein (1)

4.2 Termination Agreement dated July 18, 2001, among
dreamlife, inc., Anthony J. Robbins, Robbins Research
International, Inc. and CYL Development Holdings, LLC
(1)

10.1 Grid Time Promissory Note to The Chase Manhattan Bank
for $2,000,000 dated January 15, 2001 (7).

10.2 Grid Time Promissory Note to The Chase Manhattan Bank
for $2,250,000 dated March 9, 2001 (7)

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10.3 Grid Time Promissory Note to The Chase Manhattan Bank
for $2,400,000 dated April 26, 2001 (8)

10.4 Surrender Agreement by and between CFG/AGSCB 75 Ninth
Avenue, LLC and dreamlife, inc. dated January 23, 2001
(7)

10.5 Grid Time Promissory Note to Van Beuren Management, Inc.
for $50,000 dated April 12, 2001 (7)

10.6 Modification to Peter A. Lund Offer Letter dated July
18, 2001, between dreamlife, inc. and Peter A. Lund (1)

10.7 Amendment to Content Provider and License Agreement
dated as of July 10, 2001 between Anthony J. Robbins,
Robbins Research International, Inc. and dreamlife, inc.
(1)

10.8 Revolving Credit and Security Agreement dated as of June
1, 1999 between Discovery Toys, Inc. and PNC Bank,
National Association (9)

10.9 Amendment No.1 to Revolving Credit and Security
Agreement dated as of June 1, 1999 between Discovery
Toys, Inc. and PNC Bank, National Association (9)

10.10 Amended Promissory Note from Discovery Toys, Inc. to
Avon Products, Inc. for $3,500,000 dated June 28, 2001
(9).

10.11 Reimbursement Agreement dated as of July 1, 1999 between
IFS of New Jersey, Inc. and Discovery Toys, Inc. (9)

10.12 Employment Agreement dated as of January 15, 1999
between Discovery Toys, Inc. and Lane Nemeth (9)

10.13 Agreement for Management Consulting Services dated as of
January 15, 1999 among Discovery Toys, Inc., William
S. Walsh and McGuggan L.L.C. (9)

10.14 Assignment of Agreement for Management Consulting
Services dated as of February 15, 2001 among Discovery
Toys, Inc., William S. Walsh, McGuggan L.L.C. and
Discovery Toys L.L.C. (9)

10.15 Employment Agreement dated as of January 1999 between
Discovery Toys, Inc. and Thomas C. Zimmer (9)

10.16 Agreement, dated as of June 28, 2001 by and among
Discovery Toys, L.L.C., Avon Products, Inc.,
Discovery Toys, Inc. and William S. Walsh. (9)

10.17 Restated Asset and Share Purchase Agreement dated as of
December 4, 2001 among MDC Corporation Inc., Regal
Greetings & Gifts Corporation and McGuggan, LLC. (9)

10.18 Amending Agreement dated as of December 14, 2001 among
MDC Corporation Inc., Regal Greetings & Gifts
Corporation and McGuggan LLC. (9)

10.19 Agreement for Management Consulting Services dated as
of December 14, 2001 by and between Regal Greetings &
Gifts Corporation and dreamlife, inc. (9)

10.20 Employment Agreement dated as of December 12, 2001 by
and between Regal Greetings & Gifts Corporation and
Janice Wadge. (9)

10.21 Employment Agreement dated as of December 12, 2001 by
and between Regal Greetings & Gifts Corporation and
Kevin Watkinson. (9)

10.22 Promissory Note dated as of December 14, 2001 made by
Regal Greetings & Gifts Corporation and issued to MDC
Corporation Inc. (9)

10.23 Secured $3,500,000 Bridge Loan Promissory Note dated as
of December 14, 2001 made by dreamlife, inc. and issued
to DL Holdings I, L.L.C. (9)

10.24 Secured $3,000,000 Bridge Loan Promissory Note dated as
of December 14, 2001 made by dreamlife, inc. and issued
to Weichert Enterprises, LLC (9)

10.25 dreamlife, inc. Common Stock Purchase Warrant dated as
of December 14, 2001 issued to Weichert Enterprises,
LLC. (9)

10.26 dreamlife, inc. Common Stock Purchase Warrant dated as
of December 14, 2001 issued to DL Holdings I, L.L.C. (9)

10.27 Letter of Commitment dated December 5, 2001 issued by
The Bank of Nova Scotia to Regal Greetings & Gifts
Corporation. (9)

10.28 Acknowledgement to The Bank of Nova Scotia Re: Survival
of Letter of Commitment dated December 14, 2001 by and
among Regal Greetings & Gifts Corporation, MDC Regal
Inc. and Primes De Luxe Inc. (9)

10.29 Debenture dated as of December 14, 2001 issued to RoyNat
Capital Inc. by Regal Greetings & Gifts Corporation. (9)

10.30 Warrants To Acquire Common Shares in Regal Greetings &
Gifts Corporation dated as of December 14, 2001 issued
to RoyNat Capital Inc. (9)

- ----------

(1) Incorporated by reference to the registrant's Current Report on Form
8-K filed on August 1, 2001.

(2) Incorporated by reference from Exhibit 3.1 to the registrant's
Registration Statement No. 33-4532-W on Form S-18.

(3) Incorporated by reference from Exhibit 3(b) to the registrant's 1987
Annual Report on Form 10-K.

(4) Incorporated by reference to Exhibit 3(c) to the registrant's 1988
Annual Report on Form 10-K.

(5) Incorporated by reference to the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999.

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(6) Incorporated by reference to the registrant's Form 8-K/A dated May
27, 1999 and filed with the Securities and Exchange Commission as of
June 11, 1999.

(7) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 2000.

(8) Incorporated by reference to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001.

(9) Filed herewith.

(b) Reports on Form 8-K

On August 1, 2001 Dreamlife filed a report on Form 8-K dated August 1,
2001 under Item 1 (Change in Control of Registrant), Item 2 (Acquisition or
Disposition of Assets), Item 5 (Other Events) and Item 7 (Financial
Statements of Business Acquired) to report the Discovery Toys acquisition and
certain transactions consummated in connection therewith, which was amended
through the filing by Dreamlife of a report on Form 8-K/A dated December 17,
2001.

On November 13, 2001 Dreamlife filed a report on Form 8-K dated November
6, 2001 under Item 4 to report a change in Dreamlife's certifying accountant.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

DREAMLIFE, INC.

Dated: December 21, 2001 By: /s/ Jack Hood
----------------------------- ---------------------------
Jack Hood
Chief Financial Officer and
Treasurer

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EXHIBIT INDEX