##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549




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Form 10-K



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|þ | Annual Report pursuant to Section 13 or
    15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31,
2002

or



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | Transition report pursuant to Section 13
    or 15(d) of the Securities Exchange Act of 1934

For the transition period
from                     to

Commission file number 0-7024

THE FIRST YEARS INC.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|MASSACHUSETTS                                                      |  | 04-2149581                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|ONE KIDDIE DRIVE,
    AVON, MASSACHUSETTS                          |  | 02322                                   
|(Address of Principal Executive
    Offices)                       |  | (Zip Code)                              

508-588-1220

(Registrants Telephone Number, Including
Area Code)


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

|                    |  |                                              
|------------------- |  | ---------------------------------------------
|                   
|Title of Each Class |  | Name of Each Exchange on Which
    Registered
|None                |  | None                                         

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

COMMON STOCK, $.10 PAR VALUE

(AND ASSOCIATED COMMON STOCK PURCHASE
RIGHTS)


(Title of Class)


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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendments to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Act)
Yes
o     No
þ. The aggregate market
value, based upon the closing sale price of the shares as
reported by the Nasdaq National Market, of voting stock held by
non-affiliates as of June 28, 2002 was $69,443,242
(excludes shares held by executive officers, directors, and
beneficial owners of more than 10% of the Companys common
stock). Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of
management or policies of the registrant or that such person is
controlled by or under common control with the registrant.

The number of shares of Registrants Common
Stock outstanding on February 28, 2003 was 8,234,044.

Portions of the Registrants Definitive
Proxy Statement for its 2003 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Report.



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TABLE OF CONTENTS



|                                                                            |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                     
|                                                                            | Item 1. Business                                                                                       
|                                                                            | Item 2. Properties                                                                                     
|                                                                            | Item 3. Legal Proceedings                                                                              
|                                                                            | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                                    
|                                                                            | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                                            | Item 6. Selected Financial Data                                                                        
|                                                                            | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                                            | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                                                                            | Item 8. Financial Statements and Supplementary Data                                                    
|                                                                            | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                                                   
|                                                                            | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                                            | Item 11. Executive Compensation                                                                        
|                                                                            | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|                                                                            | Item 13. Certain Relationships and Related Transactions                                                
|                                                                            | Item 14. Controls and Procedures                                                                       
|PART IV                                                                    
|                                                                            | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES                                                                 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
|INDEPENDENT AUDITORS REPORT                                               
|THE FIRST YEARS INC.                                                       
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                 
|Ex-10.5 2002 Amend. & Rest. Equity Incentive Plan                          
|Ex-10.6 2002 Amend. & Rest. Stock Option Plan                              
|Ex-10.16 Employee Contract with Barry Boehme                               
|Ex-21.1 List of Subsidiaries of the Registrant                             
|Ex-23.1 Consent of Deloitte & Touche  LLP                                  
|Ex-99.1 Certification of CEO and CFO                                       



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##### Table of Contents



TABLE OF CONTENTS

|         |  |                                                                                                    |  |      |       | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|Item     |  | Description                                                                                        |  | Page
|         |  |                                                                                                    |  |     
|Part I  
|1        |  | Business                                                                                           |  |      | I-1   | 
|2        |  | Properties                                                                                         |  |      | I-5   | 
|3        |  | Legal Proceedings                                                                                  |  |      | I-5   | 
|4        |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | I-5   | 
|Part II 
|5        |  | Market for Registrants Common Equity and
    Related Shareholder Matters                          |  |      | II-1  | 
|6        |  | Selected Financial Data                                                                            |  |      | II-2  | 
|7        |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | II-2  | 
|7A       |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |      | II-10 | 
|8        |  | Financial Statements and Supplementary Data                                                        |  |      | II-11 | 
|9        |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |      | II-11 | 
|Part III
|10       |  | Directors and Executive Officers of the Registrant                                                 |  |      | III-1 | 
|11       |  | Executive Compensation                                                                             |  |      | III-1 | 
|12       |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters |  |      | III-1 | 
|13       |  | Certain Relationships and Related Transactions                                                     |  |      | III-1 | 
|14       |  | Controls and Procedures                                                                            |  |      | III-2 | 
|Part IV 
|15       |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |  |      | IV-1  | 



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PART I




Item 1.     Business

General

The First Years Inc. is a leading worldwide
marketer of quality innovative products for infants and
toddlers. Incorporated in 1952 as Kiddie Products, Inc., and
adopting its new name in 1995, The First Years is dedicated to
delivering products that out-perform the competition through an
in-depth understanding of parenting and child development. We
work in consultation with Dr. T. Berry Brazelton,
Dr. Edward Tronick, and their staff at the Child
Development Unit, Childrens Hospital, Boston, as well as
our worldwide Parents Council, to develop products that make the
first three years of life happier, healthier and easier for
babies and the families who love them.

We maintain a website with the address
www.thefirstyears.com. We are not incorporating by reference
information contained in our website as a part of this Annual
Report on Form 10-K. We make available free of charge
through our website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, and amendments to these reports, as soon as
reasonably practicable after we electronically file such
material with, or furnish such material to, the Securities and
Exchange Commission.

Products

Our product line, which contains approximately
407 items ranging in retail price from approximately $0.96 to
$89.99, is marketed under The First Years® brand, licenses
from The Walt Disney Company and Sesame
Street®, licensed from the Sesame Workshop.

Leveraging these brands, we market a broad range
of products in three categories.

|                   |  |                                                                                                                                                                                                                                                            
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product Categories |  | Products                                                                                                                                                                                                                                                   
|                   |  |                                                                                                                                                                                                                                                            
|Feeding & Soothing |  |  Bottles, bottle brushes, bowls,
    breast pumps and other nursing accessories, drinking cups,
    dishes, flatware, bibs, booster seats, mealtime totes, bottle
    warmers, feeding organizers, drying racks, disposable cups and
    spill-proof cups.
|Play & Discover    |  |  Toys, teethers, bath toys, books,
    stroller toys, and rattles.                                                                                                                                                                                        
|Care & Safety      |  |  Bathing and grooming products
    including bathtubs, washcloths, hooded towels, nail clippers,
    toothbrushes, comb and brush sets, baby scissors and tub-side
    bath seat.                                                                         
|                   |  |  Home safety products including
    monitors, safety gates, bed rails, spout guards and step stools.                                                                                                                                                      
|                   |  |  Wellness products, including
    thermometers, medicine dispensers, health care kits and no
    scratch mitts.                                                                                                                                           
|                   |  |  Diapering and toilet training
    products including toilet training seats, toilet training kits
    and diapering accessories.                                                                                                                          
|                   |  |  Travel and safety products including
    sunshades and mirrors.                                                                                                                                                                                          

We had several innovative product introductions
in 2002 including a semi-disposable feeding line, pacifiers, a
swing tray portable booster seat, a line of new wellness and
grooming products and a stair gate. In 2003, we expect to
introduce new product programs, including developmental play and
healthcare, and numerous licensed and specialty product
creations.

Product Design and Development

We are actively engaged in designing and
developing new products and enhancements to our current
products. During 2002, 2001, and 2000, we spent approximately
$6.4, $5.0, and $4.2 million, respectively, on new product
development. In 2003, we will continue to invest in product
development across all product lines. Our product development
efforts are centered on aggressively developing new areas in
which we can differentiate our products and add value to the
parenting process.

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We believe our unique product design and
development process contributes to the success of our products.
Our process has four main steps:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | We use our unique parenting expertise combined
    with the latest technology to develop product concepts that
    solve the needs and wants of parents.                                                                                                                                                                                                                                                                                                                                
|
| | 2. | We present our new product concepts to The First
    Years Parents Council, a global network comprised of expectant
    and current parents, to solicit feedback on purchase interest
    and suggestions for refinement. We further develop our products
    based on feedback from surveys and focus groups.                                                                                                                                                                          
|
| | 3. | We also consult with Dr. Brazelton and his
    staff of specialists at The Child Development Unit,
    Childrens Hospital, Boston, to elicit developmental
    information and guidance prior to creating models of the
    product. Once we have created a model, our internal
    cross-functional product development teams review and evaluate
    it thoroughly to confirm that it meets our standards for quality
    and safety prior to pre-testing by children and/or parents.
|
| | 4. | We send pre-production samples to parents for
    home use testing along with the closest product from our
    competitor. Our goal is to have our product out-perform the
    competition before manufacturing is authorized.                                                                                                                                                                                                                                                          

In addition to designing new products, our
product development team regularly reevaluates and redesigns
existing products to adapt to changing consumer demands,
technological advancements and product introductions by
competitors.

Marketing and Sales Distribution

We market our products under three distinctive
brands. Products are marketed under our name, The First
Years®, and we license Winnie the Pooh® and Mickey
Mouse® and other related characters from Disney
Enterprises, Inc. and Sesame Street® characters from Sesame
Workshop.

Our products are sold to approximately 880
customers in more than 40 countries. Our customer base includes
mass merchants, national variety and drug stores, supermarkets,
wholesale clubs, convenience stores, toy specialty stores,
wholesale distributors, department stores, internet-based
retailers, mail order catalogs and catalog stores. Major
customers include Wal*Mart, Toys R Us, Target,
Kmart, Sears, J.C. Penney, Baby Depot at Burlington Coat
Factory, Mothercare UK Ltd., Zellers, Rite Aid,
Albertsons, Peytons, Eckerd Drug, Kohls, Walgreens,
Meijers, Argos, Wakefern Food, Big Lots Stores and Ahold.

We market our products in the United States and
Canada through our sales organization, which is comprised of an
internal sales staff and a network of independent sales
representatives. Our sales management is responsible for the
development and training of independent sales representatives.
We conduct training at our headquarters and sales offices
throughout the United States. We have sales offices in New
Jersey, Missouri, Arkansas and California.

In Europe, the Middle East and Africa, our
internal sales staff sells our products from our sales office in
Cirencester, England, which is headed by our Vice President
& General Manager  Europe, Africa, and Middle
East. This staff also manages a network of foreign distributors
and independent sales representatives. In Central and South
America, Australia and the Pacific Rim, our internal sales staff
sells our products through a network of foreign distributors and
independent sales representatives. In 2002, our continued focus
on key customers in principal international markets resulted in
expanded distribution and sales.

During 2002, Wal*Mart, Toys R Us, and
Target accounted for approximately 24%, 21%, and 17% of our net
sales, respectively. A significant reduction in purchases by any
one of these customers could have a material adverse effect on
our business. Additionally, in 2002 our top ten customers
collectively accounted for 74% of net sales.

In accordance with industry practice, we grant
credit to our customers at the time of purchase. Our practice is
not to accept returned goods unless authorized by management of
our sales organization. Returns

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result primarily from damage or shipping
discrepancies. Returns are reflected as a reduction of sales and
accounts receivable. In addition to actual returns, an estimate
of future returns is made based upon historical trends.


We ship products according to the delivery
schedules specified by our customers. Orders are subject to
cancellation or change any time prior to shipment. The size of
our order backlog is not a material aspect of our business. The
dollar amount of current backlog is not considered to be a
reliable indicator of future sales volume.

Licensed Character, Trademarked, or
Copyrighted Materials

We have several agreements with third parties
that permit us to utilize licensed characters and other
trademarked or copyrighted material. These agreements contain
provisions for the payment of guaranteed or minimum royalty
amounts. Total required minimum royalty payments were $3,890,000
and $4,439,000 for the periods ended December 31, 2002 and
2001, respectively. In 2002, we renewed a major licensing
agreement with Disney Enterprises, Inc., covering sales in the
United States, which will expire at the end of 2004 with an
option to renew until the end of 2005 as long as certain
conditions are met. Sales of products licensed under this major
agreement with Disney Enterprises, Inc. amounted to 21% of our
total net sales for the year ended December 31, 2002.

Manufacturing and Sources of Supply

We do not own or operate manufacturing
facilities. In 2002, all of our products were manufactured using
either our custom tools such as molds and dies, or to our
specifications by approximately 20 manufacturers located in the
United States, Canada, China, Taiwan, and Thailand.
Approximately 74% of all of our products sold in 2002 were
manufactured in Asia, primarily in China. Because of the
significantly higher shipping costs from the Far East, most of
our furnishings and other large products were manufactured in
2002 by suppliers in the United States and Canada.

Generally, to make each product we use one
manufacturer from our supplier base. Due to the high cost of
developing duplicate tooling, predominantly molds and dies, most
of our products are made using one set of tools; however, we
have developed duplicate tools for several of our key and
high-volume products.

In 2002, our largest supplier, located in China,
manufactured products that represented approximately 13% of our
net sales. We have not entered into long-term contractual
arrangements with any of our suppliers.

The principal raw materials used in the
production and sale of our products are resin-based plastics and
certain natural materials, including paperboard and cloth. The
manufacturers who deliver completed products to us purchase the
raw materials. Because the primary source used in many
manufactured plastics is petroleum, the cost of plastic for use
in our products varies to a great extent with the price of
petroleum. While all raw materials are purchased from outside
sources, we are not dependent upon a single supplier in any of
our operations for any material essential to our business or not
otherwise commercially available to us. We have been able to
obtain an adequate supply of raw materials, and no shortage of
any materials is anticipated.

We purchase our products from suppliers primarily
in United States dollars and Hong Kong dollars, which are
currently pegged to the United States dollar. We also purchase a
small percentage of our products in Canadian dollars. Generally,
our suppliers ship the products on the basis of open credit
terms or upon our acceptance of the products.

Because of our substantial reliance on suppliers
in foreign countries, we must 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, we may
be required to carry significant amounts of inventory to meet
rapid delivery requirements of customers and to ensure a
continuous allotment of goods from suppliers.

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

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time, the United States Congress has attempted to
impose additional restrictions on trade with China. China gained
Permanent Normal Trade Relations (PNTR) status with the United
States when it acceded to the World Trade Organization,
effective January 1, 2002. The United States imposes the
lowest applicable tariffs on exports from PNTR countries to the
United States. In order to maintain its WTO membership, China
has agreed to several requirements, including the elimination of
caps on foreign ownership of Chinese companies, lowering tariffs
and publicizing its laws. No assurance can be given that China
will meet these requirements and remain a member of the WTO, or
that its PNTR trading status will be maintained. If Chinas
WTO membership is withdrawn or if PNTR status for goods produced
in China were removed, there could be a substantial increase in
tariffs imposed on goods of Chinese origin entering the
United States, including those manufactured for us, which
would adversely impact our sales and cost of sales. The European
Community has enacted a quota and tariff system with respect to
the importation into the European Community of certain toy
products originating in China. Therefore, we continue to
evaluate alternative sources of supply outside of China.


Facilities and Distribution

We distribute our products in the United States
from our warehouse facility in Avon, Massachusetts and from a
public warehouse in Ontario, California. Products distributed in
Canada are handled from a public warehouse in Mississauga,
Ontario. In Europe and the United Kingdom, we distribute our
products from public warehouses in Ghent, Belgium and Widnes,
England. Unaffiliated warehouse operators provide public
warehousing services to us.

Seasonality

Our business is not subject to substantial
seasonal fluctuations.

Competition

The juvenile products industry is highly
competitive and is characterized by the frequent introduction of
new products and includes numerous domestic and foreign
competitors, some of which are substantially larger and have
greater financial and other resources than we do. We compete
with a number of different competitors, depending on the product
category, and compete against no single company across all
product categories. Our competition includes large, diversified
health care product companies, specialty infant products makers,
toy makers, and specialty health care products companies. We
compete principally on the basis of brand name recognition,
product quality and price/ value relationship. In addition, we
believe that we compete favorably with respect to product
design, customer service, and breadth of product line.

Trademarks, Patents, and Copyrights

We believe that the intellectual property we own
or license is an integral part of our business and that it
complements our design expertise, innovative talents, and
marketing capabilities across all product categories. Our
principal trademarks, THE FIRST YEARS® and THE FIRST YEARS
and Design®, are registered in the United States and in a
number of foreign countries throughout the world. In total, we
have approximately 315 registrations and pending applications
for our various trademarks. We also license other trademarks for
certain of our products and product categories, some of which
are registered in the United States and in various foreign
countries.

We also own utility patents and design patents in
the United States and utility patents, design patents, and
design registrations in certain foreign countries, as well as
pending applications in the United States and foreign countries.
In total, we own approximately 150 patents and applications.
Although we believe this property is important to our business,
we do not believe that any single patent, design patent, or
design registration, including any which may be issued on a
pending application, is material to our business. No assurance
can be made that our patents, design patents, or design
registrations, including those that may be issued on pending
applications, offer any significant competitive advantage for
our products.

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Employees

Our people  the employees of The First
Years who work with our customers, suppliers and other key
constituents  are critical to our success. As of
December 31, 2002, we employed 192 full-time employees, of
whom five are senior executive officers, and 9 part-time
employees. All employees are in general management, sales,
marketing, product development, materials, purchasing, quality
assurance, data processing, finance, legal, administration and
clerical, and warehousing positions. None of our employees are
represented by a union and we have not experienced any work
stoppages. We believe that relations with employees are very
good.

Government Regulations

Our products are subject to various laws, rules
and regulations, including the Federal Consumer Product Safety
Act, the Federal Hazardous Substances Act, as amended, the
Federal Flammable Fabrics Act, the Child Safety Protection Act,
and the regulations promulgated under each such Act (the Acts).
In addition, our nursery monitors are subject to the regulations
of the Federal Communications Commission and our medical devices
and drug products are subject to the regulations of the Food and
Drug Administration (FDA). The Acts empower the Consumer Product
Safety Commission (CPSC) to protect children from hazardous toys
and other articles. The CPSC has the authority to exclude from
the market products that are found to be hazardous and to
require a manufacturer to repurchase such products under certain
circumstances. The CPSCs determination is subject to court
review. In addition, the Federal Flammable Fabrics Act empowers
the CPSC to regulate and enforce flammability standards for
fabrics used in consumer products. Similar laws and regulations
exist in various international markets in which our products may
be sold. While we oversee a quality control program designed to
ensure that our products comply with laws and regulations, no
assurance can be made that defects will not be found in our
products, resulting in product liability claims, recalls of a
product, loss of revenue, diversion of resources, damage to our
reputation or increased warranty costs, any of which could have
a material effect on our business, financial condition, and
results of operation.






|        |           
|------- | ----------
|Item 2. | Properties

We own and manage our executive and
administrative offices and East Coast warehouse located within a
124,000 square-foot facility at One Kiddie Drive, Avon,
Massachusetts. We lease from unrelated third parties our sales
offices in New Jersey, Missouri, Arkansas, California, and
Cirencester, England.

We use public warehouses in Mississauga, Canada,
Ontario, California, Ghent, Belgium, and Widnes, England for
product distribution.

All owned and leased properties are in good
condition and sufficient to handle our current facility needs
for at least the next few years. We believe that we could lease
additional property at favorable rates.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are involved in legal proceedings which have
arisen in the ordinary course of business. We believe that there
are no claims or litigation pending, the outcome of which could
have a material adverse effect on our financial condition or
operating results.






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

No matter was submitted during the fourth quarter
of the fiscal year covered by this report to a vote of our
security holders.

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PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market Information

Our common stock is traded on the Nasdaq National
Market under the symbol KIDD. Below is a summary of
the high and low sales prices of our common stock for each
quarter of 2002 and 2001 as reported by Nasdaq.

2002

|        |  |     |        |      |  |   |        | 
|------- |  | --- | ------ | ---- |  | - | ------ | 
|Quarter |  | Low |        | High
|        |  |     |        |     
|First   |  | $   | 11.560 |      |  | $ | 13.970 | 
|Second  |  | $   | 10.360 |      |  | $ | 12.490 | 
|Third   |  | $   | 9.600  |      |  | $ | 11.200 | 
|Fourth  |  | $   | 6.900  |      |  | $ | 10.990 | 

2001

|        |  |     |       |      |  |   |        | 
|------- |  | --- | ----- | ---- |  | - | ------ | 
|Quarter |  | Low |       | High
|        |  |     |       |     
|First   |  | $   | 7.813 |      |  | $ | 10.250 | 
|Second  |  | $   | 9.500 |      |  | $ | 12.200 | 
|Third   |  | $   | 9.700 |      |  | $ | 11.600 | 
|Fourth  |  | $   | 8.240 |      |  | $ | 12.800 | 

These prices reflect high and low intraday sales
prices for our common stock each quarter. They represent
inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.

Dividend Policy

In 2002, we raised our cash dividend on our
common stock to $0.10 per share, which was paid on June 15,
2002. In 2001, we paid cash dividends on our common stock in the
amount of $0.06 per share, which were paid on June 15,
2001. We currently expect that we will pay cash dividends in the
future. However, the declaration and payment of any such cash
dividends in the future will depend upon our earnings, financial
condition, capital needs, and other factors deemed relevant by
the Board of Directors.

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Approximate Number of Equity Security
Holders

As of March 12, 2003, we had approximately
161 holders of record of our common stock.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                          |  |      |             |      |  |      |             |      |  |      |             |  |  |   |             |  |  |   |             | 
|--------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- |  |  | - | ----------- | 
|                                                          |  | 2002 |             | 2001 |  | 2000 |             | 1999 |  | 1998
|                                                          |  |      |             |      |  |      |             |      |  |     
|Selected Income Statement Data:                           |  |      |             |      |  |      |             |      |  |      |             |  |  |   |             |  |  |   |             | 
|Net sales*                                                |  | $    | 134,391,487 |      |  | $    | 125,783,770 |      |  | $    | 128,753,574 |  |  | $ | 130,367,749 |  |  | $ | 126,313,013 | 
|Cost of products sold                                     |  |      | 88,281,741  |      |  |      | 83,777,994  |      |  |      | 85,799,934  |  |  |   | 86,811,017  |  |  |   | 86,575,470  | 
|Selling, general and administrative expenses*             |  |      | 32,790,120  |      |  |      | 32,073,559  |      |  |      | 29,210,337  |  |  |   | 28,854,239  |  |  |   | 26,770,250  | 
|Interest expense                                          |  |      |            |      |  |      |            |      |  |      |            |  |  |   |            |  |  |   |            | 
|Interest income                                           |  |      | 134,089     |      |  |      | 664,071     |      |  |      | 743,260     |  |  |   | 582,640     |  |  |   | 590,822     | 
|Income before income taxes                                |  |      | 13,453,715  |      |  |      | 10,596,288  |      |  |      | 14,486,563  |  |  |   | 15,285,133  |  |  |   | 13,558,115  | 
|Provision for income taxes                                |  |      | 5,516,000   |      |  |      | 4,344,500   |      |  |      | 5,835,600   |  |  |   | 6,190,500   |  |  |   | 5,545,300   | 
|Net income                                                |  |      | 7,937,715   |      |  |      | 6,251,788   |      |  |      | 8,650,963   |  |  |   | 9,094,633   |  |  |   | 8,012,815   | 
|Basic earnings per share                                  |  | $    | 0.97        |      |  | $    | 0.68        |      |  | $    | 0.91        |  |  | $ | 0.89        |  |  | $ | 0.78        | 
|Diluted earnings per share                                |  | $    | 0.95        |      |  | $    | 0.67        |      |  | $    | 0.90        |  |  | $ | 0.87        |  |  | $ | 0.75        | 
|Dividends paid per share                                  |  | $    | 0.10        |      |  | $    | 0.06        |      |  | $    | 0.06        |  |  | $ | 0.06        |  |  | $ | 0.06        | 
|Basic weighted average number of shares
    outstanding   |  |      | 8,200,624   |      |  |      | 9,151,540   |      |  |      | 9,500,726   |  |  |   | 10,226,470  |  |  |   | 10,338,857  | 
|Diluted weighted average number of shares
    outstanding |  |      | 8,368,882   |      |  |      | 9,304,272   |      |  |      | 9,619,928   |  |  |   | 10,402,297  |  |  |   | 10,669,503  | 
|Selected Balance Sheet Data:                              |  |      |             |      |  |      |             |      |  |      |             |  |  |   |             |  |  |   |             | 
|Total assets                                              |  | $    | 75,751,900  |      |  | $    | 65,275,761  |      |  | $    | 71,694,380  |  |  | $ | 67,913,856  |  |  | $ | 69,275,895  | 
|Long-term debt                                            |  |      |            |      |  |      |            |      |  |      |            |  |  |   |            |  |  |   |            | 
|Stockholders equity                                      |  |      | 54,616,590  |      |  |      | 47,228,403  |      |  |      | 54,902,789  |  |  |   | 51,702,426  |  |  |   | 52,647,404  | 
|Stockholders equity per share                            |  | $    | 6.53        |      |  | $    | 5.08        |      |  | $    | 5.71        |  |  | $ | 4.97        |  |  | $ | 4.93        | 



---



|  |                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 1998  2001 amounts adjusted to reflect
    certain reclassifications in order to conform to 2002
    presentation. See Item 7, Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations   Recent Accounting Pronouncements.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking
Statements

Included in this release are certain
forward-looking statements, involving risks and
uncertainty, which are covered by the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
statements are based on managements current expectations
and are subject to certain factors, risks and uncertainties that
may cause actual results, events and performance to differ
materially from those referred to or implied by such statements.
In addition, actual future results may differ materially from
those anticipated, depending on a variety of factors, which
include, but are not limited to, the success of our market
research identifying new product opportunities, trends in sales
of The First Years® brand and licensed and specialty
products, the continued success of new enhancements to our brand
image, continued success of new Disney character refreshed
graphics, successful introduction of new products, continued
product innovation, growth in international sales, our ability
to attract and retain key personnel, conditions affecting
consumer spending, including uncertainties relating to global
political conditions such as terrorism and the war with Iraq,
our relationship with our manufacturers, and sales and earnings
results. Information with respect to important factors that
should be considered is contained in the Factors That May
Affect Financial Condition and Future Results in this
Report on Form 10-K. Readers are cautioned not to place
undue reliance on these

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forward-looking statements, which speak only as
of the date hereof. We do not intend to update any of the
forward-looking statements after the date of this release to
conform these statements to actual results or to changes in our
expectations, except as may be required by law.


Critical Accounting Policies and
Estimates

This discussion and analysis of our financial
condition and results of operations is based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues,
expenses, and related notes. Some of these estimates require
difficult, subjective and/or complex judgments about matters
that are inherently uncertain and, as a result, actual results
may differ from those estimates. Due to the judgment and
estimation involved, the following summarized accounting
policies and their application are considered to be critical to
understanding the business operations, financial condition, and
results of operations of The First Years.

Revenue Recognition In accordance with Staff Accounting
Bulletin No. 101, we recognize revenue when products are
shipped or delivered and substantial risks of ownership
transfers to the customer, a firm sales agreement is in place,
and collectibility of the fixed or determinable sales price is
reasonably assured. Common to our industry, customers may be
authorized to return selected products and we reduce sales and
accounts receivable for actual returns and estimate future
returns based on historical trends and information available to
us, including the pattern of returns immediately following the
reporting period. We also maintain allowances for doubtful
accounts for estimated losses resulting from the inability of
our customers to make required payments. If the financial
condition of our customers deteriorates, resulting in an
impairment of their ability to make payments, additional
allowances may be required.

Inventories Inventories, consisting of finished
goods, unpackaged components, and supplies, are stated at the
lower of cost or market with cost determined using the first-in,
first-out method. We make certain obsolescence and other
assumptions to adjust inventory based on historical experience
and current information. We write down inventory for estimated
obsolete or unmarketable inventory equal to the difference
between the costs of inventory and estimated market value, based
upon assumptions about future demand and market conditions. In
the event of a write down of inventory, we also review molds
associated with those products to determine whether there has
been a significant impairment to the carrying value of the
asset. If the carrying value of these assets is considered not
to be recoverable, such assets are written down as appropriate.
These assumptions, although consistently applied, can have a
significant impact on current and future operating results and
financial position.

Sales Incentives Sales incentives offered to customers
to promote the sales of our products include costs related to
cooperative advertising programs, promotions, slotting fees or
buydowns, and certain rebates. In determining these costs, we
reflect activity and make estimates of certain costs of
promotional activity based on historical arrangements and
information available to us. Costs associated with sales
incentives are reflected as a reduction of revenue when
recognized.

For further information concerning accounting
policies refer to Note 1 of our Consolidated Financial
Statements.

Results of Operations

Year Ended December 31, 2002 Compared to
Year Ended December 31, 2001

We reported 2002 consolidated net sales of
$134.4 million, an increase of $8.6 million or 7%, as
compared to net sales of $125.8 million in 2001. Despite
general economic weakness and the strength of private label
programs in some large retailers, our multi-year program to
improve product development and marketing processes and
organization positively impacted our growth in net sales. In
2002, net sales of The First Years brand products increased 9%
due to new product development efforts and solid sales in a
number of existing key items, including the Hands Free
Gate, 4-Stage Bath System, 4-Stage
Reclining Feeding Seat, and

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products in our Take & Toss
program. After a number of years of substantial decline, net
sales of licensed and specialty products increased by 2% as a
result of successful new licensed product programs introduced
into key retail accounts. In addition, we have developed
exclusive, customized programs driven by new products, which
contributed significantly to licensed product sales in 2002.


As a percentage of net sales, sales of licensed
and specialty products decreased to 32% in 2002 from
approximately 33% in 2001. Net sales of The First Years brand
products increased to 68% in 2002 from approximately 67% in 2001
due primarily to the success of key items noted above.
International net sales as a percentage of total net sales
increased to 13% in 2002 from 12% in 2001 primarily due to
improved European, Canadian, and Latin American sales
performance.

Cost of products sold in 2002 was
$88.3 million, an increase of $4.5 million or 5%, as
compared to $83.8 million in 2001. As a percentage of net
sales, cost of products sold in 2002 decreased to 66% from 67%
in 2001. The decrease was primarily due to product mix and
product cost reduction programs.

Selling, general, and administrative expenses in
2002 were $32.8 million, an increase of $0.7 million,
or 2%, as compared to $32.1 million in 2001. This increase
was primarily due to an increase in salaries and related costs
associated with infrastructure building in marketing and product
development, partially offset by cost containment measures
affecting general expenditures and a reduction in our bad debt
expense. As a percentage of net sales, selling, general, and
administrative expenses decreased to 24% in 2002 from
approximately 26% in 2001.

Income tax expense as a percentage of pretax
income was 41% in 2002 and 2001.

Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000

Following the reclassification of sales
incentives to conform with the current year financial
presentation, 2001 consolidated net sales were
$125.8 million, a decrease of $3.0 million or 2%, as
compared to net sales of $128.8 million in 2000. Overall,
net sales were affected by general economic weakness, private
label programs by some large retailers, the impact of the events
of September 11th on consumers and retailers, and inventory
reduction adjustments made by certain major customers. As a
result, net sales of The First Years brand products decreased by
1%. Net sales of licensed and specialty products declined by 5%.

As a percentage of net sales, sales of licensed
and specialty products decreased to 33% in 2001 from
approximately 34% in 2000. Net sales of The First Years brand
products increased to 67% in 2001 from approximately 66% in 2000
due primarily to new product introductions. International net
sales as a percentage of total net sales increased to 12% in
2001 from 11% in 2000 primarily due to weaker domestic sales and
improved European and Canadian sales programs.

Cost of products sold in 2001 was
$83.8 million, a decrease of $2.0 million or 2%, as
compared to $85.8 million in 2000. The decrease was
primarily due to product mix and product cost reduction
programs. As a percentage of net sales, cost of products sold in
both 2001 and 2000 was 67%.

Selling, general, and administrative expenses in
2001 were $32.1 million, an increase of $2.9 million,
or 10%, as compared to $29.2 million in 2000. This increase
was primarily due to increased selling and marketing
expenditures, and to salaries and related costs associated with
building our infrastructure for future growth and development,
and increased bad debt expenses related to the write-off of
Kmart receivables. As a percentage of net sales, selling,
general, and administrative expenses increased to 26% in 2001
from approximately 23% in 2000.

Income tax expense as a percentage of pretax
income increased to 41% in 2001 from 40% in 2000 due to
state-related tax increases.

Liquidity and Capital Resources

We believe our ability to generate cash from
operations to reinvest in our business is one of our fundamental
financial strengths. We anticipate that our operating activities
in 2003 will continue to provide us with cash flows to assist in
our business expansion and to meet our financial commitments.

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Our cash and cash equivalents increased to
$22.0 million at December 31, 2002, from
$13.3 million at December 31, 2001. The increase
resulted primarily from $13.8 million provided by operating
activities, offset by $4.6 million and $0.6 million
used in investing and financing activities, respectively.

Net cash of $13.8 million provided by
operating activities consisted primarily of $11.2 million
from net income adjusted for non-cash items and
$2.6 million provided by changes in working capital and
other activities. Net cash provided by changes in working
capital and other activities resulted primarily from a decrease
in inventories and prepaid expenses, and from increases in
accounts payable and accrued royalties, partly offset by
increases in accounts receivable. Days sales outstanding were 53
and 54 for 2002 and 2001, respectively. Inventory turns were 4.8
and 4.3 in 2002 and 2001, respectively.

Net cash of $4.6 million used in investing
activities resulted from capital expenditures, net of disposals.
Capital expenditures in 2002 consisted primarily of additions to
molds for new production molds, building improvements,
machinery, and furniture and equipment related to computer
hardware and software.

Net cash of $0.6 million used in financing
activities consisted of the payment of dividends to stockholders
and common stock repurchases, partially offset by the proceeds
on issuance of common stock under our stock option plans.

Estimated uses of cash in 2003 include capital
expenditures for building, machinery and molds, and equipment of
approximately $4  $5 million. We expect to fund
expenditures for capital requirements as well as liquidity needs
from a combination of available cash balances, internally
generated funds, and financing arrangements. We have an
unsecured line of credit of $10 million, which is subject
to annual renewal at the option of the bank. Any amounts
outstanding under the line are payable upon demand by the bank.
During 2002 and 2001, we had no borrowings under the line of
credit and as of December 31, 2002 there were no balances
outstanding. We believe we will be able to renew our line of
credit under similar terms.

Contractual Obligations

The following table provides a summary of our
principal contractual obligations at December 31, 2002.

|                         |  |       |            |                        |  |             |           |             |  |         |           |  |  |  |   |  |  |  |   | 
|------------------------ |  | ----- | ---------- | ---------------------- |  | ----------- | --------- | ----------- |  | ------- | --------- |  |  |  | - |  |  |  | - | 
|                         |  |       |            |                       
|                         |  |       |            | Payments due by period
|                         |  |       |            |                       
|                         |  |       |            | Less than              |  |             |           | More than  
|Contractual Obligations  |  | Total |            | 1 Year                 |  | 1 - 3 Years |           | 3 - 5 Years |  | 5 Years
|                         |  |       |            |                        |  |             |           |             |  |        
|Minimum Royalty Payments |  | $     | 8,188,000  |                        |  | $           | 4,556,000 |             |  | $       | 3,632,000 |  |  |  |  |  |  |  |  | 
|Purchase Obligations     |  |       | 1,439,800  |                        |  |             | 1,439,800 |             |  |         |          |  |  |  |  |  |  |  |  | 
|Employee Agreement       |  |       | 696,150    |                        |  |             | 397,800   |             |  |         | 298,350   |  |  |  |  |  |  |  |  | 
|                         |  |       |            |                        |  |             |           |             |  |         |           |  |  |  |   |  |  |  |   | 
|                         |  | $     | 10,323,950 |                        |  | $           | 6,393,600 |             |  | $       | 3,930,350 |  |  |  |  |  |  |  |  | 
|                         |  |       |            |                        |  |             |           |             |  |         |           |  |  |  |   |  |  |  |   | 

Dividends

A cash dividend of $0.10 per share and $0.06 per
share of common stock was paid in June of 2002 and 2001,
respectively. We currently expect sufficient cash flow in 2003
to continue our current dividend policy.

Special Purpose Entities

During the years ended December 31, 2002 and
2001, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance, variable interest or special
purpose entities, which would have the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, we are not exposed to any financing,
liquidity, market or credit risk that could arise if we had
engaged in such relationships.

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Inflation and Changing Prices

Inflation has not had a material effect on our
operating results during recent periods.

Recent Accounting Pronouncements

In 2001, the Emerging Issues Task Force
(EITF) reached consensus on Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a
Customer. The consensus in EITF No. 01-09 addresses
the income statement classification of various types of sales
incentives, including discounts, consumer coupons, rebates, and
free products as well as slotting fees, cooperative
advertising arrangements and buydowns. The consensus
requires these sales incentives be classified as a reduction of
sales, versus a selling, general, and administrative expense.

We adopted the consensus in EITF Issue
No. 01-09 on January 1, 2002. EITF Issue
No. 01-09 was issued to codify and reconcile EITF
Nos. 00-14, 00-22, and 00-25 which address the accounting
for consideration given by a vendor to a customer. With the
adoption of this EITF in 2002, sales incentives of approximately
$6.3 million, and $4.7 million for years ended
December 31, 2001, and 2000 respectively, were reclassified
as a reduction to net sales and a corresponding reduction to
selling, general, and administrative expenses in the
consolidated statements of income. The adoption of this
consensus had no impact on operating income and net income.

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 was effective for us as of
January 1, 2002. SFAS No. 142 supersedes APB Opinion
No. 17, Intangible Assets, and requires that
goodwill and intangible assets with indefinite lives no longer
be amortized, but reviewed for impairment at least annually.
Intangible assets that are not deemed to have an indefinite life
will continue to be amortized over their useful lives. The
adoption of this statement did not have a material impact on our
consolidated statements of income, consolidated financial
position or results of operations.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. The
statement retains the previously existing accounting
requirements related to the recognition and measurement of the
impairment of long-lived assets to be held and used while
expanding the measurement requirements of long-lived assets to
be disposed of by sale to include discontinued operations. It
also expands the previously existing reporting requirements for
discontinued operations to include a component of an entity that
either has been disposed of or is classified as held for sale.
We implemented SFAS No. 144 on January 1, 2002. The
adoption of this statement did not have a material impact on our
consolidated financial position or results of operations.

In July 2002, FASB issued SFAS No. 146,
Accounting For Costs Associated with Exit or Disposal
Activities. The statement requires costs associated with
exit or disposal activities to be recognized when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. The requirements of SFAS No. 146 are
effective for exit or disposal activities initiated after
January 1, 2003.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure  an amendment
of SFAS No. 123, which provides optional transition
guidance for those companies electing to voluntarily adopt the
accounting provisions of SFAS No. 123. In addition, the
statement mandates certain new disclosures that are incremental
to those required by SFAS No. 123. We will continue to
account for stock-based compensation in accordance with APB
No. 25. As such, we do not expect this standard to have a
material impact on our consolidated financial position or
results of operations. We have adopted the disclosure-only
provisions of SFAS No. 148 as of December 31, 2002.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation for Variable Interest Entities,
an Interpretation of ARB No. 51 which requires all
variable interest entities (VIEs) to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that
holds the majority of the beneficial interest in the VIE. In
addition, the interpretation expands the disclosure requirements
for both variable interest entities that are consolidated as
well as VIEs from which the entity is the holder of a
significant amount of

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beneficial interests, but not the majority. FIN
46 is effective for all new VIEs created or acquired after
January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after
June 15, 2003. We are evaluating the effect that the
adoption of FIN 46 will have on our results of operations and
financial condition. However, as we are not involved in any
special purpose entities, we do not anticipate that the effect
of adopting this interpretation will be material to our
consolidated statements of income, consolidated financial
position or results of operations.


Factors That May Affect Financial Condition
and Future Results

The assumptions, risks and uncertainties
included in this section are not exclusive. Other sections of
this report may include additional factors, which could
adversely impact our business and financial performance. We
operate in a very competitive environment. New risk factors
emerge from time to time and management cannot predict all such
risk factors, nor can it assess the impact of all such risk
factors on our business or the extent to which any factor or
combination of factors may cause actual results to differ
materially from those contained in any forward-looking
statements. See Cautionary Note Regarding Forward-Looking
Statements.

If we do not make timely introductions to the
market of new and innovative products, we may not be able to
maintain or improve our market share and keep pace with our
competitors.

Our growth depends in part upon our ability to
create new and innovative products and to introduce new products
to the market in a timely fashion. We may not continue to
generate new product ideas or successfully introduce such
products to the market in a timely fashion. Additionally, our
new products may not be well received by retailers or consumers.
Our future growth also depends, in part, on the successful
introduction of products that generate sufficient margins. We
may not be able to successfully develop and introduce such
products. In addition, we are under pressure to introduce new
and innovative products more often and more quickly because the
life cycle of many products has shortened over the last several
years. This is due partly to the ability of competitors to
introduce similar products that compete directly with our
successful new products. As a result, the inability to introduce
products in a timely fashion with sufficient margins could have
a material adverse impact on our sales.

We depend on sales of products featuring
licensed characters and if we lose all or a significant part of
our third party licenses, our revenues may decrease.

We derive a significant portion of our revenues
from sales of products featuring characters licensed from other
parties, including Winnie the Pooh® and Mickey Mouse®
and other related characters licensed from Disney Enterprises,
Inc., and Sesame Street characters licensed from Sesame
Workshop, in the United States and in various foreign countries.
These licenses have fixed terms and limit the type of products
that may be sold under the licenses. One of our significant
licensing agreements with Disney Enterprises, Inc. was renewed
in 2002 and will expire at the end of 2004, with an option to
renew until the end of 2005 provided that certain conditions are
met. Sales of products licensed under this license amounted to
21% of our total net sales for the year ended December 31,
2002. While our management expects this licensing agreement to
be renewed at the end of its term, non-renewal of this major
licensing agreement or renewal on terms not favorable to us
could have a material adverse effect on our business.

If we do not enhance our brand recognition,
our product sales may decrease.

A companys brand is very important to
consumers of juvenile products. Some of our competitors have
more recognizable brands than we do. We intend to continue to
enhance our brand recognition with consumers, but we may not be
able to do so. If we do not continue to enhance our brand
recognition, our sales could be negatively impacted.

We must be able to identify and anticipate
changing consumer preferences in order to keep consumers
interested in our products.

The success of our business depends in part on
continued consumer demand for our products and our ability to
anticipate, gauge, and respond to changing consumer demands for
juvenile products in a timely manner. Changes in consumer
preferences, such as consumers abandoning traditional retailers,
shopping on

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the internet, general economic decline, or less
favorable demographic trends related to childbirth, among other
factors, could have a material adverse effect on our sales and
earnings.


We depend heavily on major customers, the loss
of which would have a material adverse effect on our results of
operations.

Our three largest customers, Wal*Mart, Toys
R Us, and Target, accounted for approximately 24%,
21% and 17% of net sales in 2002, respectively. Wal*Mart reduced
its purchases from us from 1999 to 2001. A significant reduction
of purchases by any one of these customers could have a material
adverse effect on our sales. Additionally, our largest ten
customers accounted for 74% of our net sales in 2002. There
could also be a negative effect on our business if any
significant customer becomes insolvent or otherwise fails to pay
its debts. For example, in 2001 the write-off of certain Kmart
receivables as a result of the Kmart bankruptcy had a $.06
negative impact on our 2001 earnings per share.

Conditions affecting the retail industry
generally may affect our results of operations.

We could be materially adversely affected by
conditions in the retail industry in general, including the
continuing consolidation in the retail industry, the resulting
decline in the number of retailers and other cyclical economic
factors. Also, changes in the way retailers and mass
merchandisers do business, such as the creation of competing
private-label brands by retailers, could result in a significant
reduction of purchases of our products by those retailers, which
would have a material adverse effect on our sales and earnings.

We are exposed to economic, political, and
other risks through our worldwide operations.

We are subject to the economic and political
risks inherent in international operations and their impact on
the United States economy in general, including the risks
associated with ongoing uncertainties and political and economic
instability in many countries around the world, including the
war in Iraq, as well as the economic disruption from acts of
terrorism, particularly in the aftermath of the terrorist
attacks of September 11, 2001 and the response to them by
the United States and its allies. These risks include air
transportation disruptions, expropriation, currency controls and
changes in currency exchange rates, tax and tariff rates,
freight rates and social and political unrest.

The market for juvenile products is intensely
competitive and our competitors may be stronger than
we are.

We compete with many other companies, both
domestic and foreign, some of which have diversified product
lines, well-known brands and financial, distribution, and
marketing resources that are substantially greater than ours.
Other major factors that affect competition in the markets in
which we compete include prices for products and placement of
product with major retailers. Also, a major technological
breakthrough or marketing success by a competitor could
adversely affect our competitive position. In addition, in
countries where the juvenile products market is mature,
particularly in the United States, sales growth partly depends
on our ability to increase our market share at the expense of
our competitors. We may not be able to continue to compete
effectively in the juvenile products market.

We do not own or operate our own manufacturing
facilities and any significant problems that we experience with
independent manufacturers could have a material adverse effect
on our results of operations.

We depend upon independent manufacturers to
produce high-quality products for us in a timely manner. We also
rely upon the availability of sufficient production capacity at
our existing manufacturers or the ability to utilize alternative
sources of supply. Timely product introductions are essential in
the juvenile products industry because our orders are cancelable
by customers and, in some cases, subject to monetary penalties
imposed by customers, if agreed-upon delivery dates are not met.
We may not be able to maintain sufficient inventory levels if
our independent manufacturers fail to provide the required
production capacity. A failure by one or more of our significant
manufacturers to meet established criteria for pricing, product
quality or timeliness could also negatively impact our sales and
profitability. We have no long-term manufacturing agreements
with our suppliers and we compete with other juvenile product
companies, including companies that are much larger than us, for
access to production facilities. In 2002, our largest supplier,
which is located in China, manufactured products that
represented approximately 13% of our sales. The loss of or
significant problems with this supplier could have a material
adverse impact on our results of operations.

II-8



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##### Table of Contents



Many of our products are manufactured in China
and we may experience difficulty or increased expense in
shipping these products back into the United States or
Europe.

A substantial portion of our products sold in
2002 was manufactured in Asia. Foreign manufacturing is subject
to a number of risks including transportation delays and
interruptions, the imposition of tariffs, quotas, and other
import or export controls, currency fluctuations,
misappropriation of intellectual property, political and
economic disruptions, and changes in governmental policies. From
time to time, the United States Congress has attempted to impose
additional restrictions on trade with China. China gained
Permanent Normal Trade Relations (PNTR) status with the United
States when it acceded to the World Trade Organization,
effective January 1, 2002. The United States imposes the
lowest applicable tariffs on exports from PNTR countries to the
United States. In order to maintain its WTO membership, China
has agreed to several requirements, including the elimination of
caps on foreign ownership of Chinese companies, lowering tariffs
and publicizing its laws. No assurance can be given that China
will meet these requirements and remain a member of the WTO, or
that its PNTR trading status will be maintained. If Chinas
WTO membership is withdrawn or if PNTR status for goods produced
in China were removed, there could be a substantial increase in
tariffs imposed on goods of Chinese origin entering the United
States, including those manufactured by us, which could
adversely impact our business. The European Community has
enacted a quota and tariff system with respect to the
importation into the EC of certain toy products originating in
China. Although we continue to evaluate alternative sources of
supply outside of China, we may not be able to develop
alternative sources of supply in a timely and cost-effective
manner.

We may have difficulty obtaining sufficient
amounts of a particular product or disposing of excess inventory
if we miscalculate the amount of a product that we will be able
to sell.

Many of our products have relatively long lead
times for design and production of product or are manufactured
by suppliers in foreign countries. As a result, we must commit
to production tooling and to production in advance of orders. If
we fail to accurately forecast consumer demand or if there are
changes in consumer preferences or market demand after we have
made such production commitments, we may encounter difficulty in
filling customer orders or in liquidating excess inventory; may
find that retailers are canceling orders or returning product;
and may have to write off the cost of molds for certain
unsuccessful products, all of which may have a material adverse
effect on our sales, margins, profit, and brand image.

If the cost of the raw materials used in our
products or the cost of transportation of those products
increases, we may not be able to sustain our gross
profits.

Plastic, paperboard, other materials, and
shipping and transportation costs for our products and packaging
constitute significant costs to us. The primary resource used in
most manufacturing plastics is petroleum, and the cost and
availability of plastic for use in our products varies with the
price of petroleum. The cost of transporting our products also
varies with the cost of oil. High transportation costs or the
inability of our suppliers to acquire sufficient plastic,
paperboard, and other materials at reasonable prices could
adversely affect our ability to sustain our gross profit.

Our international sales are significant to us,
and international markets are subject to a number of
risks.

Our international sales in 2002 accounted for
approximately 13% of our total net sales. In foreign markets,
particularly the United Kingdom, France, Germany, and Canada, we
compete against long-established companies with well-known brand
names. In countries where the juvenile products markets are
mature, our sales growth depends on our ability to increase our
market share at the expense of well-established local
competitors. International sales are also subject to economic
downturns and fluctuations in the currencies of foreign
countries, and resulting changes in the buying power of
consumers in foreign markets, particularly in Asia, and Latin
and South America. Although at times we enter into foreign
currency forward exchange contracts in order to hedge our
exposure to currency fluctuations, we may still encounter
unfavorable exchange rates in our transactions with companies in
foreign countries. We may not be successful in expanding or
sustaining our international sales operations.

II-9



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Our products for small children and babies are
subject to stringent government regulations, which we must
comply with or face recalls of our products or fines.

Consumer products in general, and in particular
products for babies and infants, are subject to regulation both
domestically and internationally. In addition, consumer activist
groups put pressure on governments around the world to increase
their regulations regarding the safety of the materials used to
make products for babies and infants, such as certain kinds of
plastic. Our products are subject to the provisions of the
Federal Consumer Safety Act, the Federal Hazardous Substances
Act, the Federal Flammable Fabrics Act, and the Child Safety
Protection Act and the regulations promulgated thereunder. These
laws authorize the Consumer Product Safety Commission (CPSC) to
protect the public from products that present a substantial risk
of injury. The CPSC can require the repurchase or recall by the
manufacturer of articles that are found to be defective, and
impose fines or penalties on the manufacturer, or recommend the
recall of products containing chemicals or other materials
deemed by the CPSC to be harmful to children and infants.
Similar laws exist in some states and cities and in foreign
countries where we market our products. Any recall of our
products could have a material adverse effect on our earnings,
depending on the particular product.

If our products for small children and infants
are faulty, we may be subject to negative publicity and product
liability claims that exceed our insurance coverage.

Our juvenile products are developed for and used
by small children and infants. If our products have safety
problems that we are not aware of or the CPSC recalls a product,
we may experience negative publicity that could adversely impact
our reputation and our sales. Additionally, we could be subject
to product liability suits. We carry product liability insurance
in amounts which management deems adequate to cover risks
associated with this use; however, existing or future insurance
coverage may not be sufficient to cover all product liability
risks.

Our intellectual property is very important to
us and we may face litigation based on challenges to our
intellectual property.

We believe that our intellectual property has
significant value. To our knowledge, there are no pending
material challenges to our intellectual property. However, from
time to time, we have been, and in the future may be, the
subject of litigation challenging our ownership of certain
intellectual property. We may incur substantial costs in
defending such legal actions. Because of the importance of our
intellectual property, our business is subject to the risk of
claims for intellectual property infringement.

If we do not retain our key personnel our
ability to execute our business strategy will be
limited.

Our success depends to a significant extent upon
the continued service of our executive officers and key
management, and our ability to continue to attract, retain, and
motivate qualified personnel. Competition for qualified
personnel can be intense. The loss of the services of key
personnel or the inability to attract and retain additional
qualified personnel could have an adverse effect on our
operations.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

We are exposed to certain market risks, which
include changes in United States and international interest
rates as well as changes in currency exchange rates as measured
against the United States dollar and each other. We attempt to
reduce material risks by using foreign currency forward exchange
contracts and managing our working capital to minimize currency
and interest rate exposure.

Foreign Currency Market Risk

Our international operations are subject to
certain opportunities and risks, including currency
fluctuations. Our international sales in 2002 accounted for 13%
of total net sales. The value of the United States dollar
affects our financial results, and changes in exchange rates may
affect our revenues, gross margins, operating expenses, and
retained earnings as expressed in United States dollars. At
times, we use forward exchange contracts to hedge cash flows
arising from sales denominated in foreign currencies to limit
the impact of currency fluctuations. Principal currencies hedged
include the Euro, the British Pound, and the

II-10



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##### Table of Contents



Canadian dollar. We also attempt to minimize
currency exposure risk through working capital management. In
2002 and 2001, the impact of foreign exchange gains or losses
was not material. We had no outstanding foreign currency forward
exchange contracts as of December 31, 2002 and 2001.


In January 1999, certain member countries of the
European Union established irrevocable, fixed conversion rates
between their currencies and the European Unions common
currency, the Euro. The introduction of the Euro was phased in
over a period ended January 1, 2002, when Euro notes and
coins came into circulation. The replacement of legacy
currencies with the Euro did not have and is not expected to
have a material impact on our operations or Consolidated
Financial Statements.

Interest Rate Risks

Changes in interest rates affect interest income
earned on our cash equivalents and short-term investments,
composed primarily of United States treasury obligations and
short-term money market instruments. We do not attempt to reduce
or eliminate our market exposure to changes in interest rates in
the United States or in international operations.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Financial Statements listed under
Item 15.(a) 1. are included in Part IV of this
Annual Report on Form 10-K.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.

II-11



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##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item will be
included in our definitive proxy statement for the 2003 Annual
Meeting of Stockholders and is incorporated herein by reference.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item will be
included in our definitive proxy statement for the 2003 Annual
Meeting of Stockholders, except that the sections in the
definitive proxy statement entitled Board Compensation
Committee Report on Executive Compensation, Audit
Committee Report and the Stock Performance
Chart shall not be deemed incorporated herein by reference
to this Annual Report on Form 10-K.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and
    Related Shareholder Matters

Stock Option Plans

We have two option plans, the 2002 Amended and
Restated Equity Incentive Plan and the 2002 Amended and Restated
Stock Option Plan for Directors. The following table provides
certain aggregate information with respect to all of the
Companys equity compensation plans in effect as of
December 31, 2002.

|                                                               |  |                     |           |                     |  |                     |       |  |  |  |         | 
|-------------------------------------------------------------- |  | ------------------- | --------- | ------------------- |  | ------------------- | ----- |  |  |  | ------- | 
|                                                               |  |                     |           |                     |  | (C)                
|                                                               |  |                     |           |                     |  | Number of Shares   
|                                                               |  |                     |           |                     |  | Remaining Available
|                                                               |  |                     |           |                     |  | For Future Issuance
|                                                               |  | (A)                 |           |                     |  | Under Equity       
|                                                               |  | Number of Shares to |           | (B)                 |  | Compensation Plans 
|                                                               |  | Be Issued Upon      |           | Weighted Average    |  | (Excluding Shares  
|                                                               |  | Exercise of         |           | Exercise Price of   |  | Reflected in       
|Plan Category                                                  |  | Outstanding Options |           | Outstanding Options |  | Column A)          
|                                                               |  |                     |           |                     |  |                    
|Equity compensation plans approved by
    shareholders (1)     |  |                     | 1,397,507 |                     |  | $                   | 10.90 |  |  |  | 579,069 | 
|Equity compensation plans not approved by
    shareholders (2) |  |                     |          |                     |  |                     |      |  |  |  |        | 
|                                                               |  |                     |           |                     |  |                     |       |  |  |  |         | 
|Totals                                                         |  |                     | 1,397,507 |                     |  | $                   | 10.90 |  |  |  | 579,069 | 
|                                                               |  |                     |           |                     |  |                     |       |  |  |  |         | 

(1)  Includes shares available for
future issuance under our 2002 Amended and Restated Equity
Incentive Plan, generally used for grants to employees. Also
includes shares available under our 2002 Amended and Restated
Stock Option Plan for Directors.

(2)  The Company has no equity
compensation plans not approved by shareholders.

For additional information about these plans,
please see Note 6 of our Consolidated Financial Statements.

Common Stock Ownership of Certain Beneficial
Owners and Management

The information required by this section will be
included in our definitive proxy statement for the 2003 Annual
Meeting of Stockholders and is incorporated by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item will be
included in our definitive proxy statement for the 2003 Annual
Meeting of Stockholders and is incorporated herein by reference.

III-1



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##### Table of Contents








|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

14(a)                            Within
the 90-day period prior to the filing of this Annual Report on
Form 10-K, an evaluation was carried out under the
supervision and with the participation of our management,
including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and the
operation of our disclosure controls and procedures. Based on
that evaluation, our CEO and CFO have concluded that our
disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms and are operating in an
efficient manner.

14(b)                            There
were no significant changes in our internal controls or other
factors that could significantly affect these controls,
including any corrective actions with regard to significant
deficiencies and material weaknesses, subsequent to the date of
their most recent evaluation.

III-2



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PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

15(a) 1.                           Consolidated
Financial Statements

Independent Auditors Report

Consolidated Balance Sheets as of
December 31, 2002 and 2001

Consolidated Statements of Income for the Years
Ended December 31, 2002, 2001, and 2000

Consolidated Statements of Stockholders
Equity for the Years Ended December 31, 2002, 2001, and 2000

Consolidated Statements of Cash Flows for the
Years Ended December 31, 2002, 2001, and 2000

Notes to Consolidated Financial Statements

15(a) 2.                           Schedule II 
Valuation and Qualifying Accounts for the Years Ended
December 31, 2002, 2001, and 2000

Other schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.

15(a) 3.     Exhibits

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                           
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       | Description
|        |       |            
|        | 3.1   |             |  | Restated Articles of Organization of the Company.
    Filed as Exhibit 3.1 to the Companys Registration
    Statement on Form S-1 on October 5, 1995 (File
    No. 33-62673) and incorporated herein by reference.                                                                                                                       
|        | 3.2   |             |  | By-laws of the Company. Filed as
    Exhibit (3)(ii) to the Companys annual report on
    Form 10-K for the period ended December 31, 1999 and
    incorporated herein by reference.                                                                                                                                                     
|        | 4.1   |             |  | Specimen certificate for shares of Common Stock
    of the Company. Filed as Exhibit 4.1 to the Companys
    Registration Statement on Form S-1 (File No. 33-62673)
    and incorporated herein by reference.                                                                                                                            
|        | 4.2   |             |  | Rights Agreement, dated as of November 19,
    2001, between the Company and EquiServe Trust Company, N. A.
    Filed as Exhibit 4.1 to the Companys Registration
    Statement on Form 8-A on November 20, 2001 and
    incorporated herein by reference.                                                                               
|        | 10.1* |             |  | Agreement with the Childrens Television
    Workshop dated July 1, 1996 regarding the licensing of
    Sesame Street characters. Filed as Exhibit (10)(g) to the
    Companys annual report on Form 10-K for the period
    ended December 31, 1996 and incorporated herein by
    reference.                                           
|        | 10.2* |             |  | Letter agreement with Childrens Television
    Workshop dated as of July 1, 1999 regarding the renewal of
    licensing of Sesame Street characters. Filed as
    Exhibit (10)(d) to the Companys annual report on
    Form 10-K for the period ended December 31, 1999 and
    incorporated herein by reference.                       
|        | 10.3* |             |  | Letter agreement with Sesame Workshop dated
    July 1, 2001 regarding the renewal of licensing of Sesame
    Street characters. Filed as Exhibit 10.3 to the
    Companys quarterly report on Form 10-Q for the period
    ended September 30, 2002 and incorporated herein by
    reference.                                           
|        | 10.4* |             |  | Agreement with Disney Enterprises, Inc. dated as
    of August 1, 2000 relating to the licensing of Winnie the
    Pooh, Disney Classics and Disney Standard characters. Filed as
    Exhibit (10)(w) to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 2000 and
    incorporated herein by reference.
|        | 10.5  |             |  | The First Years Inc. 2002 Amended and Restated
    Equity Incentive Plan, filed herewith.                                                                                                                                                                                                                                                 
|        | 10.6  |             |  | The First Years Inc. 2002 Amended and Restated
    Stock Option Plan for Directors, filed herewith.                                                                                                                                                                                                                                       
|        | 10.7  |             |  | Letter Agreement between The First Years Inc. and
    Jerome M. Karp dated August 8, 1999. Filed as
    Exhibit (10)(v) to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 1999, and
    incorporated herein by reference.                                                                             

IV-1



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                                  
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       | Description
|        |       |            
|        | 10.8  |             |  | Employment Agreement between The First Years Inc.
    and Ronald J. Sidman dated September 30, 1999. Filed as
    Exhibit (10)(u) to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 1999, and
    incorporated herein by reference.                          
|        | 10.9  |             |  | Agreement between The First Years Inc. and Bruce
    Baron dated July 10, 1997. Filed as Exhibit (10)(p) to
    the Companys annual report on Form 10-K for the
    period ended December 31, 1998, and incorporated herein by
    reference.                                                   
|        | 10.10 |             |  | Non-Compete Agreement between The First Years
    Inc. and Richard F. Schaub Jr. dated August 29, 2000. Filed
    as Exhibit (10)(m) to the Companys annual report on
    Form 10-K for the period ended December 31, 2000, and
    incorporated herein by reference.                           
|        | 10.11 |             |  | Change of Control Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated August 29, 2000.
    Filed as Exhibit (10)(n) to the Companys annual
    report on Form 10-K for the period ended December 31,
    2000, and incorporated herein by reference.                     
|        | 10.12 |             |  | Promissory Note and Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated September 28,
    2000. Filed as Exhibit (10)(o) to the Companys annual
    report on Form 10-K for the period ended December 31,
    2000, and incorporated herein by reference.                
|        | 10.13 |             |  | Promissory Note and Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated March 21, 2001.
    Filed as Exhibit 10.14 to the Companys Annual Report
    on Form 10-K for the period ended December 31, 2001
    and incorporated herein by reference.                       
|        | 10.14 |             |  | Agreement between The First Years Inc. and James
    A. Connors, Jr. dated May 8, 2000. Filed as
    Exhibit (10)(p) to the Companys annual report on
    Form 10-K for the period ended December 31, 2000, and
    incorporated herein by reference.                                           
|        | 10.15 |             |  | Employee Contract between The First Years Inc.
    and John R. Beals dated September 30, 2002. Filed as
    Exhibit 10.2 to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 2002 and
    incorporated herein by reference.                                    
|        | 10.16 |             |  | Employee Contract between The First Years Inc.
    and Barry Boehme dated January 12, 2003, filed herewith.                                                                                                                                                                                      
|        | 10.17 |             |  | Consumer Products License  Disney
    Properties, dated as of June 4, 2002, between the Company
    and Disney Enterprises, Inc. Filed as Exhibit 10.1 to the
    Companys quarterly report on Form 10-Q for the period
    ending September 30, 2002 and incorporated herein by
    reference.
|        | 21.1  |             |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                                                                                          
|        | 23.1  |             |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                
|        | 99.1  |             |  | Certification of Officers pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                      



---



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| | * | Confidential Treatment has been granted with
    respect to portions of this document by the Securities and
    Exchange Commission.

15(b)     Report
on Form 8-K

No reports on Form 8-K were filed during the
last quarter of the fiscal year covered by this report.

IV-2



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##### Table of Contents






SIGNATURES

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



| |                                                     
| | ----------------------------------------------------
| | THE FIRST YEARS INC.                                
| | _______________________________________ (Registrant)



| |     |                     
| | --- | --------------------
| | By: | /s/ RONALD J. SIDMAN

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | Ronald J. Sidman, Chief Executive
    Officer,       
| | Chairman of the Board of Directors, and
    President

Date: March 28, 2003


| |     |                  
| | --- | -----------------
| | By: | /s/ JOHN R. BEALS

| |                                                         
| | --------------------------------------------------------
| |                                                         
| | John R. Beals, Treasurer and Senior Vice
    President 
| | Finance (Chief Financial Officer and                    
| | Chief Accounting Officer)                               

Date: March 28, 2003


Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                       |  |                                                                               |  |               
|-------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                              |  | Title                                                                         |  | Date          
|                                       |  |                                                                               |  |               
|/s/ RONALD J. SIDMANRonald J. Sidman   |  | Chief Executive Officer, Chairman of the Board of
    Directors and President |  | March 20, 2003
|                                      
|/s/ EVELYN SIDMANEvelyn Sidman         |  | Director                                                                      |  | March 24, 2003
|                                      
|/s/ BENJAMIN PELTZBenjamin Peltz       |  | Director                                                                      |  | March 20, 2003
|                                      
|/s/ FRED T. PAGEFred T. Page           |  | Director                                                                      |  | March 20, 2003
|                                      
|/s/ KENNETH R. SIDMANKenneth R. Sidman |  | Director                                                                      |  | March 20, 2003
|                                      
|/s/ LEWIS M. WESTONLewis M. Weston     |  | Director                                                                      |  | March 20, 2003
|                                      
|/s/ WALKER J. WALLACEWalker J. Wallace |  | Director                                                                      |  | March 25, 2003
|                                      
|/s/ BETH J. KAPLANBeth J. Kaplan       |  | Director                                                                      |  | March 20, 2003
|                                      
|/s/ RICHARD WENZRichard Wenz           |  | Director                                                                      |  | March 20, 2003

IV-3



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##### Table of Contents



CERTIFICATIONS

I, Ronald J. Sidman, certify that:



| |                                                                                
| | -------------------------------------------------------------------------------
| | 1. I have reviewed this Annual Report on
    Form 10-K of The First Years Inc.;



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. Based on my knowledge, this Annual Report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    Annual Report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    Annual Report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this Annual
    Report;                   
|
| | 4. The registrants other certifying
    officer and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officer and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officer and I have indicated in this Annual Report whether there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                     
| | --- | --------------------
| | By: | /s/ RONALD J. SIDMAN

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Ronald J. Sidman                                
| | Chairman, President, and Chief Executive Officer

Date 3/28/03

IV-4



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##### Table of Contents



CERTIFICATIONS

I, John R. Beals, certify that:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this Annual Report on
    Form 10-K of The First Years Inc.;                                                                                                                                                                                                                                                                
|
| | 2. Based on my knowledge, this Annual Report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    Annual Report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    Annual Report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this Annual
    Report;                   
|
| | 4. The registrants other certifying
    officer and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officer and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officer and I have indicated in this Annual Report whether there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                  
| | --- | -----------------
| | By: | /s/ JOHN R. BEALS

| |                                                   
| | --------------------------------------------------
| |                                                   
| | John R. Beals                                     
| | Senior Vice President  Finance and
    Treasurer,
| | (Chief Financial Officer and                      
| | Chief Accounting Officer)                         

Date 3/28/03

IV-5



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##### Table of Contents



THE FIRST YEARS INC.




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND

FINANCIAL STATEMENT SCHEDULE


|                                                                                                                                  |                                                                                                               |      |       |       | 
|--------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ---- | ----- | ----- | 
|                                                                                                                                  |                                                                                                               | Page
|                                                                                                                                  |                                                                                                               |     
|Independent Auditors Report                                                                                                      |                                                                                                               |      | IV-7  |      
|Consolidated Financial Statements:                                                                                                |                                                                                                               |      |       |      
|                                                                                                                                  | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                              |      |       | IV-8  | 
|                                                                                                                                  | Consolidated Statements of Income for the Years
    Ended December 31, 2002, 2001, and 2000                   |      |       | IV-9  | 
|                                                                                                                                  | Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2002,
    2001, and 2000 |      |       | IV-10 | 
|                                                                                                                                  | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001, and 2000               |      |       | IV-11 | 
|                                                                                                                                  | Notes to Consolidated Financial Statements                                                                    |      |       | IV-12 | 
|Financial Statement Schedule II 
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2002, 2001, and 2000 |                                                                                                               |      | IV-22 |      

IV-6



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

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

We have audited the accompanying consolidated
balance sheets of The First Years Inc. and subsidiary as of
December 31, 2002 and 2001, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2002. Our audits also included the financial
statement schedule listed in the Index at Item 15(a) 2.
These financial statements and financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements present fairly, in all material respects, the
financial position of The First Years Inc. and subsidiary as of
December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/s/     DELOITTE
& TOUCHE LLPBoston, Massachusetts 
 March 6, 2003

IV-7



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##### Table of Contents



THE FIRST YEARS INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2001


|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ---------- | ---------- |  | ----------- | ---------- | ---------- | 
|                                                                                                                                                                                |                                                                                                      | 2002                                       |             | 2001      
|                                                                                                                                                                                |                                                                                                      |                                            |             |           
|ASSETS                                                                                                                                                                         
|Current Assets:                                                                                                                                                                 |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                | Cash and cash equivalents (Notes 1
    and 7)                                                        |                                            | $           | 21,989,782 |            |  | $           | 13,310,004 |           
|                                                                                                                                                                                | Accounts receivable (less allowance for doubtful
    accounts of $250,000 in 2002 and 2001) (Note 7) |                                            |             | 21,995,564 |            |  |             | 17,318,497 |           
|                                                                                                                                                                                | Inventories (Note 1)                                                                                 |                                            |             | 16,171,842 |            |  |             | 20,331,823 |           
|                                                                                                                                                                                | Prepaid expenses and other assets                                                                    |                                            |             | 1,631,942  |            |  |             | 1,784,793  |           
|                                                                                                                                                                                | Deferred tax asset (Notes 1 and 3)                                                                   |                                            |             | 2,196,400  |            |  |             | 2,156,500  |           
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total current assets                       |             |            | 63,985,530 |  |             |            | 54,901,617 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|Property, Plant, and Equipment (Note 1):                                                                                                                                        |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                | Land                                                                                                 |                                            |             | 167,266    |            |  |             | 167,266    |           
|                                                                                                                                                                                | Building and improvements                                                                            |                                            |             | 6,692,722  |            |  |             | 5,309,915  |           
|                                                                                                                                                                                | Machinery and molds                                                                                  |                                            |             | 9,395,859  |            |  |             | 7,809,664  |           
|                                                                                                                                                                                | Furniture and equipment                                                                              |                                            |             | 8,478,858  |            |  |             | 7,826,605  |           
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total                                      |             |            | 24,734,705 |  |             |            | 21,113,450 | 
|                                                                                                                                                                                | Less accumulated depreciation                                                                        |                                            |             | 12,968,335 |            |  |             | 10,739,306 |           
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Property, plant, and equipment  net       |             |            | 11,766,370 |  |             |            | 10,374,144 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total Assets                               |             | $          | 75,751,900 |  |             | $          | 65,275,761 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                       
|Current Liabilities:                                                                                                                                                            |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                | Accounts payable and accrued expenses                                                                |                                            | $           | 15,259,792 |            |  | $           | 12,824,321 |           
|                                                                                                                                                                                | Accrued royalty expense (Note 5)                                                                     |                                            |             | 1,361,836  |            |  |             | 819,286    |           
|                                                                                                                                                                                | Accrued selling expenses                                                                             |                                            |             | 3,251,482  |            |  |             | 3,200,951  |           
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total current liabilities                  |             |            | 19,873,110 |  |             |            | 16,844,558 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|Deferred Tax Liability (Notes 1 and 3)                                                                                                                                          |                                                                                                      |                                            | 1,262,200   |            |            |  | 1,202,800   |           
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|Commitments and Contingencies (Notes 5
    and 7)                                                                                                                               |                                                                                                      |                                            |             |            |            |  |             |           
|Stockholders Equity (Notes 4, 6, and
    8):                                                                                                                                   |                                                                                                      |                                            |             |            |            |  |             |           
|Common stock  authorized,
    50,000,000 shares; issued 10,818,464 and 10,748,404;
    outstanding, 8,219,044 and 8,173,867 as of December 31,
    2002 and 2001, respectively |                                                                                                      |                                            | 1,081,846   |            |            |  | 1,074,840   |           
|Paid-in-capital                                                                                                                                                                 |                                                                                                      |                                            | 9,854,632   |            |            |  | 9,277,390   |           
|Retained earnings                                                                                                                                                               |                                                                                                      |                                            | 73,804,237  |            |            |  | 66,686,505  |           
|Less treasury stock at cost, 2,599,420 and
    2,574,537 shares as of December 31, 2002 and 2001,
    respectively                                                              |                                                                                                      |                                            | (30,124,125 | )          |            |  | (29,810,332 | )         
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total stockholders equity                 |             |            | 54,616,590 |  |             |            | 47,228,403 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           
|                                                                                                                                                                                |                                                                                                      | Total Liabilities and Stockholders Equity |             | $          | 75,751,900 |  |             | $          | 65,275,761 | 
|                                                                                                                                                                                |                                                                                                      |                                            |             |            |            |  |             |           

See notes to consolidated financial statements.

IV-8



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##### Table of Contents



THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2002, 2001, AND
2000


|                                                           |         |      |             |      |  |      |             |      |  |   |             |      | 
|---------------------------------------------------------- | ------- | ---- | ----------- | ---- |  | ---- | ----------- | ---- |  | - | ----------- | ---- | 
|                                                           |         | 2002 |             | 2001 |  | 2000
|                                                           |         |      |             |      |  |     
|Net Sales (Notes 1 and 7)                                  |         | $    | 134,391,487 |      |  | $    | 125,783,770 |      |  | $ | 128,753,574 |     
|Cost of Products Sold (Note 1)                             |         |      | 88,281,741  |      |  |      | 83,777,994  |      |  |   | 85,799,934  |     
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|Gross Profit                                               |         |      | 46,109,746  |      |  |      | 42,005,776  |      |  |   | 42,953,640  |     
|Selling, General, and Administrative Expenses
    (Note 1) |         |      | 32,790,120  |      |  |      | 32,073,559  |      |  |   | 29,210,337  |     
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|Operating Income                                           |         |      | 13,319,626  |      |  |      | 9,932,217   |      |  |   | 13,743,303  |     
|Interest Income                                            |         |      | 134,089     |      |  |      | 664,071     |      |  |   | 743,260     |     
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|Income Before Income Taxes                                 |         |      | 13,453,715  |      |  |      | 10,596,288  |      |  |   | 14,486,563  |     
|Provision for Income Taxes (Notes 1
    and 3)             |         |      | 5,516,000   |      |  |      | 4,344,500   |      |  |   | 5,835,600   |     
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|Net Income (Note 10)                                       |         | $    | 7,937,715   |      |  | $    | 6,251,788   |      |  | $ | 8,650,963   |     
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|Earnings Per Share (Notes 1 and 8)                         |         |      |             |      |  |      |             |      |  |   |             |     
|                                                           | Basic   |      | $           | 0.97 |  |      | $           | 0.68 |  |   | $           | 0.91 | 
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     
|                                                           | Diluted |      | $           | 0.95 |  |      | $           | 0.67 |  |   | $           | 0.90 | 
|                                                           |         |      |             |      |  |      |             |      |  |   |             |     

See notes to consolidated financial statements.

IV-9



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##### Table of Contents



THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

YEARS ENDED DECEMBER 31, 2002, 2001, AND
2000


|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |                |           |         |        |   |            |           |   |   |             |             |   | 
|-------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------- | --------- | ---------- | - | -------- | --------- | -------- | - | -------------- | --------- | ------- | ------ | - | ---------- | --------- | - | - | ----------- | ----------- | - | 
|                           |                                                                 |                                                                 |           |            |   |          |           |         
|                           |                                                                 | Common Stock                                                    |           |            |   |          |           |         
|                           |                                                                 |                                                                 |           | Paid-in    |   | Retained |           |         
|                           |                                                                 | Shares                                                          |           | Par Value  |   | Capital  |           | Earnings |   | Treasury Stock
|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |               
|Balance, January 1, 2000   |                                                                 |                                                                 | 9,616,235 |            |   | $        | 1,057,033 |          |   | $              | 8,052,623 |         |        | $ | 52,907,819 |           |   | $ | (10,315,049 | )          
|                           | Stock issued under stock option plans
    (Note 6)              |                                                                 |           | 109,008    |   |          |           | 10,901   |   |                |           | 569,688 |        |   |            |          |   |   |             |            |  
|                           | Tax benefit derived from option compensation
    deduction      |                                                                 |           |           |   |          |           |         |   |                |           | 42,400  |        |   |            |          |   |   |             |            |  
|                           |                                                                 | Compensation charge related to grant of common
    stock option |           |            |  |          |           |          |  |                |           |         | 50,000 |   |            |           |  |   |             |             |  | 
|                           | Dividends paid                                                  |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | (573,299  | ) |   |             |            |  
|                           | Repurchase of 549,478 shares for treasury                       |                                                                 |           | (549,478   | ) |          |           |         |   |                |           |        |        |   |            |          |   |   |             | (5,550,290  | )
|                           | Net income                                                      |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | 8,650,963 |   |   |             |            |  
|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |                |           |         |        |   |            |           |   |   |             |            
|Balance, December 31, 2000 |                                                                 |                                                                 | 9,175,765 |            |   |          | 1,067,934 |          |   |                | 8,714,711 |         |        |   | 60,985,483 |           |   |   | (15,865,339 | )          
|                           | Stock issued under stock option plans
    (Note 6)              |                                                                 |           | 69,067     |   |          |           | 6,906    |   |                |           | 454,379 |        |   |            |          |   |   |             |            |  
|                           | Tax benefit derived from option compensation
    deduction      |                                                                 |           |           |   |          |           |         |   |                |           | 48,300  |        |   |            |          |   |   |             |            |  
|                           | Compensation charge related to grant of common
    stock option |                                                                 |           |           |   |          |           |         |   |                |           | 60,000  |        |   |            |          |   |   |             |            |  
|                           | Dividends paid                                                  |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | (550,766  | ) |   |             |            |  
|                           | Repurchase of 1,070,965 shares for treasury                     |                                                                 |           | (1,070,965 | ) |          |           |         |   |                |           |        |        |   |            |          |   |   |             | (13,944,993 | )
|                           | Net income                                                      |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | 6,251,788 |   |   |             |            |  
|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |                |           |         |        |   |            |           |   |   |             |            
|Balance, December 31, 2001 |                                                                 |                                                                 | 8,173,867 |            |   |          | 1,074,840 |          |   |                | 9,277,390 |         |        |   | 66,686,505 |           |   |   | (29,810,332 | )          
|                           | Stock issued under stock option plans
    (Note 6)              |                                                                 |           | 70,060     |   |          |           | 7,006    |   |                |           | 545,742 |        |   |            |          |   |   |             |            |  
|                           | Tax benefit derived from option compensation
    deduction      |                                                                 |           |           |   |          |           |         |   |                |           | 31,500  |        |   |            |          |   |   |             |            |  
|                           | Dividends paid                                                  |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | (819,983  | ) |   |             |            |  
|                           | Repurchase of 24,883 shares for treasury                        |                                                                 |           | (24,883    | ) |          |           |         |   |                |           |        |        |   |            |          |   |   |             | (313,793    | )
|                           | Net income                                                      |                                                                 |           |           |   |          |           |         |   |                |           |        |        |   |            | 7,937,715 |   |   |             |            |  
|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |                |           |         |        |   |            |           |   |   |             |            
|Balance, December 31, 2002 |                                                                 |                                                                 | 8,219,044 |            |   | $        | 1,081,846 |          |   | $              | 9,854,632 |         |        | $ | 73,804,237 |           |   | $ | (30,124,125 | )          
|                           |                                                                 |                                                                 |           |            |   |          |           |          |   |                |           |         |        |   |            |           |   |   |             |            

See notes to consolidated financial statements.

IV-10



---



##### Table of Contents



THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

YEARS ENDED DECEMBER 31, 2002, 2001, AND
2000


|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |            |           |           |            |  
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | --------------------------------- | ----------------------------------------- | --------- | ---------- | ---------- | ----------- | --------- | ---------- | ----------- | ---------- | --------- | --------- | ---------- | -
|                                                           |                                                                                                  | 2002                                                            |                                   | 2001                                      |           | 2000      
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |           
|Cash Flows from Operating Activities:                      |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           | Net income                                                                                       |                                                                 | $                                 | 7,937,715                                 |           |            | $          | 6,251,788   |           |            | $           | 8,650,963  |          
|                                                           | Adjustments to reconcile net income to net cash
    provided by/(used for) operating activities: |                                                                 |                                   |                                           |           |            |            |             |           |            |             |            |          
|                                                           |                                                                                                  | Depreciation                                                    |                                   |                                           | 2,556,453 |            |            |             | 2,227,389 |            |             |            | 2,019,279 |          
|                                                           |                                                                                                  | Compensation charge related to grant of common
    stock option |                                   |                                           | 0         |            |            |             | 60,000    |            |             |            | 50,000    |          
|                                                           |                                                                                                  | Provision for doubtful accounts                                 |                                   |                                           | 116,825   |            |            |             | 1,217,405 |            |             |            | 87,324    |          
|                                                           |                                                                                                  | Write-down of equipment                                         |                                   |                                           | 616,170   |            |            |             | 552,527   |            |             |            | 415,389   |          
|                                                           |                                                                                                  | Change in deferred income taxes                                 |                                   |                                           | 19,500    |            |            |             | (100,000  | )          |             |            | (105,800  | )        
|                                                           |                                                                                                  | Increase (decrease) arising from working capital
    items:     |                                   |                                           |           |            |            |             |           |            |             |            |           |          
|                                                           |                                                                                                  |                                                                 | Accounts receivable               |                                           |           | (4,793,892 | )          |             |           | 991,527    |             |            |           | 1,973,133 |           
|                                                           |                                                                                                  |                                                                 | Inventories                       |                                           |           | 4,159,981  |            |             |           | (1,888,110 | )           |            |           | 1,909,132 |           
|                                                           |                                                                                                  |                                                                 | Prepaid expenses and other assets |                                           |           | 184,351    |            |             |           | (980,136   | )           |            |           | 595,017   |           
|                                                           |                                                                                                  |                                                                 | Accounts payable                  |                                           |           | 2,435,471  |            |             |           | 1,219,081  |             |            |           | 1,161,932 |           
|                                                           |                                                                                                  |                                                                 | Accrued royalty expense           |                                           |           | 542,550    |            |             |           | (127,337   | )           |            |           | (845,852  | )         
|                                                           |                                                                                                  |                                                                 | Accrued selling expenses          |                                           |           | 50,531     |            |             |           | 177,423    |             |            |           | (25,019   | )         
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           |                                                                                                  |                                                                 |                                   | Net cash provided by operating activities |           |            | 13,825,655 |             |           |            | 9,601,557   |            |           |           | 15,885,498 |  
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|Cash Flows from Investing Activities:                      |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           | Purchase of property, plant, and equipment                                                       |                                                                 |                                   | (4,564,849                                | )         |            |            | (3,437,321  | )         |            |             | (2,562,984 | )        
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|Cash Flows from Financing Activities:                      |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           | Dividends paid                                                                                   |                                                                 |                                   | (819,983                                  | )         |            |            | (550,766    | )         |            |             | (573,299   | )        
|                                                           | Purchase of treasury stock                                                                       |                                                                 |                                   | (47,730                                   | )         |            |            | (13,812,486 | )         |            |             | (5,550,290 | )        
|                                                           | Common stock issued under stock option plans                                                     |                                                                 |                                   | 286,685                                   |           |            |            | 328,778     |           |            |             | 580,589    |          
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           |                                                                                                  |                                                                 |                                   | Net cash used for financing activities    |           |            | (581,028   | )           |           |            | (14,034,474 | )          |           |           | (5,543,000 | )
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|Increase (decrease) in Cash and Cash Equivalents           |                                                                                                  |                                                                 | 8,679,778                         |                                           |           |            | (7,870,238 | )           |           |            | 7,779,514   |           
|Cash and Cash Equivalents, Beginning of Year               |                                                                                                  |                                                                 | 13,310,004                        |                                           |           |            | 21,180,242 |             |           |            | 13,400,728  |           
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|Cash and Cash Equivalents, End of Year                     |                                                                                                  | $                                                               | 21,989,782                        |                                           |           | $          | 13,310,004 |             |           | $          | 21,180,242  |           
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                          
|Supplemental Disclosures of Cash Flow Information          |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           | Cash paid during the year for:                                                                   |                                                                 |                                   |                                           |           |            |            |             |           |            |             |            |          
|                                                           |                                                                                                  |                                                                 |                                   | Interest                                  |           | $          | 0          |             |           | $          | 0           |            |           | $         | 0          |  
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           |                                                                                                  |                                                                 |                                   | Income taxes                              |           | $          | 4,543,347  |             |           | $          | 4,848,491   |            |           | $         | 4,635,972  |  
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                          
|Supplemental Schedule of Noncash Financing
    Activities: |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           
|                                                           | Treasury stock transactions                                                                      |                                                                 | $                                 | 266,063                                   |           |            | $          | 132,507     |           |            | $           | 0          |          
|                                                           |                                                                                                  |                                                                 |                                   |                                           |           |            |            |             |           |            |             |           

See notes to consolidated financial statements.

IV-11



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##### Table of Contents






THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                               
|-- | ----------------------------------------------
|1. | Summary of Significant Accounting
    Policies

Business The First Years Inc., a Massachusetts
corporation (the Company), is a developer, marketer,
and distributor of basic accessories 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 the Companys significant
accounting policies.

Basis of Reporting The consolidated financial statements
include the accounts of The First Years Inc. and the
Companys wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.

Use of Estimates The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America 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. The primary estimates underlying the Companys
consolidated financial statements include allowances for
doubtful accounts, obsolete inventories, and sales returns.
Actual results could differ from those estimates.

Revenue Recognition In accordance with Staff Accounting
Bulletin No. 101, the Company recognizes revenue when
products are shipped or delivered and substantial risks of
ownership transfer to the customer, a firm sales agreement is in
place, and collectibility of the fixed or determinable sales
price is reasonably assured. Common to our industry, customers
may be authorized to return selected products and the Company
reduces sales and accounts receivables for actual returns and
estimates future returns based on historical trends and
information available to us, including the pattern of returns
immediately following the reporting period. Amounts billed to
customers for shipping and handling are included in net sales.

Sales Incentives Costs associated with sales incentives
to promote the Companys products, including costs related
to cooperative advertising programs, slotting fees or buydowns,
and certain rebates, are reflected as a reduction of revenue
when recognized.

Cash and Cash Equivalents Highly liquid investments with a
maturity of three months or less when purchased have been
classified as cash and cash equivalents. 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 and
improvements, 15 to 40 years; machinery and molds, 5 to
10 years; furniture and equipment, 5 to 10 years)
using the straight-line method.

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

Stock-Based Compensation Pursuant to Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, the Company applies the
recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, to its stock options and other
stock-based compensation plans. These plans are more fully
described in Note 6.

In accordance with APB No. 25, compensation
cost for stock options is recognized in income based on the
excess, if any, of the quoted market price of the stock at the
grant date of the award or other measurement date over the
amount an employee must pay to acquire the stock. Generally, the
exercise price for stock

IV-12



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


options granted to employees equals or exceeds
the fair market value of the Companys common stock at the
date of grant, thereby resulting in no recognition of
compensation expense by the Company.

The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation. The estimated fair value of
each of the Companys options is calculated using the
Binomial option-pricing model.

|                                                                                                         |                       |                         |            |      |  |      |            |      |  |   |            |      | 
|-------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | - | ---------- | ---- | 
|                                                                                                         |                       |                        
|                                                                                                         |                       | Years Ended December 31
|                                                                                                         |                       |                        
|                                                                                                         |                       | 2002                    |            | 2001 |  | 2000
|                                                                                                         |                       |                         |            |      |  |     
|Net Income  as reported                                                                                 |                       | $                       | 7,937,715  |      |  | $    | 6,251,788  |      |  | $ | 8,650,963  |     
|Less: Stock-based employee compensation expense
    determined under fair value based method, net of tax |                       |                         | (1,561,779 | )    |  |      | (1,725,582 | )    |  |   | (1,674,438 | )   
|                                                                                                         |                       |                         |            |      |  |      |            |      |  |   |            |     
|Net income  pro forma                                                                                   |                       | $                       | 6,375,936  |      |  | $    | 4,526,206  |      |  | $ | 6,976,525  |     
|                                                                                                         |                       |                         |            |      |  |      |            |      |  |   |            |     
|Earnings per share                                                                                       |                       |                         |            |      |  |      |            |      |  |   |            |     
|                                                                                                         | Basic  as reported   |                         | $          | 0.97 |  |      | $          | 0.68 |  |   | $          | 0.91 | 
|                                                                                                         | Basic  pro forma     |                         | $          | 0.78 |  |      | $          | 0.50 |  |   | $          | 0.73 | 
|                                                                                                         | Diluted  as reported |                         | $          | 0.95 |  |      | $          | 0.67 |  |   | $          | 0.90 | 
|                                                                                                         | Diluted  pro forma   |                         | $          | 0.77 |  |      | $          | 0.49 |  |   | $          | 0.73 | 

Earnings Per Share Basic earnings per share is computed
by dividing net income by the weighted-average number of shares
outstanding. Diluted earnings per share includes the dilutive
effect of stock options.

Product Development Costs Product development costs are expensed
as incurred. During 2002, 2001, and 2000, product development
costs approximated $6,387,000, $4,970,000, and $4,246,000,
respectively.

Foreign Currency Remeasurement The Companys functional currency
is the U.S. dollar. Accordingly, monetary assets and
liabilities of the Companys foreign operations are
remeasured from the respective local currency to the
U.S. dollar using year-end exchange rates while
non-monetary items are remeasured at historical rates. Income
and expense accounts are remeasured at the average rates in
effect during the year. Accordingly, remeasurement adjustments
and transaction gains and losses are recognized as income (loss)
in the year of occurrence and are recorded as a component of
cost of products sold.

Derivative Instruments The Company uses derivative financial
instruments in the form of foreign currency forward exchange
contracts to manage foreign currency risks on future cash flows
emanating from sales denominated in foreign currencies. Foreign
currency forward exchange contracts are used to offset changes
in the fair value of certain assets and liabilities resulting
from transactions with third parties denominated in foreign
currencies. It is the Companys policy to execute such
instruments with creditworthy banks and not to enter into
derivative financial instruments for speculative purposes.

All foreign currency forward exchange contracts
are denominated in currencies of major industrial countries. All
of the foreign currency forward exchange contracts, although
effective hedges from an economic perspective, have not been
designated as hedges for accounting purposes. These contracts
are recognized on the consolidated balance sheet at fair value
with the changes in fair value recognized in the consolidated
statements of income as a component of cost of products sold. We
had no outstanding foreign currency forward exchange contracts
as of December 31, 2002 and 2001.

Fair Value of Financial
Instruments The fair value
of the Companys assets and liabilities which constitute
financial instruments as defined in SFAS No. 107
approximate their recorded value.

Treasury Stock Shares of common stock repurchased by
the Company are recorded at cost as treasury stock and result in
a reduction of stockholders equity in the consolidated
balance sheet.

IV-13



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Reporting Comprehensive Income Comprehensive income was equal to net
income for the years ended December 31, 2002, 2001 and 2000.

Reclassifications Certain reclassifications were made to
prior year amounts in order to conform with the current year
presentation. See New Accounting Pronouncements.

New
Accounting Pronouncements

In 2001, the Emerging Issues Task Force
(EITF) reached consensus on Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a
Customer. The consensus in EITF No. 01-09 addresses
the income statement classification of various types of sales
incentives, including discounts, consumer coupons, rebates, and
free products as well as slotting fees, cooperative
advertising arrangements and buydowns. The consensus
requires these sales incentives be classified as a reduction of
sales, versus a selling, general, and administrative expense.

The Company adopted the consensus in EITF Issue
No. 01-09 on January 1, 2002. EITF Issue
No. 01-09 was issued to codify and reconcile EITF
Nos. 00-14, 00-22, and 00-25 which address the accounting
for consideration given by a vendor to a customer. With the
adoption of this EITF in 2002, sales incentives of approximately
$6.3 million, and $4.7 million for years ended
December 31, 2001, and 2000 respectively, were reclassified
as a reduction to net sales and a corresponding reduction to
selling, general, and administrative expenses in the
consolidated statements of income. The adoption of this
consensus had no impact on operating income and net income.

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 was effective for the
Company as of January 1, 2002. SFAS No. 142 supersedes
APB Opinion No. 17, Intangible Assets, and
requires that goodwill and intangible assets with indefinite
lives no longer be amortized, but reviewed for impairment at
least annually. Intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful
lives. The adoption of this statement did not have a material
impact on its consolidated statements of income, consolidated
financial position or results of operations.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. The
statement retains the previously existing accounting
requirements related to the recognition and measurement of the
impairment of long-lived assets to be held and used while
expanding the measurement requirements of long-lived assets to
be disposed of by sale to include discontinued operations. It
also expands the previously existing reporting requirements for
discontinued operations to include a component of an entity that
either has been disposed of or is classified as held for sale.
The Company implemented SFAS No. 144 on January 1,
2002. The adoption of this statement did not have a material
impact on its consolidated financial position or results of
operations.

In July 2002, the FASB issued SFAS No. 146,
Accounting For Costs Associated with Exit or Disposal
Activities. The statement requires costs associated with
exit or disposal activities to be recognized when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. The requirements of SFAS No. 146 are
effective for exit or disposal activities initiated after
January 1, 2003.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure  an amendment
of SFAS No. 123, which provides optional transition
guidance for those companies electing to voluntarily adopt the
accounting provisions of SFAS No. 123. In addition, the
statement mandates certain new disclosures that are incremental
to those required by SFAS No. 123. The Company will
continue to account for stock-based compensation in accordance
with APB No. 25. As such, the Company does not expect this
standard to have a material impact on its consolidated financial
position or

IV-14



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


results of operations. The Company has adopted
the disclosure-only provisions of SFAS No. 148 as of
December 31, 2002.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation for Variable Interest Entities,
an Interpretation of APB No. 51 which requires all
variable interest entities (VIEs) to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that
holds the majority of the beneficial interest in the VIE. In
addition, the interpretation expands the disclosure requirements
for both variable interest entities that are consolidated as
well as VIEs from which the entity is the holder of a
significant amount of beneficial interests, but not the
majority. FIN 46 is effective for all new VIEs created or
acquired after January 31, 2003. For VIEs created or
acquired prior to February 1, 2003, the provisions of FIN
46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company is evaluating
the effect that the adoption of FIN 46 will have on its results
of operations and financial condition. However, as the Company
is not involved in any special purpose entities, it does not
anticipate that the effect of adopting this interpretation will
be material to its consolidated statements of income,
consolidated financial position or results of operations.

2.     Debt

During 2002 and 2001, the Company had available
an unsecured line of credit totaling $10,000,000 with a bank.
The line is subject to annual renewal at the option of the bank
and requires no compensating balances. The line bears interest
at the prime rate or the LIBOR rate plus 1.75%. No short-term
borrowings were incurred by the Company during 2002 or 2001. As
of December 31, 2002 and 2001, no balance was outstanding.
The line of credit will expire in November 2003.

3.     Income
Taxes

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

|                          |                                                                   |      |           |           |  |   |           |           | 
|------------------------- | ----------------------------------------------------------------- | ---- | --------- | --------- |  | - | --------- | --------- | 
|                          |                                                                   | 2002 |           | 2001     
|                          |                                                                   |      |           |          
|Deferred tax assets:      |                                                                   |      |           |           |  |   |           |          
|                          | Expenses not currently deductible                                 |      | $         | 310,200   |  |   | $         | 319,200   | 
|                          | Capitalized packaging costs not currently
    deductible          |      |           | 1,026,600 |  |   |           | 936,300   | 
|                          | Capitalized inventory costs not currently
    deductible          |      |           | 657,700   |  |   |           | 660,800   | 
|                          | Other                                                             |      |           | 201,900   |  |   |           | 240,200   | 
|                          |                                                                   |      |           |           |  |   |           |          
|                          |                                                                   |      | 2,196,400 |           |  |   | 2,156,500 |          
|                          |                                                                   |      |           |           |  |   |           |          
|                         
|Deferred tax liabilities: |                                                                   |      |           |           |  |   |           |          
|                          | Excess tax depreciation over financial reporting
    depreciation |      |           | 1,262,200 |  |   |           | 1,202,800 | 
|                          |                                                                   |      |           |           |  |   |           |          
|Net deferred tax asset    |                                                                   | $    | 934,200   |           |  | $ | 953,700   |          
|                          |                                                                   |      |           |           |  |   |           |          

There was no valuation allowance for the years
ended December 31, 2002, 2001, and 2000.

IV-15



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The provision for income taxes consists of the
following:

|                           |          |               |           |           |           |      |           |           |           |   |           |           |           | 
|-------------------------- | -------- | ------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                           |          | 2002          |           | 2001      |           | 2000
|                           |          |               |           |           |           |     
|Federal:                   |          |               |           |           |           |      |           |           |           |   |           |          
|                           | Current  |               | $         | 4,248,200 |           |      | $         | 3,273,600 |           |   | $         | 4,559,600 |          
|                           | Deferred |               |           | 19,500    |           |      |           | (100,000  | )         |   |           | (105,800  | )        
|                           |          |               |           |           |           |      |           |           |           |   |           |          
|                           |          | Total federal |           |           | 4,267,700 |      |           |           | 3,173,600 |   |           |           | 4,453,800 | 
|State                      |          |               | 1,248,300 |           |           |      | 1,170,900 |           |           |   | 1,381,800 |          
|                           |          |               |           |           |           |      |           |           |           |   |           |          
|Provision for income taxes |          | $             | 5,516,000 |           |           | $    | 4,344,500 |           |           | $ | 5,835,600 |          
|                           |          |               |           |           |           |      |           |           |           |   |           |          

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

|                                                          |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                          |  | 2002 |      | 2001 |  | 2000
|                                                          |  |      |      |      |  |     
|Statutory rate                                            |  |      | 35.0 | %    |  |      | 34.0 | % |  |  | 35.0 | %
|State income taxes, net of federal income tax
    benefit |  |      | 6.5  |      |  |      | 6.1  |   |  |  | 6.1  |  
|Other                                                     |  |      | (0.5 | )    |  |      | 0.9  |   |  |  | (0.8 | )
|                                                          |  |      |      |      |  |      |      |   |  |  |      |  
|Effective tax rate                                        |  |      | 41.0 | %    |  |      | 41.0 | % |  |  | 40.3 | %
|                                                          |  |      |      |      |  |      |      |   |  |  |      |  

4.     Stockholders
Equity

In 2002 and 2001, the Company purchased 2,600 and
42,700 shares, respectively, of its common stock at an aggregate
purchase price of $25,853 and $416,875, respectively under its
standing stock repurchase program. In 2002 and 2001, the Company
acquired 22,283 and 13,767 shares, respectively, through
delivery of mature shares by an employee for the exercise of
stock options.

In November 2001, the Board of Directors
authorized the Company to repurchase up to 900,000 shares of the
Companys common stock through a modified Dutch
Auction tender offer, and, in the event of an
over-subscription within a specified range, to accept shares on
a pro rata basis at a price range of $10.65 to $12.65. The
Company completed repurchases under this authorization during
2001 and purchased 1,014,498 shares of common stock,
representing approximately 11% of the shares outstanding prior
to the tender offer, at an aggregate purchase price of
$12,833,400. The costs associated with this transaction totaled
$584,088, of which $21,877 was incurred in 2002.

5.     Commitments
and Contingencies

Forward Exchange Contracts During 2001, the Company entered into
forward exchange contracts with a bank whereby the Company was
committed to deliver foreign currency at predetermined rates.
The contracts expired within the year. The Company had no
foreign currency forward exchange contracts outstanding as of
December 31, 2002 and 2001. Net gains or losses on the
settlement of foreign currency forward exchange contracts,
reported in cost of products sold in the consolidated statements
of income, were not material to the Companys operating
income or net income for the years ended December 31, 2002,
2001, or 2000.

Other Commitments At December 31, 2002 and 2001,
the Company had no letters of credit outstanding.

Royalties The Company enters into license
agreements with inventors, designers and others for the use of
intellectual property in its products. These agreements provide
for the payment of royalties on sales of

IV-16



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


certain character and patent licensed products.
Existing agreements have terms ranging from one to three years.
Royalty expenses were $5,386,000, $5,377,000, and $6,387,000 in
2002, 2001, and 2000, respectively, and are reflected in cost of
products sold in the accompanying consolidated statements of
income.

Also, certain of these agreements contain
provisions for the payment of guaranteed or minimum royalty
amounts. Such amounts are subject to change based upon actual
sales performance in each period. Total required minimum royalty
payments were $3,890,000 and $4,439,000 for the periods ended
December 31, 2002 and 2001, respectively. Under terms of
existing agreements, and after giving effect to the renewal of
our most significant domestic agreement (see Note 7), the
Company may, provided the other party meets their contractual
commitment, be required to pay amounts estimated as follows:

|     |  |   |           | 
|---- |  | - | --------- | 
|2003 |  | $ | 4,556,000 | 
|2004 |  |   | 3,469,000 | 
|2005 |  |   | 163,000   | 
|2006 |  |   | 0         | 
|2007 |  |   | 0         | 
|     |  |   |           | 
|     |  | $ | 8,188,000 | 
|     |  |   |           | 

In addition, the Company has $928,723 of prepaid
royalties included as a component of prepaid expenses and other
current assets in the December 31, 2002 balance sheet.

At December 31, 2002, the Company had
approximately $1,439,800 in outstanding inventory purchase
commitments.

During 1999, the Company entered into an
employment agreement with an executive officer which provides
for annual base salary of $364,000 through September 30,
2004, subject to any increases approved from time to time at the
discretion of the Compensation Committee of the Board of
Directors. In the event of termination, the agreement provides
for certain payments depending on the nature of the termination.

The Company has entered into employment
agreements with certain other executive officers. The various
agreements provide for payments related to change of control
events, agreements not to compete with the Company, and
severance payments depending on the nature of the
executives termination.

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.     Benefit
Plans

Defined Contribution Plans The Company has a defined contribution
trusteed benefit plan covering eligible employees, requiring
annual contributions based upon certain percentages of salaries
of employees. Company contributions aggregated $753,000,
$504,000, and $551,000 in 2002, 2001, and 2000, respectively.
The Company sponsors a 401(k) defined contribution plan covering
substantially all Company employees pursuant to which the
Company is obligated to match, up to specified amounts, employee
contributions. Company contributions to this plan were not
material for the periods presented.

Stock Option Plans The Company has stock option plans
under which officers, employees, non-employees, and non-employee
directors may be granted options to purchase shares of the
Companys authorized but unissued common stock. As of
December 31, 2002, substantially all of our employees were
participants in The First Years Inc. 2002 Amended and Restated
Equity Incentive Plan and all non-employee directors were
participants in The First Years Inc. 2002 Amended and Restated
Stock Option Plan for Directors (collectively, the Option
Plans). All stock option grants are made after a review by, and
with the approval of, the Compensation Committee of the Board of
Directors.

IV-17



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The Companys Board of Directors has
reserved 2,980,000 shares for issuance under the Option Plans.
As of December 31, 2002, there are 579,069 options
available for future grant under the Option Plans. The exercise
price for the incentive stock options granted under the Option
Plans may not be less than the fair market value of the common
stock at the date of grant, 110% of fair market value in the
case of options granted to a 10% stockholder.

In 2001 and 2000, a director of the Company
received options to purchase 12,766 and 12,435 shares,
respectively, of the Companys Common Stock at an exercise
price of $8.25 and $7.625, respectively, per share as
compensation for consulting services. The Company recorded a
charge to operations of $60,000 and $50,000 in 2001 and 2000,
respectively, for the compensation expense related to the stock
option grants.

Under the Option Plans, employees of the Company
may purchase stock on the exercise of their options through the
delivery of existing shares of the Companys common stock.
The shares delivered to the Company by the employee must have
been outstanding for at least six months. The Company acquired
22,283 and 13,767 shares of its common stock for the years ended
December 31, 2002 and 2001, respectively, through the
delivery of mature shares by an employee for the exercise of
stock options.

Options granted must be exercised within the
period prescribed by the Compensation Committee; the options
vest in accordance with the vesting provisions prescribed at the
time of grant.

A summary of activity of stock options granted
under the Option Plans is as follows:

|                  |           |           |       |             |  |             |           |             |   |  |         |  |  |   |       |  | 
|----------------- | --------- | --------- | ----- | ----------- |  | ----------- | --------- | ----------- | - |  | ------- |  |  | - | ----- |  | 
|                  |           |           |       |             |  |             |           | Weighted   
|                  |           | Weighted  |       |             |  |             |           | Average    
|                  |           | Average   |       |             |  |             |           | Exercise   
|                  |           | Exercise  |       | Number of   |  |             |           | Price for  
|                  |           | Price Per |       | Options     |  | Options     |           | Options    
|                  |           | Share     |       | Outstanding |  | Exercisable |           | Exercisable
|                  |           |           |       |             |  |             |           |            
|January 1, 2000   |           | $         | 11.27 |             |  |             | 766,622   |             |   |  | 428,615 |  |  | $ | 9.46  | 
|                  | Granted   |           |       | 7.83        |  |             |           | 477,971     |   |  |         |  |  |   |       |  | 
|                  | Canceled  |           |       | 9.73        |  |             |           | (80,846     | ) |  |         |  |  |   |       |  | 
|                  | Exercised |           |       | 5.33        |  |             |           | (109,008    | ) |  |         |  |  |   |       |  | 
|                  |           |           |       |             |  |             |           |             |   |  |         |  |  |   |       | 
|                 
|December 31, 2000 |           |           | 10.43 |             |  |             | 1,054,739 |             |   |  | 532,601 |  |  | $ | 11.49 | 
|                  | Granted   |           |       | 9.22        |  |             |           | 292,322     |   |  |         |  |  |   |       |  | 
|                  | Canceled  |           |       | 9.71        |  |             |           | (69,965     | ) |  |         |  |  |   |       |  | 
|                  | Exercised |           |       | 6.71        |  |             |           | (69,067     | ) |  |         |  |  |   |       |  | 
|                  |           |           |       |             |  |             |           |             |   |  |         |  |  |   |       | 
|                 
|December 31, 2001 |           |           | 10.39 |             |  |             | 1,208,029 |             |   |  | 726,338 |  |  | $ | 11.43 | 
|                  | Granted   |           |       | 12.36       |  |             |           | 290,683     |   |  |         |  |  |   |       |  | 
|                  | Canceled  |           |       | 10.88       |  |             |           | (31,145     | ) |  |         |  |  |   |       |  | 
|                  | Exercised |           |       | 7.43        |  |             |           | (70,060     | ) |  |         |  |  |   |       |  | 
|                  |           |           |       |             |  |             |           |             |   |  |         |  |  |   |       | 
|                 
|December 31, 2002 |           | $         | 10.90 |             |  |             | 1,397,507 |             |   |  | 919,122 |  |  | $ | 11.01 | 
|                  |           |           |       |             |  |             |           |             |   |  |         |  |  |   |       | 

IV-18



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The grant date fair value for options granted in
2002, 2001, and 2000 was $6.37, $5.19, and $4.74, respectively.
The following table sets forth information regarding stock
options outstanding at December 31, 2002 under the Stock
Option Plans as described above:

|            |           |          |  |          |               |           |  |             |       |             |  |  |      |  |  |  |         |  |  |   |       | 
|----------- | --------- | -------- |  | -------- | ------------- | --------- |  | ----------- | ----- | ----------- |  |  | ---- |  |  |  | ------- |  |  | - | ----- | 
|            |           |          |  |          |               |           |  |             |       | Weighted   
|            |           |          |  |          |               |           |  | Number      |       | Average    
|Number      |           |          |  | Weighted |               | Weighted  |  | Currently   |       | Exercise   
|of Options  |           | Range of |  | Average  |               | Average   |  | Exercisable |       | Price for  
|Outstanding |           | Exercise |  | Exercise |               | Remaining |  | at          |       | Options    
|at 12/31/02 |           | Prices   |  | Price    |               | Life      |  | 12/31/02    |       | Exercisable
|            |           |          |  |          |               |           |  |             |       |            
|            | 6,000     |          |  |          | $2.81         |           |  | $           | 2.81  |             |  |  | 1.42 |  |  |  | 6,000   |  |  | $ | 2.81  | 
|            | 26,000    |          |  |          | 4.22   6.33  |           |  |             | 4.63  |             |  |  | 2.42 |  |  |  | 26,000  |  |  |   | 4.63  | 
|            | 581,162   |          |  |          | 6.33   9.49  |           |  |             | 8.30  |             |  |  | 7.44 |  |  |  | 342,184 |  |  |   | 8.13  | 
|            | 648,363   |          |  |          | 9.49  14.24  |           |  |             | 12.62 |             |  |  | 7.47 |  |  |  | 416,228 |  |  |   | 12.54 | 
|            | 135,982   |          |  |          | 14.24  17.00 |           |  |             | 15.38 |             |  |  | 5.71 |  |  |  | 128,710 |  |  |   | 15.39 | 
|            |           |          |  |          |               |           |  |             |       |             |  |  |      |  |  |  |         |  |  |   |       | 
|            | 1,397,507 |          |  |          |               |           |  | $           | 10.90 |             |  |  | 7.20 |  |  |  | 919,122 |  |  | $ | 11.01 | 
|            |           |          |  |          |               |           |  |             |       |             |  |  |      |  |  |  |         |  |  |   |       | 

Pro Forma Disclosures

As described in Note 1, the Company applies
the intrinsic value method of APB No. 25 and related
interpretations in accounting for its Option Plans. Accordingly,
no compensation cost has been recognized for options granted to
employees. The Company has adopted the disclosure-only
provisions of SFAS No. 123, as amended by SFAS
No. 148, and has presented such disclosure in Note 1.

For purposes of the pro forma disclosures, the
fair value of the options granted under the Companys stock
option plans during 2002, 2001, and 2000 was estimated on the
date of grant using the Binomial option-pricing model. Key
assumptions used to apply this pricing model are as follows:

|                                        |  |      |            |      |  |      |            |  |  |  |            | 
|--------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                        |  | 2002 |            | 2001 |  | 2000
|                                        |  |      |            |      |  |     
|Risk free interest rate                 |  |      | 4.54%      |      |  |      | 4.78%      |  |  |  | 6.35%      | 
|Expected life of option grants          |  |      | 7.74 years |      |  |      | 7.67 years |  |  |  | 7.65 years | 
|Expected volatility of underlying stock |  |      | 36.74%     |      |  |      | 43.45%     |  |  |  | 45.50%     | 
|Expected dividend payment rate          |  |      | 0.85%      |      |  |      | 0.85%      |  |  |  | 0.85%      | 

The pro forma disclosures include the effects of
options granted in 2002, 2001, and 2000.

7.  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 foreign currency 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 who are geographically dispersed. The
Companys three largest customers accounted for 69% and 61%
of the trade receivables outstanding at December 31, 2002
and 2001, respectively. The Company routinely assesses the
financial strength of its customers. The Company purchases
credit insurance for certain of its foreign customers to limit
its potential exposure to foreign trade receivable credit risks.
The Company routinely assesses the financial strength of the
bank which is the counterparty to the forward exchange contracts
and as of December 31, 2002 management believes it had no
significant exposure to credit counterparty risks.

Major Customers and Export Sales The Company derived 10% or more of its
net sales from its three largest customers. The Companys
largest customer accounted for net sales of approximately
$32,339,000,

IV-19



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


$29,833,000, and $31,685,000 in 2002, 2001, and
2000, respectively. The Companys second largest customer
accounted for net sales of approximately $27,630,000,
$24,892,000, and $25,639,000 in 2002, 2001, and 2000,
respectively. The Companys third largest customer
accounted for net sales of approximately $22,978,000,
$20,015,000, and $17,336,000 in 2002, 2001, and 2000. No other
customer accounted for 10% or more of the Companys sales.
Net export sales, primarily to Europe, Canada, South America,
and the Pacific Rim, were approximately $17,312,000,
$14,813,000, and $14,429,000 in 2002, 2001, and 2000,
respectively.

Reliance on Licensed Products The Company derives a significant
portion of its net sales from products under license. Net sales
of products licensed under the most significant domestic
licensing agreement amount to approximately $28,194,000,
$28,432,000, and $30,250,000 or 21%, 23%, and 23% of the
Companys total net sales for the years ended
December 31, 2002, 2001, and 2000, respectively. This
licensing agreement was renewed in 2002 and will expire at the
end of 2004, with an option to renew until the end of 2005
provided certain conditions are met.

Reliance on Foreign Manufacturers The Company does not own or operate
its own manufacturing facilities. In 2002, 2001, and 2000, the
Company derived approximately 74%, 69%, and 69%, respectively,
of its net sales from products manufactured by others in the Far
East, primarily in China. A change in suppliers could cause a
delay in manufacturing and a possible loss of sales, which could
affect operating results adversely, depending on the particular
product.

8.     Computation
of Earnings per Share

Computation of the earnings per share (EPS) in
accordance with SFAS No. 128 is as follows:

|                                            |  |      |           |      |  |      |           |  |  |   |           | 
|------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                            |  | 2002 |           | 2001 |  | 2000
|                                            |  |      |           |      |  |     
|Weighted average shares outstanding         |  |      | 8,200,624 |      |  |      | 9,151,540 |  |  |   | 9,500,726 | 
|Effect of dilutive shares                   |  |      | 168,258   |      |  |      | 152,732   |  |  |   | 119,202   | 
|                                            |  |      |           |      |  |      |           |  |  |   |           | 
|Weighted average diluted shares outstanding |  |      | 8,368,882 |      |  |      | 9,304,272 |  |  |   | 9,619,928 | 
|                                            |  |      |           |      |  |      |           |  |  |   |           | 
|Net Income                                  |  | $    | 7,937,715 |      |  | $    | 6,251,788 |  |  | $ | 8,650,963 | 
|                                            |  |      |           |      |  |      |           |  |  |   |           | 
|Basic earnings per share                    |  |      | $0.97     |      |  | $    | 0.68      |  |  | $ | 0.91      | 
|                                            |  |      |           |      |  |      |           |  |  |   |           | 
|Diluted earnings per share                  |  |      | $0.95     |      |  | $    | 0.67      |  |  | $ | 0.90      | 
|                                            |  |      |           |      |  |      |           |  |  |   |           | 

As of December 31, 2002, options to purchase
1,119,950 shares of common stock were not included in the
computation of diluted EPS because the options exercise
price was greater than the average price of the common shares.
The options, which expire in 2003 to 2012, had exercise prices
ranging from $9 to $17 per share. The options were still
outstanding at the end of 2002.

As of December 31, 2001, options to purchase
426,487 shares of common stock were not included in the
computation of diluted EPS because the options exercise
price was greater than the average price of the common shares.
The options, which expire in 2004 to 2009, had exercise prices
ranging from $13 1/2to $17 per share. The options were
still outstanding at the end of 2001.

As of December 31, 2000, options to purchase
498,865 shares of common stock were not included in the
computation of diluted EPS because the options exercise
price was greater than the average price of the common shares.
The options, which expire in 2007 to 2010, had exercise prices
ranging from $9 5/8to $17 per share. The options were still
outstanding at the end of 2000.

9.     Segment
Information

The Company operates in one business segment. It
engages in the single line of business of developing and
marketing one class of similar products for infants and toddlers
distributed through the same channels.

IV-20



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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Within this operating segment, the Company had
net sales of approximately $91,653,000, $84,046,000, and
$84,787,000 related to The First Years brand sales and
approximately $42,739,000, $41,738,000, and $43,967,000 related
to licensed and specialty sales in 2002, 2001, and 2000,
respectively.

For marketing purposes, the Companys
product line consists of three categories, Feeding &
Soothing, Play and Discover, and Care and Safety. Net sales by
product category for the year ended December 31 is as
follows (in thousands):

|                   |  |      |        |      |  |      |        |  |  |   |        | 
|------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|Product Category   |  | 2002 |        | 2001 |  | 2000
|                   |  |      |        |      |  |     
|Feeding & Soothing |  | $    | 51,065 |      |  | $    | 44,625 |  |  | $ | 53,716 | 
|Play & Discover    |  |      | 34,003 |      |  |      | 33,962 |  |  |   | 29,348 | 
|Care & Safety      |  |      | 49,323 |      |  |      | 47,197 |  |  |   | 45,690 | 

As of December 31, 2002 and 2001, the
Company has $2,054,028 and $1,554,726, respectively of molds
located in various foreign countries which are considered
long-lived assets.

See footnote 7 for discussion of major
customers, export sales, and licensed product sales.

10.     Selected
Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years
ended December 31, 2002 and 2001 is as follows:

|                 |            |               |   |            |  |            |   |            |  |           |   |           |  |  |   |      |  |  |   |      | 
|---------------- | ---------- | ------------- | - | ---------- |  | ---------- | - | ---------- |  | --------- | - | --------- |  |  | - | ---- |  |  | - | ---- | 
|                 |            |               |   |            |  |            |   | Basic      |  | Diluted  
|                 |            |               |   | Gross      |  | Net        |   | Earnings   |  | Earnings 
|Calendar Quarter |            | Net Sales (1) |   | Profit (1) |  | Income (2) |   | Per Share  |  | Per Share
|                 |            |               |   |            |  |            |   |            |  |          
|2002             |            |               |   |            |  |            |   |            |  |           |   |           |  |  |   |      |  |  |   |     
|                 | First      |               | $ | 33,310,840 |  |            | $ | 11,628,709 |  |           | $ | 2,148,780 |  |  | $ | 0.26 |  |  | $ | 0.25 | 
|                 | Second     |               |   | 34,766,239 |  |            |   | 12,370,713 |  |           |   | 2,188,033 |  |  |   | 0.27 |  |  |   | 0.26 | 
|                 | Third      |               |   | 33,955,088 |  |            |   | 11,759,045 |  |           |   | 2,211,854 |  |  |   | 0.27 |  |  |   | 0.26 | 
|                 | Fourth     |               |   | 32,359,320 |  |            |   | 10,351,279 |  |           |   | 1,389,048 |  |  |   | 0.17 |  |  |   | 0.17 | 
|2001             |            |               |   |            |  |            |   |            |  |           |   |           |  |  |   |      |  |  |   |     
|                 | First      |               | $ | 32,458,730 |  |            | $ | 11,196,801 |  |           | $ | 2,376,915 |  |  | $ | 0.26 |  |  | $ | 0.26 | 
|                 | Second     |               |   | 31,818,183 |  |            |   | 10,275,830 |  |           |   | 1,496,380 |  |  |   | 0.16 |  |  |   | 0.16 | 
|                 | Third      |               |   | 34,547,896 |  |            |   | 11,168,296 |  |           |   | 2,053,482 |  |  |   | 0.22 |  |  |   | 0.22 | 
|                 | Fourth (2) |               |   | 26,958,961 |  |            |   | 9,364,849  |  |           |   | 325,011   |  |  |   | 0.04 |  |  |   | 0.04 | 

Basic and diluted earnings per share are computed
independently for each of the periods presented. Accordingly,
the sum of the quarterly earnings per share amounts may not
agree to the total for the year.



---



|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Quarterly amounts adjusted to reflect certain
    reclassifications.                                                                                               
|   
|(2) | During the 4th quarter of 2001, the Company
    recorded a specific charge for a bad debt write-off of
    approximately $952,000 relating to the Kmart bankruptcy.

* * * * * *

IV-21



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##### Table of Contents



SCHEDULE II

THE FIRST YEARS INC.

VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2002, 2001, and
2000


|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |   |         | 
|----------------------------------------------------------------- | --------------------------------- | ------------ |  | ---------- | ------- | ---------- |  | ----------- | --------- | --- |  | - | --------- | ----- |  | - | ------- | 
|                                                                  |                                   |              |  | Additions  |         |            |  |            
|                                                                  |                                   | Balance,     |  | Charged to |         |            |  |            
|                                                                  |                                   | Beginning of |  | Costs and  |         |            |  | Balance    
|Description                                                       |                                   | Year         |  | Expenses   |         | Deductions |  | End of Year
|                                                                  |                                   |              |  |            |         |            |  |            
|Valuation Accounts Deducted from Assets to which
    they Apply  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                  | Allowance for doubtful accounts:  |              |  |            |         |            |  |             |           |     |  |   |           |       |  |   |        
|                                                                  |                                   | 2002         |  | $          | 250,000 |            |  | $           | 116,825   |     |  | $ | 116,825   | (1)   |  | $ | 250,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                  |                                   | 2001         |  | $          | 270,000 |            |  | $           | 1,217,405 | (2) |  | $ | 1,237,405 | (1,2) |  | $ | 250,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                  |                                   | 2000         |  | $          | 270,000 |            |  | $           | 87,324    |     |  | $ | 87,324    | (1)   |  | $ | 270,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                 
|                                                                  | Allowance for obsolete inventory: |              |  |            |         |            |  |             |           |     |  |   |           |       |  |   |        
|                                                                  |                                   | 2002         |  | $          | 200,000 |            |  | $           | 150,000   |     |  | $ | 150,000   |       |  | $ | 200,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                  |                                   | 2001         |  | $          | 300,000 |            |  | $           | 0         |     |  | $ | 100,000   |       |  | $ | 200,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  
|                                                                  |                                   | 2000         |  | $          | 390,000 |            |  | $           | 0         |     |  | $ | 90,000    |       |  | $ | 300,000 | 
|                                                                  |                                   |              |  |            |         |            |  |             |           |     |  |   |           |       |  |  



---



|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(1) | Net accounts written off.                                                     
|   
|(2) | Includes write-off of certain Kmart receivables
    of approximately $952,000.

IV-22



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##### Table of Contents



THE FIRST YEARS INC.

EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                           
|       
|3.1     |  | Restated Articles of Organization of the Company.
    Filed as Exhibit 3.1 to the Companys Registration
    Statement on Form S-1 on October 5, 1995 (File
    No. 33-62673) and incorporated herein by reference.                                                                                                                       
|       
|3.2     |  | By-laws of the Company. Filed as
    Exhibit (3)(ii) to the Companys annual report on
    Form 10-K for the period ended December 31, 1999 and
    incorporated herein by reference.                                                                                                                                                     
|       
|4.1     |  | Specimen certificate for shares of Common Stock
    of the Company. Filed as Exhibit 4.1 to the Companys
    Registration Statement on Form S-1 (File No. 33-62673)
    and incorporated herein by reference.                                                                                                                            
|       
|4.2     |  | Rights Agreement, dated as of November 19,
    2001, between the Company and EquiServe Trust Company, N. A.
    Filed as Exhibit 4.1 to the Companys Registration
    Statement on Form 8-A on November 20, 2001 and
    incorporated herein by reference.                                                                               
|       
|10.1*   |  | Agreement with the Childrens Television
    Workshop dated July 1, 1996 regarding the licensing of
    Sesame Street characters. Filed as Exhibit (10)(g) to the
    Companys annual report on Form 10-K for the period
    ended December 31, 1996 and incorporated herein by
    reference.                                           
|       
|10.2*   |  | Letter agreement with Childrens Television
    Workshop dated as of July 1, 1999 regarding the renewal of
    licensing of Sesame Street characters. Filed as
    Exhibit (10)(d) to the Companys annual report on
    Form 10-K for the period ended December 31, 1999 and
    incorporated herein by reference.                       
|       
|10.3*   |  | Letter agreement with Sesame Workshop dated
    July 1, 2001 regarding the renewal of licensing of Sesame
    Street characters. Filed as Exhibit 10.3 to the
    Companys quarterly report on Form 10-Q for the period
    ended September 30, 2002 and incorporated herein by
    reference.                                           
|       
|10.4*   |  | Agreement with Disney Enterprises, Inc. dated as
    of August 1, 2000 relating to the licensing of Winnie the
    Pooh, Disney Classics and Disney Standard characters. Filed as
    Exhibit (10)(w) to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 2000 and
    incorporated herein by reference.
|       
|10.5    |  | The First Years Inc. 2002 Amended and Restated
    Equity Incentive Plan, filed herewith.                                                                                                                                                                                                                                                 
|       
|10.6    |  | The First Years Inc. 2002 Amended and Restated
    Stock Option Plan for Directors, filed herewith.                                                                                                                                                                                                                                       
|       
|10.7    |  | Letter Agreement between The First Years Inc. and
    Jerome M. Karp dated August 8, 1999. Filed as
    Exhibit (10)(v) to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 1999, and
    incorporated herein by reference.                                                                             
|       
|10.8    |  | Employment Agreement between The First Years Inc.
    and Ronald J. Sidman dated September 30, 1999. Filed
    as Exhibit (10)(u) to the Companys quarterly report
    on Form 10-Q for the period ended September 30, 1999,
    and incorporated herein by reference.                                                                   
|       
|10.9    |  | Agreement between The First Years Inc. and Bruce
    Baron dated July 10, 1997. Filed as Exhibit (10)(p) to
    the Companys annual report on Form 10-K for the
    period ended December 31, 1998, and incorporated herein by
    reference.                                                                                            
|       
|10.10   |  | Non-Compete Agreement between The First Years
    Inc. and Richard F. Schaub Jr. dated August 29,
    2000. Filed as Exhibit (10)(m) to the Companys annual
    report on Form 10-K for the period ended December 31,
    2000, and incorporated herein by reference.                                                                    
|       
|10.11   |  | Change of Control Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated
    August 29, 2000. Filed as Exhibit (10)(n) to the
    Companys annual report on Form 10-K for the period
    ended December 31, 2000, and incorporated herein by
    reference.                                                          
|       
|10.12   |  | Promissory Note and Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated
    September 28, 2000. Filed as Exhibit (10)(o) to the
    Companys annual report on Form 10-K for the period
    ended December 31, 2000, and incorporated herein by
    reference.                                                     

IV-23



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                  
|10.13   |  | Promissory Note and Agreement between The First
    Years Inc. and Richard F. Schaub Jr. dated
    March 21, 2001. Filed as Exhibit 10.14 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2001 and incorporated herein by
    reference.                   
|       
|10.14   |  | Agreement between The First Years Inc. and
    James A. Connors, Jr. dated May 8, 2000. Filed as
    Exhibit (10)(p) to the Companys annual report on
    Form 10-K for the period ended December 31, 2000, and
    incorporated herein by reference.                                           
|       
|10.15   |  | Employee Contract between The First Years Inc.
    and John R. Beals dated September 30, 2002. Filed as
    Exhibit 10.2 to the Companys quarterly report on
    Form 10-Q for the period ended September 30, 2002 and
    incorporated herein by reference.                                    
|       
|10.16   |  | Employee Contract between The First Years Inc.
    and Barry Boehme dated January 12, 2003, filed herewith.                                                                                                                                                                                      
|       
|10.17   |  | Consumer Products License  Disney
    Properties, dated as of June 4, 2002, between the Company
    and Disney Enterprises, Inc. Filed as Exhibit 10.1 to the
    Companys quarterly report on Form 10-Q for the period
    ending September 30, 2002 and incorporated herein by
    reference.
|       
|21.1    |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                                                                                          
|       
|23.1    |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                
|       
|99.1    |  | Certification of Officers pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                      



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| | * | Confidential Treatment has been granted with
    respect to portions of this document by the Securities and
    Exchange Commission.

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