KIDS STUFF INC, 10KSB, 2000-03-30

KIDS STUFF INC
10KSB, 2000-03-30
CATALOG & MAIL-ORDER HOUSES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ________ to ________

Commission File Number: 000-29334

KIDS STUFF, INC.
----------------------------------------
(Exact name of Registrant as specified in its charter)

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<CAPTION>
<S> <C>
Delaware 34-1843520
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization (Identification No.)
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7835 Freedom Avenue, N.W.
North Canton, Ohio 44720
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number,
including area code: (330) 492-8090
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Securities registered pursuant to Section 12(b) of the Act:

None

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

Common Stock, $.001 par value, Class A Common Stock Purchase Warrants,
Series 1 Preferred Stock, Series 1 Preferred Stock Purchase Warrants

(Title of Class)

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

Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in part III
of this Form 10-KSB or any amendment to this Form 10-KSB [ ].

<PAGE>
As of February 29, 2000 at 4:00 P.M., the aggregate market value of the voting
stock held by non-affiliates 1,332,781 shares of Common Stock, $.001 par value,
with a market value of approximately $4,238,244 based on the last sale price of
$3.18 was $7,688,244 for one share of Common Stock on such date. The number of
shares issued and outstanding of the Registrant's Common Stock, as of February
29, 2000 was 3,520,856 and 920,000 shares of Series 1 Preferred Stock with a
market value of approximately $3,450,000 based on the last sale of $3.75 for one
share of Series 1 Preferred Stock.
<PAGE>
Item 1. Description of Business

THE COMPANY

Kids Stuff, a Delaware corporation, is a specialty direct marketer,
which publishes four catalogs and maintains a web site, which emphasizes
children's hardgood products from prenatal to age three. Our publications are
"Perfectly Safe," "Jeannie's Kids Club," "The Natural Baby," and "Little Feet."
Our web site is accessible at www.kidsstuff.com or on Yahoo!(R) Shopping
(http://shopping.yahoo.com) a popular one-stop Internet shopping service and
part of Yahoo!(R)s branded network of global Internet properties. We also
maintain a retail store carrying a full line of our products as they appear in
the catalogs, along with discontinued products and overstock items. Our
principal executive offices are located at 7835 Freedom Avenue N.W., North
Canton, OH 44720; our telephone number is (330) 492-8090.

HISTORY OF DUNCAN HILL

Perfectly Safe, Inc. ("Perfectly Safe") was formed by Duncan Hill, Inc.
("Duncan Hill"), a principal stockholder of the Company in 1990 under Ohio law
for the purpose of publishing The Perfectly Safe Catalog, which was acquired
from Jeanne Miller, an executive officer and director of the Company, in January
1990. J. Miller purchased the Perfectly Safe Catalog in 1988 from the catalog's
creator. In July, 1995, Perfectly Safe began to publish its second catalog,
Jeannie's Kids Club.

Effective June 30, 1996, the Company succeeded to the catalog business
of Jeannie's Kids Club and Perfectly Safe as a result of a reorganization in
which the Company acquired from Duncan Hill the assets and liabilities of
Perfectly Safe, which was dissolved. The Company, which was incorporated by
Duncan Hill in July 1996, had no operations prior to the reorganization.

Effective June 30, 1996, the Company also acquired from Duncan Hill the
assets used by Duncan Hill to perform the telemarketing, order fulfillment, data
processing and administrative functions, so that the Company could perform those
functions itself. The Company then entered into a six-month transition period
ended December 31, 1996 in which telemarketing, data processing, order
fulfillment, and administrative functions were transferred from Duncan Hill to
the Company in a manner consistent with the operational requirements of the
various subsidiaries of Duncan Hill. During this period certain costs were
allocated by Duncan Hill to the Company, and in return, certain costs were
allocated by the Company to Duncan Hill and its other subsidiaries, depending
upon the transition status of the cost area involved. In either case, the costs
were allocated pro rata in a manner consistent with Duncan Hill's practices in
existence prior to June 30, 1996. The purchase price of Perfectly Safe and the
aforementioned Duncan Hill assets acquired by the Company was $2,613,404.

<PAGE>
In July 1997, the Company acquired the net assets and operations of The
Natural Baby Catalog from The Natural Baby Company, Inc. ("Baby Co."), a mail
order retailer of children's clothing and toys at a total purchase price of
$2,066,829. This acquisition was funded with the net proceeds of the Company's
initial public offering and was accounted for as a purchase.

All references to the Company include the operations acquired by it
from Perfectly Safe, Duncan Hill and Baby Co. unless the context indicates
otherwise.

Company's Operations

The Company is a specialty direct marketer which publishes two catalogs
with an emphasis on children's hardgood products (i.e., products not primarily
made from fabrics) from prenatal to age three. Based upon a review of the
catalog trade publication called "SRDS Direct Marketing List Service," the
Company believes that its first catalog, "Perfectly Safe, The Catalog For
Parents Who Care," is the nation's only catalog devoted to child safety,
child-proofing the home, and safety-related products for the family. Since 1990,
the Company has published over 20 million Perfectly Safe catalogs and helped
childproof over 350,000 homes.

During July, 1995 the Company introduced "Jeannie's Kids Club" catalog
to broaden its market through a new direct marketing concept in children's
products. Jeannie's Kids Club offers parents who become club members the
opportunity of saving up to 60% compared with the same products in other popular
children's catalogs. The current annual membership fee is $18.00.

In July 1997, the Company acquired from Baby Co. its third catalog, The
Natural Baby Catalog, which specializes in products made of natural fiber for
children from prenatal to age three. The Natural Baby Catalog carries both
hardgood products and softgood products (i.e., products primarily made from
fabrics).

In September 1999, the Company introduced a new catalog called "Healthy
Feet" offering over 1,200 selections and sizes of shoes, with an emphasis on
ages birth to age six. To support this new venture, Kids Stuff, Inc. mailed
402,000 catalogs to its target audiences. Healthy Feet, a "kids shoe catalog"
features quality shoes from brands such as Sketchers, Converse, Keds and Bear
Feet.

KIDS CATALOG OUTLET

The Company has recently leased a retail store in Canton, Ohio
consisting of approximately 3,300 square feet of space. In November 1998, the
Company completed the installation of leasehold improvements and opened the
retail store. The retail store, which is named "Kids Catalog Outlet," features
the Company's children's clothing and other merchandise which have not been sold
through the Company's catalogs.

<PAGE>
MARKET

The Company's market for children's goods is affected by the number of
births as well as women in the work force. The Company believes that a birth
rate of an estimated 3.8 million births per year and the high percentage of
women in the work force place an emphasis on the convenience and value of
shopping by catalog. There can be no assurance that the Company is correct in
such belief.

STRATEGIES

The Company believes that its expertise in the marketing and
merchandising of children's products provides the basis for future growth by the
use of the following strategies:

EXPAND THE MEMBERSHIP OF JEANNIE'S KIDS CLUB. Because Jeannie's Kids
Club offers popular children's products for up to 60% less than other children's
catalogs, the Company believes that there is a substantial market for this type
of home shopping service and an opportunity to substantially increase the
membership of Jeannie's Kids Club, which went from inception in July 1995 to
over 39,000 current members. Although there are costs associated with acquiring
the initial $18 membership fee, the $18 annual renewal of such membership is
approximately 90% profit to the Company. Under the terms of the Jeannie's Kids
Club membership, renewals are automatically billed to a member's credit card
prior to the expiration of the membership. The Company intends to continue its
marketing efforts to expand Jeannie's Kids Club membership.

MAINTAIN THE GROWTH OF THE NATURAL BABY CATALOG. Revenues of The
Natural Baby Catalog have increased from $3,876,555 in 1992 to $6,833,299 in
1999. The Company will endeavor to maintain continuity in the merchandising and
marketing of this catalog.

CUSTOMER ACQUISITION PROGRAMS. In the past, the Company has relied upon
catalog circulation as the sole method to acquire new customers. Recently, the
Company has established a web site as described above to attract new customers
and increase sales.

CATALOG ACQUISITIONS. The Company believes that, because of the cost
driven pressures to consolidate, there may be opportunities to acquire other
children's niche catalogs. The Company, however, has no short term plans to make
any further acquisitions and no assurances can be given that any acquisitions
will be successfully completed in the future.

STABILIZE THE PERFORMANCE OF PERFECTLY SAFE. In the past, many of the
safety products carried by the Perfectly Safe Catalog were generally hard to
find and were not well stocked by retail stores. That is no longer the case. As
a consequence of this competition, the inability of the Company to access
certain profitable mailing lists following the Company's introduction of
Jeannie's Kids Club, and the decision of the Company to devote more of its
available resources to building the mailing list and membership base of
Jeannie's Kids Club, the future performance of the Perfectly Safe Catalog will
be highly dependent upon the Company's ability to more efficiently obtain new
customers through substantially reduced catalog mailings.

<PAGE>
MERCHANDISING

Through its Perfectly Safe Catalog, the Company emphasizes quality and
safety and provides full price merchandise tested by the Company and backed by a
full satisfaction warranty. The Perfectly Safe Catalog currently consists of 40
pages containing approximately 250 products, principally hardgoods,
approximately 55% of which directly relates to child safety and child proofing
the home, with the balance consisting of safety tested convenience products and
toys. Unlike fashion catalogs which change their mix of products offered based
upon trends and seasonality, Perfectly Safe retains proven products. The
merchandising function for Perfectly Safe is handled by one of the Company's
founders, J. Miller, the author of "The Perfectly Safe Home."

During 1995, the Company used its merchandise expertise in children's
products to launch its Jeannie's Kids Club Catalog. The target market selected
by the Company is upper income parents who want quality, value and convenience
in products for their children. Jeannie's Kids Club Catalog consists of selected
popular quality hardgoods products from other children's catalogs offered at
discounts of up to 60%. Jeannie's Kids Club Catalog currently consists of 40
pages containing approximately 250 products.

The Natural Baby Catalog emphasizes alternative hard and softgood
products for babies and their parents. The catalog is 48 pages and contains
approximately 350 products, all of which are natural fiber, non-toxic and
environmentally safe. Approximately 30% of The Natural Baby Catalog product line
is exclusive or private label products.

The ratio between hardgoods to softgoods contained in the Company's
three catalogs is approximately 3:1. Substantially all of the products contained
in The Perfectly Safe and Jeannie's Kids Club Catalogs are hardgoods. The
Company continually identifies and tests new product categories that are natural
extensions of the core business of its catalogs. Each product and product
category is measured for its revenue and profitability, with advertising costs
allocated to the product based upon the number of square inches of catalog pages
consumed in its presentation. Products are then rated by profitability
performance with weaker products either removed or altered in their
presentation. Test products are selected based upon the data contained in the
analysis of similar or related products, or sales and feature benefits that the
Company's merchandising team feels will appeal to the demographics of the
intended catalog customer.

<PAGE>
MARKETING

The Company serves the children's market at an age where the child
changes rapidly and many of the products become functionally obsolete within
months of the date of purchase. The Company's market for its catalog is
primarily from prenatal to age three. The Company maintains proprietary mailing
lists of households with an average income in excess of $50,000 per year, a
proven history of mail order purchases and a newborn in the house. The number of
customers who purchased in 1998 was over 84,000 for Perfectly Safe, and over
21,000 member and non-member buyers for Jeannie's Kids Club. (Non-member buyers
are not entitled to purchase Jeannie's Kids Club merchandise at a discount.) The
Company also rents mailing lists which meet the Company's criteria from outside
sources, which consist of independent list compilers, as well as directly from
other children's catalogs. The Company's present cost of renting mailing lists
is $.10 per household per use. The Company believes that The Natural Baby
Catalog's mailing list rentals are primarily from certain other children's
catalogs based upon a proven history of recent mail order purchases.

In order to select those households most likely to purchase, the
Company uses a statistical modeling system. The Company believes that the
application of a statistical modeling systems increases the rate of percentage
response and profitability of The Natural Baby Catalog, although there can be no
assurance that the Company is correct in such belief.

The Company uses a selling strategy built around two basic selling
seasons: fall/winter and spring/summer. Each season requires changes of products
appropriate to the time period for the life of the catalog. Catalogs are mailed
on a monthly basis in approximately equal quantities, with clearance sales
advertised on wrappers of selected catalog mailings. Monthly mailing quantities,
however, are subject to significant variations due to changes in timing and
availability of rental mailing lists. In 1999, the catalog mailings for
Perfectly Safe and Jeannie's Kids Club were 2.8 million and 1.5 million,
respectively.

The Natural Baby Catalog uses a selling strategy based upon three basic
selling seasons: spring, summer and fall/winter. While catalogs are mailed
monthly, lesser quantities are mailed monthly in the period February-June, with
quantities increasing during the fall/winter season. The Natural Baby Catalog
mailed approximately 4.2 million catalogs during 1999.

Due to a continuing increase in catalog advertising costs and the
relatively short customer life, the Company believes that it can no longer
afford to use catalog mailings as the sole method of customer name acquisition.
The Company has established a website to advertise and sell its products.

<PAGE>
CUSTOMER SERVICE AND TELEMARKETING

The Company derives the vast majority of its revenue through orders
placed over the telephone and emphasizes superior customer service and
friendliness in its sales representatives. The Company's method of receipt of
payment includes major credit cards and checks. The Company's return policy is
unconditional, and provides that if a customer is not satisfied with his or her
purchase for any reason, it may be returned within 30 days for a full refund or
exchange. If a shipping error has occurred the Company will issue call tags to
pick up merchandise shipped in error and will send a corrected shipment.

The Company employs 45 full-time and 5 part-time warehouse customer
service and telemarketing employees at March 1, 2000. During 1999, the Company
processed over 444,000 telephone orders, catalog requests and service
requirements. The Company also processes orders, catalog requests and service
requests for Havana Group, Inc., an affiliate of the Company. In January 1998,
the Company contracted with Havana to provide Havana with administrative,
executive, and accounting services at an annual cost of approximately $206,100
as outlined below and $2.40 per order processed. Havana was also obligated to
pay 5% of its 1998 pre-tax profits to Kids Stuff in connection with these
administrative and fulfillment services; however, Havana had no pre-tax profits
for 1998. Total costs charged to Havana in 1999 and 1998 amounted to $225,086
and $293,432, respectively. At January 1, 1999, the agreement was modified and
extended on a month-to-month basis as Havana began to incur direct costs for its
administrative functions. Havana's pay to the Company an accounting, data
processing, and administrative charge of $15,000 per year plus $1.75 per order
processed for shipment for warehouse services. Havana is also obligated to pay
5% of its 1999 pretax profits to the Company in connection with these services,
however Havana had no pre-tax profits for 1999. This agreement is still in
effect, but as of this printing, the Company has started providing some of these
services themselves.

FULFILLMENT AND DELIVERY

The Company's fulfillment and delivery objective is to provide
excellent customer service within a low cost structure. Its fulfillment
operations consist of 30,000 square feet of owned facilities in North Canton,
Ohio. Orders shipped are individually recorded and posted through the use of
barcode scanners, so that sales records and credit card deposits are
electronically posted. The Company's fulfillment center processed approximately
357,000 shipments and 325,000 shipments in 1999 and 1998, respectively.

INVENTORY/PURCHASING

The Company conducts its purchasing operations at its general offices
in North Canton, Ohio. Each catalog contains several hundred products. Each
product is reviewed weekly through the use of computerized reports that provide
detailed information regarding inventory value, unit sales, and purchasing
delivery times. Products are ordered as required for "just in time" arrival into
the Company's inventory.

<PAGE>
PRODUCT SOURCING

The Company acquires products for resale in its catalogs from numerous
domestic vendors. No single source supplied more than 10% of the Company's
products in 1999.

SEASONALITY

Perfectly Safe's revenues are not significantly impacted by seasonal
fluctuations, as compared to many other retail and catalog operations. The
Perfectly Safe customer is believed to be generally the end user of the product
so purchases are spread throughout the year, rather than being concentrated
between October and December, as are traditional gift purchases. The Company's
limited experience does not indicate that Jeannie's Kids Club's revenues will be
subject to significant seasonal fluctuation. Natural Baby Products, a division
of the Company, has a seasonal increase in the fourth quarter. During 1999, 1998
and 1997, The Natural Baby Catalog sales in the fourth quarter were
approximately 46%, 28% and 34% of The Natural Baby Catalog total respective
1999, 1998 and 1997 sales.

COMPETITION

The mail order catalog and retail clothing outlet industries are highly
competitive. The Company's business competes with other mail order catalogs and
retail stores, including department stores, specialty stores, discount stores,
mass merchants and website stores. Many general and specialty catalog
competitors, as well as retail and website stores, have substantially greater
financial, distribution and marketing resources than the Company. There are
numerous website stores, general and specialty catalogs selling infants' and
children's items. However, based upon type of goods offered, the Company
considers its primary hardgood catalog competition, to be "The Right Start
Catalog," "One Step Ahead," "Sensational Beginnings," and "Hand in Hand." "The
Right Start Catalog" and "One Step Ahead" have substantially larger revenues
than the Company, even as adjusted to reflect consolidation of the revenues of
The Natural Baby Catalog.

Other mail order catalogs for children's hardgood products which the
Company believes are competitors to a lesser extent are "Current Children's
Products," "Troll Learn and Play," "Just for Kids," "Childcraft," "Toys to Grow
On," "Hearthsong," "Constructive Playthings," "Music for Little People," "Great
Kids," "The Great Kids Company," "Ultimate Baby Catalog," "San Francisco Music
Box," "Stork Kit/Bundle of Joy," "Play Fair Toys," "Animal Town," "Alvin and the
Chipmunks," "Livonia Catalog," "Plus and Company," "Disney Catalog," "Storybook
Heirlooms," and "F.A.O. Schwartz." Many of those catalogs have substantially
higher revenues than the Company.

Certain catalogs, such as "Hanna Anderson" and "Biobottoms," compete
with The Natural Baby Catalog in selected product areas, but do not compete
across the entire product line. Other mail order catalogs for children's
softgoods products which the Company believes are competitors of The Natural
Baby Catalog to a lesser extent are "Playclothes," "After the Stork," "Talbot's
Kids," "Spiegel Children's Clothing," "Brights Creek," "Gymboree," "Eddie Bauer
Children's Fashions," and "Spiegel Kids." The Company believes that many of
these catalogs have substantially higher revenues than The Natural Baby Catalog.

<PAGE>
In the past, many of the safety products carried by the Perfectly Safe
Catalog were generally hard-to-find, lower price items, such as electrical
outlet guards, appliance cord shorteners and appliance door latches. Many of
these items are now stocked by retail stores, discount stores and mass
merchants.

In 1995, the Company experienced a competitive reaction to its
introduction of Jeannie's Kids Club Catalog which resulted in three other
children's catalogs refusing to exchange with, or rent their mailing lists to,
the Company, resulting in a decrease in sales of the Perfectly Safe Catalog from
$5.0 million in 1994 to $4.7 million in 1995. During 1997, the Company
identified other mailing lists which have helped to increase the circulation and
revenues of the Perfectly Safe Catalog. The Company has not experienced such a
reaction from its acquisition of The Natural Baby Catalog, although there can be
no assurance that such a competitive reaction will not occur in the future, or
that such an occurrence would not have an adverse effect upon the profitability
of The Natural Baby Catalog.

TRADEMARKS AND TRADE NAMES

The Company owns federally registered trademarks: "Perfectly Safe";
"Perfectly Safe, The Catalog For Parents Who Care" with logo; "Perfectly Safe
Guarantee" with logo; and, logo. The Company recently registered its mark,
"Jeannie's Kids Club," as a unique identification of its Jeannie's Kids Club
Catalog. With the recent acquisition of The Natural Baby Catalog, the Company
acquired the ownership of the trademark "The Natural Baby Co., Inc." with logo,
which is a federally registered trademark. There can be no assurance as to the
extent of the protection that will be provided to the Company as a result of
having such trademarks and trade names or that the Company will be able to
afford the expenses of any complex litigation which may be necessary to enforce
the proprietary rights.

REGULATORY MATTERS

The Company's business, and the catalog industry in general, is subject
to regulation by a variety of state and federal laws relating to, among other
things, advertising and sales taxes. The Federal Trade Commission regulates the
Company's advertising and trade practices and the Consumer Product Safety
Commission has issued regulations governing the safety of the products which the
Company sells in its catalogs. No assurances can be given that the Company will
comply with all state and federal laws affecting its business in the future.

<PAGE>
Due to increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. The
growth and development of the electronic commerce market may calk for
initiatives for more stringent consumer protection laws that may impose
additional burdens on companies conducting on-line business. Additionally,
taxation of Internet use or electronic commerce transactions may be imposed. Any
regulation imposing fees for Internet use or electronic commerce transactions
could result in a decline in the use of the Internet and the viability of
Internet commerce, which could have a material adverse effect on the Company's
business.

Under current law, catalog retailers are permitted to make sales in
states where they do not have a physical presence without collecting sales tax.
The Company believes that it collects sales taxes in states where it is required
to do so. However, since 1987, legislation has been introduced periodically in
the U.S. Congress which would permit states to require sales tax collection by
mail order companies. To date, this proposed legislation has not been passed.
Should Congress, however, pass such legislation in the future, most states could
be expected to require sales tax collection by out-of-state mail order
companies. This would increase the cost of purchasing the Company's products in
those states and eliminate whatever competitive advantage that the Company may
currently enjoy with respect to in-state competitors in terms of sales taxation,
as well as increasing the administrative and overhead costs to the Company in
connection with the collection of such sales tax. There can be no assurances
given that these state sales tax laws will not be changed in the future to the
detriment of the Company. The Company has no claims or regulatory matters in
process or pending as of March 1, 2000.

PRODUCT LIABILITY INSURANCE

Since 1990, the Company's parent, Duncan Hill, has carried product
liability insurance for the Company and Havana. The current coverage is $1
million per occurrence with an aggregate limit of $2 million. The policy is
supplemented by an umbrella liability policy providing coverage of an additional
$1 million per occurrence, $2 million aggregate. The policies are carried by
Duncan Hill, with the Company and Havana as named insureds. The policies are
issued for a period of one year and are currently in effect through September
17, 2000. The Company may, in the future, procure the same coverage in its name,
alone. Although the Company believes that its present insurance coverage is
sufficient for its current level of business operations, there is no assurance
that such insurance will be sufficient to cover potential claims, or that
adequate, affordable insurance coverage will be available to the Company in the
future. An uninsured successful claim against the Company or a successful claim
in excess of the liability limits or relating to an injury excluded under the
policy could have a material adverse effect on the Company.

EMPLOYEES

As of January 1, 2000, the Company had 77 full time employees and 10
part time employees. Of this total, 13 employees or 15% of total full-time
employees, hold positions of managers; 56 employees or 64% of the total, hold
hourly paid positions. The largest single segment of the Company's employment is
in direct labor involving order entry, customer service, and distribution, where
47 employees or 54% of total Company employment is involved. The work force is
non-union, and the Company does not anticipate a union presence in the
foreseeable future.
<PAGE>
Item 2. Description of Property.

The Company's principal offices, telemarketing center and warehouse are
located in North Canton, Ohio. The Company purchased this facility in July 1999
at a purchase price of $2,200,000. The facility consists of approximately 39,000
square feet of space.

In August 1998, the Company entered into a lease for retail space at
4418 Belden Village Street, Canton, OH, containing approximately 3,400 square
feet of space. This lease, which amends an earlier lease, has a term expiring
December 31, 2002. The Company will pay a monthly rent of approximately $2,250
commencing 30 days after the Company takes possession of the premises and the
landlord notifies the Company that the space is ready for occupancy.

Item 3. Legal Proceedings

In the normal course of business, the Company may be involved in
various legal proceedings from time to time. Presently, however, the Company is
not a party to any litigation, whether routine or incidental to its business, or
otherwise.

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

Not applicable.

<PAGE>
PART II

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

In June 1997, the Company sold Units to the public consisting of two
shares of Common Stock and eight Class A Warrants. The Company's Common Stock
and Class A Common Stock Purchase Warrants ("Class A Warrants") have been quoted
since June 1997 on the OTC Electronic Bulletin Board of the National Association
of Securities Dealers, Inc. ("NASD") under the symbols "KDST" and "KDSTW,
respectively." Each Class A Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $5.00 per share until the close of business
on June 26, 2002. As of February 29, 2000 at 4:00 P.M. Eastern Standard Time,
the last sale price of the Common Stock and Class A Warrants in the
over-the-counter market were $3.18 and $.33, respectively. The following table
reflects the high and low sales prices for the Company's Common Stock and Class
A Warrants for the periods indicated as reported by the NASD.
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<CAPTION>

Common Stock

High Low
Fiscal Year Ended December 31, 1998:
-----------------------------------
<S> <C> <C>
First Quarter $6.50........................... $3.63
Second Quarter $5.14............................$2.38
Third Quarter $4.50............................$2.13
Fourth Quarter $3.25............................$1.88

Fiscal Year Ended December 31, 1999:
-----------------------------------
First Quarter $4.00........................... $2.63
Second Quarter $3.50............................$1.75
Third Quarter $2.25............................$1.00
Fourth Quarter $2.25............................$0.44

Class A Warrants

Fiscal Year Ended December 31, 1998:
-----------------------------------
First Quarter $2.25............................$0.25
Second Quarter $1.75............................$0.50
Third Quarter $0.81............................$0.09
Fourth Quarter $0.75........................... $0.13

Fiscal Year Ended December 31, 1999:
-----------------------------------
First Quarter $0.94............................$0.22
Second Quarter $0.75............................$0.19
Third Quarter $0.38............................$0.13
Fourth Quarter $0.28............................$0.06

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The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions.

<PAGE>
In March 1999, the Company completed a public offering of securities
through Fairchild Financial Group, Inc. In the offering, the Company sold
460,000 Units at the public offering price of $5.50 per Unit (the "Preferred
Units"). Each Preferred Unit consisted of one share of Series 1 Preferred Stock
and two Series 1 Preferred Stock Purchase Warrants. Commencing September 3,
2000, each share of Series 1 Preferred Stock is convertible into two shares of
Common Stock. Commencing September 3, 2000, each Preferred Warrant entitles the
holder to purchase one share of Series 1 Preferred Stock at an exercise price of
$6.00 per share until the close of business on March 3, 2002. The Preferred
Units, Series 1 Preferred Stock and Series 1 Preferred Stock Warrants commenced
trading on the OTC Electronic Bulletin Board on March 4, 1999 under the symbols,
"KDSPU," "KDSPP" and "KDSPW," respectively. As of the close of business on
February 29, 2000, the closing sales prices of the Series 1 Preferred Stock and
Preferred Warrants were $3.75 and $.84, respectively.
<TABLE>
<CAPTION>

Preferred Units

Fiscal Year Ended December 31, 1999: HIGH LOW
-----------------------------------

<S> <C> <C> <C>
March 1999 $9.25..............................$7.00
Second Quarter 8.88............................. 7.75

Preferred Stock

Fiscal Year Ended December 31, 1999: HIGH LOW
------------------------------------
LOW

March 1999 $7.00..............................$6.00
Second Quarter 7.38.............................. 6.75
Third Quarter 7.13...............................4.81
Fourth Quarter 6.25...............................1.00

Preferred Warrants

Fiscal Year Ended December 31, 1999: HIGH LOW
------------------------------------

---
March 1999 $1.13..............................$1.00
Second Quarter 1. 25........................... .88
Third Quarter 1.50............................ .47
Fourth Quarter 1.44............................ .06
</TABLE>

The quotations in the tables above reflect inter-dealer prices without
retail markups, markdowns or commissions.

The Company had 17 and 1 record holders of its Common Stock and Series
1 Preferred Stock, respectively, as of February 29, 2000 as reported by its
transfer agent (American Stock Transfer & Trust Company). The foregoing does not
include beneficial holders of the Company's Common Stock which are held in
"street name" (i.e. nominee accounts such as Depository Trust Company).

<PAGE>
No cash dividends have been paid by the Company on its Common Stock
and no such payment is anticipated in the foreseeable future. The Company
expects to meet its dividend obligations of $.495 per share to its Series One
Preferred Shareholders.

Item 6. Managements' Discussion and Analysis or Plan of Operation.
----------------------------------------------------------

RESULTS OF OPERATIONS

1999 versus 1998

Total net sales for 1999 increased $2,557,087, or 18.0%, to $16,729,951,
compared with $14,172,864 for 1998. Net sales include sales from merchandise,
Jeannie's Kids Club memberships, shipping and handling charges, and mailing list
rentals.

The increase in sales is mainly attributable to The Natural Baby Catalog,
which recorded 1999 sales of $6,833,300 compared with $6,188,586 in 1998. The
Natural baby Catalog accounted for 40% of the Company's overall sales increase.

The net sales of the Perfectly Safe Catalog increased to $6,100,254 in 1999
compared with $4,932,732 in 1998. This increase is attributable to improved
catalog sales which permitted a 4.4% decrease in catalog circulation from
2,804,194 catalogs mailed in 1999 compared with 2,933,037 catalogs mailed during
1998 while increasing the sales per catalog ratio. The increases in sales of The
Natural Baby Catalog and Perfectly Safe Catalog were partially offset by a
decrease in net sales of Jeannie's Kids Club Catalog, which decreased to
$2,833,292 in 1999 compared with $3,051,546 for 1998. Cost of sales, as a
percentage of net sales, decreased from 61.5% for 1998 to 60.1% for 1999.

Selling expenses, which consist of advertising and other marketing related
expenses expressed as a percentage of sales, increased from 28.0% for 1998 to
29.9% for 1999. The increase was due to higher catalog cost as a component of
advertising expense.

General and administrative expenses were $1,603,808, or 9.6% of net sales,
for 1999, and $1,486,889, or 10.5% of net sales, for 1998. The decrease in
administrative expense was attributable to decreased wages and related costs of
employment due to company cost control measures.

Effective January 1, 1998, The Havana Group, Inc. entered into an agreement
with the Company whereby the Company provided administrative functions to Havana
at an annual cost of $206,100 consisting of: $34,000 for accounting and payroll
services, $51,600 for administration and human resource management, $34,900 for
data processing, $32,200 for office equipment and facilities use, $38,100 for
merchandising and marketing services, $15,300 for purchasing services and $2.40
per order processed for order fulfillment. While management believes these fees
would represent actual costs should Havana undertake to provide these services
itself, cancellation or modification of the agreement would have the impact of
altering the general and administrative expense structure of the Company.

<PAGE>
Total costs charged to Havana in 1999 and 1998 amounted to $225,086 and
$293,432, respectively. At January 1, 1999, the agreement was modified and
extended on a month-to-month basis as Havana began to incur direct costs for its
administrative functions. Havana's pay to the Company an accounting, data
processing, and administrative charge of $15,000 per year plus $1.75 per order
processed for shipment for warehouse services. Havana is also obligated to pay
5% of its 1999 pretax profits to the Company in connection with these services,
however Havana had no pre-tax profits for 1999. This agreement is still in
effect, but as of this printing, the Company has started providing some of these
services themselves.

Net profit for the year ended December 31, 1999 was $48,059 or 0.3% of net
sales, compared to a net loss of $35,788, or 0.3% of net sales for the same
period of 1998. The Company attributes this change primarily to decreased
general and administrative expenses, with slightly lower than expected cost of
sales.

Liquidity and Capital Resources

In March 1999, the Company completed a public offering of securities
through Fairchild Financial Group, Inc. In the offering, the Company sold
460,000 Units at the public offering price of $5.50 per Unit. Each Preferred
Unit consisted of one share of Series 1 Preferred Stock and two Series 1
Preferred Stock Purchase Warrants. The Company realized net proceeds of
approximately $1,960,000 from this Offering.

In July 1999 Kids Stuff obtained a new credit facility from Bank One, N.A.
Bank One extended a 24 month revolving credit line in the amount of $500,000,
bearing interest at prime plus 1%. Additionally, Bank One extended a 60 month
term loan to the Company for $300,000, bearing interest at 8.78%. The Company's
previously outstanding $800,000 line of credit was retired with the proceeds of
the new borrowings. The new loans are secured by the assets of the Company, a
third mortgage on the Company's real estate, cross collateralization of life
insurance on the lives of Mr. And Mrs. Miller, and carry unconditional and
unlimited guarantees of Mr. William Miller and Mrs. Jeanne Miller.

In July 1999, the Company finalized an agreement to purchase a building
located in North Canton, Ohio, which will serve as the office and warehouse
facilities for the Company, Havana, and Duncan Hill. The purchase price of the
building was $2,200,000. The purchase was partially financed through a
commercial real estate loan from Bank One, N.A. in the amount of $1,690,000. The
loan has a 20 year amortization period with an expiration date of July 7, 2009,
and carries a variable interest rate based upon the 30 day LIBOR plus 2.75%. The
rate of interest at September 30, 1999 was 8.78%. The loan is secured by a first
mortgage on the Company's real estate, guaranteed by Duncan Hill, Inc., Mr.
William Miller, Mrs. Jeanne Miller, and is cross collateralized with assignment
of life insurance.

At December 31, 1999, the Company had a deficit in retained earnings of
$1,390,312, compared with a deficit of $1,438,371 at December 31, 1998. This
change resulted from the 1999 net profit of $48,059. For the year ended December
31, 1999, operating activities provided $10,346 in cash. Funds were provided by
decreases in accounts payable, customer advance, and accrued expenses of $245,
increases in accounts receivable of $6,030, and non-cash expenses of

<PAGE>
depreciation and amortization of $337,180. Funds were consumed by primarily
inventory increases of $119,090, and increases in deferred advertising of
$325,398. For the year ended December 31, 1999, the Company's investing
activities used $2,823,856 in cash. Property and equipment additions used
$2,570,643 for increases in equipment and the purchase of corporate office
warehouse complex. Additionally, the Company invested $253,213 in catalog
development and redesign to alter the format, appearance, design, and
presentation of its products.

For the year ended December 31, 1999, the Company's financing activities
provided $3,647,515 in cash. This consisted of repayments on its line of credit
in the amount of $262,000, increases in notes payable of $2,740,000, the sale of
common stock fees of $102,624, and increases in amounts from affiliates of
$93,898.

For the year ended December 31, 1999, the combined effect of net cash
provided by operating activities of $10,346, net cash used by investing
activities of $2,823,856, and net cash provided by financing activities of
$3,647,515 increased cash from $25,426 at December 31, 1998 to $859,431 at
December 31, 1999.

At December 31, 1998, the Company had a deficit in retained earnings of
$1,438,371, compared with a deficit of $1,402,583 at December 31, 1997. This
change resulted from the 1998 net loss of $35,788. For the year ended December
31, 1998, operating activities provided $120,094 in cash. Funds were provided by
increases in accounts payable, customer advances and accrued expenses of
$724,861, decreases in accounts receivable of $83,469, and non-cash expenses of
depreciation and amortization of $181,932. Funds were consumed by inventory
increases of $536,903, increases in deferred advertising of $155,435, and
increases in prepaid expenses and other assets totaling $142,042. For the year
ended December 31, 1998, the Company's investing activities used $351,027 in
cash. Property and equipment additions used $130,035 for increases in equipment
and the establishment of the "Kids Catalog outlet" retail store. Additionally,
the Company invested $220,992 in catalog development and redesign to alter the
format, appearance, design, and presentation of its products.

For the year ended December 31, 1998, the Company's financing activities
provided $154,465 in cash. This consisted of borrowings on its line of credit in
the amount of $91,000, increases in prepaid expenses for its anticipated public
offering of $77,008, and decreases in amounts due from affiliates of $140,473.

For the year ended December 31, 1998, the combined effect of net cash
provided by operating activities of $120,094, net cash used by investing
activities of $351,027, and net cash provided by financing activities of
$154,465 decreased cash from $101,894 at December 31, 1997 to $25,426 at
December 31, 1998.

<PAGE>
The Company uses the intrinsic value-based method for stock-based
compensation to employees. As a result, this standard does not have any effect
to the Company's financial statements other than to require disclosure of the
pro forma effect on net income (loss) of using the fair value-based method of
accounting.

Effective January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new standards for reporting
comprehensive income and its components. The effect of the adoption was not
material.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." SFAS No.
131 changes the standards for reporting financial results by operating segments,
related products and services, geographic areas and major customers. The Company
adopted SFAS No. 131 for the fiscal year ended December 31, 1998. The effect of
such adoption in 1998 was not material.

In March 1998, Statement of Position 98-1, Accounting for Costs of
Computer Software Developed or Obtained for Internal Use, was issued. The SOP
provides guidance on accounting for costs of computer software based on the
project stage and other criteria and is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company believes that the
effect of adoption will not be material.

<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. The Company does not anticipate engaging in such transactions, but will
comply with requirements of SFAS 133 when adopted. This statement is effective
for all fiscal quarters beginning after June 15, 1999. The effect of adopting
SFAS 133 is not expected to be material.

The Company intends to meet its cash requirements over the next 12-15
months from cash generated from operations and proceeds of its March 1999
completed offering.

Forward Looking Statements and Associated Risks

This Form 10-KSB contains forward looking statements which reflect management's
current views and estimates of future economic circumstances, industry
conditions, company performance and the financial results. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control, including, without limitation, competition and possible future changes
to state sales tax laws. Actual results could differ materially from these
forward looking statements as a result of changes in the trends in the
children's mail order catalog industry, competition, availability and price of
goods and other factors. Any changes in such assumptions or factors could
produce significantly different results.

Item 7. Financial Statements

The information required by Item 8, and an index thereto commences on page F-1,
which pages follow this page.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.
<PAGE>
KIDS STUFF, INC.

FINANCIAL REPORT

<PAGE>
KIDS STUFF, INC.

CONTENTS

- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>

Page

<S> <C>
INDEPENDENT AUDITORS' REPORT F-3

FINANCIAL STATEMENTS
Balance sheet F-4 through F-5
Statements of operations F-6
Statements of stockholders' equity F-7
Statements of cash flows F-8 through F-9
Notes to financial statements F-10 through F-22

</TABLE>

F-2

<PAGE>
Independent Auditors' Report

To the Stockholders and Board of Directors
Kids Stuff, Inc.
Canton, Ohio

We have audited the accompanying balance sheet of Kids Stuff, Inc. (a
subsidiary of Duncan Hill, Inc.) as of December 31, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kids Stuff, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the years ended December 31, 1999 and 1998, in conformity with generally
accepted accounting principles.

Canton, Ohio
March 24, 2000

F-3
<PAGE>

KIDS STUFF, INC.
BALANCE SHEET

December 31, 1999
<TABLE>
<CAPTION>

ASSETS

CURRENT ASSETS
<S> <C>
Cash $ 859,431
Accounts receivable 257,574
Due from affiliates 234,390
Inventories 2,045,005
Deferred catalog expense 740,425
Prepaid expenses 170,871
---------
Total current assets 4,307,696

PROPERTY AND EQUIPMENT
Land 214,000
Building and improvements 2,026,172
Leasehold improvements 34,074
Machinery and equipment 86,901
Data processing equipment 401,182
Website development 132,891
Furniture and fixtures 126,211
---------
3,021,431

Less accumulated depreciation and amortization 206,652
---------
2,814,779

OTHER ASSETS, net of accumulated amortization

Goodwill 1,015,805
Catalog development and other 368,995
Customer lists 330,655
Deferred financing fees 82,055

1,797,510
---------
$ 8,919,985
=========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-4

<PAGE>
KIDS STUFF, INC.
BALANCE SHEET

December 31, 1999
<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S> <C>
Line of credit $ 500,000
Current portion of long-term debt 157,000
Accounts payable 2,352,318
Customer advances 15,302
Accrued expenses 111,393
---------
Total current liabilities 3,136,013

LONG TERM DEBT, net of current portion 1,998,122

COMMITMENTS AND CONTINGENCIES -

STOCKHOLDERS' EQUITY
Preferred stock, $.001 per share, 10,000,000 shares
authorized:
Series A, 5,000,000 shares issued and outstanding,
voting, without dividend 5,000
Series 1, 460,000 shares issued and outstanding, voting, aggregate
liquidation of $2.53 million plus
cumulative unpaid dividends of $227,700 460
Common stock - $.001 par value, 25,000,000 shares
authorized, 3,512,856 shares issued
and outstanding 3,513
Additional paid-in capital 5,167,189
Retained earnings (deficit) (1,390,312)
---------
Total stockholders' equity 3,785,850
---------
$ 8,919,985
=========

</TABLE>
The accompanying notes are an integral part of these financial statements

F-5

<PAGE>

KIDS STUFF, INC.
STATEMENTS OF OPERATIONS

Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

1999 1998
---- ----

<S> <C> <C>
SALES $ 16,729,951 $ 14,172,864

COST OF SALES 10,051,665 8,712,876
---------- ----------
GROSS PROFIT 6,678,286 5,459,988

SELLING EXPENSES 4,968,552 3,966,452

GENERAL AND ADMINISTRATIVE EXPENSES 1,603,808 1,486,889
---------- ----------
INCOME FROM OPERATIONS 105,926 6,647

NET OTHER (EXPENSE) INCOME
Interest expense (132,649) (60,630)

Other 74,782 18,195
---------- ----------
(57,867) (42,435)
---------- ----------
NET INCOME (LOSS) $ 48,059 $ (35,788)
========== ==========
BASIC AND DILUTED INCOME (LOSS)
PER SHARE AFTER CONSIDERING
PREFERRED STOCK CUMULATIVE
DIVIDENDS $ (0.05) $ (0.01)
========== ==========

</TABLE>

The accompanying notes are an integral part of these financial statements

F-6

<PAGE>
KIDS STUFF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

Common Preferred Paid-In Retained
Stock Stock Capital Earnings Total

<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 $ 3,513 $ 5,000 $ 3,216,734 $ (1,402,583)$ 1,822,664

NET LOSS - - - (35,788) (35,788)
--------- --------- ----------- ------------- ------------
BALANCE - DECEMBER 31, 1998 3,513 5,000 3,216,734 (1,438,371) 1,786,876

NET PROCEEDS FROM THE

ISSUANCE OF 460,000

PREFERRED SHARES IN

PUBLIC OFFERING - 460 1,950,455 - 1,950,915

NET INCOME - - - 48,059 48,059
--------- --------- ----------- ------------- ------------
BALANCE - DECEMBER 31, 1999 $ 3,513 $ 5,460 $ 5,167,189 $ (1,390,312) $ 3,785,850
========= ========= =========== ============= ============
</TABLE>

The accompanying notes are an integral part of these financial statements

F-7

<PAGE>
KIDS STUFF, INC.

STATEMENTS OF CASH FLOWS

Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

1999 1998
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES

<S> <C> <C>
Net income (loss) ...................................... $ 48,059 $ (35,788)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization .................... 337,180 181,932
Loss on disposal of assets ...................... 5,893 --
(Increase) decrease in accounts receivable ...... (6,030) 83,469
(Increase) in inventories ....................... (119,090) (536,903)
(Increase) in deferred catalog expense .......... (325,398) (155,435)
(Increase) in prepaid expenses .................. (4,374) (67,691)
Decrease (increase) in other assets ............. 74,351 (74,351)
(Decrease) increase in accounts payable, customer
advances and accrued expenses ................ (245) 724,861
----------- ----------
Net cash provided by operating activities .................. 10,346 120,094

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment and other assets .. (2,570,643) (130,035)
Amount paid for catalog development .................... (253,213) (220,992)
----------- ----------
Net cash (used) by investing activities .................... (2,823,856) (351,027)

CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) borrowings on line of credit - net ......... (262,000) 91,000
Borrowing on long-term debt ............................ 2,740,000 --
Payments on long-term debt ............................. (584,878) --
Amounts paid for deferred financing fees ............... (102,624)
Sale of preferred stock ................................ 1,950,915 --
(Increase) in prepaid amounts for public offering ...... -- (77,008)
(Increase) decrease in due from affiliates ............. (93,898) 140,473
----------- ----------
Net cash provided by financing activities .................. $ 3,647,515 $ 154,465
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements

F-8

<PAGE>
KIDS STUFF, INC.

STATEMENTS OF CASH FLOWS (CONTINUED)

Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

1999 1998
---- ----

<S> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 834,005 $ (76,468)

CASH - BEGINNING 25,426 101,894
------- --------
CASH - ENDING $ 859,431 $ 25,426
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW

INFORMATION

Cash paid during the year for interest $ 122,163 $ 60,630
======= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH

FINANCING ACTIVITY

The Havana Group, a subsidiary of Duncan Hill,
Inc., issued 110,000 shares of its Series B
Preferred Stock to Duncan Hill. In return, Duncan
Hill assumed a $300,000 liability due to Kids Stuff,
Inc. This $300,000 liability to Kids Stuff, Inc. was
used to satisfy the $300,000 debt owed from Kids
Stuff, Inc. to Duncan Hill. $ - $ 300,000

</TABLE>
The accompanying notes are an integral part of these financial statements

F-9
<PAGE>

KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS

Business Description and Summary of Significant Accounting Policies

A. Business Description - Kids Stuff, Inc. ("Kids Stuff" or the
"Company") is in the mail order business and sells to customers throughout
the United States. Duncan Hill, Inc. owns 80% of the Company's outstanding
voting capital stock as of December 31, 1999. Perfectly Safe, a division of
the Company, primarily sells children's safety products for use up to age
3. Jeannie's Kids Club, a division of the Company, sells hard good products
for children primarily up to the age of 3. Natural Baby, a division of the
Company, sells clothing and toys for children primarily up to the age of 3.
Little Feet, a division of the Company, sells shares primarily for children
up to the age of 3. Products are purchased from a variety of vendors.

B. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent 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 those estimates.

C. Fair Value of Financial Instruments - The fair value of cash,
accounts receivable, accounts payable and other short-term obligations
approximate their carrying values because of the short maturities of those
financial instruments. In accordance with Statement of Accounting Standards
No. 107, "Disclosure About Fair Value of Financial Instruments," rates
available at balance sheet dates to the Company are used to estimate the
fair value of existing debt. The carrying values of the Company's long-term
obligations approximate their fair value. In accordance with Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," rates available at balance sheet dates to the
Company are used to estimate the fair value of existing debt.

D. Trade Receivables - It is the Company's policy to record accounts
receivable net of an allowance for doubtful accounts. Management has
determined that no allowance is necessary as of December 31, 1999. Bad debt
expense was $58,300 and $49,199 for the years ended December 31, 1999 and
1998, respectively.

E. Inventories consist of finished goods held for resale and are
stated at the lower of cost or market with cost being determined by the
first-in, first-out (FIFO) method.

F. Deferred catalog expenses are costs of catalogs mailed to customers
which are deferred and amortized over periods ranging from four weeks to
six months, the estimated length of time customers utilize catalogs and
other mail order mailings from the Company. Catalog expense was $4,163,448
and $3,317,565 for the years ended December 31, 1999 and 1998,
respectively.

F-10
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Business Description and Summary of Significant Accounting Policies (continued)

During 1999, the Company changed its amortization estimates relating
to deferred catalog expenses in order to better reflect expenses relating
to catalog sales.

G. December 31, 1998 prepaid expenses include $77,008 relative to the
preferred stock public offering which occurred in 1999 (see Note 11).

H. Property and equipment are carried at cost and depreciated using
the straight-line method over their estimated useful lives ranging from
five to forty years. Depreciation expense amounted to $88,391 and $46,457
for the years ended December 31, 1999 and 1998, respectively.

Maintenance, repairs, and minor renewals are charged against earnings
when incurred. Additions and major renewals are capitalized.

I. Intangible Assets - During 1997, the Company purchased the net
assets and operations of The Natural Baby Company. Management has
determined the fair value of the customer list acquired in that acquisition
to be $505,000. The excess purchase price over the value allocated to the
specifically identifiable assets acquired amounted to $1,148,692 and was
recorded as goodwill. The customer list is being amortized using the
straight-line method over seven years. Goodwill is being amortized using
the straight-line method over twenty years. Accumulated amortization was
$174,345 and $135,287, respectively, for the customer list and goodwill as
of December 31, 1999.

During 1999 and 1998, the Company redesigned the Natural Baby Company,
the Perfectly Safe and the Kids Club catalogs. Costs of redesigning these
catalogs totaling $417,696 were capitalized and are being amortized over 48
months using the straight-line method. Accumulated amortization was
$102,566 as of December 31, 1999.

During 1999, the Company designed the Little Feet catalog. Cost of
designing this catalog totaling $39,283 were capitalized and will be
amortized over 48 months using the straight-line method commencing in the
first quarter of 2000.

J. The Company developed and maintains a mailing list of customers who
have purchased merchandise in the recent past. The cost of developing,
maintaining, and updating this list is expensed in the period incurred.

F-11
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Business Description and Summary of Significant Accounting Policies (continued)

K. Per Share Amounts - Net income per share is calculated using the
weighted average number of shares outstanding during the year for basic
earnings per share. Diluted earnings per share are calculated to include
the dilutive effect of stock options and warrants. The weighted average
number of shares outstanding in computing basic and diluted earnings per
share for 1999 and 1998 were 3,512,856. There were no dilutive effects of
any other outstanding securities in 1999 or 1998. Cumulative dividends
incurred on the Series 1 preferred stock of $227,700 were deducted from
1999 net income in the calculation of earnings per share.

L. New Authoritative Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities on the balance sheet and
measurement of those instruments at fair value. The Company adopted this
new standard during 1999. The effect of adopting SFAS 133 was not material.

In March 1998, Statement of Position 98-1, Accounting for Costs of
Computer Software Developed or Obtained for Internal Use, was issued. The
SOP provides guidance on accounting for costs of computer software based on
the project stage and other criteria. The Company adopted this new
statement in 1999. The effect of adopting SOP 98-1 was not material.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying accepted accounting
principles to revenue recognition issues in financial statements. This
statement is effective for all fiscal quarters beginning in the second
quarter of 2000. The Company is evaluating the effect the adoption may have
on the Company's results of operations and financial position.

F-12
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 1. Agreement with Affiliated Company

Duncan Hill, Inc. owns 89% of the outstanding voting capital
stock of the Havana Group, Inc. (Havana). In January 1998, the
Company contracted with Havana to provide administrative,
executive, and accounting services at an annual cost of
approximately $206,100 as outlined below and $2.40 per order
processed. Havana is also obligated to pay 5% of its 1999 and
1998 pre-tax profits to Kids Stuff in connection with these
administrative and fulfillment services. However, Havana had
no pre-tax profits for 1999 or 1998. At January 1, 1999, the
agreement was modified and extended on a month-to-month basis
as Havana began to incur direct costs for its administrative
functions. Havana currently pays to the Company accounting,
data processing, and administrative charges of $15,000 per
year plus shipment and warehouse services on a per order
basis. Total costs charged to Havana in 1999 and 1998 amounted
to $225,086 and $293,432, respectively. Management believes
that this is substantially the same cost that it would incur
should it procure these services itself.
<TABLE>
<CAPTION>

<S> <C>
Accounting and Payroll Services $ 34,000
Administrative and Human Resource Management 51,600
Data Processing 34,900
Office Equipment and Facilities Use 32,200
Merchandising and Marketing Services 38,100
Purchasing Services 15,300
--------
Total $ 206,100
=======
</TABLE>

Note 2. Stockholders' Equity

A. Common Stock

In connection with a reorganization effective June 30, 1996,
the Company issued to its parent, Duncan Hill Co., Ltd. (the
Predecessor of Duncan Hill, Inc.), 2,400,000 shares of Common
Stock at a value of $.125 per share. Commencing October 1996,
the Company sold an aggregate of 1,300,000 shares of Common
Stock to eight private investors for the aggregate purchase
price of $162,500. These 3,700,000 shares of unregistered
securities were issued by the Company at its inception. There
were no underwriting discounts and commissions paid in
connection with the issuance of any said securities.

In June 1997, the Company repurchased 857,144 of the shares
sold to five of the eight private investors at a repurchase
price of $.125 per share. The Company's repurchase payment was
in the form of promissory notes totaling $107,143. These notes
were paid off in July 1997 with the proceeds of the public
offering.

F-13
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 2. Stockholders' Equity (continued)

In July 1997, the Company completed an initial public offering
(see Note 7) in which 600,000 common shares were issued.

In July 1997, the Company issued 70,000 unregistered
restricted shares which represented $245,000 of the $2,066,829
purchase cost of The Natural Baby Company.

B. Preferred Stock

The Board of Directors has the authority, without further
action by the stockholders, to issue up to 10,000,000 shares
of Preferred Stock in one or more series and to fix the
rights, preferences, privileges, and restrictions thereof,
including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, and the number
of shares constituting any series or the designation of such
series.

During January 1997, the Company issued 5,000,000 shares of
Series A Preferred Stock, $.001 par value to Duncan Hill as
part of the reorganization. The holders of the Series A
Preferred Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the
stockholders.

The Series A Preferred Stock is not subject to redemption and
has no conversion rights or rights to participate in dividend
payments. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company, each share of Series A Preferred Stock has a
liquidation preference of $.001 per share.

In March 1999, the Company completed a public offering (see
Note 11) in which 460,000 shares of Series 1 Preferred Stock
were issued. The holders of the Series 1 Preferred Stock are
entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders.

F-14
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 2. Stockholders' Equity (continued)

The Series 1 Preferred Stock is redeemable at the option of
the Company at a price of $7.20 per share commencing September
3, 2000. Each share is convertible into two shares of common
stock at the option of the holder, commencing September 3,
2000. Each share receives a cumulative annual dividend of
$0.495, or 9.0% of the liquidation preference per share,
payable in cash or common stock at the option of the Company.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, each
share of Series 1 Preferred Stock has a liquidation preference
of $5.50 per share. Dividends in arrears on the Series 1
Preferred Stock amount to $.45 per share or $227,700 in
aggregate at December 31, 1999.

C. Warrants

In conjunction with the public offering discussed in Note 7,
the Company issued 2,400,000 Class A warrants. Each warrant
entitles the holder to purchase one share of common stock at a
price of $5.00 for a period of four years commencing one year
after the date of the Company's prospectus. The Company may
redeem the Warrants at a price of $.05 per Warrant, at any
time after they become exercisable, upon not less than 30
days' prior written notice, if the closing bid price of the
Common Stock has been at least $14.40 per share for 20
consecutive trading days ending on the fifth day prior to the
date on which the notice of redemption is given.

Note 3. Line of Credit

Kids Stuff, Inc. has a $500,000 line of credit from Bank One
which is payable on demand, bearing interest payable monthly
at the bank's prime lending rate plus 1%, for an effective
rate of 9.25% at December 31, 1999. The line of credit had a
balance of $500,000 at December 31, 1999. The line is secured
by assets of the Company and expires July 2001. The repayment
of the facility is guaranteed by Mr. William L. Miller, the
Company's Chief Executive Officer, and Mrs. Jeanne E. Miller,
the Company's President. Due to the current nature of the
liability, the carrying amount of the line approximates fair
value. The line of credit is guaranteed by Havana and Duncan
Hill, Inc.

At December 31, 1998, the Company had an $800,000 line of
credit from United Bank, payable on demand, bearing interest
at the bank's prime rate plus 1% for an effective rate of
8.75%. The line of credit had a balance of $762,000 as of
December 31, 1998. The United Bank line of credit was paid off
during 1999.

F-15
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 4. Long-Term Debt

<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31:

1999 1998
---- ----
<S> <C> <C> <C>
Bank One - $300,000 term loan, secured by the Company's
accounts receivable, inventory, and equipment, and the
personal residence of the President and CEO, payable in
monthly install- ments of $6,213, including interest of 8.7%
on the first $250,000 and 5.78% on the remaining
balance, maturing July 2004. $ 279,383 $ -

Bank One - $1,690,000 commercial real estate loan, secured by
a first lien on the Company's land and real estate, and an
assignment of key man life insurance on the lives of the
Company's President and CEO, principal payable in monthly
installments of $7,131, plus interest at a variable interest
rate based on the 30 day LIBOR plus 2.75% (9.2% at December
31, 1999), balloon
payment due July 2009. 1,125,739 -

Stark Development Board Finance Corporation - $750,000 note,
secured by a second lien of the Company's land and real
estate, guaranteed by Duncan Hill, Havana, and the Company's
President and CEO, bearing interest at 7.3%,
maturing December 2019. 750,000 -
---------- ---------
2,155,122 -
Less current portion 157,000 -
---------- ---------
$ 1,998,122 $ -
========= =========
</TABLE>
Scheduled principal repayments on long-term debt for each of
the next five years are:
<TABLE>
<CAPTION>

Year Amount

<S> <C>
2000 $ 157,000
2001 160,900
2002 167,500
2003 174,700
2004 149,200
Thereafter 1,345,822

</TABLE>

F-17
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 4. Long-Term Debt (continued)

The Company incurred interest expense of $132,700 and $60,630
for the years ended December 31, 1999 and 1998, respectively.

The Stark County Development Board Finance Corporation loan
contains various covenants including that the Company will not
declare or pay any dividend on any capital stock of the
Company without the prior written consent of the lender.

The Bank One loan agreements contain covenants regarding
certain financial statement amounts, ratios and activities of
the Company. At December 31, 1999, the Company was in
compliance with all such covenants.

Note 5. Lease Commitments

Duncan Hill, Inc., the parent company of Kids Stuff, has
entered into several operating leases for retail space and
equipment. Kids Stuff currently makes the required lease
payments and allocates a portion of the cost to the Havana
Group under the terms of the agreement discussed in Note 1.
Duncan Hill is dependent on Kids Stuff to meet monthly lease
obligations. Future minimum lease payments required by Duncan
Hill, Inc. under noncancellable operating leases for the years
ending December 31 are as follows:

2000 $ 81,307
2001 52,866
2002 17,604

Note 6. Income Tax

The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes. The Company files its Federal income tax
return as part of a consolidated group.

Deferred income taxes reflect the effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes. Deferred tax
assets (liabilities) consisted of the following at December
31, 1999 and 1998:

F-17
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 6. Income Tax (continued)
<TABLE>
<CAPTION>
1999 1998

Deferred tax assets:
<S> <C> <C>
Net operating loss carryforward $ 330,974 $ 172,832
Inventory obsolescence - 11,900
-------- --------
Total deferred tax assets 330,974 184,732
Valuation allowance (25,606) (22,552)
-------- --------
Net deferred tax asset 305,368 162,180

Deferred tax liabilities:
Deferred catalog expense (251,745) (141,109)
Amortization (19,015) (8,200)
Depreciation (34,608) (12,871)
-------- --------
Total deferred tax liabilities (305,368) (162,180)
------- -------
Net deferred income taxes $ - $ -
========= =======
</TABLE>
The Company's ability to recognize deferred tax assets is
dependent on generating future regular taxable income. In
accordance with the provisions of SFAS 109, management has
provided a valuation allowance.

The Company's tax loss in 1999 was $344,158. The Company has
net operating loss carryforwards of approximately $973,000 as
of December 31, 1999 for tax purposes. The loss carryforwards
expire in varying amounts through the year 2019.

Note 7. Public Offering

In July 1997, the Company completed an initial public offering
in which 300,000 units were sold for $2,619,890, net of
issuance costs of $980,110. Each unit consisted of two common
shares and eight redeemable Class A warrants, and sold for $12
per unit. The common stock and warrants are separately
transferable.

The proceeds of the public offering were used to acquire net
assets and operations of The Natural Baby Catalog, to pay
accounts payable, to repay indebtedness to bridge lenders, to
repay indebtedness to the Company's parent, Duncan Hill, to
consolidate the operations of The Natural Baby Catalog, and
for general corporate purposes.

F-18
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 8. Employment Agreement

The Company has entered into separate five-year employment
agreements with Mr. William L. Miller and Mrs. Jeanne E.
Miller, effective January 1, 1997, pursuant to which Mr.
Miller is to serve as Chairman of the Board and Chief
Executive Officer of the Company and Mrs. Miller is to serve
as its President. The employment agreements provide for an
annual base salary of $125,000 for Mr. Miller and $105,000 for
Mrs. Miller, subject to annual review for increase by the
Company. The employment agreements also provide for the
eligibility of these executives to receive annual cash bonuses
under the Company's Incentive Compensation Plan.

Each of the employment agreements provides a severance
compensation to be paid in all instances other than the
executive's termination for cause. In the event that the
executive becomes disabled or dies, the Company, in the case
of W. Miller, is required to pay an amount equal to the
product of (x) and (y) where (x) is the sum of the executive's
salary and bonus paid in the prior year multiplied by 2.99 and
(y) the percentage of the employment agreement's five-year
term remaining from the date of death or disability; provided,
however, that such severance compensation will not be less
than the officer's salary and bonus paid in the year prior to
the year in which the officer dies or becomes disabled. The
foregoing benefit is provided in the employment agreement of
J. Miller, but only in the event of disability. Each executive
is also entitled to be paid severance compensation in an
amount equal to the sum of the executive's salary and bonus
paid in the prior year multiplied by 2.99 in the event that
the executive elects to terminate the employment agreement
upon the Company's material breach of the employment agreement
or upon the Company's reduction of the executive's
responsibilities, duties, functions, or dignity of position
resulting from a change of control, or otherwise.

Each of Mr. Miller and Mrs. Miller were granted under their
respective employment agreements an option to purchase 100,000
shares of the Company's Common Stock, which will vest 25% on
each of the first four anniversary dates commencing January 1,
1998, regardless of whether the executive is employed on such
dates by the Company. The vested options will be immediately
exercisable and will expire ten years from the date of the
agreement. The exercise price of the options shall be $5.00
per share, subject to downward adjustments in the exercise
price if the Company meets certain performance goals.

F-19
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 8. Employment Agreement (continued)

Mrs. Miller also received the option to purchase 100,000
shares of the Company's unregistered common stock as a signing
bonus on October 16, 1998. The exercise price of the options
shall be $2.50 per share, and the options will expire 10 years
from the date of the grant.

During 1999, the Company cancelled the 200,000 options granted
to Mrs. Miller as described in the two preceding paragraphs.
The Company concurrently issued 200,000 options to Mrs. Miller
exercisable at $1.33 per share. The fair value of the options
granted to Mrs. Miller was $228,000, as calculated using the
Black-Scholes option pricing model assuming no dividends, 123%
volatility, an expected life of five years, and a risk-free
interest rate of 6.0%

Additionally, the Company granted options to two of its
directors under a non-qualified Stock Option Agreement
discussed in Note 10.

The Company accounts for employee stock options under APB 25
and, accordingly, no compensation cost has been recognized. If
the Company had elected to recognize compensation cost
consistent with the method prescribed by SFAS 123, the
Company's net income would have been reduced by approximately
$338,100 or $.09 per share in 1999 and $319,000 or $.09 per
share in 1998.

The Company computed the fair value of options granted during
1999 using the Black-Scholes option pricing model assuming no
dividends, 123% volatility, an expected life of 50% of the
ten-year option terms, and a risk-free interest rate of 6.0%.
The fair value of options granted during 1999 was $302,100,
including the options issued to Mrs. Miller in replacement of
cancelled options.

The Company computed the fair values of options granted during
1998 using the Black-Scholes option pricing model assuming no
dividends, 119% volatility, an expected life of 50% of the
ten-year option terms, and a risk-free interest rate of 5.0%.
The fair value of options granted during 1998 was $334,000. No
options have been exercised as of December 31, 1999.

F-20

<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 9. Incentive Plans

A. Incentive Compensation Plan

The Company maintains an Incentive Compensation Plan (the
"Plan"). The Plan is designed to motivate employee
participants to achieve the Company's annual strategic goals.
Eligibility for participation in the Plan is limited to the
Chief Executive Officer and the Executive Vice President of
the Company, and such other employees of the Company as may be
designated by the Board of Directors from time to time. For
each fiscal year of the Company, the Board will establish a
bonus pool not to exceed 10% of the Company's operating
income.

F-21
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 9. Incentive Plans (continued)

The amount of such pool with respect to any year shall be
determined subsequent to the end of that year upon the
determination of the Company's operating income for that year.
Each participant in the Plan is eligible to receive from the
bonus pool an annual award of up to 50% of the participant's
base salary. There were no awards in 1998 or 1999.

B. Stock Incentive Plan

The Company maintains a Stock Incentive Plan (Incentive Plan).
Under the Incentive Plan, the Compensation Committee of the
Board of Directors may grant stock incentives to key employees
and the directors of the Company pursuant to which a total of
400,000 shares of Common Stock may be issued; provided,
however, that the maximum amount of Common Stock with respect
to which stock incentives may be granted to any person during
any calendar year shall be 20,000 shares, except for a grant
made to a recipient upon the recipients initial hiring by the
Company, in which case the number shall be a maximum of 40,000
shares. These numbers are subject to adjustment in the event
of a stock split and similar events. Stock incentive grants
may be in the form of options, stock appreciation rights,
stock awards or a combination thereof. No stock incentives
were granted under the Incentive Plan in 1998 or 1999.

Note 10. Non-Qualified Stock Option Agreement

During 1998, the Company entered into a non-qualified stock
option agreement with Clark D. Swisher and Alfred M. Schmidt,
Jr., directors of the Company. Each of Mr. Swisher and Mr.
Schmidt were granted the option to purchase 30,000 shares of
the Company's common stock, which vest 25% on August 1, 1998
and 25% on each January 1, 1999, January 1, 2000, and January
1, 2001. The vested options will be immediately exercisable
and will expire 10 years from the date of the agreement. The
exercise price of the options is $2.50 per share of common
stock. The pro forma disclosure in Note 8 includes the effect
of the 15,000 options vesting in 1999 and 1998.

F-22
<PAGE>
KIDS STUFF, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Note 11. Public Offering

In March 1999, the Company completed a public offering of
securities through Fairchild Financial Group, Inc. in which
460,000 units were sold for $1,950,915, net of issuance costs
of $579,085. Each unit consisted of one share of Series 1
Preferred Stock and two Series 1 Preferred Stock Purchase
Warrants, and sold for $5.50 per unit. The preferred stock and
warrants are separately transferable. Commencing September 3,
2000, each share of Series 1 Preferred Stock is convertible
into two shares of Common Stock. Commencing September 3, 2000,
each Preferred Warrant entitles the holder to purchase one
share of Series 1 Preferred Stock at an exercise price of
$6.00 per share until the close of business on March 3, 2002.

The proceeds of the public offering are to be used for the
purchase of inventory, accounts payable reduction,
establishment of a new operations center, web site production
and development, leasehold improvements for the "Kids Catalog
Outlet" retail store, and general corporate purposes.

F-23
<PAGE>
PART III

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

(a) Identification of Directors

The names, ages and principal occupations of the Company's present
directors, and the date on which their term of office commenced and expires, are
as follows:
<TABLE>
<CAPTION>

First
Term of Became Principal
Name Age Office Director Occupation

<S> <C> <C> <C> <C>
William L. Miller 63 (1) 1981 Chairman of the
Board, Chief
Executive Officer
and Principal
Financial Officer of
the Company

Jeanne E. Miller (2) 52 (1) 1982 President of the
Company

Clark D. Swisher 48 (1) 1971 Senior Vice
President of the
Employee Benefits
Division of the
Leonard-McCormick
Agency

Alfred M. Schmidt 66 (1) 1998 President of Schmidt
Group International,
Inc.

Debra P. Gibbs 46 (1) 1999 Attorney
</TABLE>

(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.

(2) Mr. and Mrs. Miller are married.

<PAGE>
(b) Identification of Executive Officers.
-------------------------------------

William L. Miller is Chairman of the Board, Chief Executive Officer,
Principal Financial Officer, Treasurer and Secretary of the Company. Jeanne E.
Miller is President of the Company.

The terms of all officers expire at the annual meeting of directors
following the annual stockholders meeting. Subject to their contract rights to
compensation, if any, officers may be removed, either with or without cause, by
the Board of Directors, and a successor elected by a majority vote of the Board
of Directors, at any time.

WILLIAM L. MILLER, Chairman of the Board, Chief Executive Officer,
Principal Financial and Accounting Officer, Treasurer and Secretary of the
Company since its formation in July 1996. Mr. Miller serves as Chairman of the
Board, President and Chief Executive Officer of Havana since December 1997.
Previously, he was the sole director and an executive officer of E.A. Carey of
Ohio, Inc. from 1984 to December 1997. Mr. Miller had been a director of
Perfectly Safe, Inc. and its vice President since it was formed by Duncan Hill
in 1990 until July 1996. Mr. Miller is President, Founder and a director of
Duncan Hill, a company he formed in 1977, Mr. Miller founded the MBI
Corporation, which designed and developed packaging machinery (1975-78). Mr.
Miller served in executive capacities in the direct marketing industry from 1971
to 1975. He holds a Bachelors Degree in Mechanical Engineering from Purdue
University and a Masters Degree in Business Administration from Indiana
University

JEANNE E. MILLER has been a director of the Company since July 1996, and
its President since January 1998. Previously, she served as Executive Vice
President of the Company from July 1996 until January 1998. Since July 1996,
Mrs. Miller had been a director of Perfectly Safe, Inc., and its President since
its formation in 1990 until July 1996. Mrs. Miller co-founded Duncan Hill in
1977 and has been a director and its Vice President since 1977. Mrs. Miller is
the author of the child safety book THE PERFECTLY SAFE HOME, published by Simon
and Schuster in 1991 and has appeared on network television to speak on that
subject. Mrs. Miller served as Vice President and a director of Carey and
Highland Pipe Company, both of which are subsidiaries of Duncan Hill, from 1984
to 1996.

CLARK D. SWISHER is a director of the Company since July 1996. Mr. Swisher
has been Vice President of the Employee Benefits Division of the
Leonard-McCormick Agency, a general insurance agency, since 1984. Mr. Swisher's
professional background includes membership in the National Association of Life
Underwriters and the University of Akron Business Advisory Council. Mr. Swisher
has been a director of Duncan Hill since 1995.

<PAGE>
ALFRED M. SCHMIDT, JR., a director of the Company since September 1998 is
President of The Schmidt Group International, Inc., direct marketing/management
consultants. Mr. Schmidt was the entrepreneur owner of New Hampton General
Store, a consumer catalog company. Mr. Schmidt was a Vice President of Hanover
House, then the first Vice President of Brooks Brothers, a national chain of
apparel specialty stores with 65 stores in the U.S. and six in Japan. Mr.
Schmidt subsequently was the first Vice President of Direct Marketing of
Bergdorf Goodman, N.Y., a designer apparel retailer, and Senior Vice President
in charge of catalogs at the Franklin Mint, Franklin Center, Pennsylvania. Mr.
Schmidt finished his public career as President of Myron Manufacturing Company,
a direct marketing firm selling advertising specialty products by catalog,
direct mail, and telemarketing. For the past twelve years, Mr. Schmidt has led
his company in catalog consulting with clients from Europe to the Pacific Rim.
Mr. Schmidt is a member of the Direct Marketing Association, the 1982 winner of
the prestigious Henry Hoke Award and the DMA Echo Leader Award. He was a founder
of the Catalog Leader's Group. Mr. Schmidt has served on the DMA Catalog
Council, The Direct Marketing Educational Council, and the Direct Marketing Idea
Exchange. Mr. Schmidt has been a contributing writer to Catalog Age Magazine,
Catalog Business, Direct Marketing Magazine and D.M. News. Mr. Schmidt has
addressed audiences extensively in the U.S. as well as Europe and the Far East.

DEBRA P. GIBBS, a director of the Company since September 1999, received
her Masters of Law and Taxation in May 1980 from the University of Miami School
of Law and her J.D. Degree in February 1979 from the Ohio Northern University,
Ada, Ohio. From 1980 - 1983, she was employed as an attorney by Aluminum Company
of America in their corporate tax/legal department. From 1983-1985, she was
employed as an attorney by Firestone Tire & Rubber Company, Akron, Ohio in their
tax department. From 1986-1999, she has performed various volunteer work and
raised her children. During the past five years, she has not been associated
with any firms outside of her volunteer work.

The Board of Directors has recently established a Compensation Committee
and an Audit Committee consisting of Alfred M. Schmidt, Jr. and Debra P. Gibbs.
The Audit Committee will, among other things, make recommendations to the Board
of Directors regarding the independent auditors for the Company, approve the
scope of the annual audit activities of the independent auditors and review
audit results and have general responsibility for all auditing related matters.
The Compensation Committee consists of Alfred M. Schmidt, Jr. and Debra P.
Gibbs. The Compensation Committee reviews and recommends to the Board of
Directors the compensation structure for the Company's officers and other
management personnel, including salary rates, participation in incentive
compensation and benefit plans, fringe benefits, non-cash perquisites and other
forms of compensation. The Committee also administers the Company's 1997
Long-Term Stock Incentive Plan.

<PAGE>
The Company's Certificate of Incorporation contains a provision eliminating
the personal monetary liability of directors to the extent allowed under the
General Corporation Law of the State of Delaware. Under the provision, a
stockholder is able to prosecute an action against a director for monetary
damages only if he can show a breach of the duty of loyalty, a failure to act in
good faith, intentional misconduct, a knowing violation of law, an improper
personal benefit or an illegal dividend or stock repurchase, as referred to in
the provision, and not "negligence" or "gross negligence" in satisfying his duty
of care. In addition, the provision applies only to claims against a director
arising out of his role as a director or not, if he is also an officer, his role
as an officer or in any other capacity or to his responsibilities under any
other law, such as the federal securities laws. The provision, however, does not
affect the availability of seeking equitable relief against a director of the
Company. In addition, the Company's Bylaws provide that the Company will
indemnify its directors, officers, employees and other agents to the fullest
extent permitted by Delaware law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act") may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission"). Officers, directors and
greater than ten percent stockholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To Management's knowledge, no officer, director or person owning more than
10% of the Company's Common Stock filed any reports late during its fiscal year
ended December 31, 1999, except that Duncan Hill, W. Miller and J. Miller filed
a combined Form 4 late for the months of October 1999.

Compensation of Directors

The Company pays its directors who are not also employees of the Company
$500 for each meeting attended and reimburses such directors for travel and
other expenses incurred by them in connection with attending Board of Directors
meetings. Directors are eligible to participate in 1997 Stock Incentive Plan.

<PAGE>
Item 10. Executive Compensation

The following table provides a summary compensation table with respect
to the compensation of W. Miller, the Company's Chief Executive Officer (CEO),
and J. Miller, the Company's President for the past three years.
<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

Long Term Compensation

Annual Compensation Awards Payouts

(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Other Compen-
and Compen- Stock LTIP sation
Principal sation Award(s) Number of Payouts ($)
Position Year Salary ($) Bonus ($) ($) (1) ($) (2) Options (3) ($)

<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Miller, 1999 125,000 -0- 4,000 -0- 100,000 -0- -0-
Chief Executive Officer
1998 125,000 -0- 4,000 -0- -0- -0- -0-
1997 125,000 -0- 4,000 -0- 100,000 -0- -0-

J. Miller, 1999 105,000 -0- 4,000 -0- 200,000 -0- -0-
President
1998 94,000 -0- 4,000 -0- 100,000 -0- -0-
1997 90,000 -0- 4,000 -0- -0- -0- -0-
</TABLE>
(1) Does not include the value of leased automobiles used almost
exclusively for the Company's business or key man life insurance on the
lives of each of W. Miller and J. Miller in the amount of $1,000,000,
payable to the Company in the event of death. W. Miller is provided
with a leased automobile by Havana with a monthly cost of approximately
$1,100 and J. Miller is provided with a leased automobile by the
Company at a monthly cost of approximately $800. The foregoing table
does not include the value of any personal use of such automobiles.

(2) Does not include 2,400,000 shares of the Company's Common Stock and
5,000,000 shares of the Company's Series A Preferred Stock issued to
Duncan Hill in connection with a reorganization.

(3) See "Employment Contracts" for a description of these options. Options
granted in 1999 include the cancellation of all options granted in past
three years and regrant of an equal number, thereby lowering the
exercise price to $1.33 per share.
<PAGE>
OPTION GRANTS TABLE

The information provided in the table below provides information with
respect to individual grants of the Company's stock options during fiscal 1999
of each of the executive officers named in the summary compensation table above.
The Company did not grant any stock appreciation rights during 1999.

Option Grants in Last Fiscal Year

Potential
Realizable Value at
Assumed Annual
Individual Grants Rates of Stock Price
Appreciation
for Option Term (2)

(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options/
Granted to
Options Employees Exercise Expira-
Granted in Fiscal Price tion
Name (#) Year (1) ($/Sh) Date 5% ($) 10% ($)

<S> <C> <C> <C> <C> <C> <C> <C>
W. Miller 100,000 22 1.33 10/16/08 79,000 152,000

J. Miller 200,000 44 1.33 01/01/07 90,000 206,000
</TABLE>

(1) The percentage of total options granted to the Company's employees in
fiscal year is based upon options granted to officers, directors and
employees.

(2) The potential realizable value of each grant of the Company's options
assumes that the market price of its Common Stock appreciates in value
from the date of grant to the end of the option term at annualized
rates of 5% and 10%, respectively, and after subtracting the exercise
price from the potential realizable value.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

The information provided in the table below provides information with
respect to each exercise of the Company's stock option during fiscal 1999 by
each of the executive officers named in the summary compensation table and the
fiscal year end value of the Company's unexercised options.

(a) (b) (c) (d) (e)

Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired on Options at Options
Exercise (#) Value FY-End (#) at Fy-End($)
Realized Exercisable/ Exercisable/
Name ($)(1) Unexercisable Unexercisable(1)

<S> <C> <C> <C> <C> <C>
William L. Miller -0- -0- 75,000/25,000 -0-

Jeanne E. Miller -0- -0- 175,000/25,000 -0-

</TABLE>

(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the Company's
options at exercise or fiscal year end (i.e. $46 per share),
respectively. In calculating the dollar value realized upon exercise,
the value of any payment of the exercise price is not included.

INCENTIVE COMPENSATION PLAN. The Company's Incentive Compensation Plan
(the "Plan") is designed to motivate employee participants to achieve the
Company's annual strategic goals. Eligibility for participation in the Plan is
limited to the executive officers of the Company, and such other employees of
the Company as may be designated by the Board of Directors from time to time.
The amount of such plan with respect to any year shall be determined subsequent
to the end of that year upon the determination of the Company's operating income
for that year. Each participant in the Plan is eligible to receive from the
bonus plan an annual award of up to 50% of the participant's base salary. The
Compensation Committee is responsible for recommending to the Board of Directors
performance objectives and awards for participants. W. Miller and J. Miller are
expected to be the principal participants in the Plan and they control the
election of all directors. Payouts are to be determined annually following
determination of the Company's fiscal year-end results. The Plan is subject to
amendment of termination at any time, but no such action may adversely affect
any rights or obligations with respect to any awards theretofore made under the
Plan. As of the date of this Form 10-KSB, no compensation has been paid under
the Plan.
<PAGE>
1997 STOCK INCENTIVE PLAN. Under the Plan which was adopted in 1997 and
amended on September 21, 1999, the Compensation Committee of the Board of
Directors, may grant stock incentives to key employees and the directors of the
Company pursuant to which a total of 400,000 shares of Common Stock may be
issued; provided, however, that the maximum amount of Common Stock with respect
to which stock incentives may be granted to any person during any calendar year
shall be 20,000 shares, except for a grant made to a recipient upon the
recipients initial hiring by the Company, in which case the number shall be a
maximum of 40,000 shares. These numbers are subject to adjustment in the event
of a stock split and similar events. Stock incentive grants may be in the form
of options, stock appreciation rights, stock awards or a combination thereof.
The Plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974.

Options granted under the Plan may be either "incentive stock options,"
which qualify for special tax treatment under Section 422 of the Internal
Revenue Code (the "Code"), or nonstatutory stock options, which do not qualify.
Incentive stock options may only be granted to persons who are employees of the
Company. Options will expire at such time as the Compensation Committee
determines, provided that no stock option may be exercisable later than ten
years from its grant, except that the maximum term of any incentive stock option
granted to a person who owns, directly or indirectly, 10% or more of the
combined voting power of the Company's capital stock (a "10% Shareholder") shall
be five years. If an optionee ceases to be an employee or director by reason of
death, incapacity of retirement, the option shall terminate fifteen months after
the optionee ceases to be an employee. If an optionee ceases to be an employee
because of resignation with the consent of the Compensation Committee, the
option will terminate three months after the optionee ceases to be an employee.
If an optionee ceases to be an employee or director for any other reason, the
option will expire thirty days after the optionee ceases to be an employee.

The option price per share is determined by the Compensation Committee,
except for incentive stock options which cannot be less than 100% of the fair
market value of the Common Stock on the date such option is granted or less than
110% of such fair market value if the optionee is a 10% shareholder. Payment of
the exercise price may be made in cash, or unless otherwise provided by the
Compensation Committee in shares of Common Stock delivered to the Company by the
optionee or by the withholding of shares issuable upon exercise of the option or
in a combination thereof. Options cannot be exercised until the date determined
by the Compensation Committee. Each option shall be exercised in full or in
part. Options are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the life of the employee or director
only by him or her. No options may be granted under the Plan after March 27,
2007. However, any options outstanding on March 27, 2007 will remain in effect
in accordance with their terms.
<PAGE>
The Plan also provides for the granting of stock appreciation rights
("SAR"), which entitle the holder to receive upon exercise an amount in cash
and/or stock which is equal to the appreciation in the fair market value of the
Common Stock between the date of the grant and the date of exercise. The number
of shares of Common Stock to which a SAR relates, the period in which it can be
exercised, and other terms and conditions shall be determined by the
Compensation Committee, provided however, that such expiration date shall not be
later than ten years from the date of the grant. SARS are not transferable other
than by will or the laws of descent and distribution, and may be exercised
during the life of the grant only by the grantee. The SARS are subject to the
same rules regarding expiration upon a grantee's cessation of employment or
directorship, as pertains to options, discussed above.

The Compensation Committee may also award shares of Common Stock
("stock awards") in payment of certain incentive compensation, subject to such
conditions and restrictions as the Committee may determine. All shares of Common
Stock subject to a stock award will be valued at not less than 100% of the fair
market value of such shares on the date the stock award is granted. The number
of shares of Common Stock which may be granted as a stock award in any calendar
year may not exceed 80,000.

The Plan will be administered by the Compensation Committee, which has
the authority to prescribe, amend and rescind rules and regulations relating to
the Plan, to accelerate the exercise date of any option, to interpret the Plan
and to make all necessary determinations in administering the Plan.

The Plan will remain in effect until such time as it is terminated by
the Board of Directors. The Plan may be amended by the Board of Directors upon
the recommendation of the Compensation Committee, except that, without
stockholder approval, the Plan may not be amended to: increase the number of
shares subject to issuance under the Plan; change the class of persons eligible
to participate under the Plan; withdraw the administration of the Plan from the
Compensation Committee; or, to permit any option to be exercised more than ten
years after the date it was granted.

The Compensation Committee consists of Debra P. Gibbs and Alfred M.
Schmidt, Jr. The Committee has granted options to purchase 80,000 shares of the
Company's Common Stock as of February 29, 2000.
<PAGE>

EMPLOYMENT AGREEMENTS

The Company has entered into separate five-year employment agreements
with William Miller ("W. Miller") and Jeanne Miller ("J. Miller"), effective
January 1, 1997, pursuant to which W. Miller is serving as Chief Executive
Officer of the Company and J. Miller served as its Executive Vice President. In
January 1998, the Company elected J. Miller President of the Company. In October
1998, the Company and J. Miller entered into an amended agreement. The
employment agreements. as amended, provide for an annual base salary of $125,000
for W. Miller and $105,000 for J. Miller, subject to annual review for increase
by the Company. The employment agreements also provide for the eligibility of
these executives to receive annual cash bonuses under the Company's Incentive
Compensation Plan discussed above. Each of these executives is provided with
automobiles, at the Company's expense, for their exclusive use, the make and
model of which is to be mutually agreed upon by the executive and the Company,
from time to time. These automobiles are used almost exclusively for business
purposes. Each of these executives is also to be reimbursed for certain personal
expenses up to $6,500, which amount shall be subject to increase to pay for any
personal income tax liability should such reimbursements be deemed taxable to
the executive. Each of these executives is also entitled to participate in any
employee benefit plan which the Company may create in the future. The Company
has also agreed to maintain in force, at its expense, during the term of the
employment agreements, life insurance for the benefit of each of the executives
in an amount equal to twice the base salary of W. Miller and five times the base
salary of J. Miller. (As of December 31, 1999, the Company has not issued such
insurance for W. Miller and/or J. Miller, but intends to do so). Pursuant to the
employment agreements, each of these executives has agreed not to compete with
the Company during employment and for a period of one year following termination
of employment and has further agreed to maintain as confidential, the Company's
proprietary information.

Each of the employment agreements provide for severance compensation to
be paid in all instances other than the executive's termination for cause. In
the event that the executive becomes disabled or dies, the Company, in the case
of W. Miller, is required to pay an amount equal to the product of (x) and (y)
where (x) is the sum of the executive's salary and bonus paid in the prior year
multiplied by 2.99 and (y) the percentage of the employment agreement's five
year term remaining from the date of death of disability; provided, however,
that such severance compensation will not be less than the officer's salary and
bonus paid in the year prior to the year in which the officer dies or becomes
disabled. The foregoing benefit is provided in the employment agreement of J.
Miller, but only in the event of disability. Each executive is also entitled to
be paid severance compensation in an amount equal to the sum of the executive's
salary and bonus paid in the prior year multiplied by 2.99 in the event that the
executive elects to terminate the employment agreement upon the Company's
material breach of the employment agreement or upon the Company's reduction of
the executive's responsibilities, duties, functions or dignity of position
resulting from a change of control, or otherwise. Assuming that severance
payments were due to each of the executive officers as of the date of the Form
10-KSB under the immediately preceding sentence, the amount of the severance
payment to each of W. Miller and J. Miller would be $299,000 and $194,350,
respectively. Each executive is further entitled to be paid severance
compensation in the amount equal to the sum of the executive's salary and bonus
paid in the last year of the executive's employment agreement in the event that
the executive is not rehired upon terms acceptable to him or her or, in the case
of W. Miller, a successor chief executive officer is hired with W. Miller's
consent to replace W. Miller prior to the expiration of the term of his
employment agreement. Additionally, any executive entitled to severance
compensation, above, will also be entitled to participate in any
Company-sponsored employee health benefit plan at the Company's expense, for a
maximum of eighteen months from the date of termination.
<PAGE>
Each of W. Miller and J. Miller was granted under their respective
employment agreements an option to purchase 100,000 shares of the Company's
Common Stock, which option vests 25% on each of the first four anniversary dates
commencing January 1, 1998, regardless of whether the executive is employed on
such dates by the Company. The vested options will be immediately exercisable
and will expire on January 1, 2007. Miller also received immediately vested and
exercisable options to purchase an additional 100,000 shares in October 1998.
The aforesaid options were canceled in September 1999 and were regranted at an
exercise price of $1.33 per share on almost identical terms as the original
options.

W. Miller is permitted under his agreement to devote such time to managing
the affairs of the various other Duncan Hill entities as he deems appropriate,
and to retain any compensation that he receives from those entities for
providing those services. See "Risk Factors."

The Company also provides W. Miller and J. Miller and all other employees
with health insurance on a non-discriminatory basis. The Company provides its
executive officers and employees with certain fringe benefits and may, in the
future, offer additional stock or cash incentive bonus plans, and other employer
benefits on such amounts and upon such conditions as the Company's Board of
Directors may, in its sole discretion, determine.

POTENTIAL CONFLICTS OF INTEREST

W. Miller is a co-founder, Chairman of the Board of Directors and Chief
Executive Officer of Havana, Duncan Hill and the Company. W. Miller's employment
agreement with the Company provides that he shall be permitted to devote such
time to managing Duncan Hill and Havana as he deems appropriate. Accordingly, W.
Miller will not be devoting his full-time attention to managing the operations
of the Company. Thus, conflicts of interest could potentially develop (i) to the
extent that W. Miller is not able to devote his full-time and attention to a
matter that would otherwise require the full-time and attention of a business
chief executive officer, (ii) involving competition for business opportunities,
(iii) involving transactions between the Company and its affiliated companies;
and (iv) due to the relationship between W. Miller and J. Miller as husband and
wife and as directors and officers of the Company. The Company has not adopted
any procedure for dealing with such conflicts of interest, except that the
Company's Board of Directors has adopted a policy that all new transactions
between the Company and Duncan Hill, Havana or any other affiliated company must
be approved by at least a majority of the Company's disinterested directors.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth as of March 1, 2000, certain information
with respect to the beneficial ownership of Common Stock and Series A Preferred
Stock by each person or entity known by the Company to be the beneficial owner
of 5% or more of such shares, each officer and director of the Company, and all
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares of Shares of Series A
Common Stock Preferred Stock
Beneficially Owned Beneficially Owned

NAME AND ADDRESS OF
BENEFICIAL OWNER(1) NUMBER PERCENT(2) NUMBER PERCENT(3)
- - ------------------ ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Duncan Hill (4) 2,188,075 62.2% 5,000,000 100%

William L. Miller and Jeanne E. Miller (4)(5) 2,438,075 64.7 5,000,000(6) 100

Clark D. Swisher (7) 15,000 * -0- -0-

Alfred M. Schmidt(7) 15,000 * -0- -0-

Debra P. Gibbs (8) 15,000 * -0- -0-

All Officers and Directors

as a Group (5 Persons) 2,483,075 65.1% 5,000,000(6) 100%
</TABLE>

---------------
* Represents less than one percent of the outstanding shares.

(1) Beneficial ownership as reported in the table above has been
determined in accordance with Rule 13d-3 of the Securities Exchange
Act. Accordingly, except as noted, all of the Company's securities over
which the officers and directors and nominees named, or as a group,
directly or indirectly have, or share voting or investment power, have
been deemed beneficially owned. All addresses are c/o Kids Stuff,
Inc.,7835 Freedom Avenue N.W., North Canton, OH 44720.

(2) Calculated based upon 3,520,856 shares of Common Stock outstanding
without giving effect to the possible exercise of outstanding Class A
Warrants.

(3)Calculated based upon 5,000,000 shares of Series A Preferred Stock
outstanding. The holders of the Series A Preferred Stock are entitled
to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The Series A Preferred Stock has no
conversion rights or rights to participate in dividend payments.

(4) The Millers may be deemed to beneficially own all of Duncan Hill's
shares for purposes of Rule 13d-3 of the Exchange Act based upon their
controlling ownership of its common stock. The Millers together control
approximately 68% of Duncan Hill.

(5) Includes the Miller's deemed beneficial ownership of 2,188,075
shares of Common Stock and options to purchase 250,000 shares.

(6) Represents the Miller's deemed beneficial ownership of 5,000,000
shares of Series A Preferred Stock, the record holder of which is Duncan
Hill.

(7) Messrs. Swisher and Schmidt have options to purchase 30,000 shares
each, which options vest in four equal annual installments beginning in
1999. The table includes only options vesting through January 1, 1999.

(8) Debra P. Gibbs has options to purchase 30,000 shares, which options
will vest in four equal installments on September 21, 1999, January 1,
2000, January 1, 2001 and January 1, 2002.
<PAGE>
Item 12. Certain Relationships and Related Transactions.

Reference is made to "Business" and "Management's Discussion and
Analysis or Plan of Operation" for a description of various related party
transactions involving the Company, Havana and Duncan Hill. Reference is also
made to Kids Stuff's Form 10-KSB (Item 12) for its year ended December 31, 1998
for a description of additional related party transactions.

It is the policy of the Company that future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties.

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

(a) Exhibits

<TABLE>
<CAPTION>
<S> <C> <C>
3.01 Certificate of Incorporation of the Company (1)
3.02 Certificate of Amendment of Certificate of Incorporation of the Company(1)
3.03 By-Laws of the Company(1)
3.04 Certificate of Designation of Series A Preferred Stock (2)
3.05 Certificate of Designation of Series 1 Preferred Stock (9)
4.01 Specimen Certificate for Shares of Common Stock (2)
4.02 Specimen Certificate for Shares of Series A Preferred Stock (2)
4.03 Revised Form of Common Stock Purchase Warrant Agreement (5)
4.04 Revised Specimen Certificate for Common Stock Purchase Warrants (3)
4.05 Revised Form of Underwriters' Purchase Option - 1997 Offering (5)
4.06 Form of Representative's Lock-up Letter(2)
4.07 Form of Representative's Purchase Option Agreement (7)
4.08 Preferred Stock Agency Agreement (7)
4.09 Preferred Warrant Agency Agreement (7)
4.10 Specimen of Preferred Warrant (7)
4.11 Specimen of Series 1 Preferred Stock (7)
10.01 Agreement to Acquire the Assets of The Natural Baby Company, Inc., (the "Acquisition Agreement")(1)
10.02 Addendum to Acquisition Agreement (1)
10.03 Escrow Agreement under the Acquisition Agreement (1)
10.04 Form of Consulting Agreement with Jane Martin (1)
10.05 Asset Purchase Agreement between the Company and its Parent (1)
10.06 Promissory Note from the Company and its Parent (1)
10.07 Form of Bridge Loan Agreement (1)
10.08 Form of Financial Consulting Agreement with Fairchild Financial
Group, Inc. (1)
10.09 Credit Facility with United National Bank and Trust Company (2)
10.10 Lease for Company's principal offices and telemarketing center (2)
10.11 Employment Agreement with William L. Miller (2)
10.12 Revised Employment Agreement with Jeanne E. Miller (7)

<PAGE>
10.13 Incentive Compensation Plan (2)
10.14 1997 Long-Term Stock Incentive Plan (2)
10.15 Amendment to Asset Purchase Agreement between the Company
and its Parent (2)
10.16 Form of Amendment to Bridge Loan Agreement (4)
10.17 Amended Form of Stock Repurchase Agreement and Note (5)
10.18 Second Addendum to Acquisition Agreement (5)
10.19 First Addendum to Escrow Agreement (6)
10.20 Third Addendum to Acquisition Agreement (6)
10.21 Agreement with The Havana Group, Inc. (8)
10.22 Form of new Financial Consulting Agreement with Fairchild Financial
Group, Inc. (7)
10.23 Other Leases (7)
10.24 Amendment to 1997 Long Term Stock Incentive Plan (10)
23.01 Consent of Hausser + Taylor LLP (10)
27.00 Revised Financial Data Schedule (10)
</TABLE>

-----------

(1) Incorporated by reference to the Registrant's Form SB-2 Registration
Statement, file no. 333-19423, filed with the Securities and Exchange Commission
on January 8, 1997.

(2) Incorporated by reference to the Registrant's Amendment No. 1 to Form
SB-2 Registration Statement, file no. 333-19423, filed with the Securities and
Exchange Commission on March 14, 1997.

(3) Incorporated by reference to the Registrant's Amendment No. 2 to Form
SB-2 Registration Statement, file no. 333-19423, filed with the Securities and
Exchange Commission on April 2, 1997.

(4) Incorporated by reference to the Registrant's Amendment No. 3 to Form
SB-2 Registration Statement, file no. 333-19423, filed with the Securities and
Exchange Commission on April 14, 1997.

(5) Incorporated by reference to the Registrant's Amendment No. 4 to Form
SB-2 Registration Statement, file no. 333-19423, filed with the Securities and
Exchange Commission on June 3, 1997.

(6) Incorporated by reference to the Registrant's Amendment No. 5 to Form
SB-2 Registration Statement, file no. 333-19423, filed with the Securities and
Exchange Commission on June 25, 1997.

(7) Incorporated by reference to Form SB-2 Registration Statement, File No.
333-61463.

(8) Incorporated by reference to the Registrant's Form 10-KSB filed for its
fiscal year ended December 31, 1997.

(9) Incorporated by reference to the Registrant's Form 10-KSB filed for its
fiscal year ended December 31, 1998.

(10) Filed herewith.

(b) Reports on Form 8-K

During the three months ended December 31, 1999, no Form 8-K was filed
or required to be filed.
<PAGE>

SIGNATURES

Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

KIDS STUFF, INC.

By: /s/ William L. Miller
----------------------
William L. Miller,
Chief Executive Officer

Dated: North Canton, Ohio
March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

Signatures Titles Date

<S> <C> <C>
/s/ William L. Miller Chairman of the
William L. Miller Board, Chief Executive Officer,
Principal Financial Officer,
Treasurer and Secretary March 30, 2000

/s/ Jeanne E. Miller President and
Jeanne E. Miller Director March 30, 2000

/s/ Clark D. Swisher
Clark D. Swisher Director March 30, 2000

/s/ Alfred M. Schmidt
Alfred M. Schmidt Director March 30, 2000

/s/ Debra P. Gibbs
Debra P. Gibbs Director March 30, 2000

</TABLE>

Kids Stuff, Inc.
Exhibit 10.24

AMENDMENT NO. 1 TO KIDS STUFF, INC.'S
1997 LONG-TERM STOCK INCENTIVE PLAN

Section 5(b) of the 1997 Long-Term Stock Incentive Plan is amended to read
as follows:

"Each Option shall be exercisable in full or in part at such time or times
as determined by the Committee. Unless otherwise provided in the Option, an
Option, to the extent is it or becomes exercisable, may be exercised at any time
in whole or in part until the expiration or termination of the Option. Any term
or provision in any outstanding Option specifying that the Option not be
immediately exercisable or that it be exercisable in installments may be
modified at any time during the life of the Option by the Committee, provided,
however, no such modifications of an outstanding Option shall, without the
consent of the optionee, adversely affect any Option theretofore granted to the
optionee."

<ARTICLE> 5

<LEGEND>
Exhibit 27.1 Financial Data Schedule

This schedule contains summary financial information extracted from financial
statements and Related Footnotes of Kids Stuff, Inc.

</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> dec-31-1999
<CASH> 859,431
<SECURITIES> 0
<RECEIVABLES> 257,574
<ALLOWANCES> 0
<INVENTORY> 2,045,005
<CURRENT-ASSETS> 4,307,696
<PP&E> 3,021,431
<DEPRECIATION> 206,652
<TOTAL-ASSETS> 8,919,985
<CURRENT-LIABILITIES> 3,136,013
<BONDS> 0
0
5,460
<COMMON> 3,513
<OTHER-SE> 3,776,877
<TOTAL-LIABILITY-AND-EQUITY> 8,919,985
<SALES> 16,729,951
<TOTAL-REVENUES> 16,729,951
<CGS> 10,051,665
<TOTAL-COSTS> 15,020,217
<OTHER-EXPENSES> 1,603,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,649
<INCOME-PRETAX> 48,059
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,059
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)

</TABLE>