FIRST YEARS INC, 424B4, 1996-06-27

FIRST YEARS INC
424B4, 1996-06-27
MISCELLANEOUS PLASTICS PRODUCTS

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<PAGE> 1

Filed pursuant to Rule 424(b)(4)
Registration No. 33-62673

1,600,000 Shares

[THE FIRST YEARS LOGO]

Common Stock

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

Of the 1,600,000 shares of Common Stock offered hereby, 400,000 shares are
being sold by The First Years Inc. (the "Company" or "The First Years") and
1,200,000 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 June 25, 1996, the last reported sale price of the Common Stock was
$13.75 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..................... $ 13.75 $ 0.80 $ 12.95 $ 12.95
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $22,000,000 $1,280,000 $5,180,000 $15,540,000
======================================================================================================

- -----------
<FN>
(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 $76,700 and $183,300, respectively.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 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
$25,300,000, $1,472,000 and $8,288,000, respectively. See "Underwriting."

</TABLE>
------------------------

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 July 1, 1996.

A.G. EDWARDS & SONS, INC. ADAMS, HARKNESS & HILL, INC.

THE DATE OF THIS PROSPECTUS IS JUNE 25, 1996

<PAGE> 2

[THE FIRST YEARS]
IFC [Child on parent's shoulders with Company logo superimosed.]

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),
POOH(R), DISNEY BABIES(R), and 101 DALMATIANS(R) are registered trademarks of
Disney Enterprises, Inc.
------------------------

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> 3

Our products are inspired and pretested by parents for parents. They are
designed in consultation with eminent pediatrician Dr. T. Berry Brazelton, and
staff members of the Child Development Unit, Children's Hospital in Boston. The
First Years is a benefactor of The Child Development Unit.

[Montage of eight photographs depicting various company products, staff members
of the Child Development unit at Boston Children's Hospital and Company
employees with their children]

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

FEEDING & SOOTHING
Creative designs -- from bottles and breast pumps to teethers and pacifiers --
that provide convenience and quality for parents.

[Montage of eight photographs depicting various Company products, Company
employees with their children and a separate photograph of a child.]

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> 4
- -------------------------------------------------------------------------------
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, three-for-one, and two-for-one stock
splits effected on June 14, 1991, December 15, 1992 and December 29, 1995,
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 products
under its well-known brand name and principal trademark, THE FIRST YEARS. In the
last three years, the Company has entered into licensing agreements with The
Walt Disney Companies 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, Gifts & Sets and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$69.99. 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, J. C. Penney,
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's 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 and the development of products for children from three to
six years of age. The Company introduced 45 new products in 1994, 90 new
products in 1995 and intends to introduce over 60 new products in 1996. Among
the 1995 items were initial entries into product segments that were new to the
Company. Those entries included 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. In 1996, the Company is expanding
each of its product categories, including the introduction of 26 new 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 $75.8 million 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 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> 5

<TABLE>
THE OFFERING

<S> <C>
Common Stock offered by:
The Company............................................. 400,000 shares
The Selling Stockholders................................ 1,200,000 shares
Total.............................................. 1,600,000 shares
Common Stock to be outstanding after completion of this
Offering(1)................................................ 4,935,570 shares
Use of proceeds.............................................. Debt repayment. See "Use of
Proceeds."
Nasdaq National Market symbol................................ KIDD

<FN>
- ---------------
(1) Based on shares outstanding at June 3, 1996. Does not include 453,662 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)

SUMMARY BALANCE SHEET AT MARCH 31, 1996:

<CAPTION>
AS AS
ACTUAL ADJUSTED(2) ACTUAL ADJUSTED(2)
------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Current assets........ $37,242 $37,242 Current liabilities........ $16,272 $11,169
Property, plant, and Long term liabilities..... 715 715
equipment - net..... 6,708 6,708 Stockholders' equity........ 26,963 32,066
------- ------- ------- -------
$43,950 $43,950 $43,950 $43,950
======= ======= ======= =======

- ---------------
<FN>

(1) The net proceeds from the sale of the shares of Common Stock offered by the
Company hereby will be used to repay certain indebtedness. Assuming these
shares had been issued and the indebtedness repaid as of January 1, 1995,
pro forma earnings per share for 1995 and for the three months ended March
31, 1996 would have been $0.75 and $0.24, respectively.

(2) Adjusted to reflect the sale of the 400,000 shares of Common Stock offered
by the Company hereby at the public offering price of $13.75 per share 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> 6

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. In addition, certain statements in this Prospectus, including
statements about new product introductions, the growth of international sales,
the renewal of license agreements, and the sufficiency of the Company's capital
resources to meet anticipated capital requirements, are forward looking
statements that are subject to inherent risks and uncertainties. Certain
important factors that could cause actual results to vary materially are
identified below.

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 and in the first three months of 1996 has been its licensing agreements
with The Walt Disney Companies to feature Winnie the Pooh characters on a
variety of its products in various countries. Net sales of these licensed
products were approximately 20% of the Company's net sales in 1995 and 30% of
the Company's net sales in the first three months of 1996. The U.S. licensing
agreement expires at the end of 1996 and the Company is currently negotiating
with Disney to renew such agreement. However, there can be no assurance that it
will be renewed or that, if renewed, it will result in sales increases in future
periods. See "Business -- Agreements with The Walt Disney Companies."

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 28% and 21%, respectively, of net sales during 1995. In
addition, these two customers accounted for 61% of trade receivables outstanding
at December 31, 1994 and 1995. A significant reduction of purchases by, or
difficulty in the collection of receivables from, either of these customers
could have a material adverse effect on the Company's 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 1995, the Company derived approximately 53% and 46%,
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 has attempted to impose additional
restrictions on trade with China. Enactment of legislation or the imposition of
restrictive regulations conditioning or revoking China's

5
<PAGE> 7

"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. President Clinton has
recently extended China's MFN trading status until July 3, 1997. The European
Union (the "EU") has recently enacted a quota and tariff system with respect to
the importation into the EU 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 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, the Federal Hazardous Substances Act, the Federal
Flammable Fabrics Act and the Child Safety Protection 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> 8

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the 400,000
shares of Common Stock offered by the Company hereby (at the public offering
price of $13.75 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) are
estimated to be approximately $5,103,300 ($8,211,300 if the Underwriters'
over-allotment option is exercised in full).

The Company intends to use the net proceeds to repay a portion of the
outstanding bank debt ($6.3 million outstanding as of May 31, 1996 bearing
interest at a weighted average rate of 7.35%).

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 1,200,000
shares of Common Stock being offered hereby by the Selling Stockholders.

<TABLE>
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 and retroactively adjusted to reflect the Company's two-for-one stock
split effected on December 29, 1995.

<CAPTION>
HIGH LOW
------- ------
<S> <C> <C> <C>
1994
First Quarter......................................... 5 1/4 4 1/4
Second Quarter........................................ 7 1/2 4 1/4
Third Quarter......................................... 8 1/16 6 1/2
Fourth Quarter........................................ 9 3/4 7 1/2
1995
First Quarter......................................... 12 8 5/8
Second Quarter........................................ 10 1/8 8 3/8
Third Quarter......................................... 11 3/4 9 3/8
Fourth Quarter........................................ 11 5/8 10
1996
First Quarter......................................... 12 1/2 9 3/4
Second Quarter (through June 25, 1996)................ 18 1/4 11 3/4
</TABLE>

On June 25, 1996 the last reported sale price as reported on the Nasdaq
National Market was $13.75 per share. As of May 21, 1996, there were
approximately 116 record holders of the Common Stock.

7
<PAGE> 9

<TABLE>
CAPITALIZATION

The following table sets forth the short-term borrowings and capitalization
of the Company as of March 31, 1996, and as adjusted to give effect to the sale
of the 400,000 shares of Common Stock offered by the Company (at the public
offering price of $13.75 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.

<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings (including current portion of long-term debt)...... $ 8,633 $ 3,530
======= =======
Long-term debt (less current portion).................................... $ 67 $ 67
------- -------
Stockholders' equity:
Common stock, $0.10 par value, 15,000,000 shares authorized, 4,517,742
shares issued and outstanding and 4,917,742 shares issued and
outstanding as adjusted(1)............................................. 452 492
Paid-in capital.......................................................... 13 5,076
Retained earnings........................................................ 26,498 26,498
------- -------
Total stockholders' equity............................................. 26,963 32,066
------- -------
Total capitalization..................................................... $27,030 $32,133
======= =======

- ---------------
<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 470,587
shares at March 31, 1996.

</TABLE>

DIVIDEND POLICY

From 1991 to 1995, the Company paid a cash dividend on its Common Stock of
approximately $0.085 per share in June of each year. In 1996, the Company
increased its annual cash dividend to $0.10 per share which was paid on June 3,
1996. 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> 10

<TABLE>
SELECTED FINANCIAL DATA

The selected financial data presented below as of and for each of the five
years ended December 31, 1995 have been derived from the Company's audited
financial statements. The selected financial data as of and for the three-month
periods ended March 31, 1995 and 1996 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 three months ended March 31, 1996 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.

<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:(1)
Net sales....................... $37,993 $45,267 $46,124 $53,233 $75,757 $15,802 $23,009
Cost of products sold........... 20,199 23,645 26,654 29,498 45,109 9,256 13,947
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 17,794 21,622 19,470 23,735 30,648 6,546 9,062
Selling, general, and
administrative expenses....... 14,776 18,430 17,857 18,916 23,961 5,158 6,926
Severance-related expenses...... -- -- 373 -- -- -- --
Offering expenses............... -- -- -- -- 310 -- --
Interest income (expense), net.. 288 123 38 42 (170) (5) (164)
------- ------- ------- ------- ------- ------- -------
Income before income taxes...... 3,306 3,315 1,278 4,861 6,207 1,383 1,972
Income taxes.................... 1,390 1,385 482 1,872 2,483 553 785
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1,916 $ 1,930 $ 796 $ 2,989 $ 3,724 $ 830 $ 1,187
======= ======= ======= ======= ======= ======= =======
Earnings per share(2)........... $ 0.43 $ 0.43 $ 0.18 $ 0.66 $ 0.80 $ 0.18 $ 0.25
Weighted average number of
shares outstanding............ 4,497 4,497 4,497 4,497 4,663 4,662 4,689
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $15,081 $14,634 $15,126 $17,245 $20,203 $18,096 $20,969
Total assets.................... 22,383 24,695 24,533 28,853 41,712 31,533 43,950
Short-term debt................. 133 133 133 133 6,333 1,333 8,633
Long-term debt.................. 633 500 367 233 100 200 67
Stockholders' equity............ 17,751 19,306 19,720 22,350 25,763 23,190 26,963

- ---------------
<FN>
(1) From 1991 to 1995 a cash dividend of approximately $0.085 per share of
Common Stock was paid in June of each year. On June 3, 1996, the Company
paid a cash dividend of $0.10 per share of Common Stock.

(2) The net proceeds from the sale of the shares of Common Stock offered by the
Company hereby will be used to repay certain indebtedness. Assuming these
shares had been issued and the indebtedness repaid as of January 1, 1995,
pro forma earnings per share for 1995 and for the three months ended March
31, 1996 would have been $0.75 and $0.24, respectively.

</TABLE>
9
<PAGE> 11

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 and 1996
of products featuring Winnie the Pooh characters under licensing agreements with
The Walt Disney Companies. These licensed products accounted for approximately
20% of net sales in 1995 and approximately 30% of net sales in the first three
months of 1996. The Company plans to introduce the Winnie the Pooh characters on
additional products and in additional geographic areas in the latter part of
1996 and in 1997. 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.

International sales have had an increasingly larger impact on the Company's
financial results. In 1992, international sales represented approximately 5% of
net sales; in 1995, international sales were approximately 10% of net sales. The
Company believes that international sales as a percentage of net sales will
increase in future periods.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................... 57.8 55.4 59.5 58.6 60.6
Gross profit........................................ 42.2 44.6 40.5 41.4 39.4
Selling, general, and administrative expenses....... 38.7 35.5 31.6 32.6 30.1
Income before taxes................................. 2.8 9.1 8.2 8.8 8.6
Net income.......................................... 1.7 5.6 4.9 5.3 5.2
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995

Net sales for the first three months of 1996 were $23.0 million, an
increase of $7.2 million or 45.6% as compared to $15.8 million for the
comparable period last year. The increase was due to new product introductions
and expanded retail distribution in domestic and foreign markets.

Cost of products sold for the first three months of 1996 was $13.9 million,
an increase of $4.6 million or 50.7%, as compared to $9.3 million for the
comparable period last year. As a percentage of net sales, cost of products sold
in the first three months of 1996 increased to 60.6% from 58.6% in the
comparable period of 1995. The increase was primarily due to increased sales of
higher-priced, lower-margin products and licensing fees.

Selling, general, and administrative expenses for the first three months of
1996 were $6.9 million, an increase of $1.7 million or 34.3%, as compared to
$5.2 million for the first three months of 1995. The increase resulted primarily
from costs related to increased sales volume. As a percentage of net sales,
selling, general, and administrative expenses for the first three months of 1996
decreased to 30.1% from 32.6% for the

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comparable period in 1995. The decrease reflects the economies of scale provided
by a higher volume of business.

Income tax expense as a percentage of pretax income was approximately 40%
for the first three months of 1996 and 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net sales in 1995 were $75.8 million, an increase of $22.6 million, or
42.3%, as compared to $53.2 million 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 in 1995 was $45.1 million, an increase of $15.6
million or 52.9%, as compared to $29.5 million in 1994. As a percentage of net
sales, cost of products sold in 1995 increased to 59.5% from 55.4% in the
comparable period of 1994. The increase was due to increased sales of
higher-priced, lower margin items, licensing fees, increased cost of products
due to raw material price increases, and air freight shipments from overseas
production facilities incurred primarily in the first three months of the year.

Selling, general, and administrative expenses in 1995 were $24.0 million,
an increase of $5.1 million, or 26.7%, as compared to $18.9 million in 1994. The
increase resulted primarily from costs related to increased sales volume. As a
percentage of net sales, selling, general, and administrative expenses in 1995
decreased to 31.6% from 35.5% in 1994. The decrease reflects the economies of
scale provided by a higher volume of business.

During the fourth quarter of 1995, the Company sought to issue additional
shares of Common Stock in order to increase its working capital and improve the
liquidity of its stock. Due to uncertain market conditions affecting the retail
sector and the price of the Company's stock, the Company decided to postpone the
public offering. As a result, the Company incurred offering expenses that
resulted in a pretax charge of approximately $310,000 ($186,000 net of tax
benefit).

Income tax expense as a percentage of pretax income increased to 40.0% in
1995 from 38.5% in 1994, principally as a result of an increased provision for
state taxes.

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 initiated 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.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital increased by approximately $800,000 from $20.2 million
at December 31, 1995 to $21 million at March 31, 1996 primarily due to
profitable operations. Accounts receivable increased by $2.1

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million primarily as a result of increased sales, and inventories increased by
approximately $600,000 to meet continued demand for the Company's products. Cash
decreased by approximately $500,000 primarily resulting from increases in
accounts receivable and a decrease in accounts payable which were partially
offset by an increase in short-term borrowings.

Unsecured lines of credit of $18 million, which are subject to annual
renewal, are available from banks. Amounts outstanding under these lines are
payable upon demand by the banks. During the first three months of 1996, the
Company has borrowed various amounts from time to time up to $9.9 million, of
which $8.5 million at a weighted average interest rate of 7.55% was outstanding
as of March 31, 1996.

From 1991 to 1995, the Company paid a cash dividend of approximately $0.085
per share of Common Stock in June of each year. On June 3, 1996, the Company
paid a cash dividend of $0.10 per share of Common Stock.

The Company made capital expenditures of approximately $700,000 in the
first three months of 1996 and expects to spend approximately $1.3 million more
on capital expenditures in the remaining months of 1996. 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 1995, 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 $3.9 million
as of March 31, 1996. At March 31, 1996, 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 1, 1996, management
believes that the Company had no significant exposure to credit risk relative to
such contracts.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), was issued. This statement, which will be required
in 1996, establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company does not expect that the adoption of SFAS 121
will have a material impact on the financial statements.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," became effective for the Company beginning January 1, 1996. SFAS
No. 123 requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock-based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share, as required by SFAS No. 123.

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BUSINESS

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 the
last three years, the Company has entered into licensing agreements with The
Walt Disney Companies 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, Gifts & Sets and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$69.99. 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, J. C. Penney,
Kroger and Baby Superstore.

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 were 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 1995, for products produced by member
companies, was about $2.1 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.

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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. In 1996, the Company has begun to introduce new products
on a quarterly basis for the first time. The Company intends to continue
emphasizing product innovation and development and to devote substantial
resources to its product development process.

- 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 the last three years, the Company entered into
licensing agreements with The Walt Disney Companies 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 has introduced several new 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, the Step-by-Step line of multi-function furnishings, and
the PackMates line of bags, child carriers and travel accessories, 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 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 and 1996, 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

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Company's product line, which contains approximately 300 items that range in
retail price from approximately $0.99 to $69.99, 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, flatware and breast-feeding accessories. 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 introduced a spill-proof cup with a lid that fits all
cups in the TumbleMates line, new products that relieve teething discomfort such
as the new Massaging Action Teether and plans to introduce an innovative,
electric/battery breast pump kit.

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. In 1996, the
Company plans to introduce numerous new Play & Discover toys including
motion-activated electronic toys, a color-change bath toy; the Jukebox Musical
Crib Mirror with twinkling lights, and a waterproof electronic "quacking" tub
toy, the Shake & Quack Ducky.

In 1995, the Company launched the First Animal Game featuring five
different games in one with graduated levels of difficulty that help a child
learn to identify different animals. This game was named one of Dr. Toy's 100
Best Children's Products of 1995 and was a 1995 North American Parenting
Publishing Association (NAPPA) Silver Award Winner.

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 the Tape Player and Crib Light and the Rechargeable Pocket
Monitor.

In 1995, the Company also added to this category a new line of rugged,
machine-washable tote bags, child carriers and harnesses, and other travel
accessories marketed under the PackMates name. This line includes the Clip'n Go
Warm & Cozy Carrier, an insulated detachable infant carrier, and the Full Day
Diaper Bag, a nylon carry 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 an adjustable bath seat, portable booster seat, baby
bather, step stool and toilet trainer that are adjustable as a child grows and
the Diaper Dispoz-all Diaper Pail, an odor-free diaper pail.

In 1996, the Company plans to introduce into this category a new innovative
concept in booties and several products in the Nurserytronics and furnishings
lines.

GIFTS & SETS. 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. Many
of the containers for such gift sets such as the Bear Bank Gift set are also
reusable as tote bags, storage containers or keepsakes. Gift sets include the
Washables gift pack, the TumbleMates gift pack,

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newborn gift bags and furnishings gift sets. In 1996, the Company intends to
introduce additional gift sets targeted to both retailers and wholesale clubs.

WINNIE THE POOH. With the planned addition of 26 new products in 1996, the
Winnie the Pooh category will consist of approximately 51 staple child care
products including teethers, rattles, bibs and bottles, bathing accessories and
gift sets featuring Winnie the Pooh characters. This category includes the Pooh
Goody Bags which contain an assortment of the Company's products featuring
Winnie the Pooh characters and a line of appliqued bibs featuring various Winnie
the Pooh designs. In 1996, the Company plans to introduce the Winnie the Pooh
characters on numerous additional items throughout its product line including
cups, electronic musical toys, teethers, hooded towels, bath puppets,
furnishings and a variety of Pooh gift sets.

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 15 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 approximately $1.8 million on new product development in
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
International Juvenile Products 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 Tokyo Toy
Fair; the Boston Baby Faire; the Koln Nursery Fair in Koln, Germany; 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 11 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

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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, 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, J.C.
Penney, Kroger and Baby Superstore. As testimony to the Company's commitment to
providing excellent service and merchandising to its customers, the Company was
chosen as the 1995 Vendor of the Year by Smith's Food and Drug Centers and
received a Vendor/Partner Award of Excellence from Wal*Mart for the fourth
quarter of 1995.

The Company's products are sold in the United States, and Canada, primarily
through the Company's ten-person internal sales staff and through a network of
48 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. In
Central and South America and the Pacific Rim, the Company's products are sold
by its internal sales staff which manages a network of foreign distributors and
sales representatives in such areas. 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 1995 were approximately $7.7 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 1995, Wal*Mart and Toys "R"
Us accounted for approximately 28% and 21% 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 computerized planogram programs, which
divide 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. These programs are 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 these 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 COMPANIES

In the past three years the Company has entered into licensing agreements
with The Walt Disney Companies to feature Winnie the Pooh characters on a
variety of its products in the United States, Canada,

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Puerto Rico, Brazil and in Europe. The U.S. license agreement expires December
31, 1996 and is cancellable upon a change in control of the Company. The Company
is currently in negotiations with Disney to renew the U.S. license agreement.
Although the Company expects the agreement to be renewed, there can be no
assurance that it will be. The Company makes royalty payments on its net sales
of licensed products and is subject to a guaranteed minimum royalty payment of
approximately $714,000 in the aggregate during the terms of the agreements.
Sales of products under these license agreements accounted for approximately 20%
of the Company's total net sales in 1995 and 30% of the Company's total net
sales in the first three months of 1996.

In February 1996, the Company entered into a licensing agreement with
Disney Licensed Publishing to feature Winnie the Pooh, Disney Babies and 101
Dalmatians characters on vinyl and fabric early learning play books. The Company
plans to introduce the books for sale in 1997. The agreement expires on March
30, 1999. The Company will make royalty payments on its net sales of licensed
products and is subject to a guaranteed minimum royalty payment of approximately
$65,000 during the term of the agreement.

MANUFACTURING AND SOURCES OF SUPPLY

The Company does not own or operate its own manufacturing facilities. In
1995 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, Mexico and Thailand. Approximately 53% and 46% respectively of all of
its products sold in 1994 and in 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 1995 by suppliers in the United States and Canada.

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 21% of its net sales in 1995. In 1994 approximately 13% of the
Company's products sold were manufactured by one supplier located in China, and
approximately 11% of its products sold were manufactured by this same supplier
in 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 has attempted to
impose additional restrictions on trade with China. On May 15, 1996, the Clinton
Administration announced that certain products exported by China would be
subject to punitive sanctions (100% tariffs) on June 17, 1996, if China did not
close certain factories producing counterfeit videos, compact disks and
software. However, the Company has determined that these sanctions will not
apply to any of the Company's products. Enactment of legislation or the
imposition of restrictive regulations conditioning

18
<PAGE> 20

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 through July 3, 1997. Unless Congress takes
action to override this decision, China will continue to enjoy MFN treatment
during this period. The European Union (the "EU") has recently enacted a quota
and tariff system with respect to the importation into the EU 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.

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

The Company distributes its products in the United States from its 103,500
square foot warehouse facility in Avon, Massachusetts and from a public
warehouse in Fontana, California. 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.

19
<PAGE> 21

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 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 March 31, 1996, the Company employed 110 full-time and 3 part-time
employees, of whom 10 are executive officers, 49 are in sales, marketing and
product development, 37 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,
the Federal Flammable Fabrics Act, and the Child Safety Protection 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; and Cirencester, England.

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> 22

MANAGEMENT

OFFICERS AND DIRECTORS

<TABLE>
The Company's officers and directors are as follows:

<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
<S> <C> <C> <C>
Ronald J. Sidman................... 49 Chairman of the Board of Directors, 1975
Chief Executive Officer and
President
Jerome M. Karp..................... 68 Vice Chairman of the Board of 1969
Directors
Benjamin Peltz..................... 57 Treasurer, Senior Vice President and 1975
Director
Evelyn Sidman...................... 82 Clerk and Director 1979
Fred T. Page(1)(2)................. 49 Director 1988
Merton N. Alperin(1)(2)............ 73 Director 1988
Joseph M. Connolly................. 55 Vice President -- Operations 1979
John N. Colantuone................. 58 Vice President -- Materials and 1982
Engineering
Mark H. Dall....................... 52 Vice President -- Information 1985
Services
Adrian E. Roche.................... 40 Vice President -- Worldwide 1992
Marketing
Wayne Shea......................... 41 Vice President -- Worldwide Sales & 1991
Merchandising
Keith Ciampa....................... 31 Vice President -- Executive Account 1996
Sales
John R. Beals...................... 41 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 -- Operations of the Company for over
five years.

Mr. Colantuone has been Vice President -- 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.

21
<PAGE> 23

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

Mr. Roche has been Vice President -- Worldwide Marketing of the Company
since January 1995. From January 1992 to December 1994, Mr. Roche was Vice
President -- European Sales of the Company. From 1989 to 1991, Mr. Roche held
several managerial positions for Fisher-Price Kiddie Craft in the United
Kingdom, the last of which was Managing Director.

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

Mr. Ciampa has been the Vice President -- Executive Account Sales since
June 1996. From July 1993 to May 1996, Mr. Ciampa was Director of Sales --
Americas and from January 1992 to June 1993 he was Export Sales Manager 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
1999, 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 3,000 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 10,000 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 16, 1996, each of Messrs. Alperin and Page was granted an option to
purchase 3,000 shares of Common Stock at an exercise price of $17.125 per share.

22
<PAGE> 24

EXECUTIVE COMPENSATION

<TABLE>
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, 1993, 1994 and 1995 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 1995
(collectively the "named officers").

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>
Ronald J. Sidman*.................. 1995 $214,384 $276,667 20,000 $30,642
Chairman of the Board of 1994
Directors,....................... 193,539 159,291 10,000 29,319
Chief Executive Officer and 1993
President........................ 220,954 0 53,000 43,770
Marshall B. Sidman**............... 1995 44,165 0 0 51,000
Chairman of the Board of 1994
Directors........................ 172,562 57,323 0 51,096
and Chief Executive Officer........ 1993 197,830 0 0 61,500
Benjamin Peltz..................... 1995 177,363 140,333 10,000 35,817
Senior Vice President,............. 1994 159,645 88,646 8,000 34,523
Treasurer and Director............. 1993 182,803 0 39,000 47,945
John N. Colantuone................. 1995 112,671 38,442 3,000 17,228
Vice President --.................. 1994 105,974 34,929 5,000 11,952
Materials and Engineering.......... 1993 101,342 0 10,000 17,544
Wayne Shea......................... 1995 116,162 39,760 4,000 17,444
Vice President --.................. 1994 101,024 33,323 5,000 11,270
World Wide Sales & Merchandising... 1993 98,420 0 10,000 16,944
Adrian R. Roche.................... 1995 111,822 37,359 2,000 10,865
Vice President --.................. 1994 92,853 29,821 5,000 8,709
World Wide Marketing............... 1993 85,118 0 10,000 8,218

<FN>
- ---------------
(1) The bonus amounts were earned by these individuals in 1995 and 1994 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 and have
been adjusted to reflect the Company's 2-for-1 stock split effected in
December 1995. See "Options/SAR Grants in Last Fiscal Year" for more
information on the options granted in 1995.

(3) The amounts shown in this column reflect (i) insurance premium payments made
on behalf of the following named officers by the Company during 1995 for
life insurance policies: Marshall B. Sidman -- $51,000; 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: Ronald J.
Sidman -- $17,872; Benjamin Peltz -- $17,872; John N. Colantuone -- $17,228;
Wayne Shea -- $17,444; and Adrian E. Roche -- $10,865.

* Ronald J. Sidman became Chairman and Chief Executive Officer on March 28,
1995.

** Marshall B. Sidman died on March 24, 1995.

</TABLE>

23
<PAGE> 25

<TABLE>
Option Grants. The following table sets forth grants of stock options
pursuant to the Company's 1993 Equity Incentive Plan during 1995 to the named
officers reflected in the Summary Compensation Table above:

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
Ronald J. Sidman....... 20,000 19.4% $ 9.831 3/23/00 $31,510 $91,254
Benjamin Peltz......... 10,000 9.7 8.938 3/23/00 24,693 54,564
John N. Colantuone..... 3,000 2.9 8.938 3/23/00 7,408 16,369
Wayne Shea............. 4,000 3.9 8.938 3/23/00 9,877 21,826
Adrian E. Roche........ 2,000 1.9 8.938 3/23/00 4,939 10,913

<FN>
- ---------------
(1) Incentive stock options were granted in 1995 pursuant to the Company's 1993
Equity Incentive Plan. The exercise price of the options granted to all the
named officers other than Ronald J. Sidman, was equal to the fair market
value (the closing sale price) of the Company's Common Stock on the date of
grant, March 23, 1995. 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, 1996.

(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.

</TABLE>

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, 1995 and the value of such
unexercised options on December 31, 1995.

<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
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marshall B. Sidman............ -- -- 0 0 0 0
Ronald J. Sidman.............. -- -- 38,670 44,330 $197,300 $148,800
Benjamin Peltz................ -- -- 28,668 28,332 161,400 125,400
John N. Colantuone............ -- -- 8,336 9,664 47,600 45,300
Wayne Shea.................... -- -- 8,336 10,664 47,600 47,300
Adrian E. Roche............... 5,002 $25,322 4,998 7,000 29,000 32,900

<FN>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1995 ($10.875 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>

24
<PAGE> 26

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").
The initial base salaries under the Agreement are $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
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> 27

PRINCIPAL AND SELLING STOCKHOLDERS

<TABLE>
The following table sets forth, to the knowledge of the Company, the
beneficial ownership of the Common Stock of the Company as of June 3, 1996
(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 1995,
(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 OWNED BENEFICIALLY 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).......................... 1,163,400 25.7% 800,000 363,400 7.4%
Ronald J. Sidman(2)....................... 552,670 12.1 80,000 472,670 9.5
Benjamin Peltz(3)......................... 354,468 7.8 160,000 194,468 3.9
Jerome M. Karp(4)......................... 160,520 3.5 160,000 520 *
Fred T. Page(5)........................... 22,600 * 0 22,600 *
John N. Colantuone(6)..................... 11,002 * 0 11,002 *
Merton N. Alperin(7)...................... 19,000 * 0 19,000 *
Wayne Shea(8)............................. 12,336 * 0 12,336 *
Adrian E. Roche(9)........................ 5,664 * 0 5,664 *
5% STOCKHOLDERS
Estate of Marshall B. Sidman.............. 811,080 17.9 800,000 11,080 *
One Kiddie Drive
Avon, MA 02322
Santa Monica Partners, L.P.(10)........... 346,000 7.6 0 346,000 7.0
Two Madison Avenue
Larchmont, NY
Quest Advisory Corp.(11).................. 347,672 7.7 0 347,672 7.0
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY
SELLING STOCKHOLDERS
Eleanor J. Karp........................... 114,000 2.5 114,000 0 *
All directors and executive officers as a
group(12) (13 persons).................. 2,327,827 49.4 1,200,000 1,127,827 22.1

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

(1) Includes 811,080 shares owned beneficially by Mrs. Sidman as the personal
representative of the estate of her late husband, Marshall B. Sidman,
800,000 of which are being sold in this Offering. Mrs. Sidman has sole
voting and investment power over such shares.

(2) Includes 48,670 shares issuable to Mr. Sidman pursuant to currently
exercisable stock options. Mr. Sidman is the son of Evelyn Sidman.

(3) Includes 34,668 shares issuable to Mr. Peltz pursuant to currently
exercisable stock options. 4,800 shares are owned jointly by Mr. and Mrs.
Peltz.

</TABLE>

26
<PAGE> 28

(4) Includes 114,000 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 19,000 shares issuable to Mr. Page pursuant to currently
exercisable options.

(6) Includes 11,002 shares issuable to Mr. Colantuone pursuant to currently
exercisable options.

(7) Includes 19,000 shares issuable to Mr. Alperin pursuant to currently
exercisable options.

(8) Includes 11,336 shares issuable to Mr. Shea pursuant to currently
exercisable stock options.

(9) Includes 5,664 shares issuable to Mr. Roche pursuant to currently
exercisable stock options.

(10) 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 346,000 shares of
the Company's outstanding Common Stock and shares voting and dispositive
power with Santa Monica Partners, L.P. over such shares.

(11) As reported on Schedule 13G filed with the Securities and Exchange
Commission in February 1996, 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 304,072 shares; Quest Management Company
has sole voting and dispositive power over 43,600 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.

(12) The total for all directors and executive officers as a group includes
175,507 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 June 1, 1996, there were 4,535,570 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

27
<PAGE> 29

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 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

28
<PAGE> 30

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 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> 31

<TABLE>
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.

<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
A.G. Edwards & Sons, Inc. .............................................. 524,000
Adams, Harkness & Hill, Inc. ........................................... 524,000
Alex. Brown & Sons Incorporated ........................................ 32,000
Dean Witter Reynolds Inc. .............................................. 32,000
Donaldson, Lufkin & Jenrette Securities Corporation .................... 32,000
Merrill Lynch & Co. .................................................... 32,000
Oppenheimer & Co., Inc. ................................................ 32,000
PaineWebber Incorporated ............................................... 32,000
Prudential Securities Incorporated ..................................... 32,000
Advest, Inc. ........................................................... 16,000
Robert W. Baird & Co. Incorporated ..................................... 16,000
The Chicago Corporation ................................................ 16,000
First Albany Corporation ............................................... 16,000
Jefferies & Company, Inc. .............................................. 16,000
Edward D. Jones & Co. .................................................. 16,000
Ladenburg, Thalmann & Co. Inc. ......................................... 16,000
Legg Mason Wood Walker Incorporated .................................... 16,000
McDonald & Company Securities, Inc. .................................... 16,000
Needham & Company, Inc. ................................................ 16,000
Raymond James & Associates, Inc. ....................................... 16,000
Stifel, Nicolaus & Company, Incorporated ............................... 16,000
Sutro & Co. Incorporated ............................................... 16,000
Tucker Anthony Incorporated ............................................ 16,000
Vector Securities International Inc. ................................... 16,000
Wheat, First Securities, Inc. .......................................... 16,000
Brean Murray, Foster Securities Inc. ................................... 8,000
Cruttenden Roth Incorporated ........................................... 8,000
Huntleigh Securities Corporation ....................................... 8,000
C.L. King & Associates, Inc. ........................................... 8,000
Moors & Cabot, Inc. .................................................... 8,000
Smith, Moore & Co. ..................................................... 8,000
Starr Securities, Inc. ................................................. 8,000
Van Kasper & Company ................................................... 8,000
H.C. Wainwright & Co., Inc. ............................................ 8,000
---------
Total................................................................. 1,600,000
=========
</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 $0.45
per share and that the Underwriters and such dealers may reallow a discount of
not in excess of $0.10 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 240,000 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

30
<PAGE> 32

shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to 1,600,000 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.

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, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 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

31
<PAGE> 33

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.

32
<PAGE> 34

<TABLE>
INDEX TO FINANCIAL STATEMENTS

<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)... F-3
Statements of Income for the Years Ended December 31, 1993, 1994, and 1995 and
for the Three Months Ended March 31, 1995 and 1996 (unaudited).................. F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994
and 1995 and for the Three Months Ended March 31, 1996 (unaudited).............. F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994, and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited).............. F-6
Notes to Financial Statements.................................................... F-7
</TABLE>

F-1
<PAGE> 35

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of The First Years Inc.
(formerly Kiddie Products, Inc.) as of December 31, 1995 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, 1995. 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, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 7, 1996

F-2
<PAGE> 36
THE FIRST YEARS INC.

<TABLE>
BALANCE SHEETS

DECEMBER 31, MARCH 31,
------------------------- -----------
NOTES 1994 1995 1996
----- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................... 1,8 $ 2,329,041 $ 552,568 $ 59,306
Accounts receivable (less allowance for
doubtful accounts, $185,000 in 1994,
1995 and 1996)............................... 8 9,266,235 14,191,630 16,243,208
Inventories..................................... 1 10,413,835 19,009,784 19,637,900
Prepaid expenses and other assets............... 295,921 778,074 429,148
Deferred tax asset.............................. 1,3 624,500 872,300 872,300
----------- ----------- -----------
Total current assets......................... 22,929,532 35,404,356 37,241,862
----------- ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT.................... 1
Land............................................ 167,266 167,266 167,266
Building........................................ 3,737,861 3,737,861 3,741,291
Machinery and molds............................. 5,413,075 6,481,504 7,002,819
Furniture and equipment......................... 2,986,905 3,183,379 3,350,811
----------- ----------- -----------
Total........................................ 12,305,107 13,570,010 14,262,187
Less accumulated depreciation................... 6,381,854 7,262,286 7,554,413
----------- ----------- -----------
Property, plant, and equipment -- net........ 5,923,253 6,307,724 6,707,774
----------- ----------- -----------
TOTAL ASSETS............................ $28,852,785 $41,712,080 $43,949,636
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt............... 2 $ 133,333 $ 133,333 $ 133,333
Short-term borrowings........................... 2 -- 6,200,000 8,500,000
Accounts payable................................ 4,034,263 6,903,478 6,000,755
Accrued benefit plans expense................... 7 259,557 255,271 117,542
Accrued payroll expenses........................ 782,890 1,105,004 678,484
Accrued selling expenses........................ 256,161 604,434 558,761
Federal and state income taxes payable.......... 1,3 218,500 -- 283,600
----------- ----------- -----------
Total current liabilities.................... 5,684,704 15,201,520 16,272,475
----------- ----------- -----------
LONG-TERM DEBT -- Less portion due currently...... 2 233,334 100,001 66,667
----------- ----------- -----------
DEFERRED TAX LIABILITY............................ 1,3 584,800 647,300 647,300
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES..................... 5,6,8
STOCKHOLDERS' EQUITY.............................. 4,7
Common Stock authorized 15,000,000 shares as of
March 31, 1996 and December 31, 1995 and
7,500,000 shares as of December 31, 1994 at
$.10 par value............................... 225,043 451,514 451,774
Paid-in capital................................. 98,194 -- 13,102
Retained earnings............................... 22,026,710 25,311,745 26,498,318
----------- ----------- -----------
Total stockholders' equity...................... 22,349,947 25,763,259 26,963,194
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $28,852,785 $41,712,080 $43,949,636
=========== =========== ===========
</TABLE>

See notes to financial statements.

F-3
<PAGE> 37

THE FIRST YEARS INC.

<TABLE>
STATEMENTS OF INCOME

<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
NOTES 1993 1994 1995 1995 1996
----- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES................. 1,6,8 $46,124,088 $53,233,109 $75,757,322 $15,801,777 $23,009,281
COST OF PRODUCTS SOLD..... 1 26,653,704 29,498,457 45,108,546 9,256,243 13,947,171
----------- ----------- ----------- ----------- -----------
GROSS PROFIT.............. 19,470,384 23,734,652 30,648,776 6,545,534 9,062,110
SELLING, GENERAL, AND
ADMINISTRATIVE
EXPENSES................ 1,7 17,857,049 18,915,908 23,961,206 5,157,790 6,925,847
SEVERANCE-RELATED
EXPENSES................ 9 373,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
OPERATING INCOME.......... 1,240,335 4,818,744 6,687,570 1,387,744 2,136,263
OTHER INCOME (EXPENSES):
Interest expense........ (28,912) (24,575) (186,338) (13,433) (165,373)
Interest income......... 66,204 66,605 16,718 8,697 1,183
Offering expenses....... 10 -- -- (310,457) -- --
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES................... 1,277,627 4,860,774 6,207,493 1,383,008 1,972,073
PROVISION FOR INCOME
TAXES................... 1,3 481,500 1,871,400 2,483,000 553,200 785,500
----------- ----------- ----------- ----------- -----------
NET INCOME................ $ 796,127 $ 2,989,374 $ 3,724,493 $ 829,808 $ 1,186,573
=========== =========== =========== =========== ===========
EARNINGS PER SHARE........ 1 $0.18 $0.66 $0.80 $0.18 $0.25
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING...... 4,496,520 4,497,244 4,663,491 4,661,846 4,689,426
=========== =========== =========== =========== ===========
DIVIDENDS PAID PER
SHARE................... $0.085 $0.085 $0.085 $0.000 $0.000
=========== =========== =========== =========== ===========
</TABLE>

See notes to financial statements.

F-4
<PAGE> 38

THE FIRST YEARS INC.

<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THREE MONTHS ENDED MARCH 31,
1996

<CAPTION>
COMMON STOCK
----------------------
PAR PAID-IN RETAINED
NOTES SHARES VALUE CAPITAL EARNINGS
----- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993..................... 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...... 7 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...... 7 7,141 714 70,957 --
Dividends paid............................. -- -- -- (382,852)
Stock split, two-for-one................... 4 2,257,571 225,757 (169,151) (56,606)
Net income................................. -- -- -- 3,724,493
--------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995................... 4,515,142 451,514 0 25,311,745
Stock issued under stock option plans
(unaudited)............................. 2,600 260 13,102 --
Net income (unaudited)..................... -- -- -- 1,186,573
--------- -------- --------- -----------
BALANCE, MARCH 31, 1996 (unaudited).......... 4,517,742 $451,774 $ 13,102 $26,498,318
========= ======== ========= ===========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 39

THE FIRST YEARS INC.
<TABLE>
STATEMENTS OF CASH FLOWS

<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 796,127 $ 2,989,374 $ 3,724,493 $ 829,808 $ 1,186,573
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation.................................. 778,652 878,250 992,291 253,750 292,127
Provision for doubtful accounts............... 17,177 23,673 86,227 25,147 53,746
Loss on disposal of equipment................. 105,170 47,877 70,258 0 0
Increase (decrease) arising from working
capital items:
Accounts receivable......................... (994,400) (2,077,176) (5,011,624) (2,264,138) (2,105,324)
Inventories................................. (931,295) (2,184,385) (8,595,949) (2,098,165) (628,116)
Prepaid expenses and other assets........... (42,222) (53,315) (482,153) (40,978) 348,926
Accounts payable............................ 20,979 1,549,774 2,869,215 914,073 (902,723)
Accrued benefit plans expense............... (51,060) (376,128) (4,286) 82,004 (137,729)
Accrued payroll expenses.................... (366,866) 730,508 322,114 (628,210) (426,520)
Accrued selling expenses.................... (95,394) (142,477) 348,273 (125,214) (45,673)
Federal and state income taxes payable...... (72,100) (9,200) (218,500) 430,100 283,600
Change in deferred income taxes............. 51,800 107,200 (185,300) 0 0
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities................ (783,432) 1,483,975 (6,084,941) (2,621,823) (2,081,113)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and
equipment................................. (794,222) (1,374,721) (1,447,018) (209,992) (692,177)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of industrial revenue bonds....... (133,333) (133,333) (133,333) (33,333) (33,334)
Dividends paid.............................. (382,204) (382,204) (382,852) -- --
Common stock issued under stock option
plans..................................... -- 23,057 71,671 10,667 13,362
Net proceeds from short-term borrowings..... -- -- 6,200,000 1,200,000 2,300,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities................ (515,537) (492,480) 5,755,486 1,177,334 2,280,028
----------- ----------- ----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS......... (2,093,191) (383,226) (1,776,473) (1,654,481) (493,262)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 4,805,458 2,712,267 2,329,041 2,329,041 552,568
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD...... $ 2,712,267 $ 2,329,041 $ 552,568 $ 674,560 $ 59,306
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION --
Cash paid during the year for:
Interest.................................. $ 28,912 $ 24,575 $ 186,338 $ 13,433 $ 165,373
=========== =========== =========== =========== ===========
Income taxes.............................. $ 501,800 $ 1,773,400 $ 3,269,100 $ 123,100 $ 119,600
=========== =========== =========== =========== ===========
</TABLE>

See notes to financial statements.

F-6
<PAGE> 40

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -- The First Years 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 March 31, 1996,
the Statements of Income for the three months ended March 31, 1995 and 1996, the
Statement of Stockholders' Equity for the three months ended March 31, 1996 and
the Statements of Cash Flows for the three months ended March 31, 1995 and 1996
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 three months ended March
31, 1996 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.

Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of -- In March 1995, Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"), was issued. This statement,
which will be required in 1996, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company does not expect
that the adoption of SFAS 121 will have a material impact on the financial
statements.

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

Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which will be effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded (see Note 7). The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share, as required by SFAS No. 123.

Earnings Per Share -- Earnings per share are based on the weighted average
number of shares outstanding during each year (retroactively adjusted to reflect
the two-for-one stock split effected on December 29, 1995 and 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 (4,663,491,
4,497,244 and 4,496,520

F-7
<PAGE> 41

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
shares in 1995, 1994 and 1993, respectively) (see Note 7). Earnings per share
assuming full dilution have not been presented because the dilutive effect is
immaterial.

Risk and Uncertainties -- The Company has adopted Accounting Standards
Executive Committee Statement of Position 94-6, "Disclosure of Certain
Significant Risks and Uncertainties." The disclosures required by this SOP focus
primarily on the nature of an entity's operations, the use of estimates in
preparation of financial statements and on risks and uncertainties that could
significantly affect the amounts reported in the financial statements (see Note
8).

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Research and Development Costs -- Research and development costs are
expensed as incurred. During 1995, 1994, and 1993, research and development
costs approximated $1,834,000, $1,466,000, and $1,493,000, 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.

Fair Value of Financial Instruments -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in
Statement of Financial Accounting Standards No. 107 approximate their recorded
value.

2. DEBT

Long-term debt consists of unsecured industrial revenue bonds ("IRB"), with
interest payable quarterly at 65% of the prime rate (5.5% at December 31, 1995
and 1994) 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 $15,000,000
with two banks. Both lines are subject to annual renewal and require no
compensating balances. One line bears interest at the prime rate or the LIBOR
rate plus 2.0% and the other line at the prime rate less 0.25% or the LIBOR rate
plus 1.75%. During 1995, the Company borrowed various amounts up to $6,500,000
under the lines. As of December 31,

F-8
<PAGE> 42

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. DEBT (CONTINUED)
1995, a balance of $6,200,000, which bears interest at 7.9%, remains
outstanding. No other short-term borrowings were incurred by the Company during
1995 or 1994. During the first three months of 1996, the Company borrowed
various amounts up to $9,900,000 (unaudited). As of March 31, 1996, a balance of
$8,500,000 (unaudited) remains outstanding which bears a weighted average
interest rate of 7.55% (unaudited). During May 1996, the Company increased its
unsecured lines of credit to $18,000,000. The terms of the lines remain
unchanged from those specified above.

3. INCOME TAXES

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

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible.......................... $ 79,000 $ 62,900
Capitalized packaging costs not currently deductible....... 442,000 360,200
Capitalized inventory costs not currently deductible....... 261,100 116,900
Other...................................................... 90,200 84,500
-------- --------
872,300 624,500
-------- --------
Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation............................................ 642,800 580,300
Other...................................................... 4,500 4,500
-------- --------
647,300 584,800
-------- --------
Net deferred tax asset....................................... $225,000 $ 39,700
======== ========
</TABLE>

There was no valuation allowance for the years ended December 31, 1995 and
1994.

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Federal:
Current......................................... $2,104,000 $1,432,700 $352,300
Deferred........................................ (185,300) 107,200 51,800
---------- ---------- --------
Total federal..................................... 1,918,700 1,539,900 404,100
State............................................. 564,300 331,500 77,400
---------- ---------- --------
Provision for income taxes........................ $2,483,000 $1,871,400 $481,500
========== ========== ========
</TABLE>

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

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 6.0 4.5 4.0
Other.................................................... -- -- (0.3)
---- ---- ----
- - -
Effective rate........................................... 40.0% 38.5% 37.7%
===== ===== =====
</TABLE>

F-9
<PAGE> 43

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMON STOCK

In December 1995, the Company's Board of Directors (the "Board") declared a
two-for-one split of the Company's common stock. The stock split, effected in
the form of a stock dividend, was distributed on December 29, 1995 to
stockholders of record in 1995. Earnings per share amounts shown in the
accompanying financial statements have been adjusted to reflect the 1995 stock
split.

5. COMMITMENTS AND CONTINGENCIES

Foreign Exchange Contracts -- During 1995 and 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
$4,500,000 and $3,100,000 as of December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, the exchange rates for such currencies covered by
the contracts approximated the predetermined rates included therein.

Other Commitments -- At December 31, 1995 and 1994, letters of credit
outstanding aggregated approximately $1,925,000 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.

6. ROYALTIES

During 1995 and 1994, the Company entered into various agreements which
provide for the payment of royalties on sales of certain licensed products. The
agreements have terms ranging from one to fifteen years and require minimum
royalty payments of $729,000 during the terms of the agreements. Outstanding
minimum royalty payments under these agreements amounted to $92,800 at December
31, 1995.

7. 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
$259,000, $267,000, and $661,000 in 1995, 1994, and 1993, respectively.

Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of The First Years Inc. 1993 Equity Incentive Plan and The First Years
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 670,000 shares (adjusted to reflect the two-for-one stock split
effected on December 29, 1995) for issuance under the plans and 20,000 shares
for a stock option agreement granted outside of 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-10
<PAGE> 44

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of activity (all years adjusted to reflect the two-for-one stock
split effected on December 29, 1995) of stock options granted under the plan is
as follows:

<TABLE>
<CAPTION>
NUMBER
OF
OPTIONS
NUMBER OF AVAILABLE
EXERCISE PRICE OPTIONS FOR
PER SHARE OUTSTANDING GRANT
--------------- ----------- --------
<S> <C> <C> <C>
January 1, 1993
Authorized.................................. -- -- 440,000
Granted..................................... $5.31 to $5.84 206,000 (206,000)
Canceled.................................... $5.31 (2,000) 2,000
------- --------
December 31, 1993............................. 204,000 236,000
Authorized.................................. -- -- 20,000
Granted..................................... $4.56 to $5.63 126,300 (126,300)
Canceled.................................... $4.56 to $5.31 (20,828) 20,828
Exercised................................... $5.31 (4,340) --
------- --------
December 31, 1994............................. 305,132 150,528
Authorized.................................. -- -- 230,000
Granted..................................... $8.94 to $9.83 128,920 (128,920)
Canceled.................................... $4.56 to $5.31 (8,192) 8,192
Exercised................................... $4.56 to $5.31 (14,282) --
------- --------
December 31, 1995............................. 411,578 259,800
======= ========
</TABLE>

At December 31, 1995, 166,999 options were exercisable at $4.56 to $5.84
per share.

8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

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 5). 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 61% of the trade receivables outstanding at December 31,
1995 and 1994. 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, 1995, management believes it had no significant
exposure to credit risks.

Major Customer and Export Sales -- The Company derived 10% or more of its
sales from its largest customer. Such amounts aggregated $21,966,000,
$14,256,000, and $12,920,000 in 1995, 1994, and 1993, respectively. The
Company's second largest customer accounted for sales of $16,500,000,
$12,118,000, and $8,814,000 in 1995, 1994, and 1993, respectively. No other
customer accounted for 10% or more of the Company's sales. Export sales,
primarily to Europe, Canada, South America and the Pacific Rim were
approximately $7,745,000 in 1995.

Reliance on Licensed Products -- A licensing agreement (see Note 6) with a
major entertainment company will expire at the end of 1996. Sales of products
licensed under the agreement amounted to 20% of

F-11
<PAGE> 45

THE FIRST YEARS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (CONTINUED)
the Company's total net sales for year ended December 31, 1995. Management is in
the process of renegotiating continuance of this agreement.

Reliance on Foreign Manufacturers -- The Company does not own or operate
its own manufacturing facilities. In each of 1995 and 1994, the Company derived
approximately 46% and 53%, respectively, of its net sales from products
manufactured by others in the Far East, mainly in the Peoples' Republic of
China. A change in suppliers could cause a delay in manufacturing and a possible
loss of sales which would affect operating results adversely, depending on the
particular product.

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.

10. OFFERING EXPENSES

During 1995, the Company initiated a public offering of shares of its
common stock to increase its working capital and improve liquidity of its common
stock. Due to uncertain market conditions affecting the retail sector and the
price of its stock, the Company decided to postpone indefinitely the public
offering. As a result, the Company wrote off offering expenses amounting to
$310,000 in December 1995.

* * * * * *

F-12
<PAGE> 46

[THE FIRST YEARS]
IBC [Child on parent's shoulders with Company logo superimosed.]
<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>
TABLE OF CONTENTS

<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>

================================================================================

1,600,000 SHARES

THE FIRST YEARS INC.
[LOGO]
COMMON STOCK

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

A.G. EDWARDS & SONS, INC.

ADAMS, HARKNESS & HILL, INC.

June 25, 1996

================================================================================