<Page>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) December 27, 2001
-----------------------
EOS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-15586 52-1373960
- -------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE (IRS EMPLOYER
OF INCORPORATION) NUMBER) IDENTIFICATION NO.)
888 SEVENTH AVENUE, 13TH FLOOR, NEW YORK, NEW YORK 10106
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 887-6869
-----------------------------
NOT APPLICABLE
--------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<Page>
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Audited Financial Statements of Regal Greetings & Gifts, a
Canadian Corporation, including Balance Sheets as of December
29, 2000 and 1999, Statements of Operations and Cash Flows for
the Years Ended December 2000, 1999, and 1998 and the
Independent Auditors Report are included as part of this Form
8-K/A as attachment 7(a)(1) and are incorporated herein by
reference.
Unaudited financial statements of Regal Greetings & Gifts for
the nine month periods ended September 28, 2001 and September
29, 2001 are included as part of this Form 8-K/A as attachment
7(a)(2) and are incorporated herein for reference.
(b) Pro Forma Financial Information
Pro Forma consolidated financial statements of Eos
International, Inc. are included as part of this Form 8-K/A as
attachment 7(b) and are incorporated herein for reference.
Description of the Transaction;
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2001; and
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the Nine Months Ended September 30, 2001 and
the Year Ended December 31, 2000.
(c) Exhibits
<Table>
<Caption>
EXHIBIT NO. TITLE
- ----------- -----
2.1 Restated Asset and Share Purchase Agreement dated as of December 4,
2001 among MDC Corporation Inc. and Regal Greetings & Gifts
Corporation and McGuggan, LLC. (1)
2.2 Amending Agreement dated as of December 14, 2001 between MDC
Corporation Inc. and Regal Greetings & Gifts Corporation and
McGuggan LLC. (1)
10.1 Agreement for Management Consulting Services dated as of December
14, 2001 by and between Regal Greetings & Gifts Corporation and
Dreamlife, Inc. (1)
10.2 Employment Agreement dated as of December 12, 2001 by and between
Regal Greetings & Gifts Corporation and Janice Wadge. (1)
10.3 Employment Agreement dated as of December 12, 2001 by and between
Regal
<Page>
Greetings & Gifts Corporation and Kevin Watkinson. (1)
10.4 Promissory Note dated as of December 14, 2001 made by Regal
Greetings & Gifts Corporation and issued to MDC Corporation Inc.
(1)
10.5 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. (1)
10.6 Secured $3,000,000 Bridge Loan Promissory Note dated as of December
14, 2001 made by Dreamlife, Inc. and issued to Weichert
Enterprises, LLC (1)
10.7 Dreamlife, Inc. Common Stock Purchase Warrant dated as of December
14, 2001 issued to Weichert Enterprises, LLC. (1)
10.8 Dreamlife, Inc. Common Stock Purchase Warrant dated as of December
14, 2001 issued to DL Holdings I, L.L.C. (1)
10.9 Letter of Commitment dated December 5, 2001 issued by The Bank of
Nova Scotia to Regal Greetings & Gifts Corporation. (1)
10.10 Acknowledgement to The Bank of Nova Scotia Re: Survival of Letter
of Commitment dated December 14, 2001 by and between Regal
Greetings & Gifts Corporation, MDC Regal Inc. and Primes De Luxe
Inc. (1)
10.11 Debenture dated as of December 14, 2001 issued to RoyNat Capital
Inc. by Regal Greetings & Gifts Corporation. (1)
10.12 Warrants To Acquire Common Shares in Regal Greetings & Gifts
Corporation dated as of December 14, 2001 issued to RoyNat Capital
Inc. (1)
99.1 Press Release of the Registrant dated December 17, 2001. (1)
</Table>
(1) INCORPORATED BY REFERENCE TO THE QUARTERLY REPORT ON 10-Q OF EOS
INTERNATIONAL, INC. FORMERLY KNOWN AS dreamlife, inc. FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2001
<Page>
ATTACHMENT 7(A)(1)
REGAL GREETINGS & GIFTS
INDEX TO FINANCIAL STATEMENTS PAGE
----
Independent Auditors Report 2
Balance Sheets as of December 29, 2000 and 1999 3
Statements of Operations, Comprhensive Income/(Loss) and Divisional
Equity for the Years Ended December 29th 2000 , 1999 and 1998 4
Statements of Cash Flows for Years Ended December 29th 2000, 1999,
and 1998 5
Summary of Significant Accounting Policies 6
Notes to Financial Statements 10
<Page>
================================================================================
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
EOS INTERNATIONAL, INC. AND MDC CORPORATION INC.
RE: REGAL GREETINGS & GIFTS
We have audited the combined balance sheets of the Regal Greetings & Gifts as at
December 29, 2000 and 1999 and the combined statements operations, comprehensive
income (loss) and equity and combined cash flows for each of the years in the
three-year period ended December 29, 2000. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with United States of America generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of the Company as at December 29, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 29, 2000 in accordance with
Canadian generally accepted accounting principles.
(signed) BDO Dunwoody LLP
Chartered Accountants
Markham, Ontario
January 31, 2002
2
<Page>
================================================================================
REGAL GREETINGS & GIFTS
COMBINED BALANCE SHEETS
(in thousands of U.S. dollars)
<Table>
<Caption>
2000 1999
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 3,003 $ 2,419
Accounts receivable (Note 1) 617 802
Inventories (Note 2) 9,465 16,080
Prepaid expenses 2,219 2,161
-----------------
15,304 21,462
FUTURE TAX ASSETS (Note 3) 1,057 1,255
CAPITAL ASSETS (Note 4) 5,162 5,920
GOODWILL (Note 5) 26,846 28,706
-----------------
$48,369 $57,343
================================================================================
LIABILITIES AND EQUITY
CURRENT
Accounts payable $ 1,894 $ 3,889
Accrued liabilities (Note 6) 2,890 3,942
Current portion of obligation under capital lease (Note 7) 11 12
-----------------
4,795 7,843
OBLIGATION UNDER CAPITAL LEASE (Note 7) 26 41
-----------------
4,821 7,884
-----------------
COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 11)
EQUITY
Equity, including cumulative translation adjustment of
($4,048) and ($2,258) respectively 43,548 49,459
-----------------
$48,369 $57,343
================================================================================
</Table>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
3
<Page>
================================================================================
REGAL GREETINGS & GIFTS
COMBINED STATEMENTS OF OPERATIONS, COMPREHENSIVE
Income (Loss) AND EQUITY
(in thousands of U.S. dollars)
<Table>
<Caption>
FOR THE YEAR ENDED 2000 1999 1998
- --------------------------------------------------------------------------------
SALES $ 55,714 $ 53,394 $ 46,436
COST OF SALES 27,795 28,448 26,634
---------------------------------
GROSS PROFIT 27,919 24,946 19,802
---------------------------------
OPERATING EXPENSES
Sales and marketing 16,053 14,434 14,749
General and administrative 7,361 7,343 5,755
Depreciation 1,312 855 615
Amortization of goodwill 805 805 807
---------------------------------
25,531 23,437 21,926
---------------------------------
INCOME (LOSS) FROM OPERATIONS 2,388 1,509 (2,124)
---------------------------------
OTHER INCOME (EXPENSE)
Interest income 40 95 33
Interest expense (7) (1) -
---------------------------------
33 94 33
---------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,421 1,603 (2,091)
---------------------------------
INCOME TAXES (RECOVERY)
Current 914 794 (375)
Future 142 (79) (558)
---------------------------------
1,056 715 (933)
---------------------------------
NET INCOME (LOSS) FOR THE YEAR 1,365 888 (1,158)
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustment (1,790) 2,801 (3,240)
---------------------------------
COMPREHENSIVE INCOME (LOSS) (425) 3,689 (4,398)
EQUITY, beginning of year 49,459 40,533 38,914
---------------------------------
49,034 44,222 34,516
CAPITAL CONTRIBUTIONS (DISTRIBUTIONS) (5,486) 5,237 6,017
---------------------------------
EQUITY, end of year $ 43,548 $ 49,459 $ 40,533
================================================================================
</Table>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
4
<Page>
<Table>
<Caption>
====================================================================================
REGAL GREETINGS & GIFTS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
FOR THE YEAR ENDED 2000 1999 1998
- ------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the year $ 1,365 $ 888 $(1,158)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 1,312 855 615
Amortization of goodwill 805 805 807
Loss on disposal of capital assets 13 259 -
Future income taxes 142 (79) (558)
Changes in non-cash working capital
balances
Accounts receivable 157 81 182
Inventories 6,079 (4,853) 435
Prepaid expenses (139) (120) 250
Accounts payable and accrued liabilities (2,785) 1,079 (4,013)
------------------------------
6,949 (1,085) (3,440)
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of capital assets 69 - -
Purchase of capital assets (850) (2,534) (1,860)
------------------------------
(781) (2,534) (1,860)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions (distributions) (5,486) 5,237 6,017
Repayment of capital lease obligation (15) (5) (6)
Repayment of short-term borrowings - - (2)
------------------------------
(5,501) 5,232 6,009
------------------------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (83) 91 (28)
------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS
DURING THE YEAR 584 1,704 681
CASH AND CASH EQUIVALENTS, beginning of year 2,419 715 34
------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 3,003 $ 2,419 $ 715
====================================================================================
</Table>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
5
<Page>
================================================================================
REGAL GREETINGS & GIFTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
NATURE OF BUSINESS Regal Greetings & Gifts (a division of MDC
Corporation Inc. ("MDC") (an Ontario
Corporation)) and Prime De Luxe Inc. (a
subsidiary of MDC Corporation Inc.)
collectively "Regal Greetings & Gifts" (the
"Company") are in the business of direct
sales through a network of approximately
422,000 independent sales representatives.
The Company's principal offices are located
in Mississauga, Ontario and its geographic
market primarily encompasses Canada.
Historically the Company operated as a
separate business of MDC.
The Company uses a sales force of
independent sales representatives to
distribute products directly to consumers.
This technique uses catalogs developed by
the Company to promote product sales.
BASIS OF PRESENTATION The financial statements contain the
combined net assets of Regal Greetings &
Gifts and Prime De Luxe Inc. and the actual
combined historical results of operations of
the Company. Amounts previously classified
as advances from MDC have been reclassified
as part of equity. Such amounts are
not obligations to be assumed by the
purchaser. Management of the Company
believes all corporate expenses have been
included in operating expenses for the
periods presented. These financial
statements have been prepared in accordance
with Canadian generally accepted accounting
principles. Management believes that there
are no significant reconciling items to
conform to accounting principles generally
accepted in the United States of America.
FISCAL YEAR The Company's fiscal year consists of a
fifty-two or fifty-three week period ending
on the Friday closest to December 31.
INVENTORIES Finished goods, work in process and raw
materials are stated at the lower of cost or
market. Cost is generally determined on a
first in, first out basis.
USE OF ESTIMATES The preparation of financial statements in
accordance with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
the reported amounts of assets and
liabilities at the date of the financial
statements, and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
management's best estimates as additional
information becomes available in the future.
Such differences could be material and
affect the results of operations reported in
future periods.
6
<Page>
================================================================================
REGAL GREETINGS & GIFTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
CAPITAL ASSETS Capital assets are stated at cost less
accumulated depreciation.
Depreciation is provided over the estimated
useful life of the asset on a straight-line
or accelerated rate basis over the following
periods:
Computer equipment - 3 - 10 years
Furniture and fixtures - 10 years
Leasehold improvements - Term of the lease
Machinery and equipment - 10 years
GOODWILL Goodwill is stated at cost less accumulated
amortization. The Company amortizes goodwill
on a straight-line basis over 40 years. The
carrying value of goodwill is assessed
annually by reviewing the estimated future
undiscounted cash flows of the underlying
business of the Company. Any permanent
impairment in the carrying value of goodwill
is expensed in the period in which the
assessment is made.
REVENUE RECOGNITION Revenue is recognized when the product is
delivered, which is when legal title and
risk of loss are transferred to the
Company's independent sales representatives.
The Company's sales representatives can
return products within 30 days from the date
of sale. The Company records provisions for
estimated returns based on historical
experience.
The Company maintains an incentive bonus
plan in which all independent sales
representatives participate. Under the plan,
representatives receive purchase price
discounts and earn awards based on
individual sales performance. Purchase price
discounts and awards are determined and
accrued for on an annual basis, and are
reflected as a reduction of revenues in the
period they are earned. Purchase price
discounts and awards under the incentive
bonus plan were $23,262, $21,492 and $16,106
for 2000, 1999 and 1998 respectively.
The Company provides coupons to sales
representatives that can be used towards the
purchase of Company products. When coupons
are provided in conjunction with the sale of
products, the Company allocates the sales
proceeds between the fair values of the
products and the value of the coupon based
on estimated redemption rates. When coupons
are provided as incentives to sales
representatives or in conjunction with the
sale of products, the Company accrues the
value of the coupon based on estimated
redemption rates as a sales and marketing
expense. The value of these coupons is not
significant to these financial statements.
7
<Page>
================================================================================
REGAL GREETINGS & GIFTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
SEASONALITY The Company operates within a highly
seasonal industry whereby approximately 42%
of its sales are earned during the months of
October through December.
SHIPPING AND HANDLING COSTS The Company records shipping and handling
fees billed to customers as revenue included
in net sales. Costs associated with shipping
and handling activities are comprised of
outbound freight, associated direct labour
costs and cartons/supplies, and are recorded
in cost of goods sold.
ADVERTISING COSTS Direct response advertising costs,
consisting principally of catalog
preparation, printing and postage costs are
capitalized and amortized over the period of
benefit, generally three to six months.
Advertising costs of $4,058 in 2000, $3,782
in 1999 and $3,600 in 1998 are included in
the accompanying statements of operations.
Prepaid catalog costs included in prepaid
expenses at December 31, 2000 and 1999
totaled $1,487 and $1,395, respectively.
INCOME TAXES Regal Greetings & Gifts (a division of MDC
Corporation Inc. ("MDC") (an Ontario
Corporation)) results of operations have
been included in the MDC income tax returns.
Regal Greetings & Gifts (a division of MDC
Corporation Inc. ("MDC") (an Ontario
Corporation)) is not a tax-paying entity,
the operating results include an estimated
tax provision based on enacted tax rates in
effect and estimated taxable income. The
resulting income tax liability/recovery has
been included as an increase/decrease of
equity.
PENSIONS The cost of pension benefits earned by
employees covered under the defined benefit
component of the pension plan is determined
using the projected benefits method prorated
in service. This cost reflects management's
best estimates of the pension plan's
expected investment yields, salary
escalation, mortality of members and the
ages at which members will retire.
FOREIGN CURRENCY The Company uses the Canadian dollar as its
functional currency. Translation adjustments
which result from the process of translating
foreign currency financial statements to
U.S. dollars, are included as a component of
equity. Transaction gains and losses,
which have not been material to date,
are included in the accompanying statement
of operations.
8
<Page>
================================================================================
REGAL GREETINGS & GIFTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS The Company's financial instruments consist
of amounts with short term maturities and
obligation under capital lease. Unless
otherwise noted, it is management's opinion
that the Company is not exposed to
significant interest, currency or credit
risks arising from these financial
instruments. The fair values of these
financial instruments approximate their
carry values, unless otherwise noted.
CASH AND CASH EQUIVALENTS The Company considers all cash and highly
liquid investments purchased with an initial
maturity of three months or less to be cash
or cash equivalents.
All the Company's cash is held by three
multi-national banks.
The Company maintains its cash in bank
deposit accounts that, at times, may exceed
federally insured limits. The Company has
not experienced any losses in such accounts
and believes it is not exposed to any
significant credit risks on cash and cash
equivalents.
STATEMENT OF CASH FLOWS The cash paid for interest is not
significantly different than the interest
expense presented on the combined statements
of operations. No income taxes were paid in
2000, 1999 or 1998.
9
<Page>
================================================================================
REGAL GREETINGS & GIFTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ACCOUNTS RECEIVABLE
<Table>
<Caption>
2000 1999
---------------
Trade $ 714 $ 841
Non-trade 55 28
Volume rebates 57 123
Allowance for doubtful accounts (209) (190)
---------------
$ 617 $ 802
===============
</Table>
The carrying value of accounts receivable approximates fair value because of
the short maturity of these instruments and because they are subject to
normal credit terms.
2. INVENTORIES
<Table>
<Caption>
2000 1999
----------------
Raw materials $ 222 $ 333
Work in process 75 321
Finished goods 10,107 16,365
Allowance for obsolescence (939) (939)
----------------
$ 9,465 $16,080
================
</Table>
3. FUTURE TAX ASSETS
The significant components of net future tax assets are:
<Table>
<Caption>
2000 1999
---------------
Net operating loss carryforwards of Prime De Luxe Inc. $ 934 $1,108
Amortization 123 147
---------------
$1,057 $1,255
===============
</Table>
The Company's net operating loss carryforwards included as a future tax
asset above are approximately $211, $1,178 and $753 for years 1999, 1998 and
1997 respectively. These operating loss carryforwards expire between 2004
and 2007 if not utilized.
10
<Page>
================================================================================
REGAL GREETINGS & GIFTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
4. CAPITAL ASSETS
<Table>
<Caption>
2000 1999
----------------------------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
----------------------------------------------
Computer equipment $ 7,501 $ 4,708 $ 7,242 $ 4,088
Furniture and fixtures 3,625 3,022 3,704 2,940
Leasehold improvements 2,243 994 2,204 868
Machinery and equipment 3,330 2,813 3,458 2,792
----------------------------------------------
16,699 11,537 16,608 10,688
----------------------------------------------
Net carrying value $ 5,162 $ 5,920
=====================================
</Table>
- --------------------------------------------------------------------------------
5. GOODWILL
<Table>
<Caption>
2000 1999
---------------------
Cost $ 31,784 $ 33,006
Accumulated amortization 4,938 4,300
---------------------
$ 26,846 $ 28,706
=====================
</Table>
- --------------------------------------------------------------------------------
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<Table>
<Caption>
2000 1999
---------------------
Accrued pension obligation $ 303 $ 442
Business and commodity taxes 818 1,111
Payroll, bonus and benefit-related accruals 976 832
Postage 207 273
Returns and refunds 200 208
Other 386 1,076
---------------------
$ 2,890 $ 3,942
=====================
</Table>
11
<Page>
================================================================================
REGAL GREETINGS & GIFTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
7. OBLIGATION UNDER CAPITAL LEASE
<Table>
<Caption>
2000 1999
---------------------
Repayable $2.845 quarterly plus interest,
maturing July 2005. $ 32 $ 43
Repayable $0.488 monthly plus interest,
maturing June 2002. 5 10
---------------------
37 53
Less: Current portion 11 12
---------------------
$ 26 $ 41
=====================
</Table>
The security for the capital lease obligation is the underlying capital
assets purchased under the lease.
The future minimum lease payments for the next 5 years and thereafter are as
follows:
<Table>
<Caption>
Year Amount
---- ----------
2001 $ 11
2002 7
2003 7
2004 7
2005 5
----------
$ 37
==========
</Table>
- --------------------------------------------------------------------------------
8. PENSION COSTS AND OBLIGATIONS AND EMPLOYEE FUTURE BENEFIT OBLIGATIONS
The estimated market value of assets in the defined benefit component of
the pension plans was $2,892 at December 29, 2000 (1999 - $2,535). These
assets are available to meet the estimated present value of accrued
pension obligations of $3,196 at December 29, 2000 (1999 - $3,144).
12
<Page>
================================================================================
REGAL GREETINGS & GIFTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
DECEMBER 29, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
During the year the Company had the following transactions with MDC and
companies controlled by its head office:
<Table>
<Caption>
2000 1999 1998
------------------------------
Purchases from company controlled by
MDC $ 298 $ 335 $ 343
</Table>
At the end of the year amounts included in accounts payable are as
follows:
<Table>
<Caption>
2000 1999
-------------------
Accounts payable $ 2 $ 57
</Table>
The balances are payable on demand and have arisen from the purchases
referred to above.
- --------------------------------------------------------------------------------
10. COMMITMENTS
The Company has leased premises (exclusive of additional amounts for
taxes, insurance and other occupancy charges) and office equipment for
which the minimum annual lease payments are approximately as follows:
<Table>
<Caption>
Amount
----------
2001 $ 1,738
2002 1,355
2003 1,066
2004 858
2005 754
Thereafter 3,314
----------
$ 9,085
==========
</Table>
- --------------------------------------------------------------------------------
11. CONTINGENT LIABILITIES
As at December 29, 2000 there are claims against the Company in varying
amounts. It is not possible to determine the amounts that may ultimately
be assessed against the Company with respect to these claims; however,
management believes that any such amounts would not have a material impact
on the results of operations or financial position of the Company.
- --------------------------------------------------------------------------------
12. COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the current
year's presentation.
13
<Page>
ATTACHMENT 7(A)(2)
REGAL GREETINGS & GIFTS
INDEX TO FINANCIAL STATEMENTS PAGE
----
Balance Sheets as of September 28th, 2001 and September 29th, 2000
(Unaudited) 2
Statements of Operations, Comprhensive Income/(Loss) and Divisional
Equity for the Nine Months Ended September 28th, 2001 and September
29th, 2000 (Unaudited) 3
Statements of Cash Flows for the Nine Months Ended September 28th
2001 and September 29th, 2000 (Unaudited) 4
Summary of Significant Accounting Policies 5
Notes to Financial Statements 6
14
<Page>
================================================================================
REGAL GREETINGS & GIFTS
COMBINED BALANCE SHEETS
(UNAUDITED)
(in thousands of U.S. dollars)
<Table>
<Caption>
SEPTEMBER 28 September 29
2001 2000
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 1,102 $ 2,504
Accounts receivable 198 287
Inventories (Note 1) 12,614 14,943
Prepaid expenses 3,128 2,930
---------------------------
17,042 20,664
FUTURE INCOME TAXES 1,146 1,363
CAPITAL ASSETS 4,055 5,391
GOODWILL 8,467 26,910
---------------------------
$ 30,710 $ 54,328
================================================================================
LIABILITIES AND EQUITY
CURRENT
Accounts payable $ 2,425 $ 1,455
Accrued liabilities (Note 2) 2,687 3,225
Current portion of obligation under capital lease 41 11
---------------------------
5,153 4,691
OBLIGATION UNDER CAPITAL LEASE 26 29
---------------------------
5,179 4,720
---------------------------
EQUITY
Equity, including cumulative translation
adjustment of ($5,831) and ($4,378)
respectively 25,531 49,608
---------------------------
$ 30,710 $ 54,328
================================================================================
</Table>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
2
<Page>
================================================================================
REGAL GREETINGS & GIFTS
COMBINED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND EQUITY
(UNAUDITED)
(in thousands of U.S. dollars)
<Table>
<Caption>
SEPTEMBER 28 September 29
FOR THE NINE MONTH PERIOD ENDED 2001 2000
- --------------------------------------------------------------------------------
SALES $ 31,139 $ 32,761
COST OF SALES 14,817 16,951
---------------------------
GROSS PROFIT 16,322 15,810
OPERATING EXPENSES
Sales and marketing 11,110 11,129
General and administrative 5,770 5,649
Depreciation 1,027 957
Amortization - goodwill, including impairment
writedown of $16,834 for the nine-months ended
September 28, 2001 (Note 3) 17,476 609
---------------------------
35,383 18,344
---------------------------
LOSS BEFORE OTHER CHARGES (19,061) (2,534)
---------------------------
OTHER CHARGES
Interest income 30 -
Interest expense (7) -
---------------------------
23 -
---------------------------
LOSS BEFORE INCOME TAXES (19,038) (2,534)
---------------------------
INCOME TAXES RECOVERY
Current (768) (941)
Future (146) (164)
---------------------------
(914) (1,105)
---------------------------
NET LOSS FOR THE PERIOD (18,124) (1,429)
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustment (1,783) (2,120)
---------------------------
COMPREHENSIVE LOSS (19,907) (3,549)
EQUITY, beginning of the period 43,548 49,459
---------------------------
23,641 45,910
CAPITAL CONTRIBUTIONS 1,890 3,698
---------------------------
EQUITY, end of period $ 25,531 $ 49,608
================================================================================
</Table>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
3
<Page>
================================================================================
REGAL GREETINGS & GIFTS
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands of U.S. dollars)
<Table>
<Caption>
SEPTEMBER 28, September 29,
FOR THE NINE MONTH PERIOD ENDED 2001 2000
- --------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (18,124) $ (1,429)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 1,027 957
Amortization of goodwill 17,476 609
Loss on disposal of capital assets 119 14
Future income taxes (146) (164)
Changes in non-cash working capital balances
Accounts receivable 398 493
Inventories (3,728) 476
Prepaid expenses (1,050) (880)
Accounts payable and accrued liabilities 586 (2,891)
---------------------------
(3,442) (2,815)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of capital assets 5 71
Purchase of capital assets (218) (752)
---------------------------
(213) (681)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 1,890 3,698
Repayment of capital lease obligation (34) (13)
---------------------------
1,856 3,685
---------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (102) (104)
---------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD (1,901) 85
CASH AND CASH EQUIVALENTS, beginning of period 3,003 2,419
---------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,102 $ 2,504
================================================================================
</Table>
NON CASH ITEMS
During the nine month period ended September 28, 2001, capital assets were
acquired at an aggregate cost of $284 (during nine month period ended
September 29, 2000 - $752). Of this total, $66 (during nine month period
ended September 29, 2000 - $NIL) was acquired by means of capital leases,
with the remaining $218 (during nine month period ended September 29, 2000 -
$752) paid in cash.
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
4
<Page>
================================================================================
REGAL GREETINGS & GIFTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(UNAUDITED)
SEPTEMBER 28, 2001 AND SEPTEMBER 29, 2000
- --------------------------------------------------------------------------------
NATURE OF BUSINESS Regal Greetings & Gifts (a division of MDC
Corporation Inc. ("MDC")) and Prime De Luxe
Inc. (a subsidiary of MDC Corporation Inc.)
collectively "Regal Greetings & Gifts" (the
"Company") are in the business of direct
sales through a network of approximately
422,000 independent sales representatives.
The Company's principal offices are located
in Mississauga, Ontario and its geographic
market primarily encompasses Canada.
Historically the Company operated as a
separate business of MDC.
BASIS OF PRESENTATION The financial statements contain the
combined net assets of Regal Greetings &
Gifts and Prime de Luxe Inc. and the actual
combined historical results of operations of
the Company. Amounts previously classified
as advances from MDC have been reclassified
as part of equity. Such amounts are not
obligations to be assumed by the purchaser.
Although the Company is not a tax-paying
entity, the operating results include an
estimated tax provision based on enacted tax
rates in effect and estimated taxable
income. Current recoveries have been
refleced as a decrease to equity for
all periods presented. Management of the
Company believes all corporate expenses have
been included in operating expenses for the
periods presented.
The accompanying financial statements of the
Company have been prepared pursuant to the
rules of the Securities and Exchange
Commission for the quarterly reports on Form
10-Q and do not include all of the
information and footnotes required by
Canadian generally accepted accounting
principles. Management believes that
there are no significant reconciling items
to conform to accounting principals
generally accepted in the United States
of America. These financial statements
should be read in conjunction with the
Company's audited financial statements and
notes thereto for the year ended December
31, 2000 included in the accompanying Form
8-K/A.
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 nine-month period ended
September 30, 2001 are not necessarily
indicative of the results that may be
expected for any future periods.
STATEMENT OF CASH FLOWS The cash paid for interest is not
significantly different than the interest
expense presented on the combined statements
of operations. No income taxes were paid for
the nine months ended September 28, 2001 or
for the nine months ended September 29,
2000.
5
<Page>
================================================================================
REGAL GREETINGS & GIFTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands of U.S. dollars)
SEPTEMBER 28, 2001 AND SEPTEMBER 29, 2000
- --------------------------------------------------------------------------------
1. INVENTORIES
<Table>
<Caption>
2001 2000
-----------------------
Raw materials $ 299 $ 321
Work in process 261 410
Finished goods 13,500 15,592
Allowance for obsolescence (1,446) (1,380)
-----------------------
$ 12,614 $ 14,943
=======================
</Table>
- --------------------------------------------------------------------------------
2. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<Table>
<Caption>
2001 2000
-----------------------
Accrued pension obligation $ 292 $ 338
Commodity taxes 328 587
Deferred revenue 106 185
Payroll, bonus and benefit related accruals 810 471
Postage 272 207
Returns and refunds 127 199
Other 752 1,238
-----------------------
$ 2,687 $ 3,225
=======================
</Table>
- --------------------------------------------------------------------------------
3. GOODWILL IMPAIRMENT
The carrying value of goodwill is periodically evaluated by the Company
based on estimated future undiscounted cash flows of the related business.
At September 29, 2001, the Company's evaluation of its estimated future
undiscounted cash flows were less than the carrying amount of goodwill. As
such, the Company has recorded an impairment loss of $16,834 for the
excess carrying value.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENTS
On December 14, 2001, 85% of the net assets of the Company were sold to Eos
International, Inc. in accordance with the terms of the Purchase/Sale
Agreement.
6
<Page>
ATTACHMENT 7(B)
EOS INTERNATIONAL, INC. AND REGAL GREETINGS & GIFTS
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Description of the Transaction 2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2001 4
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Nine Months Ended September 30, 2001 and the Year Ended
December 31, 2000 8
<Page>
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS OF EOS INTERNATIONAL,
INC. AND REGAL GREETINGS & GIFTS
On December 14, 2001, Eos International Inc., ("Eos" formerly dreamlife,
Inc.) purchased the Regal Greetings & Gifts division (the "Regal Business")
of MDC Corporation, Inc., an Ontario corporation ("MDC") and Prime De Luxe,
Inc. (a subsidiary of MDC Corporation). The Regal business consists of all
the assets of an ongoing business, including cash, accounts receivable,
property and equipment, inventory and prepaid expenses. This acquisition was
accounted for as a purchase.
The Regal Business was purchased by Regal Greetings & Gifts Corporation, a
Canadian Corporation ( the "Regal Corporation") which was formed by RGG
Acquisition Inc., ("RGG"), a wholly owned subsidiary of Eos, to effect the
purchase. The purchase price for an 85% interest in the assets of the Regal
Business was approximately $22.6 million, including $.7 million in cash
acquisition costs, plus the assumption of existing liabilities. The $22.6
million, together with cash debt issue costs of $.7 million relating to the
transaction, was satisfied with the issuance of a $3.8 million note ($2.9
million net of discount) by Regal Corporation to MDC, put rights with an
estimated fair value of $1.1 million granted to MDC related to its 15% ownership
interest, a $6.5 million short-term bridge loan to Eos, a primary loan of $8.3
million from Scotia Bank to the Regal Corporation and a mezzanine loan in the
amount of $4.5 million from RoyNat Capital Inc. ("RoyNat") to the Regal
Corporation. In connection with the mezzanine loan, the Regal Corporation issued
warrants to RoyNat to purchase 11,000 shares of the common stock of the Regal
Corporation for $0.01 per share. Upon exercise of such warrants, RGG's and MDC's
percentage of ownership of the Regal Corporation will be reduced proportionally.
The purchase price and nature of the consideration paid in the acquisition were
determined through negotiations.
The bridge loan is payable in April 2002 in the amount of $3.0 million from
Weichert Enterprises, LLC and in the amount of $3.5 million from DL Holdings I,
L.L.C. A significant Eos stockholder is also a stockholder of DL Holdings I,
L.L.C. In connection with the short-term loans, Eos issued warrants to acquire
2,600,000 shares of its stock for $2.95 per share subject to certain terms and
conditions.
Both Eos and MDC are publicly held corporations. There are no material existing
relationships between Eos and its directors, officers, subsidiaries or
associates, on the one hand, and MDC and its directors, officers, subsidiaries
or associates on the other hand.
The unaudited pro forma condensed financial statements of Regal Greetings &
Gifts are based upon the historical financial statements of Regal and Eos, after
giving effect to their merger. These unaudited pro forma condensed financial
statements are not necessarily indicative of the financial position and results
of operations that would have been attained had the transactions actually taken
place at the date indicated and do not purport to be indicative of the effects
that may be expected to occur in the future.
2
<Page>
The accompanying unaudited pro forma condensed financial statements illustrate
the acquisition's effect on the Eos's financial position and results of
operations. The unaudited pro forma condensed combined balance sheet as of
September 30, 2001 is based on the historical balance sheets of Regal and Eos
and assumes the merger took place on that date. The unaudited pro forma
condensed statements of operations for the nine months ended September 30, 2001
and the year ended December 31, 2000 are based on the historical statements of
operations of Regal combined with the historical statements of Eos, as adjusted,
and assume the merger took place on January 1, 2000. The Eos results of
operations included in column one of the pro forma consolidated statements of
operations for the nine months ended September 30, 2001 and for the year ended
December 31, 2000 reflect the reverse merger, between Eos and Discovery Toys,
previously reported in an earlier 8-K and 8-KA on July 18, 2001, as if it
occurred on January 1, 2000.
3
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
---------------------------------------------------------------------------
<Table>
<Caption>
Pro Forma Pro Forma
Eos Intl. Inc. Regal Greetings Inc. Adjustments Eos Intl Inc.
Sept. 30, 2001 Sept. 28, 2001 (See Notes) Sept. 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,707,000 $ 1,102,000 $ 2,809,000
Accounts receivable, net 782,000 198,000 980,000
Inventory 5,180,000 12,614,000 17,794,000
Prepaid expenses and other current assets 776,000 3,128,000 3,904,000
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 8,445,000 17,042,000 25,487,000
- --------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 944,000 4,055,000 4,999,000
Deferred income taxes 1,146,000 1,146,000
Goodwill 8,467,000 (8,467,000)(1) 6,276,000
6,276,000 (1)
Customer list 3,132,000 (1) 3,132,000
Other non-current assets 110,000 110,000
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,499,000 $ 30,710,000 941,000 $ 41,150,000
================================================================================================================================
</Table>
4
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
---------------------------------------------------------------------------
<Table>
<Caption>
Pro Forma Pro Forma
Eos Intl. Inc. Regal Greetings Inc. Adjustments Eos Intl Inc.
Sept. 30, 2001 Sept. 28, 2001 (See Notes) Sept. 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 5,376,000 $ 5,112,000 $ $ 10,488,000
Current lease obligations 41,000 41,000
Line of credit 3,006,000 3,006,000
Current maturities of notes payable 1,266,000 (1) 1,266,000
Bridge notes 6,500,000 (1) 6,500,000
Discount on bridge notes (1,116,000)(2) (1,116,000)
Fair value of put on bridge warrants 390,000 (2) 390,000
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,382,000 5,153,000 20,575,000
- ------------------------------------------------------------------------------------------------------------------------------
Notes payable 3,209,000 15,316,000 (1) 18,525,000
Accrued liability 3,000,000 3,000,000
Discount on notes payable (1,632,000)(1) (3,410,000)
(1,778,000)(2)
Long term lease obligations 26,000 26,000
Negative goodwill 3,806,000 3,806,000
Redeemable warrants 1,778,000 (2) 1,778,000
Commitments
Minority interest 3,830,000 (1) 3,830,000
Minority interest - puts 1,192,000 (1) 1,192,000
Stockholders' equity (deficit):
Common Stock: 561,000 561,000
Treasury stock, 22,408,396 Eos shares at
cost
Paid-in capital (8,172,000) 726,000 (2) (7,446,000)
Equity 25,531,000 (25,532,000)(2) -
Retained earnings (deficit) (1,287,000) (1,287,000)
- ------------------------------------------------------------------------------------------------------------------------------
Tot Total stockholders' equity (deficit) (8,898,000) 25,531,000 (8,172,000)
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity
(deficit) $ 9,499,000 $ 30,710,000 $ 941,000 $ 41,150,000
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
5
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
---------------------------------------------------------------------------
Notes to Condensed Consolidated Balance Sheet (1)
To record the acquisition of Regal Greetings and Gifts.
Purchase price is comprised of the following:
<Table>
Cash to seller(a) $ 17,857,000
Seller financing, net of discount of $925,000 2,902,000
Put rights granted to selling stockholder 1,192,000
Acquisition costs 691,000
---------------------------------------------------------------------------------------------------------------------
$ 22,642,000**
=====================================================================================================================
Net Assets acquired consisted of the following:
Preliminary fair value of tangible assets acquired* $ 22,243,000
Goodwill 6,276,000
Customer list 3,132,000
Less: preliminary fair value of liabilities assumed* (5,179,000)
Less minority interest (3,830,000)
---------------------------------------------------------------------------------------------------------------------
$ 22,642,000**
=====================================================================================================================
</Table>
<Table>
<Caption>
Sources of cash are comprised of the following(A) Net Carrying Value Discount Face
--------------------------------------------------------------
Senior debt $ 7,584,000 $ 707,000 $ 8,291,000
Mezzanine debt 2,686,000 1,778,000 4,464,000
Bridge financing 5,384,000 1,116,000 6,500,000
---------------------------------------------------------------------------------------------------------------------
19,255,000
Less: Cash debt issue costs (707,000)
Acquisition costs (691,000)
---------------------------------------------------------------------------------------------------------------------
$ 17,857,000
=====================================================================================================================
</Table>
The senior debt bears interest at the bank's prime rate plus 3% (estimated
to be 7.75%) and matures in December 2006. Principal payments of $317,000
per quarter are to be made through December 2003; principal payments of
$478,000 per quarter are to made through September 2006, and a final payment
of the remaining principal and interest are due in December 2006. In
addition, the scheduled payments, accelerated payments may be required if
certain operating cash flow requirements are met.
The mezzanine debt bears interest at 12% and matures in January 2007.
Interest is payable monthly. Principal payments of $96,000 per quarter are
due from January 2004 through October 2006. The remaining unpaid balance is
due upon maturity in January 2007. 11,000 detachable warrants to purchase
shares of Regal stock at $0.01 per share were granted to the lender in
connection with this debt. These warrants also entitle the holder to put
rights that allow holder of either the warrants or the share to be received
upon exercise to sell these warrants or shares back to Regal in exchange for
cash. The preliminary, relative fair value of both the put and call features
of these warrants was determined using the Black Scholes model and is
reflected as a discount on the related debt with a corresponding credit
reflected as a liability as the put is to be settled in cash and the call is
to be settled in the shares of the subsidiary.
The note due to the seller bears interest at 7% and matures in December
2006. Two principal payments of equal to the lesser of $1.3 million or a
percentage of operating cash flow are to be made by February 2005 and
February 2006. The remaining unpaid balance of principal and interest are
due upon maturity in December 2006. Because the stated interest rate on the
note is less than the market rate of interest that Regal could obtain on a
note with similar terms (which the Company believes to be 13%), a discount
has been recorded on the note to approximate the difference between the fair
value and face value of the note.
Certain put rights were granted to MDC to sell back its minority interest to
the Company in exchange for cash. The preliminary fair value of these put
rights has been determined using the Black Scholes model and is reflected as
an additional component the minority interest.
The bridge financing bears interest at 13% and matures in April 2002, at
which time all principal and interest is due. The bridge lenders were also
granted 2.6 million warrants to purchase shares of Eos stock at $2.95 per
share. The warrants also contain put rights that allow the warrant holders
to sell their warrants back to Eos in exchange for cash. The preliminary,
relative fair value of both the call and put features for these warrants has
been determined using the Black Scholes model and is reflected as a discount
on the note. The value attributable to put has been classified as a
liability as it is settled in cash. The value attributable to the call has
been classified as equity as it is settled in the shares of Eos, which is
the parent company.
(2) To record relative fair value of redeemable warrants issued in connection
with bridge financing and mezzanine debt as a discount on notes.
* Based on September 30, 2001 historical values.
** Based on December 14, 2001 exchange rate, the consummation date of the
merger.
6
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
---------------------------------------------------------------------------
<Table>
<Caption>
PRO FORMA
EOS - NINE REGAL - NINE PRO FORMA EOS INT., INC.
MONTHS ENDED MONTHS ENDED ADJUSTMENTS NINE MONTHS ENDED
SEPT. 30, 2001(1) SEPT. 28, 2001 (SEE NOTES) SEPT. 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
SALES $ 22,800,000 31,139,000 $ 53,939,000
COST OF SALES 13,756,000 14,817,000 28,573,000
- ------------------------------------------------------------------------------------- -------------------
Gross profit 9,044,000 16,322,000 25,366,000
OPERATING EXPENSES:
Sales and marketing 4,599,000 11,110,000 469,000 (2) 16,178,000
General and Admin. 7,786,000 6,797,000 237,000 (3) 14,820,000
Goodwill Impairment(9) 16,834,000 16,834,000
Goodwill Amortization (393,000) 642,000 249,000
- ---------------------------------------------------------------------------------------------------------------------------------
Operating loss (2,948,000) (19,061,000) (706,000) (22,715,000)
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 165,000 30,000 195,000
Interest expense (630,000) (7,000) (1,446,000) (4) (2,083,000)
Other income, net 2,057,000 2,057,000
- ---------------------------------------------------------------------------------------------------------------------------------
1,592,000 23,000 (1,446,000) 169,000
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (1,356,000) (19,038,000) (22,546,000)
Income Tax Benefit (7,000) (914,000) (861,000) (5) (1,782,000)
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE MINORITY INTEREST (1,349,000) (18,124,000) (1,291,000) (20,764,000)
=================================================================================================================================
MINORITY INTEREST (2,912,000) (6) (2,912,000)
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS AFTER MINORITY INTEREST (1,349,000) (18,124,000) 1,621,000 (17,852,000)
=================================================================================================================================
BASIC AND DILUTED LOSS PER SHARE: (0.02) (7) (0.32)
BASIC AND DILUTED SHARES USED IN
COMPUTATIONS(8) 56,132,000 56,132,000
===================================================================================== ===================
</Table>
7
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
---------------------------------------------------------------------------
<Table>
<Caption>
PRO FORMA
EOS REGAL PRO FORMA EOS INT., INC.
YEAR ENDED YEAR ENDED ADJUSTMENTS YEAR ENDED
DEC. 31, 2000(1) DEC. 29, 2000 (SEE NOTES) DEC. 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
SALES $ 40,131,000 $ 55,714,000 $ 95,845,000
COST OF SALES 24,190,000 27,795,000 51,985,000
- ----------------------------------------------------------------------------------------- --------------
Gross profit 15,941,000 27,919,000 43,860,000
OPERATING EXPENSES:
Sales and marketing 6,940,000 16,053,000 626,000 (2) 23,619,000
General and Admin. 10,806,000 8,673,000 317,000 (3) 19,796,000
Goodwill Amortization (525,000) 805,000 280,000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit / (loss) (1,280,000) 2,388,000 (943,000) 165,000
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 436,000 40,000 476,000
Interest expense (480,000) (7,000) (3,526,000) (4) (4,013,000)
Other income, net 457,000 457,000
- ------------------------------------------------------------------------------------------------------------------------------------
413,000 33,000 (3,526,000) (3,080,000)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (867,000) 2,421,000 (2,915,000)
Income Tax Provision (Benefit) 6,000 1,056,000 (1,788,000) (5) (726,000)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE MINORITY INTEREST (873,000) 1,365,000 (2,681,000) (2,189,000)
====================================================================================================================================
MINORITY INTEREST (197,000) (6) (197,000)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS AFTER MINORITY INTEREST (873,000) 1,365,000 (2,484,000) (1,992,000)
====================================================================================================================================
BASIC AND DILUTED LOSS PER SHARE: (0.02)(7) (0.04)
BASIC AND DILUTED SHARES USED IN
COMPUTATIONS (8) 56,132,000 56,132,000
========================================================================================= ==============
</Table>
8
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
Notes to Condensed Consolidated Statements of Operations
(1) In July 2001, Eos, a public shell, consummated a reverse merger with
Discovery Toys, Inc. previously reported in 8-K and 8-KA filings. The
unaudited pro forma condensed statements of operations for the nine months
ended September 30, 2001 and the year ended December 31, 2000 are based on
the historical statements of operations of Discovery Toys, a wholly-owned
subsidiary of Eos, adjusted to include certain historic Eos expenses of $1.2
million per year expected to continue subsequent to the merger. These
expenses relate to existing Eos facilities and equipment to be used by the
combined entity and Eos personnel that will continue to be employed by the
combined entity. As Eos, prior to its merger with Discovery Toys in July
2001, was a public shell with no viable operations of its own, it has no
continuing operations on a pro forma basis. Therefore, the pro forma
financial statements do not include Eos' historical results of operations
except for the expenses noted above, as if the reverse merger with Discovery
Toys occurred on January 1, 2000. Accordingly, $600,000 of Eos' expenses, in
addition to the historic expenses included in its September 30, 2001 10-Q
filing, are included in the operating results for the nine months ended
September 30, 2001.
(2) To adjust for amortization of Customer List valued at $3,132,000 over
estimated 5-year life.
(3) To adjust for the Management Consulting Agreement between Eos and Regal for
services that will be provided by McGuggan, LLC and William Walsh. Pursuant
to the agreement, management consulting services are to be provided to Regal
over a ten year period for a fee of $317,000 per year.
(4) To record interest expense related to the acquisition consisting of the
stated interest rate on the face amount of the notes, amortization of
discounts on the notes related to the fair value of detachable warrants,
which contain put rights, and imputed interest attributable to the seller
financing, which was obtained at an interest rate below market. The interest
expense calculation assumes that $6.5 million of bridge financing is retired
upon maturity, which is 120 days subsequent to issuance, along with
detachable warrants granted in connection with these notes. Should these
notes not be retired interest would continue to accrue beyond the 120 day
period at a rate increase from 13% to 15% and the redemption price of the
put rights included in the associated warrants would increase per the terms
of the financing agreements. Failure to retire the bridge notes and warrants
would result in an additional $695,000 of pro forma interest expense for the
year ended December 31, 2000 and an additional $731,000 of pro forma
interest expense for the nine months ended September 30, 2001 attributable
to further accrued interest on the principal along with additional interest
expense resulting from increases in the redemption price of the put rights
of up to $1.95 million. Further, if the entire balance of the bridge notes
is not repaid by December 2002, the Company is required to issue an
additional 16,667 warrants per month until such repayment is made.
(5) Adjustment for tax effect of pro forma adjustments assuming a 40% effective
tax rate.
(6) Adjusted for the effect of pro forma adjustments to Regal.
(7) Net loss per share for the nine months ended September 30, 2001 and the year
ended December 31, 2000 includes $600,000 and $1,200,000, respectively, of
historic Eos expense expected to continue subsequent to the merger with
Discovery Toys. Eos' historical net (loss) income per share for the nine
months ended September 30, 2001 and the year ended December 31, 2000 was
$(0.02) per share and $0.01 per share, respectively. Weighted average
shares used in these respective corporations was 25,300,000 for the nine
months ended September 30, 2001 and 33,500,000 for the year ended
December 31, 2000.
9
<Page>
EOS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
- --------------------------------------------------------------------------------
(8) Includes shares issued to effect the merger between Eos and Discovery Toys
as if it occurred on January 1, 2000. These include 33,772,000 shares to
Discovery Toys to effect the reverse merger in July, 2001 and 22,360,000
shares of Eos that were outstanding prior to the reverse merger.
(9) Goodwill impairment recorded during the nine months ended September 30, 2001
on Regal's historical financial statements is not expected to be a recurring
item. No goodwill resulting from the acquisition of Regal by Eos has been
recorded in accordance with SFAS 142.
10
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SIGNATURE
Pursuant to 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.
EOS INTERNATIONAL, INC.
Dated: February 26, 2002 By: /s/ Jack Hood
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Jack Hood
Chief Financial Officer and
Treasurer