FIRST YEARS INC, S-1/A, 1995-10-05

FIRST YEARS INC
S-1/A, 1995-10-05
MISCELLANEOUS PLASTICS PRODUCTS

Previous: INCOME FUND OF AMERICA INC, N-30D, 1995-10-05

Next: LEISURE CONCEPTS INC, PRE 14A, 1995-10-05

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1995

REGISTRATION NO. 33-62673

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

------------------------

THE FIRST YEARS INC.
(Formerly Kiddie Products, Inc.)
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
MASSACHUSETTS 5098 04-2149581
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

------------------------

ONE KIDDIE DRIVE, AVON, MASSACHUSETTS 02322 (508) 588-1220
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)

------------------------

RONALD J. SIDMAN
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
THE FIRST YEARS INC.
ONE KIDDIE DRIVE
AVON, MASSACHUSETTS 02322
(508) 588-1220
(Name and address, including zip code, and telephone number, including area
code, of agent for service)

------------------------

Copies to:

<TABLE>
<S> <C> <C>
KEITH F. HIGGINS, ESQ. GITTA M. KURLAT, ESQ. PETER B. TARR, ESQ.
ROPES & GRAY KURLAT ASSOCIATES HALE AND DORR
ONE INTERNATIONAL PLACE ONE BOSTON PLACE 60 STATE STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02108 BOSTON, MASSACHUSETTS 02109
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE FIRST YEARS INC.

CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
LOCATION IN PROSPECTUS ITEM AND CAPTION
------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page and Outside Back
Cover Page of Prospectus; Additional
Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Principal and Selling Stockholders
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Outside Front Cover Page of Prospectus;
Description of Capital Stock; Underwriting
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information With Respect to the
Registrant................................ Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal and
Selling Stockholders; Description of
Capital Stock; Underwriting; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 5, 1995

1,200,000 SHARES

[FIRST YEARS LOGO]

COMMON STOCK
------------------------
Of the 1,200,000 shares of Common Stock offered hereby, 600,000 shares are
being sold by The First Years Inc. (the "Company" or "The First Years") and
600,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.

The Common Stock trades on the Nasdaq National Market under the symbol
"KIDD". On October 2, 1995, the last reported sale price of the Common Stock was
$22.75 per share. See "Price Range of Common Stock."

THERE ARE CERTAIN RISKS ASSOCIATED WITH THIS OFFERING. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company and the Selling
Stockholders estimated at $187,800 and $172,200, respectively.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
180,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that the delivery of the shares of Common Stock will be made on or
about , 1995.
A.G. EDWARDS & SONS, INC. ADAMS, HARKNESS & HILL, INC.

THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE> 4

THE FIRST YEARS IS MORE THAN A BRAND.

IT'S A MOTHER WHO'S GOTTEN UP AT 4 AM AND CHECKED ON HER BABY, JUST TO MAKE
SURE. IT'S A FATHER WHO'S BEEN THROUGH SPIT UP, SHOTS, AND A THOUSAND DIRTY
DIAPERS. IT'S THE NEIGHBOR WITH THREE WONDERFUL KIDS WHO SAYS, YES, YOU ARE
DOING IT RIGHT. IT'S THE PEDIATRICIAN WHO UNDERSTANDS THAT PARENTS NEED JUST AS
MUCH ATTENTION AS BABIES DO. IT'S SOMEONE WHO KNOWS THAT PARENTS ARE NOT MADE
OF MONEY. IT'S NEW IDEAS, IT'S FUN AND JOY AND GROWTH. IT'S PARENTS LEARNING
FROM PARENTS. AND THEY ARE NOT CONSUMERS, THEY ARE FRIENDS.

[Child on parent's shoulders with text superimposed.]

THE FIRST YEARS(R), Ideas Inspired by Parents(R), TumbleMates(R),
Firstronics(R) and Washables(R) are registered trademarks of The First Years
Inc. Simplicity(TM), Sure(TM), Choice(TM), Clip'n Go(TM), Neats(TM),
PackMates(TM), Nurserytronics(TM), Step-by-Step(TM) and First Gifts(TM) are
trademarks of The First Years Inc. 3M(R) and SCOTCHGARD(R) are registered
trademarks of Minnesota Mining and Manufacturing Company. WINNIE THE POOH(R) and
POOH(R) are registered trademarks of The Walt Disney Company.

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

------------------------

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS AND THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 5

Our products are inspired
and pretested by parents for
parents. They are designed in
consultation with eminent
pediatrician Dr. T. Berry [Montage of eight photographs
Brazelton, and staff members depicting various company products,
of the Child Development Unit, staff members of the Child
Children's Hospital in Boston. Development unit at Boston
The First Years is a benefactor Children's Hospital and Company
of The Child Development Unit. employees with their children]

FIRSTGIFTS[TM]
Delightful--and practical--
gift items and product
ensembles for celebrating
a birth, a birthday,
or any special occasion.

<PAGE> 6

FEEDING & SOOTHING
Creative designs--from [Montage of eight photographs depicting
bottles and breast pumps various Company products, Company
to teethers and pacifiers-- employees with their children and a
that provide convenience separate photograph of a child.]
and quality for parents.

PLAY & DISCOVER
Toys that combine fun
with emotional and
physical development,
from the classic Soft Ducky
to our innovative
Firstronics line.

CARE & SAFETY
Excellence in childcare,
health, and safety--in the
nursery, around the house,
and on the road.

[THE FIRST YEARS LOGO]

<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, the information in this
Prospectus assumes the Underwriters' over allotment option is not exercised. All
information reflects the two-for-one and three-for-one stock splits effected on
June 14, 1991 and December 15, 1992, respectively.

The First Years Inc. is a leading developer and worldwide marketer of a
broad line of innovative, high-quality, value-priced, developmentally-sound
products for infants and toddlers. Since 1973, the Company has sold its products
under its well-known brand name and principal trademark, THE FIRST YEARS. In
1994 and 1995, the Company entered into licensing agreements with The Walt
Disney Company to feature Winnie the Pooh characters on a variety of its
products in various countries. The Company's product line now contains
approximately 300 items and is divided into five categories -- Feeding &
Soothing, Care & Safety, Play & Discover, First Gifts and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$39.99. Major channels through which the Company sells its products include mass
merchants, supermarkets, drug stores, department stores, wholesale clubs,
convenience stores, specialty stores, mail-order catalogs and catalog showrooms.
The Company currently has over 1,000 customers in over 40 countries. Major
customers include Wal*Mart, Toys "R" Us, Target, Kmart, Sears, Kroger and Baby
Superstore.

The Company believes that a number of recent demographic trends in the
United States have had a favorable impact on the market for juvenile products in
general and the appeal of the Company's product line in particular. In the U.S.
and many other developed countries, children are being born to dual-income
parents and parents are having children at later ages. The Company also believes
that parents in general, and especially older parents, are now more aware of the
developmental importance of a child's early years and more concerned about
safety, quality and value in juvenile products and that they are also more
willing and able to pay for products that embody these qualities. Capitalizing
on its reputation for parenting expertise and product quality, its development
of products that are based on Ideas Inspired by Parents and its longstanding
relationship with Dr. T. Berry Brazelton and the Child Development Unit at
Boston Children's Hospital, the Company believes it is well positioned to
produce new and innovative products that meet the requirements of today's
parents.

The Company believes that its growth will result in large part from the
continued expansion of its existing product line for infants and toddlers up to
three years of age as well as the development of products for children up to six
years of age. The Company introduced 45 new products for sale in 1994 and 90 new
products for sale in 1995. Among the 1995 items are initial entries into product
segments that are new to the Company. Those entries include several
higher-priced furnishings, such as bath seats, booster seats and step stools;
higher-priced boxed toys; electronic products for the nursery, including a
nursery monitor and crib tape player/night light; travel-related products such
as diaper bags and child carriers; and 25 products featuring Winnie the Pooh
characters. During this period of rapid product development, net sales have
increased from approximately $46.1 million in 1993 to $53.2 million in 1994 and
from $27.1 million in the first six months of 1994 to $35.9 million for the
comparable period in 1995.

The Company believes that its future growth will also come from the
expansion of its distribution in both domestic and international markets. The
Company's strategy in the United States is to increase its penetration in all of
its major channels of distribution. Internationally, the Company has expanded
its sales in Europe with the opening of a sales office in the United Kingdom in
1992 and has increased distribution of its products in the past few years in
Canada, Central and South America, the Middle East and, more recently, the
Pacific Rim. The Company believes that its products have been well received by
international consumers and that the number of births and rising income levels
in international markets present significant opportunities for growth.

The Company was incorporated in 1952 in Massachusetts under the name Kiddie
Products, Inc. The Company changed its name to The First Years Inc. in May 1995.
The Company's headquarters are located at One Kiddie Drive, Avon, Massachusetts
02322, and its telephone number is (508) 588-1220.

3
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company............................................. 600,000 shares
The Selling Stockholders................................ 600,000 shares
Total.............................................. 1,200,000 shares
Common Stock to be outstanding after completion of this
Offering(1)................................................ 2,856,405 shares
Use of proceeds.............................................. Product development, purchase
of capital equipment (molds
and dies), debt repayment,
working capital and other
general corporate purposes,
including possible
acquisitions of product lines.
See "Use of Proceeds."
Nasdaq National Market symbol................................ KIDD
<FN>

- ---------------
(1) Based on shares outstanding at September 1, 1995. Does not include 207,414
shares issuable upon the exercise of outstanding options under the Company's
stock plans.

</TABLE>

<TABLE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $35,423 $37,993 $45,267 $46,124 $53,233 $27,069 $35,879
Cost of products sold............ 18,831 20,199 23,645 26,654 29,498 15,208 20,973
Selling, general, and
administrative expenses........ 13,999 14,776 18,430 17,857 18,916 9,245 11,336
Income before income taxes....... 2,860 3,306 3,315 1,278 4,861 2,620 3,533
Net income....................... 1,694 1,916 1,930 796 2,989 1,625 2,120
Earnings per share............... $ 0.75 $ 0.85 $ 0.86 $ 0.35 $ 1.33 $ 0.72 $ 0.91
Dividends paid per share(1)...... -- $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Weighted average number of shares
outstanding.................... 2,248 2,248 2,248 2,248 2,249 2,248 2,331
</TABLE>

<TABLE>

SUMMARY BALANCE SHEET AT JUNE 30, 1995:

<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current assets........ $29,470 $38,813
Property, plant, and
equipment - net..... 5,916 5,916
------- -----------
$35,386 $44,729
======= =========

<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current liabilities... $10,529 $ 7,229
Long term
liabilities......... 752 752
Stockholders'
equity.............. 24,105 36,748
------- -----------
$35,386 $44,729
======= =========

<FN>
- ---------------
(1) A cash dividend of $0.17 per share of Common Stock has been paid in June of
each year commencing in 1991.

(2) Adjusted to reflect the sale of the 600,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $22.75 per
share (the last reported sale price on October 2, 1995) and after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company related to the Offering, and the application of the
net proceeds therefrom. See "Use of Proceeds."

</TABLE>

RISK FACTORS

There are certain risks associated with this Offering. See "Risk Factors."

4
<PAGE> 9

RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors in addition to the other information
contained elsewhere in this Prospectus before purchasing shares of Common Stock
offered hereby.

NEW PRODUCT INTRODUCTIONS

The growth of the Company has been, and will continue to be, dependent upon
its ability to continue to introduce new products. There can be no assurance
that the Company will continue to maintain its present rate of growth, that it
will continue to generate new product ideas, or that new products will be
successfully introduced. See "Business -- Product Design, Development and
Marketing."

RELIANCE ON LICENSED PRODUCTS

A substantial factor contributing to the growth in the Company's net sales
in 1995 has been its licensing agreements with The Walt Disney Company to
feature Winnie the Pooh characters on a variety of its products in various
countries. For the first six months of 1995, net sales of these licensed
products were approximately 14% of the Company's net sales. These licensing
agreements expire at the end of 1996 and there can be no assurance that they
will be renewed or that, if renewed, they will result in sales increases in
future periods. See "Business -- Agreements with The Walt Disney Company."

DEPENDENCE UPON MAJOR CUSTOMERS

The two largest customers of the Company, Wal*Mart and Toys "R" Us,
accounted for approximately 26% and 22%, respectively, of net sales during 1994,
and approximately 25% and 23%, respectively, of net sales during the first six
months of 1995. A significant reduction of purchases by either of these
customers could have a material adverse effect on its business. See
"Business -- Sales."

COMPETITION

The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. There can be no
assurance that the Company will be able to continue to compete effectively in
the juvenile products market. See "Business -- Competition."

RELIANCE ON FOREIGN MANUFACTURERS

The Company does not own or operate its own manufacturing facilities. In
each of 1994 and the first six months of 1995, the Company derived approximately
53% and 51%, respectively, of its net sales from products manufactured by others
in the Far East, mainly in the Peoples' Republic of China ("China"). The Company
has no long-term contracts with these manufacturing sources. Foreign
manufacturing is subject to a number of risks including transportation delays
and interruptions, quotas and other import or export controls, the imposition of
tariffs, currency fluctuations, misappropriation of intellectual property,
political and economic disruptions, and changes in governmental policies. From
time to time, the United States Congress has attempted to impose additional
restrictions on trade with China. Enactment of legislation or the imposition of
restrictive regulations conditioning or revoking China's "most favored nation"
("MFN") trading status could have a material adverse effect upon the Company's
business because products originating from China could be subjected to
substantially higher rates of duty. China's MFN trading status has been extended
until July 3, 1996. The European Economic Community (the "EEC") has recently
enacted a quota and tariff system with respect to the importation into the EEC
of certain toy products originating in China. Although the Company continues to
evaluate alternative sources of supply outside of China, there can be no
assurance that the Company will be able to develop alternative sources of supply
in a timely and cost-effective manner. Also, the Company, because of its
substantial reliance on suppliers in foreign countries, is required to order
products further in advance of customer orders than would generally be the case
if such products were produced in the United States. The risk of ordering
products in this manner is greater during the initial introduction of new

5
<PAGE> 10

products since it is difficult to determine the demand for such products. See
"Business -- Manufacturing and Sources of Supply."

COST AND AVAILABILITY OF CERTAIN MATERIALS

Plastic and paperboard are significant cost components of the Company's
products and packaging. Because the primary resource used in manufacturing
plastic is petroleum, the cost and availability of plastic for use in the
Company's products varies to a great extent with the price of petroleum. The
inability of the Company's suppliers to acquire sufficient plastic or paperboard
at reasonable prices would adversely affect the Company's ability to maintain
its profit margins in the short term. See "Business -- Manufacturing and Sources
of Supply."

PRODUCT LIABILITY RISKS

The Company's juvenile products are used for and by small children and
infants. The Company carries product liability insurance in amounts which
management deems adequate to cover risks associated with such use; however,
there can be no assurance that existing or future insurance coverage will be
sufficient to cover all product liability risks. See "Business -- Legal
Proceedings."

GOVERNMENT REGULATION

The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act and the Federal Hazardous Substances Act (the
"Acts") and the regulations promulgated thereunder. The Acts authorize the
Consumer Product Safety Commission (the "CPSC") to protect the public from
products which present a substantial risk of injury. The CPSC can require the
repurchase or recall by the manufacturer of articles which are found to be
defective and impose fines or penalties on the manufacturer. Similar laws exist
in some states and cities and in other countries in which the Company markets
its products. Any recall of its products could have a material adverse effect on
the Company, depending on the particular product. See "Business -- Government
Regulation."

6
<PAGE> 11

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the 600,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $22.75 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company) are
estimated to be approximately $12,643,200 ($16,492,500 if the Underwriters'
over-allotment option is exercised in full).

The Company intends to use the net proceeds to expand its product
development efforts, increase product distribution, purchase capital equipment
for tooling (predominantly molds and dies), repay outstanding bank debt
($2,300,000 outstanding as of September 1, 1995 bearing interest at 8.2%), and
for general corporate purposes, including working capital to support increased
inventory and receivables levels, and possible acquisitions of product lines.
The Company has not entered into any agreements with respect to any such
acquisitions.

Pending the application of the net proceeds as described above, the net
proceeds to the Company from this offering will be placed in interest-bearing
bank accounts or invested in United States government securities, certificates
of deposit of major banks, money market mutual funds or investment-grade
commercial paper. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

The Company will not receive any proceeds from the sale of the 600,000
shares of Common Stock being offered hereby by the Selling Stockholders.

PRICE RANGE OF COMMON STOCK

The Common Stock has been quoted on the Nasdaq National Market under the
symbol "KIDD" since March 1, 1995. Prior to that time, the Common Stock was
traded on the Nasdaq Small-Cap Market. The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated as reported
by Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C> <C>
1993
First Quarter.......................................... $13 1/2 $10 3/4
Second Quarter......................................... 12 3/4 10
Third Quarter.......................................... 12 10
Fourth Quarter......................................... 11 1/4 9 1/2
1994
First Quarter.......................................... 10 1/2 8 1/2
Second Quarter......................................... 15 8 1/2
Third Quarter.......................................... 16 1/8 13
Fourth Quarter......................................... 19 1/2 15
1995
First Quarter.......................................... 24 17 1/4
Second Quarter......................................... 20 1/4 16 3/4
Third Quarter.......................................... 23 1/2 18 3/4
Fourth Quarter (through October 2, 1995)............... 22 3/4 22 3/4
</TABLE>

On October 2, 1995 the last reported sale price as reported on the Nasdaq
National Market was $22.75 per share. As of September 1, 1995, there were
approximately 120 record holders of the Common Stock.

7
<PAGE> 12

CAPITALIZATION

The following table sets forth the short-term borrowings and capitalization
of the Company as of June 30, 1995, and as adjusted to give effect to the sale
of the 600,000 shares of Common Stock offered by the Company (at an assumed
public offering price of $22.75 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the application of the net proceeds therefrom.

<TABLE>
<CAPTION>
JUNE 30, 1995
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings (including current portion of long-term debt)...... $ 3,433 $ 133
=======
Long-term debt (less current portion).................................... $ 167 $ 167
-------
Stockholders' equity:
Common stock, $0.10 par value, 15,000,000 shares authorized, 2,252,286
shares issued and outstanding and 2,852,286 shares issued and
outstanding as adjusted(1)............................................. 225 285
Paid-in capital.......................................................... 117 12,700
Retained earnings........................................................ 23,763 23,763
-------
Total stockholders' equity............................................. 24,105 36,748
-------
Total capitalization..................................................... $24,272 $36,915
=======

<FN>
- ---------------
(1) Excludes options to purchase Common Stock under the Company's stock plans of
which there were options outstanding to purchase an aggregate of 211,533
shares at June 30, 1995.

</TABLE>

DIVIDEND POLICY

The Company has paid a cash dividend on its Common Stock of $0.17 per share
in June of each year commencing in 1991. The most recent annual cash dividend
was paid on June 1, 1995. The Company currently expects that comparable cash
dividends will continue to be paid in the future. However, the declaration and
payment of any such cash dividends in the future will depend upon the Company's
earnings, financial condition, capital needs, and other factors deemed relevant
by the Board of Directors. There can be no assurance that the Company will
continue to pay dividends in the future.

8
<PAGE> 13

SELECTED FINANCIAL DATA

The selected financial data presented below as of and for each of the five
years ended December 31, 1994 have been derived from the Company's financial
statements, which have been audited by Deloitte & Touche LLP, independent
accountants. The selected financial data as of and for the six-month periods
ended June 30, 1994 and 1995 have been derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for any future period. This data should be read in conjunction with the
Financial Statements, related notes, and other financial information included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................... $35,423 $37,993 $45,267 $46,124 $53,233 $27,069 $35,879
Cost of products sold........... 18,831 20,199 23,645 26,654 29,498 15,208 20,973
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 16,592 17,794 21,622 19,470 23,735 11,861 14,906
Selling, general, and
administrative expenses....... 13,999 14,776 18,430 17,857 18,916 9,245 11,336
Severance-related expenses...... -- -- -- 373 -- -- --
Interest income (expense),
net........................... 267 288 123 38 42 4 (37)
------- ------- ------- ------- ------- ------- -------
Income before income taxes...... 2,860 3,306 3,315 1,278 4,861 2,620 3,533
Income taxes.................... 1,166 1,390 1,385 482 1,872 995 1,413
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1,694 $ 1,916 $ 1,930 $ 796 $ 2,989 $ 1,625 $ 2,120
======= ======= ======= ======= ======= ======= =======
Earnings per share.............. $ 0.75 $ 0.85 $ 0.86 $ 0.35 $ 1.33 $ 0.72 $ 0.91
Dividends paid per share(1)..... -- $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Weighted average number of
shares outstanding............ 2,248 2,248 2,248 2,248 2,249 2,248 2,331
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital................. $13,811 $15,081 $14,634 $15,126 $17,245 $16,096 $18,941
Total assets.................... 20,859 22,383 24,695 24,533 28,853 26,476 35,386
Short-term debt................. 133 133 133 133 133 133 3,433
Long-term debt.................. 767 633 500 367 233 300 167
Stockholders' equity............ 16,210 17,751 19,306 19,720 22,350 20,962 24,105
</TABLE>

- ---------------
(1) A cash dividend of $0.17 per share of Common Stock has been paid in June of
each year commencing in 1991.

9
<PAGE> 14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

The Company's recent growth has been to a large extent the result of a
substantial increase in sales of new products and the addition in 1995 of
products featuring Winnie the Pooh characters under a licensing agreement with
the Walt Disney Company. These licensed products accounted for approximately 14%
of net sales in the first six months of 1995. The Company plans to introduce the
Winnie the Pooh characters on additional products and in additional geographic
areas in the latter part of 1995 and in 1996. The Company expects to continue
its new product development program aggressively. However, it does not believe
that sales from new product introductions are necessarily related to the number
of new products introduced.

As part of its marketing strategy, the Company has recently entered new
product areas, such as furnishings and licensed character products, that it
believes have significant sales potential. These product areas offer lower gross
profit margins than the Company's historical product areas and have had the
effect of lowering the Company's overall gross margin percentage. However,
because of the resulting increases in sales, total profits have increased.
During the balance of 1995, the Company expects that these trends will continue
and that gross margins will decrease and total profits will increase versus the
comparable period in 1994.

International sales have had an increasingly larger impact on the Company's
financial results. In 1992, international sales represented approximately 5% of
net sales; for the first six months of 1995, international sales were
approximately 10% of net sales. Start-up costs associated with the establishment
of the Company's international distribution, particularly in Europe, have
negatively affected selling, general, and administrative expenses in the periods
since 1992. The Company believes that international sales as a percentage of net
sales will continue to increase and that as these sales increase the expenses
associated with these sales will decrease as a percentage of international
sales.

RESULTS OF OPERATIONS

<TABLE>

The following table sets forth, for the periods indicated, certain items in
the Company's statements of income as a percentage of net sales:

<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold................................. 52.2 57.8 55.4 56.2 58.5
Gross profit.......................................... 47.8 42.2 44.6 43.8 41.5
Selling, general, and administrative expenses......... 40.7 38.7 35.5 34.2 31.6
Income before income taxes............................ 7.3 2.8 9.1 9.7 9.8
Net income............................................ 4.3 1.7 5.6 6.0 5.9
</TABLE>

SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994

Net sales for the first six months of 1995 were $35.9 million, an increase
of $8.8 million, or 32.5%, as compared to net sales of $27.1 million for the
comparable period in 1994. The increase was due to new product introductions and
expanded retail distribution in domestic and foreign markets. Net sales
particularly benefited from the introduction of newly licensed Winnie the Pooh
products and the introduction of new products that have higher average selling
prices than products previously offered by the Company.

Cost of products sold for the first six months of 1995 was $21.0 million,
an increase of $5.8 million, or 37.9%, as compared to $15.2 million for the
comparable period in 1994. As a percentage of net sales, cost of products sold
for the first six months of 1995 increased to 58.5% from 56.2% in the comparable
period of 1994. The increase was due to increased sales of higher-priced, lower
margin items, licensing fees and air freight shipments from overseas production
facilities incurred primarily in the first three months of the period. In

10
<PAGE> 15

addition, sales reflected an increased volume of licensed products sales that
carry a lower profit margin. The continued effect of these factors, along with
increased cost of products due to raw material price increases, is expected to
result in further declines in gross profit margins for the balance of 1995.

Selling, general, and administrative expenses for the first six months of
1995 were $11.3 million, an increase of $2.1 million, or 22.6%, as compared to
$9.2 million for the comparable period in 1994. The increase resulted primarily
from costs related to increased sales volume. Selling, general, and
administrative expenses for the first six months of 1995 as a percent of sales
decreased to 31.6% from 34.2% for the similar period in 1994. This decrease
reflects the economies of scale resulting from a higher volume of business.

Income tax expense as a percentage of pretax income increased to 40.0% from
38.0% in the comparable period in 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net sales in 1994 were $53.2 million, an increase of $7.1 million, or
15.4%, as compared to net sales of $46.1 million in 1993. The increase was due
primarily to new product introductions and expanded retail distribution in
domestic and foreign markets.

Cost of products sold in 1994 was $29.5 million, an increase of $2.8
million, or 10.7%, as compared to $26.7 million in 1993. As a percentage of net
sales, cost of products sold decreased to 55.4% in 1994 from 57.8% in 1993 due
to sales of higher margin products including new products introduced in 1994.

Selling, general, and administrative expenses in 1994 were $18.9 million,
an increase of $1.0 million, or 5.9%, as compared to $17.9 million in 1993. The
increase is attributable to higher costs directly related to increased sales
volume. As a percentage of net sales, selling, general, and administrative
expenses decreased in 1994 to 35.5% from 38.7%. The decrease reflects the
economies of scale resulting from a higher volume of business, including
increased sales in Europe, and the effects of a program instituted in 1993 to
reduce operating expenses.

Income tax expense as a percentage of pretax income increased slightly to
38.5% in 1994 from 37.7% in 1993.

YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992

Net sales in 1993 were $46.1 million, an increase of $857,000, or 1.9%, as
compared to net sales of $45.3 million in 1992. The increase was due to new
product introductions and expanded retail distribution in domestic and foreign
markets offset in part by price competition in some older products, declines in
sales to wholesale clubs and an unusually large shipment in 1992 for initial
stocking of an expanded program with one of the Company's largest accounts.

Cost of products sold in 1993 was $26.7 million, an increase of $3.0
million, or 12.7%, as compared to $23.7 million in 1992. As a percentage of net
sales, cost of products sold increased in 1993 to 57.8% from 52.2% in 1992
primarily because of price competition in some older lines and the inability to
effect price increases on other products.

Selling, general, and administrative expenses in 1993 were $17.9 million, a
decrease of $573,000, or 3.1%, as compared to $18.4 million in 1992. As a
percentage of net sales, selling, general, and administrative expenses decreased
to 38.7% from 40.7% in 1992. Reductions in bad debt expense, payroll and
payroll-related costs, and packaging costs offset increased distribution costs.

To improve operating productivity, the Company streamlined staff and
outsourced certain product assembly operations. As a result, 34 employees were
laid off during 1993. Severance-related expenses, primarily consisting of
severance pay, benefit considerations and outplacement services, amounted to a
pretax charge of $373,000 ($231,000 net of tax).

Income tax expense as a percentage of pretax income decreased to 37.7% in
1993 from 41.8% in 1992 as a result of increased state tax credits.

11
<PAGE> 16

LIQUIDITY AND CAPITAL RESOURCES

Net working capital increased by $1.7 million from $17.2 million at
December 31, 1994 to $18.9 million at June 30, 1995 primarily due to profitable
operations. Accounts receivable increased by $4.4 million primarily as a result
of increased sales, and inventories increased by $3.4 million to meet continued
demand for the Company's products. Cash decreased by $1.2 million primarily
resulting from increases in accounts receivable and inventories which were
partially offset by increases in accounts payable, accrued expenses and
short-term borrowings.

Unsecured lines of credit of $15 million which are subject to annual
renewal, are available from banks. Amounts outstanding under these lines are
payable upon demand by the banks. During 1995, the Company has borrowed various
amounts from time to time up to $3.3 million, of which $2.3 million at an
interest rate of 8.2% was outstanding as of September 1, 1995.

The Company has paid a cash dividend of $0.17 per share of Common Stock in
June of each year commencing in 1991.

The Company made capital expenditures of approximately $458,000 in the
first six months of 1995 and expects to spend approximately $1 million more on
capital expenditures in the second half of 1995. The Company expects cash flow
from operations, availability under the Company's lines of credit and the net
proceeds from this Offering to be sufficient to meet its cash needs for working
capital and capital expenditures for at least the next two years.

INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

Inflation has not had a material effect on the Company's operating results
over the past three years.

The Company enters into forward exchange contracts to minimize the impact
of fluctuations in currency exchange rates on future cash flows emanating from
sales denominated in foreign currencies. The Company does not purchase such
contracts for trading purposes. During 1994, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's future commitment under these contracts approximated $1.6 million
as of June 30, 1995. At June 30, 1995, the exchange rates for such currencies
covered by the contracts approximated the predetermined rate included therein.
The Company routinely assesses the financial strength of the bank which is
counterparty to the forward exchange contracts. As of June 30, 1995, management
believes that the Company had no significant exposure to credit risk relative to
such contracts.

12
<PAGE> 17

BUSINESS

JUVENILE PRODUCTS MARKETS

According to the Juvenile Products Manufacturers Association ("JPMA"), the
United States market for juvenile products has shown continuous growth for the
past 15 years. According to JPMA, factory shipments by member companies
increased approximately 6.6% in 1994 and are projected to grow approximately 14%
in 1995. This growth has been supported by favorable demographic trends. More
than four million babies have been born in the United States every year from
1989 to 1994, which rate has been relatively constant, and the population of
children under age five has increased from 19.6 million in 1980 to 23.6 million
in 1994. More importantly, many of these children are being born to dual-income
couples and couples who are waiting longer to have children.

These trends, the Company believes, have contributed to increased awareness
by parents of the developmental importance of a child's early years; increased
concern about product quality, safety and value; and increased purchases of
juvenile products by both parents and grandparents. In turn, retailers have
become more aware of the growth potential in the market and have been more
willing to establish improved, updated, and enlarged juvenile product
departments in their stores. Additionally, the baby product "superstore"
concept, which gives exposure to a broader range of juvenile products, has been
successfully introduced and is likely to become more widespread.

The Company distributes its products on a worldwide basis but is not aware
of any available worldwide juvenile product market statistics. The JPMA
estimates that the U.S. market alone in 1994, for products produced by member
companies, was about $1.8 billion in factory shipments. This JPMA figure
includes products for children up to three years of age and includes strollers,
car seats, non-apparel soft goods, and feeding, nursing, health, care, safety,
and play accessory items, but does not include clothing, diapers, formula and
many toys. The JPMA also estimates that the U.S. market for these products is
approximately one-third of the total world market.

BUSINESS STRATEGY

The Company's mission is to develop and market products that help make the
process of parenting a happier, healthier and easier experience for both parents
and their young children worldwide. Major elements of the strategy to achieve
this mission are as follows:

- CREATING PARENT-INSPIRED PRODUCTS. The Company uses its knowledge of
parenting and child development to develop and sell high-quality, innovative and
value-priced products. In keeping with its corporate motto and trademark, Ideas
Inspired by Parents, the Company designs its product line with the advice of
small focus groups of expectant and new parents from its 600-member Parents
Council who meet frequently to review the Company's new products and product
ideas. The Company also develops its products in consultation with the Child
Development Unit ("CDU") at Children's Hospital in Boston, Massachusetts and its
founder and Director Emeritus, Dr. T. Berry Brazelton, considered by many
parents to be the nation's foremost authority on parenting.

13
<PAGE> 18

The Company has always placed great emphasis on innovative product
development. Several years ago, however, the Company recognized that consumers
were becoming more receptive to new concepts that offer greater quality, safety
and value and that retailers were vigorously seeking new and innovative juvenile
products. In response to this emerging trend, the Company decided to enhance its
product development process in order to increase both the number of new products
and the amount of innovation which it was bringing to the market. The Company
believes that this initiative has resulted in a substantial increase in the
number of, and degree of innovation in, the products it has brought to the
market in recent years. The Company intends to continue emphasizing product
innovation and development and to devote substantial resources to its product
development process. See "Use of Proceeds."

- EXPANDING AND ENHANCING ITS PRODUCT LINE. The Company believes that its
understanding of the needs of parents and children, its reputation for
high-quality and value-priced products with consumers and retailers and its
product development process, position it well to expand its current categories.
In 1995, the Company introduced products in a number of new categories including
licensed character products, electronic products for the nursery, booster seats
and child carriers. The Company has also recently introduced products for
children in the three to six age range and is currently developing additional
products for this age range. In 1994 and 1995, the Company entered into
licensing agreements with The Walt Disney Company to feature Winnie the Pooh
characters on a variety of its products in various countries. The Company
intends, where appropriate, to pursue additional licensing arrangements for
established characters with images that are consistent with the Company's
product line.

- INCREASING PENETRATION IN DOMESTIC DISTRIBUTION CHANNELS. Although the
Company has been successful in selling to virtually all major domestic
distribution channels, it is aggressively seeking to increase its penetration of
these channels. This strategy includes both adding customers in existing
channels as well as increasing its shelf space with existing customers. As part
of this strategy, the Company began in 1992 to introduce sub-categories of
products with common themes, marketed under distinct trademarks. The first such
introduction was the TumbleMates line of interchangeable cups and lids in 1992,
followed by the Firstronics electronic toys, the Washables line of watertight,
dishwasher-safe toys and the Step-by-Step line of multi-function furnishings,
among others. The Company believes that marketing a collection of products with
a common theme is a more efficient and effective means of selling its products
to both retailers and consumers.

- EXPANDING ITS INTERNATIONAL CUSTOMER BASE. The Company intends to
continue expanding its business internationally. The Company believes that the
markets in certain developing countries are growing substantially faster than
the United States market as a result of favorable demographic trends and
increases in per capita income. The Company has established a sales office in
the United Kingdom for sales in the European market. The Company has also set up
distribution centers in Belgium and Canada for distribution of its products in
Europe and Canada. Additionally, the Company has also expanded its sales efforts
in Canada, the Middle East, Central and South America, and is just beginning its
expansion in the Pacific Rim. To support these efforts, the Company has
developed multi-lingual packaging.

- CAPITALIZING ON BRAND NAME RECOGNITION. By producing since its inception
high quality products that meet parenting needs, THE FIRST YEARS brand name has
become widely recognized and valued by a loyal consumer base. Because of the
importance of word-of-mouth as an influence in the purchase of juvenile
products, the Company considers this to be a significant asset. A
consumer-oriented catalog, in-pack product guides, package copy and
point-of-purchase materials are also used to communicate the Ideas Inspired by
Parents message.

PRODUCTS

In recent years, the Company has accelerated the general pace of product
innovation. In addition, especially in 1995, the Company has broadened its
product line to include more higher-priced products such as electronic products
for the nursery, furnishings such as odor-proof diaper pails, booster seats,
bath seats, diaper bags and child carriers. Additional higher-priced products
are currently in development. The

14
<PAGE> 19

Company's product line, which contains approximately 300 items that range in
retail price from approximately $0.99 to $39.99, is categorized and color-coded
into five distinct product groups as follows:

FEEDING & SOOTHING. The Feeding & Soothing category is comprised of
bottles and accessories, nipples, pacifiers, teethers, bowls, drinking cups,
dishes and flatware. Since 1992, this category has included the TumbleMates line
of training cups, bowls, plates and utensils, designed for serving, storing and
transporting drinks and snacks, and which features a system of interchangeable
cups and lids. In 1995, the Company introduced several new products into its
TumbleMates line including the Stack & Pack Lunch Kit, the Flatware Travel Set
and the Snap-Apart Dish.

In 1995, the Company also added to this category the Neats line of
stain-resistant bibs specially made with a 3M Scotchgard stain-release system
and the following items: the Choice bottle system that allows interchangeability
between disposable and reusable bottles; a unibody pacifier, marketed under the
Sure trademark; and the Simplicity Manual Breast Pump. In 1996, the Company
plans to introduce spill-proof cups and insulated cups into its TumbleMates
line, new products that relieve teething discomfort and an innovative, electric
breast pump.

PLAY & DISCOVER. The Play & Discover category consists of an extensive
line of entertaining, skill-developing toys for infants and toddlers including
crib toys, floor toys and hand-held toys. Since 1994 the Play & Discover
category has included the Company's Washables line of 100% watertight and
dishwasher-safe toys. In 1995, the Company introduced the High Chair Gym,
Floorgym and Playmat, and the Snap & Play People Bus to its Washables line.

In 1994, the Company also added to this category its Firstronics line of
hand-held electronic toys for children under three years of age, which features
a child-proof battery compartment. In 1995, the Company introduced its Counting
Calculator and Sing-a-long Microphone into the Firstronics line. In 1996, the
Company plans to introduce numerous new Play & Discover toys including
motion-activated electronic toys, a color-change bath toy and a musical crib
mirror.

CARE & SAFETY. The Care & Safety category consists of a broad line of
fashion and grooming items; home safety products such as door and cabinet
latches; and products appropriate for the health and hygiene needs of infants,
such as digital thermometers. In 1995, the Company added to this category its
Nurserytronics line of electronic products designed especially for use in the
nursery, such as a tape player and crib light and a rechargeable infant monitor.
In 1996, the Company plans to launch several safety-related products in the
Nurserytronics line.

In 1995, the Company also added to this category a new line of rugged,
machine-washable travel tote bags, child carriers and harnesses, marketed under
the PackMates name. This line includes the Clip'n Go 2-Way Front Carrier, a
detachable infant carrier; the Clip'n Go Warm & Cozy Carrier, an insulated
detachable infant carrier; and the Day Trip Diaper Bag, a nylon diaper bag with
built-in labeled organizers and adjustable shoulder strap.

In 1994 and 1995, additions to this category included the Step-by-Step line
of furnishings comprised of a bath seat, booster seat, baby bather, step stool
and toilet trainer that are adjustable as a child grows. In 1996, the Company
plans to introduce a new innovative concept in booties and several new
higher-priced furnishings.

FIRST GIFTS. The Company markets a variety of specially-designed gift bags
and gift sets, which combine the Company's most popular items as
attractively-packaged, ready-to-give gifts, or theme-related starter sets. Gift
sets include the Washables gift pack, the TumbleMates gift pack, newborn gift
bags and bathtub gift sets. In 1996, the Company intends to introduce additional
gift sets targeted to both retailers and wholesale clubs.

WINNIE THE POOH. The Winnie the Pooh category consists of over 25 staple
child care products including teethers, rattles, bibs and bottles, featuring
Winnie the Pooh characters. In 1995, the Company also launched its Pooh Goody
Bags which contain an assortment of the Company's products featuring Winnie the
Pooh characters and a new line of appliqued bibs featuring various Winnie the
Pooh designs. In 1996, the Company

15
<PAGE> 20

plans to introduce the Winnie the Pooh characters on numerous additional items
throughout its product line including cups, electronic musical toys, hooded
towels, bath puppets and furnishings.

The Company believes that its knowledge of parents and parenting and its
reputation for developing "parent-friendly" products creates an opportunity to
enter additional product segments for young children (birth to six) in future
years.

PRODUCT DESIGN, DEVELOPMENT AND MARKETING

The Company has always placed great importance on and devotes substantial
resources to product development. Product development teams are established for
each of the Company's product categories. The goal of the product development
teams is to develop new or improved, high-quality and practical products
designed to meet the needs of parents and children. In keeping with its
corporate philosophy and trademark, Ideas Inspired by Parents, the Company has
designed its products since 1973 in consultation with small groups of parents
chosen from its 600-member Parents Council. The Company conducts frequent focus
groups of these new parents to discuss parenting and child-care issues,
brainstorm new products and ideas, and review and test the Company's new
products and ideas. The Company also utilizes feedback and ideas from its
consumer 1-800 phone number.

The Company employs a staff of professionals engaged in the creation of new
products and also uses, from time to time, a diverse group of outside designers
and developers. For the past 14 years the Company's product line also has been
designed in consultation with Dr. T. Berry Brazelton, the well-known
pediatrician and authority on child development, and staff members of the Child
Development Unit at Children's Hospital in Boston, Massachusetts (the "CDU"), of
which Dr. Brazelton is founder and Director Emeritus. In reviewing the Company's
new products and product ideas, Dr. Brazelton and the CDU focus on child health
and development. Dr. Brazelton and the CDU also assist the Company in developing
support information distributed with the products that instructs or educates new
parents on the proper use of the products.

The Company spent $807,000 on new product development during the first six
months of 1995, and approximately $1.5 million in each of 1993 and 1994. The
Company expects to continue its new product development program aggressively,
although the number of new products introduced may vary from year to year.

In developing new products, the Company looks to generate ideas and
features that are not offered by existing products and which the Company can
produce at a reasonable cost and sell at a price that reflects the product's
greater quality and value. Most of the Company's new products are shown at the
Juvenile Products Manufacturers Association Trade Show, which is held in Dallas,
Texas in the fall of each year. Certain of the Company's products are shown each
year at the following trade shows: the International Housewares Exhibition; the
Harrogate Nursery Faire in Harrogate, England; the International Mass Retail
Association; and the National Association of Chain Drug Stores.

The Company also seeks to educate parents on child development issues. For
over 10 years, the Company has been the exclusive national sponsor of Dr. T.
Berry Brazelton's National Seminars, a series of seminars held in communities
throughout the country to inform parents and child care professionals about
child development and parenting issues. The Company believes that these efforts
have and will continue to promote the Company's commitment to child development
and child care.

An additional factor in the success of the Company's THE FIRST YEARS brand
of products in recent years has been the Company's new, contemporary, high
visual impact packaging design which was introduced in 1993. The new packaging
was thoroughly researched and tested to maximize impulse-buying appeal and is
designed to increase brand awareness. In addition, the Company's packaging is
designed to educate the consumer as to the benefits and features of the
Company's products and serve as a point-of-purchase sales tool. The Company has
also introduced multi-lingual packaging as it has expanded its sales in
international markets.

SALES

The Company's products are sold nationally and internationally to a broad
spectrum of customers including mass merchants, national variety and drug
stores, supermarkets, wholesale clubs, convenience stores,

16
<PAGE> 21

toy specialty stores, wholesale distributors, department stores, mail order
catalogs and catalog stores. The Company currently has over 1,000 customers in
over 40 countries. Major customers include Wal*Mart, Toys "R" Us, Target, Kmart,
Sears, Kroger and Baby Superstore.

The Company's products are sold in the United States, Canada, Central and
South America and the Pacific Rim, primarily through the Company's ten-person
internal sales staff and also in the U.S. and Canada through a network of 49
independent sales representatives. The Company's sales staff is responsible for
supervising and training the sales representatives. Such training is conducted
at the Company's headquarters and throughout the United States. Senior
management is heavily involved in every phase of the selling process with the
Company's largest customers.

In Europe and the Middle East, the Company's products are sold by the
Company's internal staff at its sales office in Cirencester, England, which is
headed by the Director of European Sales. This staff manages a network of
foreign distributors and independent sales representatives who generally receive
exclusive rights to a defined geographical territory or market segment.

The Company's international sales in the first six months of 1995 were
approximately $3.6 million. The Company's international sales in 1993 and 1994
were approximately $3.8 million and $5.3 million, respectively.

During 1994, Wal*Mart and Toys "R" Us accounted for approximately 26% and
22% of the Company's net sales, respectively. During the first six months of
1995, Wal*Mart and Toys "R" Us accounted for approximately 25% and 23% of the
Company's net sales, respectively. A significant reduction in purchases by
either of these customers could have a material adverse effect on the Company's
business.

Backlog is not a significant and material aspect of the Company's business.
Customers place orders on an as needed basis. As the Company's sales have
increased, the amount of unfilled orders at any time has not been indicative of
future results.

MERCHANDISING

To help retailers use their shelf space efficiently in marketing the
Company's products, the Company utilizes its proprietary Modular Automated
Merchandising Assistance ("MAMA") planogram program, a computerized program
which divides the space a retailer has allocated for the Company's products to
create a mix of the five color-coded product categories that is designed to
maximize the retailer's profitability. This system is used for both large and
small shelf spaces and enables the Company's customers to present a
visually-appealing display of the Company's color-coded line of products.

In recent years, the Company expanded its promotional programs and created
a cross-merchandising program for its customers, by which ready-to-use display
panels and floor stand display units containing THE FIRST YEARS products are
placed next to related items in a customer's store (i.e., the Company's feeding
products are placed in a customer's baby food aisle) to encourage synergistic
and impulse buying by consumers. These display units are pre-pegged,
pre-stocked, easily re-stockable, and can be customized to the customer's needs.

The Company believes that its MAMA planogram and cross-merchandising
programs have increased the shelf space allocated to the Company's products in
major retailers and enhanced its reputation of being committed to customer
service.

AGREEMENTS WITH THE WALT DISNEY COMPANY

The Company has recently entered into licensing agreements with The Walt
Disney Company to feature Winnie the Pooh characters on a variety of its
products in the United States, Canada and in Europe through an agreement with
The Walt Disney Company (France) S.A. The Walt Disney license agreements expire
December 31, 1996 and are cancellable upon a change in control of the Company.
The Company makes royalty payments on its net sales of licensed products and is
subject to a guaranteed minimum royalty payment of approximately $712,000 in the
aggregate.

17
<PAGE> 22

MANUFACTURING AND SOURCES OF SUPPLY

The Company does not own or operate its own manufacturing facilities. In
1994 all of the Company's products were manufactured either using the Company's
custom tools (molds and dies) or to the Company's specifications by
approximately 25 manufacturers located in the United States, Canada, China,
Taiwan, and Thailand. Approximately 53% and 51% respectively of all of its
products sold in 1994 and in the first six months of 1995 were manufactured in
Asia, primarily in China. A large percentage of the Company's furnishings and
other large products were manufactured in 1994 and in the first six months of
1995 by suppliers in the United States and Canada because of the significantly
higher shipping costs from the Far East.

Generally the Company uses one manufacturer to make each product from its
supplier base in Asia, Canada, and the United States. Due to the high cost of
developing duplicate tooling (predominantly molds and dies), most of the
Company's products are made using one set of tools; however, the Company has
developed duplicate tools for several of its key and high-volume products. The
Company believes it has alternative manufacturing sources available for all of
its products. Because it owns its single and duplicate tools, it could shift its
sources of manufacturing for any product to an alternative supplier.

Currently the Company is not dependent on any one supplier, although its
largest supplier, which is based in the United States, accounted for products
that represented approximately 22% of the Company's net sales in 1994, and
approximately 20% of its net sales in the first six months of 1995. In 1994
approximately 13% and 6% of the Company's products sold were manufactured by two
suppliers located in China, and approximately 11% and 5% of its products sold
were manufactured by these same suppliers in the first six months of 1995. The
Company has not entered into long-term contractual arrangements with any of its
suppliers.

The principal raw materials used in the production and sale of the
Company's products are plastic, paperboard and cloth. Raw materials are
purchased by the manufacturers who deliver completed products to the Company.
Because the primary source used in manufactured plastic is petroleum, the cost
and availability of plastic for use in the Company's products varies to a great
extent with the price of petroleum. The inability of the Company's suppliers to
acquire sufficient plastic and paperboard at a reasonable price could have a
material adverse effect on the Company's profitability.

The Company purchases its products from its suppliers primarily in the U.S.
dollar and the Hong Kong dollar which is currently pegged to the U.S. dollar.
Generally, the Company's suppliers ship the products on the basis of open credit
terms or upon the acceptance of products by the Company. In addition, some
suppliers require shipment against letters of credit.

Foreign manufacturing is subject to a number of risks including
transportation delays and interruptions, the imposition of tariffs, quotas, and
other import or export controls, currency fluctuations, misappropriation of
intellectual property, political and economic disruptions, and changes in
governmental policies. From time to time, the United States Congress has
attempted to impose additional restrictions on trade with China. Enactment of
legislation or the imposition of restrictive regulations conditioning or
revoking China's "most favored nation" ("MFN") trading status could have a
material adverse effect upon the Company's business because products originating
from China could be subjected to substantially higher rates of duty. In May
1995, China's MFN trading status was extended through July 3, 1996. Unless
Congress takes action to override this decision, which the Company believes is
unlikely, China will continue to enjoy MFN treatment during this period. The
European Economic Community (the "EEC") has recently enacted a quota and tariff
system with respect to the importation into the EEC of certain toy products
originating in China. The Company, therefore, continues to evaluate alternative
sources of supply outside of China.

The Company, because of its substantial reliance on suppliers in foreign
countries, is required to order products further in advance of customer orders
than would generally be the case if such products were produced in the United
States. As a result, the Company is required to carry significant amounts of
inventory to meet rapid delivery requirements of customers and to assure itself
of continuous allotment of goods from suppliers.

18
<PAGE> 23

COMPETITION

The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. The Company
competes with a number of different competitors, depending on the product
category, and it competes against no single company across all product
categories. Its competitors include large, diversified health care products
companies, specialty infant products makers, toy makers and specialty health
care products companies. The Company competes principally on the basis of brand
name recognition and price/value relationship. In addition, the Company believes
that it competes favorably with respect to product quality, customer service and
breadth of product line.

DISTRIBUTION

Product distribution in the United States is centralized at the Company's
103,500 square foot warehouse facility in Avon, Massachusetts. The Company ships
certain of its products, primarily some of those made in Asia, to a public
warehouse in Fontana, California, thereby enabling it to reduce shipping time
and cost to its customers primarily in Western parts of the United States. The
Company distributes its products in Canada from a public warehouse in Toronto,
Ontario. In Europe, the Company distributes its products from a public warehouse
in Gent, Belgium.

The Company uses independent shippers to deliver orders to its customers.
Warehouse services at the various public warehouses are performed by warehouse
operators unaffiliated with the Company.

The Company also uses a computerized management information and control
system which allows the Company to determine the status of orders from customers
and enables the Company to process orders quickly, respond to customer inquiries
and adjust shipping schedules to meet customer requirements. Within this system,
the Company uses an electronic data interchange system which enables customers,
through computerized telephone communications, to place orders directly with the
Company. The Company believes that these systems have improved order processing,
expedited shipments and improved customer service.

The Company also provides to its customers the service of pre-ticketing and
bar-coding its products in accordance with customer specifications.

TRADEMARKS, PATENTS AND COPYRIGHTS

The Company's principal trademark, THE FIRST YEARS and design, is
registered in the United States and in a number of foreign countries. The
Company also uses other trademarks for certain of its products and product
categories, some of which are registered in the United States and in various
foreign countries. Applications are pending in the U.S. and various foreign
countries for registration of some of the Company's trademarks.

The Company also owns patents, design patents and design registrations, as
well as pending applications in the United States and certain foreign countries.
Although the Company believes such are important to its business, it does not
believe that any single patent, design patent, or design registration, including
any which may be issued on a pending application, is material to its business.
There can be no assurance that the Company's patents, design patents or design
registrations, including those that may be issued on pending applications, will
offer any significant competitive advantage for the Company's products.

The Company also owns copyrights, some of which are registered in the
United States. The Company does not believe that any single copyright is
material to its business. There can be no assurance that the Company's
copyrights will offer any significant competitive advantage for the Company's
products.

The Company requires all of its employees (other than hourly warehouse
employees), including its executive officers, to enter into standard employee
agreements pursuant to which the employee agrees to keep confidential any
proprietary information of the Company and to assign to the Company all rights
which the employee may possess in any proprietary information or technology made
or contributed to by the employee during his or her employment or made
thereafter as a result of any inventions conceived or work done during

19
<PAGE> 24

such employment. Despite these precautions, it may be possible for a third party
to obtain and use the Company's designs without authorization. In addition,
effective patent and trade secret protection may be unavailable or limited with
respect to various of the Company's products.

EMPLOYEES

As of June 30, 1995, the Company employed 91 full-time and 5 part-time
employees, of whom 10 are executive officers, 38 are in sales, marketing and
product development, 31 are in materials, purchasing, quality control, data
processing, finance, administration and clerical and 17 are in warehousing
positions. None of the Company's employees is represented by a union, and the
Company has not experienced any work stoppages. The Company believes that
relations with employees are good.

GOVERNMENT REGULATION

The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act, the Federal Hazardous Substances Act, as amended,
and the Federal Flammable Fabrics Act, and the regulations promulgated
thereunder (the "Acts"). The Company's nursery monitors are subject to
regulations of the Federal Communications Commission. The Company's medical
devices and drug products are subject to the regulations of the Food and Drug
Administration. The Acts enable the Consumer Product Safety Commission (the
"CPSC") to protect children from hazardous toys and other articles. The CPSC has
the authority to exclude from the market certain consumer products which are
found to be hazardous. The CPSC's determination is subject to court review. The
CPSC can require the repurchase by the manufacturer of articles which are
banned. The Federal Flammable Fabrics Act enables the CPSC to regulate and
enforce flammability standards for fabrics used in consumer products. Similar
laws exist in some states and cities and in various international markets. The
Company designs and tests its products to ensure compliance with the various
federal, state and international requirements. Any recall of a product could
have a material adverse effect on the Company, depending on the particular
product.

PROPERTIES

The Company owns its executive and administrative offices and principal
warehouse which are located in a building at One Kiddie Drive, Avon,
Massachusetts. The building contains approximately 124,000 square feet of space,
of which approximately 20,500 square feet are used for executive and
administrative offices; and the balance, approximately 103,500 square feet, is
utilized for warehousing. The Company also has sales offices in leased premises
in Mission Viejo, California; Cirencester, Gloucestershire, England; and in
Paris, France.

The Company also uses public warehouses located in Fontana, California;
Toronto, Canada; and in Gent, Belgium.

The Company believes that its properties (owned and leased) are in good
condition and adequate for its current needs. The Company believes that
additional warehouse space, if needed, is readily available in close proximity
to its Avon facility.

LEGAL PROCEEDINGS

The Company encounters personal injury litigation related to its products
in the ordinary course of business. The Company maintains product liability
insurance in amounts deemed adequate by management. The Company believes that
there are no claims or litigation pending, the outcome of which would have a
material adverse effect on the Company's business, financial condition or
operating results.

20
<PAGE> 25
<TABLE>

MANAGEMENT

OFFICERS AND DIRECTORS

The Company's officers and directors are as follows:

<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
<S> <C> <C> <C>
Ronald J. Sidman................... 48 Chairman of the Board of Directors, 1975
Chief Executive Officer and
President
Jerome M. Karp..................... 67 Vice Chairman of the Board of 1969
Directors
Benjamin Peltz..................... 56 Treasurer, Senior Vice President and 1975
Director
Evelyn Sidman...................... 81 Clerk and Director 1979
Fred T. Page(1)(2)................. 48 Director 1988
Merton N. Alperin(1)(2)............ 73 Director 1988
Joseph M. Connolly................. 54 Vice President of Operations 1979
John N. Colantuone................. 57 Vice President of Materials and 1982
Engineering
Mark H. Dall....................... 51 Vice President of Information 1985
Services
Adrian E. Roche.................... 39 Vice President of Worldwide 1992
Marketing
Wayne Shea......................... 41 Vice President of Worldwide Sales & 1991
Merchandising
John R. Beals...................... 40 Controller and Assistant Treasurer 1990
<FN>
- ---------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.
</TABLE>

Mr. Sidman has served as President of the Company for over five years and
was elected to the offices of Chairman of the Board and Chief Executive Officer
on March 28, 1995.

Mr. Karp first became a Director of the Company in 1969 and has been the
Vice Chairman of the Board of Directors of the Company for over five years.

Mr. Peltz has been Senior Vice President and Treasurer of the Company for
over five years.

Mrs. Sidman first became a Director of the Company in 1979 and has been the
Clerk of the Company for over five years.

Mr. Page was appointed President -- Network Services of Southern New
England Telecommunications Corporation ("SNET") in January 1994, and has been
with SNET for over five years.

Mr. Alperin, a Certified Public Accountant, has been a financial consultant
for over five years. He was the Chairman of the Board of Public Accountancy of
Massachusetts for the years 1979, 1982 and 1984.

Mr. Connolly has been Vice President of Operations of the Company for over
five years.

Mr. Colantuone has been Vice President of Materials and Engineering of the
Company since March 1989. From January 1982 to February 1989, Mr. Colantuone was
Vice President of Materials of the Company.

Mr. Dall has been Vice President of Information Services of the Company for
over five years.

Mr. Roche has been Vice President of Worldwide Marketing of the Company
since January 1995. From January 1992 to December 1994, Mr. Roche was Vice
President of European Sales of the Company. From

21
<PAGE> 26

1989 to 1991, Mr. Roche held several managerial positions for Fisher-Price
Kiddicraft in the United Kingdom, the last of which was Managing Director.

Mr. Shea has been Vice President of Worldwide Sales & Merchandising of the
Company since January 1995. From July 1991 to December 1994, Mr. Shea was Vice
President of Service and Merchandising of the Company, and from January 1985 to
June 1991, Mr. Shea was Director of Merchandising of the Company.

Mr. Beals has been the Assistant Treasurer of the Company since January
1990 and has been the Controller of the Company since July 1985.

Evelyn Sidman is the mother of Ronald J. Sidman and the mother-in-law of
Benjamin Peltz.

ELECTION AND COMPENSATION OF DIRECTORS

The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. There are
currently two Class I directors (Jerome M. Karp and Fred T. Page), two Class II
directors (Evelyn Sidman and Merton N. Alperin) and two Class III directors
(Ronald J. Sidman and Benjamin Peltz) whose terms expire, respectively, at the
1996, 1997 and 1998 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders, directors in a class are elected for a term of three years and
until their successors are elected and qualified.

The Company pays each director who is not an employee of the Company an
annual retainer of $12,500 for Board service, plus attendance fees of $750 per
meeting for each Board or committee meeting attended. The Company also
reimburses expenses incurred in connection with service on the Board.

Non-employee directors are also eligible to receive an option each year to
purchase 1,500 shares of the Company's Common Stock under the Company's 1993
Stock Option Plan for Non-Employee Directors (the "Directors Plan"), which
becomes exercisable on the first anniversary of the date of grant. In addition,
each director who has served for at least three years receives a one-time award
of an option for 5,000 shares that is exercisable six months after the date of
grant. The exercise price of options is equal to the fair market value per share
of the Company's Common Stock on the date of grant. Pursuant to the Directors
Plan, on May 18, 1995, each of Messrs. Alperin and Page was granted an option to
purchase 1,500 shares of Common Stock and an option to purchase 5,000 shares of
Common Stock at an exercise price of $18.50 per share.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for the years
ended December 31, 1992, 1993 and 1994 paid or accrued by the Company to each of
the following: (i) the Company's Chief Executive Officer and (ii) the Company's
four most highly paid executive officers who earned more than $100,000 in 1994
(collectively the "named officers").

22
<PAGE> 27

<TABLE>

SUMMARY COMPENSATION TABLE

<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
NAME AND --------------------- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- ---------------------------------- ----- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Marshall B. Sidman(4)............. 1994 $ 172,562 $ 57,323 0 $51,096
Chairman of the Board,............ 1993 197,830 0 0 61,500
Chief Executive Officer and 1992
Director........................ 190,520 74,782 0 56,000
Jerome M. Karp.................... 1994 144,628 34,394 0 45,829
Vice Chairman of the.............. 1993 197,830 0 0 60,000
Board and Director................ 1992 190,520 74,782 0 61,000
Ronald J. Sidman(5)............... 1994 193,539 159,291 5,000 29,319
President and..................... 1993 220,954 0 26,500 43,770
Director.......................... 1992 213,708 83,882 0 42,770
Benjamin Peltz.................... 1994 159,645 88,646 4,000 34,523
Sr. Vice President,............... 1993 182,803 0 19,500 47,945
Treasurer and Director............ 1992 176,393 69,242 0 47,945
John N. Colantuone................ 1994 105,974 34,929 2,500 11,952
Vice President of................. 1993 101,342 0 5,000 17,544
Materials and Engineering......... 1992 97,831 19,207 0 18,201

<FN>
- ---------------
(1) The bonus amounts were earned by these individuals in 1994 and 1992 under
the Company's Annual Incentive Plan. The Company did not make any bonus
payments to the named officers for services rendered during 1993.

(2) These numbers represent options to purchase shares of the Company's Common
Stock granted pursuant to the Company's 1993 Equity Incentive Plan. See
"Options/SAR Grants in Last Fiscal Year" for more information on the options
granted in 1994.

(3) The amounts shown in this column reflect (i) insurance premium payments made
on behalf of the following named officers by the Company during 1994 for
life insurance policies: Marshall B. Sidman -- $35,500; Jerome M.
Karp -- $30,000; Ronald J. Sidman -- $12,770; and Benjamin Peltz -- $17,945;
and (ii) contributions made by the Company to the Company's defined
contribution pension and 401(k) plans on behalf of the following named
officers: Marshall B. Sidman -- $15,596; Jerome M. Karp -- $15,829; Ronald
J. Sidman -- $16,549; Benjamin Peltz -- $16,578; and John N.
Colantuone -- $11,952.

(4) Marshall B. Sidman died on March 24, 1995.

(5) Ronald J. Sidman became Chairman and Chief Executive Officer on March 28,
1995.

</TABLE>

Option Grants. The following table sets forth grants of stock options
pursuant to the Company's 1993 Equity Incentive Plan during 1994 to the named
officers reflected in the Summary Compensation Table above:

<TABLE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(1) DATE 5% 10%
- ----------------------- ------------ ------------------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Marshall B. Sidman..... 0
Jerome M. Karp......... 0
Ronald J. Sidman....... 5,000 10.0% $ 10.04 3/23/99 $ 8,043 $23,292
Benjamin Peltz......... 4,000 8.0% 9.13 3/23/99 10,084 22,284
John N. Colantuone..... 2,500 5.0% 9.13 3/23/99 6,303 13,927
</TABLE>

- ---------------
(1) Incentive stock options were granted in 1994 pursuant to the Company's 1993
Equity Incentive Plan. The exercise price of the options granted to Messrs.
Peltz and Colantuone was equal to the fair market value

23
<PAGE> 28

(the mean between the final bid and ask price) of the Company's Common Stock
on the date of grant, March 23, 1994. The exercise price of the options
granted to Mr. Sidman was 110% of the fair market value of the Company's
Common Stock on such date. The options are exercisable in three equal annual
installments beginning on March 23, 1995.

(2) In accordance with the rules of the Securities and Exchange Commission, the
amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Company's Common Stock, the optionholder's
continued employment through the option period, and the date on which the
options are exercised.

Option Exercises and Fiscal Year-End Values. The following table sets
forth information with respect to options to purchase the Company's Common Stock
granted under the Company's 1993 Equity Incentive Plan including the number of
unexercised options outstanding on December 31, 1994 and the value of such
unexercised options on December 31, 1994. No options were exercised during 1994.

<TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR-END OPTIONS/SAR VALUES

<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marshall B. Sidman............................. 0 0 0 0
Jerome M. Karp................................. 0 0 0 0
Ronald J. Sidman............................... 8,834 22,666 $66,800 $ 179,700
Benjamin Peltz................................. 6,500 17,000 56,100 152,600
John N. Colantuone............................. 1,668 5,832 14,400 54,000

<FN>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1994 ($19.25 per share -- the closing sale
price of the Company's Common Stock as reported by Nasdaq) multiplied by the
number of shares underlying the option.

</TABLE>

EMPLOYMENT AGREEMENTS

On March 23, 1995, the Company entered into employment agreements (the
"Agreements") with Ronald J. Sidman and Benjamin Peltz (the "Executives").
Unless otherwise indicated, the provisions of the Agreements are substantially
similar. The respective Agreements provide that, initially, Mr. Sidman will
serve as President and Mr. Peltz will serve as Senior Vice President and
Treasurer of the Company, in each case for a term of five years, provided,
however, that the Agreements are automatically renewed for additional three-year
periods unless either party gives the other party notice of termination at least
90 days prior to the expiration of the initial or any renewal term (the "Term").
Base salary under the Agreements is currently $214,000 for Mr. Sidman and
$177,000 for Mr. Peltz, which amounts may be increased or decreased during the
Term in the discretion of the Compensation Committee ("Salary"). The Executives
are also entitled to participate in the Company's Annual Incentive Plan ("Annual
Bonus"), the Company's 1993 Equity Incentive Plan, and the benefits and benefit
plans provided by the Company to its other executive officers during the Term
("Benefits").

If an Executive is terminated for cause, the Salary and Benefits of the
Executive cease immediately and the Executive will not be entitled to receive an
Annual Bonus for the year in which the termination for cause occurs. In the
event of an Executive's death, the Company will pay the Executive's legal
representative an amount equal to his Salary then in effect, in 12 equal monthly
installments. In the event an Executive becomes disabled, the Executive will
receive an amount equal to his Salary then in effect, in 12 equal monthly

24
<PAGE> 29

installments. Any Annual Bonus amounts due an Executive in the year of his death
or disability will be paid on a pro rata basis. In the event the Company or an
Executive terminates the Agreement for any reason (other than death, disability
or cause), any Annual Bonus to which an Executive is entitled will be paid on a
pro rata basis.

In consideration for their obligation not to disclose the Company's
confidential information and not to compete with the Company or solicit its
employees during the Term and for a two-year period following termination of
their employment by either party for any reason (other than death, disability or
cause), the Executives will receive their Salary and Benefits (then in effect)
for such two-year period less any amount earned by the Executives from other
employment during such period.

In August, 1994, the Company entered into an employment agreement with
Jerome M. Karp. The agreement provides that Mr. Karp will continue to be
employed by the Company on a reduced-time basis for a period of five years until
his retirement from the Company on August 8, 1999 (the "Term") and will continue
to serve as the Vice Chairman of the Board of Directors subject to election by
the Board of Directors. The agreement provides for an annual salary of $100,000
and participation by Mr. Karp in the benefits and benefit plans provided by the
Company to its executive officers during the Term, except the Company's Annual
Incentive Plan and 1993 Equity Incentive Plan.

If Mr. Karp terminates the agreement for any reason, or if Mr. Karp is
terminated for cause, his right to salary and the benefits terminates. In the
event of Mr. Karp's death, the Company will pay to Mr. Karp's legal
representative the lesser of $100,000 or the balance of salary due Mr. Karp in
the fifth year of the Term. In the event Mr. Karp becomes disabled, the Company
will pay Mr. Karp the sum of $100,000 in 12 equal monthly installments. In the
event of certain corporate transactions (merger, sale of all or substantially
all of the Company's assets, or sale of a majority of the Company's Common
Stock) the agreement terminates and the Company will pay Mr. Karp in a lump sum
payment, the lesser of $100,000 or the balance of the salary due Mr. Karp in the
fifth year of the Term.

As additional consideration for entering into the agreement, Mr. Karp has
agreed not to disclose the Company's confidential information and not to compete
with the Company or solicit its employees or customers during the Term and for a
five-year period following termination of his employment.

25
<PAGE> 30

<TABLE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, to the knowledge of the Company, the
beneficial ownership of the Common Stock of the Company as of September 1, 1995
(except as otherwise indicated) by (i) each director of the Company, (ii) each
of the named officers who was serving as executive officers at the end of 1994,
(iii) persons owning more than 5% of the Company's Common Stock, (iv) each
Selling Stockholder and (v) all directors and executive officers of the Company
as a group. Unless otherwise indicated, each stockholder referred to below has
sole voting and investment power with respect to shares listed.

<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------- SHARES BEING -----------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Evelyn Sidman(1)............................. 581,700 25.8% 400,000 181,700 6.4%
Ronald J. Sidman(2).......................... 271,335 11.9 40,000 231,335 8.0
Benjamin Peltz(3)............................ 174,234 7.7 80,000 94,234 3.3
Jerome M. Karp(4)............................ 80,260 3.6 80,000 260 *
Fred T. Page(5).............................. 4,800 * 0 4,800 *
John N. Colantuone(6)........................ 4,168 * 0 4,168 *
Merton N. Alperin(7)......................... 3,000 * 0 3,000 *
5% STOCKHOLDERS
Estate of Marshall B. Sidman................. 405,540 18.0 400,000 5,540 *
One Kiddie Drive
Avon, MA 02322
Santa Monica Partners, L.P.(8)............... 173,000 7.7 0 173,000 6.1
Two Madison Avenue
Larchmont, NY
Quest Advisory Corp.(9)...................... 197,136 8.7 0 197,136 6.9
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY
SELLING STOCKHOLDERS
Eleanor J. Karp.............................. 57,000 2.5 57,000 0 *
All directors and executive officers as a
group(10) (12 persons).................... 1,133,230 49.0 600,000 533,230 18.3
</TABLE>

- ---------------
* Less than 1% of outstanding shares of Common Stock.

(1) Includes 405,540 shares owned beneficially by Mrs. Sidman as the personal
representative of the estate of her late husband, Marshall B. Sidman,
400,000 of which are being sold in this Offering. Mrs. Sidman has sole
voting and investment power over such shares.

(2) Includes 19,335 shares issuable to Mr. Sidman pursuant to currently
exercisable stock options. Mr. Sidman is the son of Evelyn Sidman.

(3) Includes 14,334 shares issuable to Mr. Peltz pursuant to currently
exercisable stock options. 2,400 shares are owned jointly by Mr. and Mrs.
Peltz.

(4) Includes 57,000 shares owned beneficially by Mr. Karp's wife, Eleanor J.
Karp, who has sole voting and investment power with respect to such shares,
which are being sold in this Offering. Mr. Karp disclaims any beneficial
interest in such shares.

(5) Includes 3,000 shares issuable to Mr. Page pursuant to currently
exercisable options.

26
<PAGE> 31

(6) Includes 4,168 shares issuable to Mr. Colantuone pursuant to currently
exercisable options.

(7) Includes 3,000 shares issuable to Mr. Alperin pursuant to currently
exercisable options.

(8) As reported on Schedule 13D filed with the Securities and Exchange
Commission in August 1994, Lawrence J. Goldstein, general partner of Santa
Monica Partners, L.P., may be deemed to beneficially own 173,000 shares of
the Company's outstanding Common Stock and shares voting and dispositive
power with Santa Monica Partners, L.P. over such shares.

(9) As reported on Schedule 13G filed with the Securities and Exchange
Commission in February 1995, Quest Advisory Corp., Quest Management Company
and Charles M. Royce are members of a "group" within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934; Quest Advisory Corp. has sole
voting and dispositive power over 162,636 shares; Quest Management Company
has sole voting and dispositive power over 34,500 shares; and Mr. Royce may
be deemed to beneficially own the shares of Quest Advisory Corp. and Quest
Management Company but disclaims beneficial ownership of the shares held by
each.

(10) The total for all directors and executive officers as a group includes
57,170 shares issuable to the directors and officers pursuant to currently
exercisable stock options. The total also includes shares owned
beneficially by spouses which have been counted only once.

DESCRIPTION OF CAPITAL STOCK

The description of the capital stock below is qualified in its entirety by
reference to the Company's Articles of Organization (the "Articles") and By-Laws
(the "By-Laws"), copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The Company is authorized to issue up to 15,000,000 shares of Common Stock,
$0.10 par value. On September 1, 1995, there were 2,256,405 shares outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Holders of a majority of the voting power of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election.

Holders of Common Stock are entitled to receive ratably (based on the
number of shares of Common Stock that they hold) such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities. Holders of
Common Stock have no preemptive, subscription or redemption rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, fully paid and nonassessable.

CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company's Articles and By-Laws contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to delay or prevent a change in control of the Company if the
Board determines that such a change in control is not in the best interest of
the Company and its stockholders. These provisions could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management even if some or a majority of the Company's stockholders deem such an
attempt to be in its best interest.

Pursuant to the By-Laws, the Board shall consist of not less than three
Directors. The Company is subject to the provisions of Chapter 156B, Section
50A, of the Massachusetts General Laws, which automatically

27
<PAGE> 32

divides the board of directors into three classes. Pursuant to Section 50A,
directors can be removed only for cause by the affirmative vote of the holders
of a majority of the voting power of the then outstanding shares of capital
stock of the Company generally entitled to vote in the election of directors
voting together as a single class. Although Section 50A allows a corporation to
elect not to have its provisions apply, the Company has not so elected.

The By-Laws and Chapter 156B of the Massachusetts General Laws provide that
stockholders may take action without a meeting only if all shareholders entitled
to vote on the action consent to the action in writing. The written consents
must be filed with the records of the meeting of stockholders. This provision
may discourage any person or entity from making a tender offer for Common Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, would be able to take action as a stockholder
(such as electing new directors or approving a merger) only at a duly called
stockholders meeting and not by written consent.

The By-Laws also require that in order to call a special meeting of
stockholders, a single stockholder or a group of stockholders must hold more
than forty percent (40%) of the then outstanding shares of common stock of the
Company.

The By-Laws establish procedures, including advance notice procedures, with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before meetings of stockholders of the Company. In
general, notice must be received by the Company not less than 60 days nor more
than 90 days prior to the meeting and must contain certain specified information
concerning the persons to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal.

The Board of Directors is permitted pursuant to Chapter 156B of the
Massachusetts General Laws to consider special factors, such as employee welfare
and the future prospects of the Company, in determining what the directors
reasonably believe to be in the best interests of the Company when evaluating
proposed tender or exchange offers or business combinations.

The Articles provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty, except to the extent such exculpation from liability is not permitted
under applicable law. This provision does not prevent stockholders from
obtaining injunctive or other equitable relief against directors nor does it
shield directors from liability under federal or state securities laws. The
By-Laws provide that the Company shall indemnify its directors and officers to
the full extent permitted by law.

MASSACHUSETTS ANTI-TAKEOVER LAWS

The Company is covered by the provisions of Chapter 110F of the
Massachusetts General Laws, the Business Combination Statute. Under Chapter
110F, a Massachusetts corporation with more than 200 stockholders of record may
not engage in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless (i) the interested stockholder obtains
the approval of the Board of Directors prior to becoming an interested
stockholder, (ii) the interested stockholder acquires 90% of the outstanding
voting stock of the corporation (excluding shares held by certain affiliates of
the corporation) at the time it becomes an interested stockholder or (iii) the
business combination is approved by both the Board of Directors and the holders
of two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder). An "interested stockholder" is a
person who, together with affiliates and associates, owns (or at any time within
the prior three years did own) 5% or more of the outstanding voting stock of the
corporation. A "business combination" includes a merger, a stock or asset sale,
and other transactions resulting in a financial benefit to the interested
stockholder.

The By-Laws provide that the provisions of Chapter 110D of the
Massachusetts General Laws, the Control Share Statute, will not apply to the
Company. The Control Share Statute, however, provides that the Company may in
the future become prospectively subject to the statute by vote of its Board of
Directors. In

28
<PAGE> 33

general, if this statute were applicable, it would provide that any person or
entity that acquired 20% or more of the Company's outstanding voting stock could
not vote such stock unless the other stockholders of the Company were to so
authorize.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock of the Company is
State Street Bank and Trust Company.

29
<PAGE> 34

UNDERWRITING

The Underwriters named below have severally agreed with the Company and the
Selling Stockholders, subject to the terms and conditions of the Underwriting
Agreement, to purchase the respective numbers of shares of Common Stock set
forth opposite their names below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
A.G. Edwards & Sons, Inc. ..............................................
Adams, Harkness & Hill, Inc. ...........................................
---------
Total................................................................. 1,200,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock, if any are purchased.

The Company has been advised by A.G. Edwards & Sons, Inc. and Adams,
Harkness & Hill, Inc., the Representatives of the Underwriters (the
"Representatives"), that the Underwriters propose to offer the Common Stock to
the public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share and that the Underwriters and such dealers may reallow a
discount of not in excess of $ per share to other dealers. The public
offering price and the concession and discount to dealers may be changed by the
Representatives after the public offering.

The Company has granted the Underwriters an option, expiring at the close
of business on the 30th day subsequent to the date of the Underwriting
Agreement, to purchase up to 180,000 additional shares of Common Stock at the
public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely to
cover over-allotments, if any, in the sale of the shares. To the extent the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of the option shares as the number of shares set forth opposite each
Underwriter's name in the preceding table bears to 1,200,000 and the Company
will be obligated to sell such shares to the Underwriters.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act").

The Company, the Selling Stockholders and all directors of the Company have
agreed that they will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock for a period of 180 days after the date of this Prospectus (the "Lockup
Period"), except pursuant to the Underwriting Agreement, without the prior
written consent of A.G. Edwards & Sons, Inc.

The Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters and other members of the selling group from
making a market in the Company's Common Stock during the "cooling-off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted an exemption from these rules that permits passive market
making under certain conditions. These rules permit an Underwriter or other
member of the selling group, if any, to continue to make a market in the
Company's Common Stock subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group, if any, may engage in passive market making in the Company's
Common Stock during the cooling-off period.

30
<PAGE> 35

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Ropes & Gray, Boston, Massachusetts. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Hale and Dorr, Boston, Massachusetts.

EXPERTS

The financial statements as of December 31, 1994 and 1993 and for each of
the three years in the period ended December 31, 1994 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies
of such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Common Stock of the Company is traded on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933 with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
to which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to above are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement reference is hereby
made to the exhibit for a more complete description of the matter involved, and
each statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, Thirteenth Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies may be obtained at the prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C.

31
<PAGE> 36

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1993 and 1994 and June 30, 1995 (unaudited)......... F-3
Statements of Income for the years ended December 31, 1992, 1993 and 1994 and for the
six months ended June 30, 1994 and 1995 (unaudited)................................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1992, 1993 and
1994 and for the six months ended June 30, 1995 (unaudited)......................... F-5
Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994 and for
the six months ended June 30, 1994 and 1995 (unaudited)............................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 37

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
The First Years Inc. (formerly Kiddie Products, Inc.)
Avon, Massachusetts

We have audited the accompanying balance sheets of The First Years Inc.
(formerly Kiddie Products, Inc.) as of December 31, 1993 and 1994, and the
related statements of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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, such financial statements present fairly, in all material
respects, the financial position of The First Years Inc. as of December 31, 1993
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

March 8, 1995
(March 23, 1995 as to the
third paragraph of Note 4)

F-2
<PAGE> 38

<TABLE>

THE FIRST YEARS INC.

BALANCE SHEETS

DECEMBER 31, JUNE 30
------------------------- -----------
NOTES 1993 1994 1995
----- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 1,8 $ 2,712,267 $ 2,329,041 $ 1,166,032
Accounts receivable (less allowance for doubtful
accounts, $185,000 in 1993 and 1994)......... 8 7,212,732 9,266,235 13,634,471
Inventories..................................... 1 8,229,450 10,413,835 13,810,500
Prepaid expenses and other assets............... 5 242,606 295,921 234,832
Deferred tax asset.............................. 1,3 661,000 624,500 624,500
----------- ----------- -----------
Total current assets......................... 19,058,055 22,929,532 29,470,335
----------- ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:................... 1
Land............................................ 167,266 167,266 167,266
Building........................................ 3,737,861 3,737,861 3,737,861
Machinery and molds............................. 4,424,509 5,413,075 5,778,628
Furniture and equipment......................... 2,859,023 2,986,905 3,079,047
----------- ----------- -----------
Total........................................ 11,188,659 12,305,107 12,762,802
Less accumulated depreciation................... 5,714,000 6,381,854 6,847,009
----------- ----------- -----------
Property, plant, and equipment -- net........ 5,474,659 5,923,253 5,915,793
----------- ----------- -----------
TOTAL ASSETS............................ $24,532,714 $28,852,785 $35,386,128
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............... 2 $ 133,333 $ 133,333 $ 133,333
Short-term borrowings........................... 3,300,000
Accounts payable................................ 2,484,489 4,034,263 5,399,278
Accrued benefit plans expense................... 6 635,685 259,557 202,500
Accrued payroll expenses........................ 52,382 782,890 624,541
Accrued selling expenses........................ 1 398,638 256,161 155,539
Federal and state income taxes payable.......... 1,3 227,700 218,500 713,923
----------- ----------- -----------
Total current liabilities.................... 3,932,227 5,684,704 10,529,114
----------- ----------- -----------
LONG-TERM DEBT -- Less portion due currently...... 2 366,667 233,334 166,667
DEFERRED INCOME TAXES............................. 1,3 514,100 584,800 584,800
COMMITMENTS AND CONTINGENCIES..................... 4,5,8
STOCKHOLDERS' EQUITY:............................. 6
Authorized 7,500,000 shares as of December 31,
1993 and 1994 and 15,000,000 shares as of
June 30, 1995 of Common Stock, $.10 par
value........................................ 224,826 225,043 225,229
Paid-in capital................................. 75,354 98,194 116,951
Retained earnings............................... 19,419,540 22,026,710 23,763,367
----------- ----------- -----------
Total stockholders' equity................... 19,719,720 22,349,947 24,105,547
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $24,532,714 $28,852,785 $35,386,128
=========== =========== ===========
</TABLE>

See notes to financial statements.

F-3
<PAGE> 39

<TABLE>

THE FIRST YEARS INC.

STATEMENTS OF INCOME

<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
NOTES 1992 1993 1994 1994 1995
----- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Net sales............... 1,7 $45,267,323 $46,124,088 $53,233,109 $27,069,361 $35,878,526
Interest income......... 154,913 66,204 66,605 17,577 11,566
----------- ----------- ----------- ----------- -----------
Total income......... 45,422,236 46,190,292 53,299,714 27,086,938 35,890,092
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold... 1 23,645,594 26,653,704 29,498,457 15,208,444 20,973,464
Selling, general, and
administrative
expenses............. 1,6 18,429,803 17,857,049 18,915,908 9,244,519 11,335,877
Severance-related
expenses............. 9 -- 373,000 -- -- --
Interest expense........ 31,961 28,912 24,575 13,593 48,243
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........... 42,107,358 44,912,665 48,438,940 24,466,556 32,357,584
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES................... 3,314,878 1,277,627 4,860,774 2,620,382 3,532,508
PROVISION FOR INCOME
TAXES................... 1,3 1,385,100 481,500 1,871,400 995,800 1,413,000
----------- ----------- ----------- ----------- -----------
NET INCOME................ $ 1,929,778 $ 796,127 $ 2,989,374 $ 1,624,582 $ 2,119,508
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
EARNINGS PER SHARE........ 1 $0.86 $0.35 $1.33 $0.72 $0.91
----- ----- ----- ----- -----
----- ----- ----- ----- -----
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING...... 1 2,248,260 2,248,260 2,248,622 2,248,260 2,324,680
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
DIVIDENDS PAID PER
SHARE................... $0.17 $0.17 $0.17 $0.17 $0.17
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

See notes to financial statements.

F-4
<PAGE> 40

<TABLE>

THE FIRST YEARS INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994 AND SIX MONTHS ENDED JUNE 30, 1995

<CAPTION>
COMMON STOCK
-----------------------
PAR PAID-IN RETAINED
NOTES SHARES VALUE CAPITAL EARNINGS
----- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992.................... 749,420 $ 74,942 $ 225,238 $17,450,549
Stock split, three-for-one................ 1 1,498,840 149,884 (149,884)
Dividends paid............................ (374,710)
Net income................................ 1,929,778
---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1992.................. 2,248,260 224,826 75,354 19,005,617
Dividends paid............................ (382,204)
Net income................................ 796,127
---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1993.................. 2,248,260 224,826 75,354 19,419,540
Stock issued under stock option plans..... 6 2,170 217 22,840
Dividends paid............................ (382,204)
Net income................................ 2,989,374
---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1994.................. 2,250,430 225,043 98,194 22,026,710
Stock issued under stock option plans
(unaudited)............................ 1,860 186 18,757
Dividends paid (unaudited)................ (382,851)
Net income (unaudited).................... 2,119,508
---------- -------- -------- -----------
BALANCE, JUNE 30, 1995 (unaudited).......... 2,252,290 $225,229 $ 116,951 $23,763,367
========== ======== ======== ===========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 41

<TABLE>

THE FIRST YEARS INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 1,929,778 $ 796,127 $ 2,989,374 $ 1,624,582 $ 2,119,508
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation.............................. 632,357 778,652 878,250 404,042 465,155
Provision for doubtful accounts........... 273,393 17,177 23,673 61,051 73,009
(Gain) loss on disposal of equipment...... 94,098 105,170 47,877 (9,926) (200)
Increase (decrease) arising from working
capital items:
Accounts receivable..................... (1,075,833) (994,400) (2,077,176) (2,895,096) (4,441,245)
Inventories............................. (445,553) (931,295) (2,184,385) (274,950) (3,396,665)
Prepaid expenses and other assets....... (27,703) (42,222) (53,315) (155,603) 61,089
Accounts payable........................ 769,740 20,979 1,549,774 771,441 1,365,015
Accrued benefit plans expense........... 17,471 (51,060) (376,128) (488,742) (57,057)
Accrued payroll expenses................ 150,282 (366,866) 730,508 487,357 (158,349)
Accrued selling expenses................ (45,939) (95,394) (142,477) (263,638) (100,622)
Federal and state income taxes
payable............................... 19,200 (72,100) (9,200) 261,600 495,423
Change in deferred income taxes........... (41,700) 51,800 107,200 -- --
Decrease in other long-term liabilities... (60,796) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities................ 2,188,795 (783,432) 1,483,975 (477,882) (3,574,939)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of property, plant, and
equipment................................. (2,574,445) (794,222) (1,374,721) (599,993) (457,495)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of industrial revenue bonds....... (133,334) (133,333) (133,333) (66,667) (66,667)
Dividends paid.............................. (374,710) (382,204) (382,204) (382,204) (382,851)
Common stock issued under stock option
plans..................................... -- -- 23,057 -- 18,943
Net proceeds from short-term borrowings..... -- -- -- -- 3,300,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities................ (508,044) (515,537) (492,480) (448,871) 2,869,425
----------- ----------- ----------- ----------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS............................ (893,694) (2,093,191) (383,226) (1,526,746) (1,163,009)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR........................................ 5,699,152 4,805,458 2,712,267 2,712,267 2,329,041
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR................................. $ 4,805,458 $ 2,712,267 $ 2,329,041 $ 1,185,521 $ 1,166,032
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION --
Cash paid during the year for:
Interest.................................. $ 31,961 $ 28,912 $ 24,575 $ 13,593 $ 48,243
========== ========== ========== ========== ==========
Income taxes.............................. $ 1,407,600 $ 501,800 $ 1,773,400 $ 734,200 $ 917,577
========== ========== ========== ========== ==========
</TABLE>

See notes to financial statements.

F-6
<PAGE> 42

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -- The First Years Inc. (formerly Kiddie Products, Inc.) (the
Company) is a developer, marketer, and distributor of certain basic accessory
and related products for infants and toddlers. The Company was founded and
incorporated in 1952. Since its inception, the Company has engaged in this
single line of business, with one class of similar products. The following is a
summary of significant accounting policies.

Interim Financial Information -- The Balance Sheet as of June 30, 1995, the
Statements of Income for the six months ended June 30, 1994 and 1995, the
Statement of Stockholders' Equity for the six months ended June 30, 1995 and the
Statements of Cash Flows for the six months ended June 30, 1994 and 1995 are
unaudited. All adjustments and accruals (consisting only of normal recurring
adjustments) have been made, which in the opinion of management are necessary
for a fair presentation. Results of operations for the six months ended June 30,
1995 are not necessarily indicative of the results that may be expected for any
future period.

Revenue Recognition -- Revenue is recognized when products are shipped.

Cash Equivalents -- Highly liquid investments with a maturity of three
months or less when purchased have been classified as cash equivalents in the
accompanying financial statements. Such investments are carried at cost which
approximates market value.

Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist principally of finished goods,
unpackaged components, and supplies.

Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is provided based on the estimated useful lives of the
various classes of assets (building, 15 to 40 years; machinery and molds, 5 to
10 years; furniture and equipment, 5 to 10 years) using the straight-line
method.

Income Taxes -- Deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.

Earnings Per Share -- Earnings per share are based on the weighted average
number of shares outstanding during each year (retroactively adjusted to reflect
the three-for-one stock split effected on December 15, 1992) and common
equivalent shares, consisting of the effect of stock options outstanding, if
dilutive (see Note 6).

Research and Development Costs -- Research and development costs are
expensed as incurred. During 1992, 1993, and 1994, research and development
costs approximated $1,707,000, $1,493,000 and $1,466,000, respectively.

Foreign Currency Translation -- The Company's functional currency is the
U.S. dollar. Accordingly, monetary assets and liabilities of the Company's
foreign operations are translated from the respective local currency to the U.S.
dollar using year-end exchange rates while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year. Accordingly, translation adjustments and
transaction gains and losses are recognized in income in the year of occurrence
and are recorded as a component of cost of sales.

Foreign Exchange Contracts -- The Company enters into forward exchange
contracts to minimize the impact of fluctuations in currency exchange rates on
future cash flows emanating from sales denominated in foreign currencies. The
Company does not purchase such contracts for trading purposes. Gains and losses
related to foreign exchange contracts which qualify as accounting hedges of firm
commitments are deferred and recognized in income when the hedged transaction
occurs. Gains and losses related to foreign exchange contracts which do not
qualify for hedge accounting are marked to market currently and recognized as a
foreign currency transaction gain or loss.

F-7
<PAGE> 43

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. DEBT

Long-term debt consists of unsecured industrial revenue bonds (IRB), with
interest payable quarterly at 65% of the prime rate (3.9% and 5.5% at December
31, 1993 and 1994, respectively) and principal payable in equal quarterly
installments of $33,333 through September 30, 1997.

Under the terms of the IRB agreement, the Company must comply with certain
covenants, none of which impose a significant limitation on the Company.

The Company has available unsecured lines of credit totaling $9,000,000
with two banks. Both lines are subject to annual renewal and require no
compensating balances. One line bears interest at the prime rate and the other
line bears interest at the prime interest rate less 0.25%. During first six
months of 1995, the Company borrowed various amounts up to $3,300,000
(unaudited). As of June 30, 1995 a balance of $3,300,000 (unaudited) remains
outstanding which bears interest at 8.8% (unaudited).

3. INCOME TAXES

<TABLE>

Components of the Company's net deferred tax asset at December 31 are as
follows:

<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible.......................... $166,900 $ 62,900
Capitalized packaging costs not currently deductible....... 239,700 360,200
Capitalized inventory costs not currently deductible....... 172,900 116,900
Other...................................................... 81,500 84,500
-------- --------
661,000 624,500
Valuation allowance.......................................... -- --
-------- --------
661,000 624,500
-------- --------
Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation............................................ 509,000 580,300
Other...................................................... 5,100 4,500
-------- --------
514,100 584,800
-------- --------
Net deferred tax asset....................................... $146,900 $ 39,700
======== ========
</TABLE>

There was no change in the valuation allowance for the years ended December
31, 1993 and 1994.

<TABLE>

The provision for income taxes consists of the following:

<CAPTION>
1992 1993 1994
---------- --------- -----------
<S> <C> <C> <C>
Federal:
Current......................................... $1,096,600 $352,300 $1,432,700
Deferred........................................ (41,700) 51,800 107,200
---------- -------- ----------
Total............................................. 1,054,900 404,100 1,539,900
State............................................. 330,200 77,400 331,500
---------- -------- ----------
Total............................................. $1,385,100 $481,500 $1,871,400
========== ======== ==========
</TABLE>

F-8
<PAGE> 44

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. INCOME TAXES (CONTINUED)

<TABLE>
A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income is as follows:

<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 6.5 4.0 4.5
Other.................................................... 1.3 (0.3)
---- ---- ----
- - -
Effective rate........................................... 41.8% 37.7% 38.5%
===== ===== =====
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

Foreign Exchange Contracts -- During 1994, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's future commitment under these contracts approximated $3,100,000 as
of December 31, 1994. At December 31, 1994, the exchange rates for such
currencies covered by the contracts approximated the predetermined rates
included therein.

Other Commitments -- At December 31, 1993 and 1994, letters of credit
outstanding aggregated approximately $1,232,000 and $1,275,000, respectively.

During 1994, the Company entered into an employment agreement with an
executive officer which provides for an annual salary of $100,000 through August
1999. On March 23, 1995, the Company entered into employment agreements with two
key senior executive officers which provide for aggregate annual base salaries
through March 2000, of $391,000 subject to any increases or decreases
established from time to time in the discretion of the Compensation Committee of
the Board of Directors and, in the event of termination, provide for
noncompetition payments for two years equal to their annual base salaries.

Contingencies -- The Company is involved in legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
these proceedings will not have a material adverse impact on the Company's
financial condition or operating results.

5. ROYALTIES

During 1994, the Company entered into an agreement which provides for the
payment of royalties on sales of certain licensed products. The agreement has a
term of two years ending on December 31, 1996 and requires a minimum royalty
payment of $625,000 during the term of the agreement.

6. BENEFIT PLANS

Defined Contribution Plan -- The Company has a defined contribution
trusteed benefit plan covering eligible employees, requiring annual
contributions based upon certain percentages of salaries of employees. The
Company's policy is to fund pension expense accrued. Pension expense aggregated
$695,000, $661,000, and $267,000 in 1992, 1993, and 1994, respectively.

Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of the Kiddie Products, Inc. 1993 Equity Incentive Plan and the Kiddie
Products, Inc. 1993 Stock Option Plan for Non-employee Directors (the plans)
which cover key salaried employees and directors of the Company. The Board of
Directors has reserved 220,000 shares for issuance under the plans. The exercise
price for the options granted may not be less than the fair market value of the
optioned stock at the date of grant, 110% of fair market value in the case of
options granted to a 10% stockholder.
Options granted must be exercised within the period prescribed by the
Compensation Committee of the Board of Directors; the options vest in accordance
with the vesting provisions prescribed at the time of grant.

F-9
<PAGE> 45

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. BENEFIT PLANS (CONTINUED)

<TABLE>
A summary of activity of stock options granted under the plans is as
follows:

<CAPTION>
NUMBER
OF
OPTIONS
NUMBER OF AVAILABLE
EXERCISE PRICE OPTIONS FOR
PER SHARE OUTSTANDING GRANT
----------------- ----------- --------
<S> <C> <C> <C>
January 1, 1993
Authorized................................ 220,000
Granted................................... $10.63 to $11.69 103,000 (103,000)
Canceled.................................. $10.63 (1,000) 1,000
-------- ---------
December 31, 1993........................... 102,000 118,000
Granted................................... $9.13 to $11.25 63,150 (63,150)
Canceled.................................. $9.13 to $10.63 (10,414) 10,414
Exercised................................. $10.63 (2,170)
-------- ---------
December 31, 1994........................... 152,566 65,264
======== =========
</TABLE>

At December 31, 1994, 33,192 options were exercisable at $10.63 to $11.69
per share.

7. MAJOR CUSTOMERS

The Company derived 10% or more of its sales from its largest customer.
Such amounts aggregated $11,526,000, $12,920,000, and $14,256,000 in 1992, 1993,
and 1994, respectively. The Company's second largest customer accounted for
sales of $9,031,000, $8,814,000, and $12,118,000 in 1992, 1993, and 1994,
respectively. No other customer accounted for 10% or more of the Company's
sales.

8. CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, trade
receivables and forward exchange contracts (see Note 4). The Company's cash
equivalents consist of money market funds placed with major banks and financial
institutions. The Company's trade receivables principally include amounts due
from retailers geographically dispersed. The Company's two largest customers
accounted for 54% and 61% of the trade receivables outstanding at December 31,
1993 and 1994, respectively. The Company routinely assesses the financial
strength of its customers and purchases credit insurance to limit its potential
exposure to trade receivable credit risks. The Company routinely assesses the
financial strength of the bank which is the counterparty to the forward exchange
contracts. As of December 31, 1994, management believes it had no significant
exposure to credit risks.

9. SEVERANCE-RELATED EXPENSES

In July 1993, to improve operating productivity, the Company streamlined
staff and outsourced certain packaging and product assembly operations. As a
result, 34 employees were laid off. Severance-related expenses relating to the
layoffs amounted to a pretax charge of $373,000 and primarily consisted of
severance pay, benefit considerations and outplacement services, which were paid
by December 31, 1994.

* * * * * *

F-10
<PAGE> 46

[THE FIRST YEARS LOGO]

IBC [Child on parent's shoulders with Company logo superimposed.]

<PAGE> 47

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH
INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 7
Price Range of Common Stock........... 7
Capitalization........................ 8
Dividend Policy....................... 8
Selected Financial Data............... 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 10
Business.............................. 13
Management............................ 21
Principal and Selling Stockholders.... 26
Description of Capital Stock.......... 27
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Additional Information................ 31
Index to Financial Statements......... F-1
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,200,000 SHARES

THE FIRST YEARS INC.

[THE FIRST YEARS LOGO]

COMMON STOCK

--------------------
PROSPECTUS
--------------------

A.G. EDWARDS & SONS, INC.

ADAMS, HARKNESS & HILL, INC.

, 1995

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 48

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the Nasdaq
National Market Listing fee.

<TABLE>
<CAPTION>
PAYABLE BY
PAYABLE SELLING
ITEM AMOUNT BY COMPANY STOCKHOLDERS
----------------------------------------------- -------- ---------- ------------
<S> <C> <C> <C>
SEC Registration Fee........................... $ 9,577 $ 4,789 $ 4,788
NASD Filing Fee................................ 3,191 1,595 1,596
Nasdaq National Market Listing Fee............. 15,600 15,600 --
Blue Sky Fees and Expenses..................... 12,000 6,000 6,000
Transfer Agent and Registrar Fees.............. 3,500 1,750 1,750
Accounting Fees and Expenses................... 50,000 25,000 25,000
Legal Fees and Expenses........................ 200,000 100,000 100,000
Printing Expenses.............................. 50,000 25,000 25,000
Miscellaneous.................................. 16,132 8,066 8,066
------- -------- --------
Total................................ $360,000 $187,800 $172,200
======= ======== ========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Articles of Organization provide that the Company's
Directors shall not be liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
the exculpation from liabilities is not permitted under the Massachusetts
Business Corporation Law as in effect at the time such liability is determined.
The By-Laws provide that the Registrant shall indemnify its directors and
officers to the full extent permitted by the laws of The Commonwealth of
Massachusetts.

In addition, the Company holds a Directors and Officers Liability and
Corporate Indemnification Policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following is a list of exhibits filed as a part of this registration
statement.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.*
3.1 Restated Articles of Organization as currently in effect.**
3.2 By-Laws of the Company and any amendments thereto, as currently in effect (filed as
Exhibit (3)(ii) on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
4 Specimen Certificate for shares of Common Stock, $.10 par value of the Company.*
5 Opinion of Ropes & Gray.*
</TABLE>

II-1
<PAGE> 49

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.1 Security and Trust Agreement among Town of Avon, acting by and through its
Industrial Development Financing Authority, The First Years Inc., and State Street
Bank and Trust Company relating to issuance of industrial revenue bonds, dated as of
October 1, 1982 (filed as Exhibit (10)(c) on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference).
10.2 Bond Purchase Agreement among Town of Avon, acting by and through its Industrial
Development Financing Authority, The First Years Inc., and State Street Bank and
Trust Company, dated as of October 1, 1982 (filed as Exhibit (10)(d) on Form 10-K
for the year ended December 31, 1994 and incorporated herein by reference).
10.3 Loan Agreement between Town of Avon, acting by and through its Industrial
Development Financing Authority, and The First Years Inc., dated as of October 1,
1982 (filed as Exhibit (10)(e) on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.4 Put Agreement between State Street Bank and Trust Company and The First Years Inc.,
dated as of October 1, 1982 (filed as Exhibit (10)(f) on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference).
10.5 The First Years Inc. 1993 Equity Incentive Plan, as amended through January 19, 1995
(filed as Exhibit (10)(g) on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.6 Agreement between The First Years Inc. and Jerome M. Karp dated August 8, 1994
(filed as Exhibit 10(c) to the Form 10-Q Report for the quarter ended June 30, 1994
and incorporated herein by reference).
10.7 Employment Agreement between The First Years Inc. and Benjamin Peltz, dated March
23, 1995 (filed as Exhibit (10)(j) on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
10.8 Employment Agreement between The First Years Inc. and Ronald J. Sidman, dated March
23, 1995 (filed as Exhibit (10)(k) on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
10.9 The First Years Inc. 1993 Stock Option Plan for Non-employee Directors, as amended
through January 19, 1995 (filed as Exhibit (10)(h) on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
10.10 The First Years Inc. 1995 Restated Annual Incentive Plan, effective as of July 1,
1995.*
10.11 Agreement with The Walt Disney Company dated March 28, 1994.*
11 Statement re: Computation of Per Share Earnings.*
23.1 Consent of Ropes & Gray (contained in its opinion filed as Exhibit 5 hereto).*
23.2 Deloitte & Touche LLP consent and report on Schedule.**
24 Power of Attorney (included in the signature page of this Registration Statement)*.
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

(b) Financial Statement Schedule -- Schedule II, Valuation and Qualifying
Accounts

Report of Independent Accountants on Financial Schedule (see Exhibit 23.2)

ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised

II-2
<PAGE> 50

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. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 51

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Avon, Commonwealth of
Massachusetts, on this 3rd day of October, 1995.

THE FIRST YEARS INC.

By: /s/ Benjamin Peltz

-----------------------------------

Benjamin Peltz

Senior Vice President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
RONALD J. SIDMAN* Chief Executive Officer, October 3, 1995
- ---------------------------------------- Chairman of the Board of
Ronald Sidman Directors and President
(Chief Executive Officer)

JEROME M. KARP* Vice Chairman of the Board of October 3, 1995
- ---------------------------------------- Directors
Jerome M. Karp

Treasurer, Senior Vice October 3, 1995
- ---------------------------------------- President and Director (Chief
Benjamin Peltz Financial and Accounting
Officer)

EVELYN SIDMAN* Director October 3, 1995
- ----------------------------------------
Evelyn Sidman

FRED T. PAGE* Director October 3, 1995
- ----------------------------------------
Fred T. Page

MERTON N. ALPERIN* Director October 3, 1995
- ----------------------------------------
Merton N. Alperin
</TABLE>

*By /s/ Benjamin Peltz
------------------------------------

Benjamin Peltz
Attorney-in-fact

II-4
<PAGE> 52

SCHEDULE II

<TABLE>

THE FIRST YEARS INC.

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994

<CAPTION>
ADDITIONS
CHARGED
BALANCE, TO COSTS BALANCE,
BEGINNING AND END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
- --------------------------------------------------- --------- -------- -------------- --------
<S> <C> <C> <C> <C>
VALUATION ACCOUNTS DEDUCTED FROM ASSETS TO WHICH
THEY APPLY:
Allowance for Doubtful Accounts:
Year ended December 31:
1992........................................ $ 270,000 $273,393 $273,393 $270,000
======== ======== ======== ========
1993........................................ $ 270,000 $ 17,177 $102,177 $185,000
======== ======== ======== ========
1994........................................ $ 185,000 $ 23,673 $ 23,673 $185,000
======== ======== ======== ========
</TABLE>

(1) Net accounts written off.

S-1

<PAGE> 1

EXHIBIT 3.1

<TABLE>
<S> <C> <C>
FEDERAL IDENTIFICATION

NO. 04-2149581
------------------
- --------------
Examiner

The Commonwealth of Massachusetts

WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
- -------------- One Ashburton Place, Boston, Massachusetts 02108-1512
Name
Approved RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)

We, Ronald Sidman , *President
-------------------------------------------------------------------------

and Evelyn Sidman , *Clerk
-------------------------------------------------------------------------

of The First Years Inc. ,
-------------------------------------------------------------------------
(Exact name of corporation)

located at One Kiddie Drive, Avon, MA 02322 ,
------------------------------------------------------------------
(Street address of corporation Massachusetts)

do hereby certify that the following Restatement of the Articles of

Organization was duly adopted at a meeting held on September 13,
-------------------,

1995 by a vote of the directors.
C / / --

P / / ARTICLE I

M / /
The name of the corporation is:
R.A. / /
The First Years Inc.
- -----------

P.C.
</TABLE>

<PAGE> 2

ARTICLE II

The purpose of the corporation is to engage in the following business
activities:

To manufacture, buy, sell and generally deal in, at wholesale, infants'
and children's toys, novelties and accessories, including any and all articles
used or capable of being used in connection with said business or any part
thereof.

To take over as a going concern the business heretofore carried on by
Marshall B. Sidman under the name and style of Kiddie Products Company at 77
Bedford Street, Boston, Massachusetts, and elsewhere.

ARTICLE III

State the total number of shares and par value, if any, of each class of stock
which the corporation is duly authorized to issue:

<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
Common: Common: 15,000,000 $.10

Preferred: Preferred:
</TABLE>

ARTICLE IV

If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.

None

ARTICLE V

The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:

None

-2-

<PAGE> 3
ARTICLE VI

**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:

No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director notwithstanding any provision of law imposing such
liability, except (to the extent provided by applicable law) for liability (i)
for breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 61 or
62 of the Massachusetts Business Corporation Law, or any amendatory or successor
provisions thereto, or (iv) for any transaction from which the director derived
an improper personal benefit. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.

Meetings of the stockholders of the corporation may be held anywhere in
the United States.

The Directors may make, amend or repeal the By-Laws in whole or in
part, except with respect to any provisions thereof which by law, the Articles
of Organization, or the By-Laws requires action by stockholders.

ARTICLE VII

The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.

ARTICLE VIII

THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE
ARTICLES OF ORGANIZATION.

a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:

One Kiddie Drive, Avon, Massachusetts 02322

-3-

<PAGE> 4

b. The name, residential address and post office address of each director and
officer of the corporation is as follows:

<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Ronald Sidman 376 Wheeler Road same
Marston Mills, MA 02648

Treasurer: Benjamin Peltz 258 Seaward Bend same
East Falmouth, MA 02536

Clerk: Evelyn Sidman Aquarius Penthouse - 2N same
2751 S. Ocean Drive
Hollywood, FL 33019

Directors: Ronald Sidman See Above

Jerome Karp 51 Sycamore Drive same
Westwood, MA 02090

Benjamin Peltz See Above

Evelyn Sidman See Above

Fred Page 40 Laurelwood Drive same
Wallingford, CT 06492

Merton Alperin 280 Boylston Street same
Apt 515
Chestnut Hill, MA 02167
</TABLE>

c. The fiscal year (i.e., tax year) of the corporation shall end on the last day
of the month of: December

d. The name and business address of the resident agent, if any, of the
corporation is:

CT Corporation System, 2 Oliver Street, Boston, MA 02109

**We further certify that the foregoing Restated Articles of Organization affect
no amendments to the Articles of Organization of the corporation as heretofore
amended, except amendments to the following articles. Briefly describe
amendments below:

-4-
<PAGE> 5

SIGNED UNDER THE PENALTIES OF PERJURY, this day of September, 1995,
---------- ---------

/s/ Ronald Sidman , *President,
- -------------------------------------------------------------------

/s/ Evelyn Sidman , Clerk.
- -------------------------------------------------------------------

-5-

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE

To the Board of Directors and Stockholders of
The First Years Inc.
Avon, Massachusetts

We consent to the use in this Amendment No. 1 to Registration Statement No.
33-62673 (the "Registration Statement") of The First Years Inc. (formerly Kiddie
Products, Inc.) on Form S-1 of our report dated March 8, 1995 (March 23, 1995 as
to the third paragraph of Note 4), appearing in the Prospectus, which is part of
the Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.

Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of The First Years Inc.,
listed in Item 16(b). This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
Boston, Massachusetts

October 3, 1995