<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-K

/X/  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange 
     Act of 1934

     For the fiscal year ended December 31, 1995; or

/ /  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                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

 ONE KIDDIE DRIVE, AVON, MASSACHUSETTS                                  02322
----------------------------------------                              ----------
(Address of Principal Executive Offices)                              (Zip Code)

                                  508-588-1220
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              (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
--------------------------------------------------------------------------------
                                (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   X    No      .
                                               -----     -----
<PAGE>   2
     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. /X/

     The aggregate market value of the common stock held by non-affiliates of
the Company was $25,993,242 based on the price at which the stock was sold over
the counter on the Nasdaq National Market, as reported at the close of business
on February 28, 1996.

     The number of shares of Registrant's Common Stock outstanding on December
31, 1995 was 4,515,142.

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

Documents Incorporated by Reference

     The Company intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1995. The following sections of such definitive proxy statement are hereby
incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Form
10-K: "Common Stock Ownership of Certain Beneficial Owners and Management;"
"Election of Directors;" "Executive Compensation" (other than the Board
Compensation Committee Report on Executive Compensation and the Performance
Chart); and "Compliance with Section 16(a) of the Securities Exchange Act of
1934."
<PAGE>   3
PART I
--------------------------------------------------------------------------------

Item 1. Business

The First Years Inc. (the "Company") is a leading developer and worldwide
marketer of a broad line of high-quality, value-priced, developmentally-sound
products for infants and toddlers. Since 1973, the Company has sold its products
under its well-known brand name and principal trademark, THE FIRST YEARS.
Recently, the Company has entered into licensing agreements with The Walt Disney
Companies to feature Winnie the Pooh characters on a variety of its products in
various countries. Major channels through which the Company sells its products
include mass merchants, supermarkets, drug stores, department stores, wholesale
clubs, convenience stores, specialty stores, mail-order catalogs and catalog
showrooms.

The Company was incorporated in 1952 in Massachusetts under the name Kiddie
Products, Inc. The Company changed its name to The First Years Inc. in May,
1995, and is headquartered in Avon, Massachusetts.

Products

In recent years, the Company has accelerated the general pace of product
innovation. In 1995, the Company broadened its product line to include more
higher-priced products such as electronic products for the nursery, furnishings
such as odor-proof diaper pails, booster seats, bath seats, diaper bags, and a
line of child carriers. The Company's product line, which contains approximately
300 items that range in retail price from approximately $0.99 to $39.99, is
categorized and color-coded into five distinct product categories as follows:

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

In 1995, the Company also added to this category the Neats line of
stain-resistant bibs specially made with a 3M Scotchgard stain-release system,
and the following items: The Choice bottle system that allows interchangeability
between disposable and reusable bottles, a unibody pacifier, marketed under the
Sure trademark; and the Simplicity Manual Breast Pump.

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

        THE FIRST YEARS INC.[Registered Trademark], Ideas Inspired by
Parents[Registered Trademark], TumbleMates[Registered Trademark],
Firstronics[Registered Trademark] and Washables[Registered Trademark] are
registered trademarks of the First Years Inc. Simplicity[Trademark],
Sure[Trademark], Choice[Trademark], Clip 'n Go[Trademark], Neats[Trademark],
PackMates[Trademark], Nurserytronics[Trademark], Step-by-Step[Trademark], and
First Gifts[Trademark] are trademarks of The First Years Inc.
3m[Registered Trademark] and SCOTCHGARD[Registered Trademark] are registered
trademarks of Minnesota Mining and Manufacturing Company. WINNIE THE
POOH[Registered Trademark] and POOH[Registered Trademark] are registered
trademarks of Disney Enterprises, Inc. (formerly The Walt Disney Company).

                                     I-1

<PAGE>   4
Play & Discover. The Play & Discover category consists of an extensive line of
entertaining, skill-developing toys for infants and toddlers including crib
toys, floor toys, and hand-held toys. Since 1994 the Play & Discover category
has included the Company's Washables line of 100% washable, dishwasher-safe
toys. In 1995, the Company introduced the High Chair Gym, Floorgym and Playmat,
and the Snap & Play People Bus to its Washables line.

In 1994, the Company also added to this category its Firstronics line of
hand-held electronic toys for children under three years of age. In 1995, the
Company introduced its Counting Calculator and Sing-a-Long Microphone into the
Firstronics line.

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

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

In 1994 and 1995, additions to this category included the Step-by-Step line of
furnishings comprised of a bath seat, booster seat, baby bather, step stool and
toilet trainer that are adjustable as a child grows.

First Gifts. The Company markets a variety of specially-designed gift bags and
gift sets, which combine the Company's most popular items as attractively-
packaged, ready-to-give gifts, or theme-related starter sets. Many of the 
containers for such gift sets, such as the Bear Bank Gift Set, are also 
reusable as tote bags, storage containers, or keepsakes. Gift sets include the
Washables gift pack, the TumbleMates gift pack, newborn gift bags and
furnishings gift sets.

Winnie the Pooh. The Winnie the Pooh category consists of over 40 basic products
including teethers, rattles, bibs, bottles, bathing accessories and gift sets
featuring Winnie the Pooh characters. In 1995, the Company launched its Pooh
Goody Bags which contain an assortment of the Company's products featuring
Winnie the Pooh characters and a line of appliqued bibs featuring various Winnie
the Pooh designs.

                                     I-2
<PAGE>   5
Product Design, Development and Marketing

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

The Company employs a staff of professionals engaged in the creation of new
products and also uses, from time to time, a diverse group of outside designers
and developers. For the past 15 years the Company's product line also has been
designed in consultation with Dr. T. Berry Brazelton, the well-known
pediatrician and authority on child development, and staff members of the Child
Development Unit at Children's Hospital in Boston, Massachusetts (the "CDU"), of
which Dr. Brazelton is founder and Director Emeritus. In reviewing the Company's
new products and product ideas, Dr. Brazelton and the CDU focus on child health
and development. Dr. Brazelton and the CDU also assist the Company in developing
support information distributed with the products that instructs or educates new
parents on the proper use of the products.

The Company spent approximately $1.8 million on new product development in 1995
and approximately $1.5 million in each of 1994 and 1993. The Company expects to
continue its new product development program aggressively, although the number
of new products introduced may vary from year to year.

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

Sales

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

                                     I-3
<PAGE>   6
stores, mail order catalogs and catalog stores. The Company currently has over
1,000 customers in over 40 countries. Major customers include Wal-Mart, Toys "R"
Us, Target, Kmart, Kroger and Baby Superstore.

In the United States and Canada the Company's products are sold by the Company's
ten-person internal sales staff and by a network of 48 independent sales
representatives. The Company's sales staff is responsible for supervising and
training the sales representatives. Such training is conducted at the Company's
headquarters and throughout the United States. In Central and South America and
the Pacific Rim, the Company's products are sold by its internal sales staff
which manages a network of foreign distributors and independent sales
representatives in such areas. Senior management is heavily involved in every
phase of the selling process with the Company's largest customers.

In Europe and the Middle East, the Company's products are sold by the Company's
internal staff at its sales office in Cirencester, England, which is headed by
the Director of European Sales. This staff manages a network of foreign
distributors and independent sales representatives who generally receive
exclusive rights to a defined geographical territory or market segment. The
Company's international sales in 1995 were approximately $7.7 million. 

During 1995, Wal*Mart and Toys "R" Us accounted for approximately 28% and 21% of
the Company's net sales, respectively. A significant reduction in purchases by
either of these customers could have a material adverse effect on the Company's
business.

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

Merchandising

To help retailers use their shelf space efficiently in marketing the Company's
products, the Company utilizes state of the art computerized planogram programs
which divide the space a retailer has allocated for the Company's products to
create a mix of the five product categories that is designed to maximize the
retailer's profitability. This system is used for both large and small shelf
spaces and enables the Company's customers to present a visually-appealing
display of the Company's color-coded line of products.

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

                                     I-4
<PAGE>   7
are pre-pegged, pre-stocked, easily re-stockable, and can be customized to the
customer's needs.

Agreements with The Walt Disney Companies

In the past three years, the Company has entered into licensing agreements with
The Walt Disney Companies to feature Winnie the Pooh characters on a variety of
its products in the United States, Canada, Puerto Rico, and Brazil, and in
Europe through an agreement with the Walt Disney Company (France) S.A. The U.S.
license agreement expires at the end of 1996. The Company makes royalty payments
on its net sales of licensed products and was subject in 1995 to a guaranteed
minimum royalty payment of approximately $714,000 in the aggregate. Sales of
products under these license agreements accounted for 20% of the Company's total
net sales in 1995.

Manufacturing and Sources of Supply

The Company does not own or operate its own manufacturing facilities. In 1995,
all of the Company's products were manufactured either using the Company's
custom tools (molds and dies) or to the Company's specifications by
approximately 25 manufacturers located in the United States, Canada, China,
Taiwan, Thailand, and Mexico. Approximately 46% of all of its products sold in
1995 were manufactured in Asia, primarily in China. A large percentage of the
Company's furnishings and other large products were manufactured in 1995 by
suppliers in the United States and Canada because of the significantly higher
shipping costs from the Far East.

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

Currently the Company is not dependent on any one supplier, although its largest
supplier, which is based in the United States, accounted for products that
represented approximately 21% of its net sales in 1995. In 1995 approximately
11% of the Company's products sold were manufactured by one supplier located in
China. The Company has not entered into long-term contractual arrangements with
any of its suppliers.

The principal raw materials used in the production and sale of the Company's
products are plastic, paperboard and cloth. Raw materials are purchased by the
manufacturers who deliver completed products to the Company. Because the primary
source used in

                                     I-5
<PAGE>   8
manufactured plastic is petroleum, the cost and availability of plastic for use
in the Company's products varies to a great extent with the price of petroleum.
The inability of the Company's suppliers to acquire sufficient plastic and
paperboard at a reasonable price could have a material adverse effect on the
Company's profitability.

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

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

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

Competition

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

                                     I-6
<PAGE>   9
relationship. In addition, the Company believes that it competes favorably with
respect to product quality, customer service and breadth of product line.

Distribution

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

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

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

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

Trademarks, Patents and Copyrights

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

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

                                     I-7
<PAGE>   10
The Company also owns copyrights, some of which are registered in the United
States. The Company does not believe that any single copyright is material to
its business. There can be no assurance that the Company's copyrights will offer
any significant competitive advantage for the Company's products.

Employees

As of December 31, 1995, the Company employed 103 full-time and 3 part-time
employees, of whom 10 are executive officers, 44 are in sales, marketing and
product development, 35 are in materials, purchasing, quality control, data
processing, finance, administration and clerical, and 17 are in warehousing
positions. None of the Company's employees is represented by a union, and the
Company has not experienced any work stoppages. The Company believes that
relations with employees are good.

Government Regulations

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

<TABLE>
Executive Officers and Directors of the Company

     The names of the Company's Executive Officers and Directors and certain
information about them are set forth below. Officers have served in the capacity
indicated in the table below for at least five years, unless otherwise indicated
in the notes.

<CAPTION>
                                                                      Officer or
                                                                       Director
Name                       Age         Position                          Since
----                       ---         --------                       ----------
<S>                        <C>         <C>                               <C>
Ronald J. Sidman           49          President, Chairman               1975
                                       of the Board of
                                       Directors, and Chief
                                       Executive Officer

Jerome M. Karp             68          Vice Chairman of the              1969
                                       Board of Directors

Benjamin Peltz             56          Treasurer, Senior Vice            1975
                                       President and Director

Evelyn Sidman              82          Clerk and Director                1979

Fred T. Page               49          Director                          1988

Merton N. Alperin          73          Director                          1988

Joseph M. Connolly         55          Vice President of                 1979
                                       Operations

John N. Colantuone         58          Vice President of                 1982
                                       Materials and
                                       Engineering

Mark H. Dall               52          Vice President of                 1985
                                       Information Services

Adrian E. Roche            40          Vice President of                 1992
                                       Worldwide Marketing

Wayne Shea                 41          Vice President of                 1991
                                       Worldwide Sales &
                                       Merchandising

John R. Beals              41          Controller and                    1990
                                       Assistant Treasurer
</TABLE>

                                     I-8
<PAGE>   11

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

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

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

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

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



Item 2. Properties

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

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

The Company believes that its properties (owned and leased) are in good
condition and adequate for its current needs.

Item 3. Legal Proceedings

     The Company is involved in legal proceedings which have arisen in the
ordinary course of business. The Company believes that there are no claims or
litigation pending, the outcome of which could have a material adverse effect on
the Company's 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 security holders of the Company.

                                     I-9
<PAGE>   12
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

<TABLE>

(a)  MARKET INFORMATION

     The Company's Common Stock has been quoted on the Nasdaq National Market
since March 1, 1995. Prior to that time, the Company's Common Stock was traded
on the Nasdaq Small-Cap Market. Below is a summary of the actual high and low
sales prices of the Company's Common Stock for each quarter of 1994 and 1995 as
reported by Nasdaq and retroactively adjusted to reflect the Company's 2-for-1 
stock split effected on December 29, 1995.


<CAPTION>
                                                    1995
                                                    ----
                           -----------------------------------------------------

   Quarter                   Low                                           High
   -------                   ---                                           ----
<S>                        <C>                                           <C>
First..................    $ 8 5/8                                       $12
Second.................      8 3/8                                        10 1/8
Third..................      9 3/8                                        11 3/4
Fourth.................     10                                            11 5/8

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

</TABLE>

<TABLE>
<CAPTION>
                                                    1994
                                                    ----
                           -----------------------------------------------------

   Quarter                   Low                                           High
   -------                   ---                                           ----
<S>                        <C>                                           <C>
First..................    $ 4 1/4                                       $ 5 1/4
Second.................      4 1/4                                         7 1/2
Third..................      6 1/2                                         8 1/16
Fourth.................      7 1/2                                         9 3/4

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


<TABLE>

(b)  APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

<CAPTION>
                                                       Approximate Number
                                                       of Record Holders
Title of Class                                         (as of December 31, 1995)
--------------                                         -------------------------
<S>                                                              <C>
Common Stock, $.10 Par Value                                     116
</TABLE>


(c)  DIVIDEND POLICY

     In June of each year commencing in 1991, the Company has paid a cash 
dividend on its Common Stock of approximately $0.085 per share (retroactively

                                     II-1
<PAGE>   13
adjusted to reflect the Company's 2-for-1 stock split effected on December
29, 1995). The most recent annual cash dividend was paid on June 1, 1995. The
Company currently expects that comparable cash dividends will continue to be
paid in the future. However, the declaration and payment of any such cash
dividends in the future will depend upon the Company's earnings, financial
condition, capital needs, and other factors deemed relevant by the Board of
Directors. There can be no assurance that the Company will continue to pay
dividends in the future.

The Company's Board of Directors declared on December 6, 1995, a 2-for-1 stock
split effected in the form of a stock dividend to holders of record on December
18, 1995. The new stock certificates were mailed to stockholders on or about
December 29, 1995.

<TABLE>

ITEM 6.  SELECTED FINANCIAL DATA

         SELECTED INCOME STATEMENT DATA:

<CAPTION>
                                                     1995            1994            1993            1992             1991
<S>                                              <C>             <C>             <C>             <C>              <C> 
Net sales                                        $75,757,322     $53,233,109     $46,124,088     $45,267,323      $37,992,806
Cost of products sold                             45,108,546      29,498,457      26,653,704      23,645,594       20,198,525
Selling, general and administrative expenses      23,961,206      18,915,908      17,857,049      18,429,803       14,776,389
Interest expense                                     186,338          24,575          28,912          31,961           49,322
Interest income                                       16,718          66,605          66,204         154,913          337,100
Severance-related expenses                                 -               -         373,000               -                -
Offering expenses                                    310,457               -               -               -                -
Income before income taxes                         6,207,493       4,860,774       1,277,627       3,314,878        3,305,670
Provision for income taxes                         2,483,000       1,871,400         481,500       1,385,100        1,390,000
Net income                                         3,724,493       2,989,374         796,127       1,929,778        1,915,670
Earnings per share*                              $      0.80     $      0.66     $      0.18     $      0.43      $      0.43
Dividends paid per share*                        $     0.085     $     0.085     $     0.085     $     0.084      $     0.084
Weighted average number of
  shares outstanding*                              4,663,491       4,497,244       4,496,520       4,496,520        4,496,520

  SELECTED BALANCE SHEET DATA:

  Total assets                                   $41,712,080     $28,852,785     $24,532,714     $24,694,765      $22,382,973
  Long-term debt                                     100,001         233,334         366,667         500,000          633,334
  Stockholders' equity                            25,763,259      22,349,947      19,719,720      19,305,797       17,750,729
  Stockholders' equity per share*                $      5.52     $      4.97     $      4.39     $      4.29      $      3.95

<FN>
* Adjusted to reflect the two-for-one, three-for-one and two-for-one stock splits effected on December 29, 
  1995, December 15, 1992 and June 14, 1991, respectively.

</TABLE>


   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            ---------------------------------------------------------------
                            RESULTS OF OPERATIONS
                            ---------------------

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

Net sales in 1995 were $75.8 million, an increase of $22.6 million, or 42.3%, as
compared to $53.2 million in 1994. The increase was due to new product
introductions and expanded retail distribution in domestic and foreign markets.
Net sales particularly benefited from the introduction of newly licensed Winnie
the Pooh products and the introduction of new products that have higher average
selling prices than products previously offered by the Company.

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

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

During 1995, the Company sought to issue additional shares of common stock in
order to increase its working capital and improve the liquidity of its stock.
Due to uncertain market conditions affecting the retail sector and the price of
the Company's stock, the Company decided to postpone indefinitely the public
offering. As a result, the Company wrote-off offering expenses amounting to a
pretax charge of approximately $310,000 ($186,000 net of tax). No additional
costs related to the write-off are anticipated.

Income tax expense as a percentage of pretax income increased to 40.0% in 1995
from 38.5% in 1994.



                                     II-2
<PAGE>   14

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

Net working capital increased by $3.0 million from $17.2 million at December 31,
1994 to $20.2 million at December 31, 1995 primarily due to profitable
operations. Accounts receivable increased by $4.9 million primarily as a result
of increased sales. Inventories increased by $8.6 million to meet continued
demand for the Company's products. Cash decreased by $1.8 million primarily
resulting from increases in accounts receivable and inventories which were
partially offset by increases in accounts payable, accrued expenses and
short-term borrowings.

Unsecured lines of credit of $15 million which are subject to annual renewal,
are available from banks. Amounts outstanding under these lines are payable upon
demand by the banks. During 1995, the Company has borrowed various amounts from
time to time up to $6.5 million, of which $6.2 million at an interest rate of
7.9% was outstanding as of December 31, 1995.

The Company has paid a cash dividend of approximately $0.085 per share of Common
Stock in June of each year commencing in 1991 (adjusted for a two for one stock
split as of December 29,1995).

The Company expects cash flow from operations and availability under the
Company's lines of credit to be sufficient to meet cash needs for working
capital expenditures for at least the next two years.

INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

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

The Company enters into forward exchange contracts to minimize the impact of
fluctuations in currency exchange rates on future cash flows emanating from
sales denominated in foreign currencies. The Company does not purchase such
contracts for trading purposes. During 1995, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's commitment under these contracts approximated $4,500,000 as of
December 31, 1995. At December 31, 1995, the exchange rates for such currencies
covered by the contracts approximated the predetermined rate included therein.
The Company routinely assesses the financial strength of the bank which is
counterpart to the forward exchange contracts. As of December 31, 1995,
management believes it had no significant exposure to credit risk relative to
such contracts.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS 121"), was issued. This statement, which will be required in

                                     II-3





















1996, establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. The Company does not expect that the adoption of SFAS 121 will
have a material impact on the financial statements.

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


Item 8.  Financial Statements and Supplementary Data
         -------------------------------------------
     Financial statements listed under Item 14.(a)1. are included in Part IV.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
         Financial Disclosure
         --------------------
     There is nothing to report relating to this Item.



                                     II-4

<PAGE>   15

PART III
--------------------------------------------------------------------------------

Item 10. Directors and Executive Officers of the Registrant

     The information required by this item is included in the Registrant's
definitive proxy statement for the 1996 Annual Meeting of Stockholders and is
incorporated herein by reference.

Item 11. Executive Compensation

     The information required by this item is included in the Registrant's
definitive proxy statement for the 1996 Annual Meeting of Stockholders, except
that the sections in said definitive proxy statement entitled "Board
Compensation Committee Report on Executive Compensation" and the "Stock
Performance Chart" shall not be deemed incorporated herein by reference to this
10-K Report.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this item is included in the Registrant's
definitive proxy statement for the 1996 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

     There is nothing to report relating to this Item.




                                    III-1
<PAGE>   16
<TABLE>

PART IV
--------------------------------------------------------------------------------

<S>                      <C>
Item 14.  Exhibits,      (a)1. Financial Statements
Financial Statement            --------------------
Schedules, and                 Independent Auditors' Report 
Reports on                     Balance Sheets as of December 31, 1995 and 1994
Form 8-K                       Statements of Income for the Years Ended
                                 December 31, 1995, 1994, and 1993.
                               Statements of Stockholders' Equity for the
                                 Years Ended December 31, 1995, 1994, and 1993.
                               Statements of Cash Flows for the Years Ended
                                 December 31, 1995, 1994, and 1993.
                                
                         (a)2. Schedule II - Valuation and Qualifying
                                 Accounts for the Years Ended December 31,
                                 1995, 1994, and 1993.

                               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 of notes
                               thereto.


</TABLE>


                                     IV-1
<PAGE>   17
<TABLE>
<CAPTION>

14.(a) 3. Exhibits                                                                  Page
          --------                                                                  ----
<S>                                                                                 <C>
The following are either (i) filed herewith as exhibits to this 10-K Report or
(ii) have been filed as exhibits to filings under the Securities Act of 1933 or
the Securities Exchange Act of 1934 and are incorporated herein by reference as
exhibits to this 10-K Report.

(3)(i)    Restated Articles of Organization as currently in effect (filed as
Exhibit (3.1) to Amendment No. 1 to Form S-1 Registration Statement filed with
the Commission on October 5, 1995 and incorporated herein by reference).

(3)(ii)   By-laws of the Company and any amendments thereto, as currently in
effect (filed as Exhibit 3(ii) on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference.)

(10)(a)   Security and Trust Agreement among Town of Avon, acting by and through
its Industrial Development Financing Authority, The First Years Inc., and State
Street Bank and Trust Company relating to issuance of industrial revenue bonds,
dated as of October 1, 1982 (filed as Exhibit 10 (c) on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference).

(10)(b)   Bond Purchase Agreement among Town of Avon, acting by and through its
Industrial Development Financing Authority, The First Years Inc., and State
Street Bank and Trust Company, dated as of October 1, 1982 (filed as Exhibit 10
(d) on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference).

(10)(c)   Loan Agreement between Town of Avon, acting by and through its
Industrial Development Financing Authority, and The First Years Inc., dated as
of October 1, 1982 (filed as Exhibit 10 (e) on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

(10)(d)   Put Agreement between State Street Bank and Trust Company and The 
First Years Inc., dated as of October 1, 1982 (filed as Exhibit 10 (f) on Form
10-K for the year ended December 31, 1994 and incorporated herein by reference).

(10)(e)   Agreement with The Walt Disney Company dated March 28, 1994 (filed as
Exhibit 10.11 on Form S-1 Registration Statement filed with the Commission on
September 15, 1995 and incorporated herein by reference).
</TABLE>

                                     IV-2

<PAGE>   18

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>
Management Contracts and Compensatory Plans

(10)(f)   The First Years Inc. 1993 Equity Incentive Plan, as amended through
January 19, 1995 (filed as Exhibit 10 (g) on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

(10)(g)   The First Years Inc. 1993 Stock Option Plan for Non-employee
Directors, as amended through January 19, 1995 (filed as Exhibit 10 (h) on Form
10-K for the year ended December 31, 1994 and incorporated herein by reference).

(10)(h)   Agreement between The First Years Inc. and Jerome M. Karp dated
August 8, 1994 (filed as Exhibit 10(c) to the Form 10-Q Report for the quarter
ended June 30, 1994, and incorporated herein by reference).

(10)(i)   Employment Agreement between The First Years Inc. and Benjamin Peltz,
dated March 23, 1995 (filed as Exhibit 10(j) on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

(10)(j)   Employment Agreement between The First Years Inc. and Ronald J.
Sidman, dated March 23, 1995 (filed as Exhibit 10(k) on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference).

(10)(k)   The First Years Inc. 1995 Restated Annual Incentive Plan, effective as
of July 1, 1995 (filed as Exhibit 10.10 on Form S-1 Registration Statement filed
with the Commission on September 15, 1995 and incorporated herein by
reference.).

(11) Statement re Computation of Per Share Earnings.                                IV-18

(23) Consent of Deloitte & Touche LLP, dated March 29, 1996.                        IV-19

(27) Financial Data Schedule.                                                      

</TABLE>

14.(b) Report on Form 8-K

     The Company filed one report on Form 8-K with the Securities and Exchange
Commission during the fiscal year ended December 31, 1995. The Report was filed
on December 6, 1995 to report the 2- for-1 stock split of the Company's Common
Stock, $.10 par value, effected in the form of a 100% stock dividend which was
declared by the Company's Board of Directors on such date.

                                     IV-3


<PAGE>   19

                                  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 21, 1996

By: /s/ Benjamin Peltz
    --------------------------------------------
       Benjamin Peltz, Senior Vice President and Treasurer
       (Chief Financial Officer and Chief Accounting Officer)

Date:       March 21, 1996

<TABLE>

         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 indicated on March 21, 1996.

<CAPTION>
         Signature              Title                   Date

<S>                       <C>                      <C>
                          Chief Executive Officer
                          Chairman of the Board of
/s/ Ronald J. Sidman      Directors and President  March 21, 1996
-----------------------------------------------------------------
Ronald J. Sidman     
                          Vice Chairman of the
/s/ Jerome M. Karp        Board of Directors       March 21, 1996
-----------------------------------------------------------------
Jerome M. Karp

/s/ Evelyn Sidman         Director                 March 21, 1996
-----------------------------------------------------------------
Evelyn Sidman

/s/ Benjamin Peltz        Director                 March 21, 1996
-----------------------------------------------------------------
Benjamin Peltz

/s/ Merton N. Alperin     Director                 March 21, 1996
-----------------------------------------------------------------
Merton N. Alperin

/s/ Fred T. Page          Director                 March 21, 1996
-----------------------------------------------------------------
Fred T. Page

</TABLE>

                                     IV-4




<PAGE>   20
THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)

<TABLE>

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

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

                                                                          PAGE

<S>                                                                   <C>
INDEPENDENT AUDITORS' REPORT                                              IV-6

FINANCIAL STATEMENTS:

  Balance Sheets as of December 31, 1995 and 1994                         IV-7

  Statements of Income for the Years Ended December 31, 1995,
     1994, and 1993                                                       IV-8

  Statements of Stockholders' Equity for the Years Ended
     December 31, 1995, 1994, and 1993                                    IV-9

  Statements of Cash Flows for the Years Ended December 31, 1995,
     1994, and 1993                                                      IV-10

  Notes to Financial Statements                                       IV-11-16

FINANCIAL STATEMENT SCHEDULE II - VALUATION AND QUALIFYING
  ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993         IV-17

</TABLE>


                                      IV-5

<PAGE>   21

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of The First Years Inc.
(formerly Kiddie Products, Inc.) as of December 31, 1995 and 1994, and the
related statements of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1995. Our audit also included
the financial statement schedule listed in the accompanying index. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The First Years Inc. as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 7, 1996

                                      IV-6

<PAGE>   22
THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)
--------------------------------------------------------------------------------

<TABLE>
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

<CAPTION>
                     
                                                                  1995                 1994               
<S>                                                        <C>                  <C>
ASSETS
CURRENT ASSETS:                                                                                               
  Cash and cash equivalents (Notes 1 and 8)                $   552,568          $ 2,329,041            
  Accounts receivable (less allowance for doubtful                                                            
    accounts, $185,000 in 1995 and 1994) (Note 8)           14,191,630            9,266,235            
  Inventories (Note 1)                                      19,009,784           10,413,835             
  Prepaid expenses and other assets                            778,074              295,921                
  Deferred tax asset (Notes 1 and 3)                           872,300              624,500                
                                                           -----------          -----------            
                                                                                                              
       Total current assets                                 35,404,356           22,929,532                
                                                           -----------          -----------            

PROPERTY, PLANT, AND EQUIPMENT (Note 1):                                                                      
  Land                                                         167,266              167,266
  Building                                                   3,737,861            3,737,861            
  Machinery and molds                                        6,481,504            5,413,075            
  Furniture and equipment                                    3,183,379            2,986,905
                                                           -----------          -----------            
                                                                                                              
       Total                                                13,570,010           12,305,107
                                                                                                              
Less accumulated depreciation                                7,262,286            6,381,854              
                                                           -----------          -----------            
  Property, plant, and equipment - net                       6,307,724            5,923,253                     
                                                           -----------          -----------            
                                                                                                           
TOTAL ASSETS                                               $41,712,080          $28,852,785   
                                                           ===========          ===========   


LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                   
CURRENT LIABILITIES:                                                                                            
  Current portion of long-term debt (Note 2)               $   133,333          $   133,333                                        
  Short-term borrowings (Note 2)                             6,200,000                    -                      
  Accounts payable                                           6,903,478            4,034,263              
  Accrued benefit plans expense (Note 7)                       255,271              259,557                  
  Accrued payroll expenses                                   1,105,004              782,890                  
  Accrued selling expenses                                     604,434              256,161                  
  Federal and state income taxes payable                                                               
    (Notes 1 and 3)                                                  -              218,500                     
                                                           -----------          -----------            
                                                                                                                 
       Total current liabilities                            15,201,520            5,684,704                
                                                           -----------          -----------            
                                                                                                                 
LONG-TERM DEBT- Less portion due                                                                             
  currently (Note 2)                                           100,001              233,334                
                                                           -----------          -----------            
                                                                                                                 
DEFERRED TAX LIABILITY (Notes 1 and 3)                         647,300              584,800       
                                                           -----------          -----------            
                                                                                                                 
COMMITMENTS AND CONTINGENCIES                                                                        
  (Notes 5, 6 and 8)                                                                                              

STOCKHOLDERS' EQUITY (Notes 4 and 7):                                                                           
  Common stock - authorized, 15,000,000 shares as of                                                         
    December 31, 1995 and 7,500,000 shares as of                                                               
    December 31, 1994 at $.10 par value                        451,514              225,043      
  Paid-in capital                                                    -               98,194       
  Retained earnings                                         25,311,745           22,026,710   
                                                           -----------          -----------            
                                                                                                                 
       Total stockholders' equity                           25,763,259           22,349,947  
                                                           -----------          -----------            
                                                                                                                 
TOTAL LIABILITIES AND STOCKHOLDERS'                                                                  
  EQUITY                                                   $41,712,080          $28,852,785     
                                                           ===========          ===========     
                                                                                                                 

</TABLE>


See notes to financial statements.


                                      IV-7



<PAGE>   23

THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)

<TABLE>

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
--------------------------------------------------------------------------------
<CAPTION>

                                            1995            1994            1993
<S>                                     <C>             <C>             <C>
NET SALES (Notes 1, 6 and 8)            $75,757,322     $53,233,109     $46,124,088

COST OF PRODUCTS SOLD (Note 1)           45,108,546      29,498,457      26,653,704
                                        -----------     -----------     -----------

GROSS PROFIT                             30,648,776      23,734,652      19,470,384

SELLING, GENERAL, AND ADMINISTRATIVE
  EXPENSES (Notes 1 and 7)               23,961,206      18,915,908      17,857,049
SEVERANCE-RELATED EXPENSES (Note 9)            --              --           373,000
                                        -----------     -----------     -----------

OPERATING INCOME                          6,687,570       4,818,744       1,240,335

OTHER INCOME (EXPENSE):
  Interest expense                         (186,338)        (24,575)        (28,912)
  Interest income                            16,718          66,605          66,204
  Offering expenses (Note 10)              (310,457)           --              --
                                        -----------     -----------     -----------

INCOME BEFORE INCOME TAXES                6,207,493       4,860,774       1,277,627

PROVISION FOR INCOME TAXES
  (Notes 1 and 3)                         2,483,000       1,871,400         481,500
                                        -----------     -----------     -----------

NET INCOME                              $ 3,724,493     $ 2,989,374     $   796,127
                                        ===========     ===========     ===========

EARNINGS PER SHARE - (Note 1 )          $      0.80     $      0.66     $      0.18
                                        ===========     ===========     ===========
</TABLE>

See notes to financial statements.

                              IV-8

<PAGE>   24

THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)

<TABLE>

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
----------------------------------------------------------------------------------------------------
<CAPTION>

                                                  Common Stock              Paid-in        Retained
                                              Shares      Par Value         Capital        Earnings

<S>                                        <C>             <C>             <C>          <C>
BALANCE, JANUARY l, 1993                   2,248,260       $224,826        $ 75,354     $19,005,617

 Dividends paid                                   --             --              --        (382,204)
                                                                 
 Net income                                       --             --              --         796,127
                                           ---------       --------        --------     -----------

BALANCE, DECEMBER 31, 1993                 2,248,260        224,826          75,354      19,419,540

 Stock issued under stock option plans
 (Note 7)                                      2,170            217          22,840              --

 Dividends paid                                   --             --              --        (382,204)

 Net income                                       --             --              --       2,989,374
                                           ---------       --------        --------     -----------

BALANCE, DECEMBER 31, 1994                 2,250,430        225,043          98,194      22,026,710

Stock issued under stock option plans
(Note 7)                                      7, 141            714          70,957              --

Dividends paid                                    --             --              --        (382,852)

Stock split, two-for-one (Note 4)          2,257,571        225,757        (169,151)        (56,606)

Net income                                      --             --                --       3,724,493
                                           ---------       --------        --------     -----------
BALANCE, DECEMBER 31, 1995                 4,515,142       $451,514        $     --     $25,311,745
                                           =========       ========        ========     ===========
</TABLE>


See notes to financial statements.

                                       IV-9

<PAGE>   25

THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)

<TABLE>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
-------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                                 1995           1994           1993
<S>                                                                       <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                $ 3,724,493    $ 2,989,374    $   796,127
Adjustments to reconcile net income to net cash provided by (used for)
 operating activities:
  Depreciation                                                                992,291        878,250        778,652
  Provision for doubtful accounts                                              86,227         23,673         17,177
  Loss on disposal of equipment                                                70,258         47,877        105,170
  Increase (decrease) arising from working capital items:                 
   Accounts receivable                                                     (5,011,624)    (2,077,176)      (994,400)
   Inventories                                                             (8,595,949)    (2,184,385)      (931,295)
   Prepaid expenses and other assets                                         (482,153)       (53,315)       (42,222)
   Accounts payable                                                         2,869,215      1,549,774         20,979
   Accrued benefit plans expense                                               (4,286)      (376,128)       (51,060)
   Accrued payroll expenses                                                   322,114        730,508       (366,866)
   Accrued selling expenses                                                   348,273       (142,477)       (95,394)
   Federal and state income taxes payable                                    (218,500)        (9,200)       (72,100)
  Change in deferred income taxes                                            (185,300)       107,200         51,800
                                                                          -----------    -----------    -----------

        Net cash provided by (used for) operating activities               (6,084,941)     1,483,975       (783,432)
                                                                          -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES -
  Purchase of property, plant, and equipment                               (1,447,018)    (1,374,721)      (794,222)
                                                                          -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of industrial revenue bonds                                      (133,333)      (133,333)      (133,333)
  Net proceeds from short-term borrowings                                   6,200,000             --             --
  Dividends paid                                                             (382,852)      (382,204)      (382,204)
  Common stock issued under stock option plans                                 71,671         23,057             --
                                                                          -----------    -----------    -----------

        Net cash provided by (used for) financing activities                5,755,486       (492,480)      (515,537)
                                                                          -----------    -----------    -----------

DECREASE IN CASH AND CASH EQUIVALENTS                                      (1,776,473)      (383,226)    (2,093,191)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                2,329,041      2,712,267      4,805,458
                                                                          -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                    $   552,568    $ 2,329,041    $ 2,712,267
                                                                          ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 
 Cash paid during the year for:
  Interest                                                                $   186,338    $    24,575    $    28,912
                                                                          ===========    ===========    ===========

  Income taxes                                                            $ 3,269,100    $ 1,773,400    $   501,800
                                                                          ===========    ===========    ===========

</TABLE>

See notes to financial statements.

                                       IV-10

<PAGE>   26


THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS, INC.)

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      REVENUE RECOGNITION - Revenue is recognized when products are shipped.

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

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

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

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

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

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

      EARNINGS PER SHARE - Earnings per share are based on the weighted average
      number of shares outstanding during each year (retroactively adjusted to
      reflect the two-for-one stock split effected on December 29, 1995 and the
      three-for-one stock split effected on December 15, 1992) and common
      equivalent shares, consisting of the effect of stock options outstanding,
      if dilutive (4,663,491, 4,497,244 and 4,496,520 shares in 1995, 1994 and
      1993, respectively) (see Note 7). Earnings per share assuming full
      dilution have not been presented because the dilutive effect is
      immaterial.

                                     IV-11

<PAGE>   27

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

      RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
      expensed as incurred. During 1995, 1994, and 1993, research and
      development costs approximated $1,834,000, $1,466,000, and $1,493,000,
      respectively.

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

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

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's
      assets and liabilities which constitute financial instruments as defined
      in Statement of Financial Accounting Standards No. 107 approximate their
      recorded value.

2.    DEBT

      Long-term debt consists of unsecured industrial revenue bonds ("IRB"),
      with interest payable quarterly at 65% of the prime rate (5.5% at December
      31, 1995 and 1994) and principal payable in equal quarterly installments
      of $33,333 through September 30, 1997.

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

      The Company has available unsecured lines of credit totaling $15,000,000
      with two banks. Both lines are subject to annual renewal and require no
      compensating balances. One line bears interest at the prime rate or the
      LIBOR rate plus 2.0% and the other line at the prime rate less 0.25% or
      the LIBOR rate plus 1.75%. During 1995, the Company borrowed various
      amounts up to $6,500,000 under the lines. As of December 31, 1995 a
      balance of $6,200,000, which bears interest at 7.9%, remains outstanding.
      No other short-term borrowings were incurred by the Company during 1995 or
      1994.

                                     IV-12

<PAGE>   28
3.    INCOME TAXES
<TABLE>

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

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

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

</TABLE>


<TABLE>
        The provision for income taxes consists of the following:

<CAPTION>
                                                          1995               1994              1993
          <S>                                       <C>                <C>                 <C>
          Federal:
            Current                                 $2,104,000         $1,432,700          $352,300
            Deferred                                  (185,300)           107,200            51,800
                                                    ----------         ----------          --------

          Total federal                              1,918,700          1,539,900           404,100

          State                                        564,300            331,500            77,400
                                                    ----------         ----------          --------

          Provision for income taxes                $2,483,000         $1,871,400          $481,500
                                                    ==========         ==========          ========

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

</TABLE>

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

          Effective tax rate                                           40.0%        38.5%        37.7%
                                                                       ====         ====         ==== 
</TABLE>

                             IV-13

<PAGE>   29

4.    COMMON STOCK

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

5.    COMMITMENTS AND CONTINGENCIES

      FOREIGN EXCHANGE CONTRACTS - During 1995 and 1994, the Company entered
      into forward exchange contracts with a bank whereby the Company is
      committed to deliver foreign currency at predetermined rates. The
      contracts expire within one year. The Company's future commitment under
      these contracts approximated $4,500,000 and $3,100,000 as of December 31,
      1995 and 1994, respectively. At December 31, 1995 and 1994, the exchange
      rates for such currencies covered by the contracts approximated the
      predetermined rates included therein.

      OTHER COMMITMENTS - At December 31, 1995 and 1994, letters of credit
      outstanding aggregated approximately $1,925,000 and $1,275,000,
      respectively.

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

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

6.    ROYALTIES

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

7.    BENEFIT PLANS

      DEFINED CONTRIBUTION PLAN - The Company has a defined contribution
      trusteed benefit plan covering eligible employees, requiring annual
      contributions based upon certain percentages of salaries of employees. The
      Company's policy is to fund pension expense accrued. Pension expense
      aggregated $259,000, $267,000, and $661,000 in 1995, 1994, and 1993,
      respectively.

                                     IV-14

<PAGE>   30

7.    BENEFIT PLANS (CONTINUED)

      STOCK OPTION PLANS - In May 1993, the Company's stockholders approved the
      adoption of The First Years Inc. 1993 Equity Incentive Plan and The First
      Years Inc. 1993 Stock Option Plan for Non-employee Directors (the "plans")
      which cover key salaried employees and directors of the Company. The Board
      of Directors has reserved 670,000 shares (adjusted to reflect the
      two-for-one stock split effected on December 29, 1995) for issuance under
      the plans and 20,000 shares for a stock option agreement granted outside
      of the plans. The exercise price for the options granted may not be less
      than the fair market value of the optioned stock at the date of grant,
      110% of fair market value in the case of options granted to a 10%
      stockholder.

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

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

<CAPTION>
                                                                            NUMBER OF
                                                         NUMBER OF           OPTIONS
                                EXERCISE PRICE            OPTIONS           AVAILABLE
                                  PER SHARE             OUTSTANDING         FOR GRANT 
       <S>                       <C>                       <C>              <C>
       January l, 1993

        Authorized                                               -           440,000
        Granted                  $5.32 to $5.84            206,000          (206,000)
        Canceled                      $5.32                 (2,000)            2,000
                                                           -------          --------

       December 31, 1993                                   204,000           236,000

        Authorized                                                            20,000
        Granted                  $4.56 to $5.63            126,300          (126,300)
        Canceled                 $4.56 to $5.31            (20,828)           20,828
        Exercised                     $5.31                 (4,340)                -
                                                           -------          --------

       December 31, 1994                                   305,132           150,528

        Authorized                                               -           230,000
        Granted                  $8.94 to $9.83            128,920          (128,920)
        Canceled                 $4.56 to $5.31             (8,192)            8,192
        Exercised                $4.56 to $5.31            (14,282)                -
                                                           -------          --------

       December 31, 1995                                   411,578           259,800
                                                           =======           =======
<FN>
At December 31, 1995, 166,999 options were exercisable at $4.56 to $5.84 per share.
</TABLE>

                                        IV-15

<PAGE>   31

8.    CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

      CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
      subject the Company to concentrations of credit risk consist principally
      of cash equivalents, trade receivables and forward exchange contracts (see
      Note 5). The Company's cash equivalents consist of money market funds
      placed with major banks and financial institutions. The Company's trade
      receivables principally include amounts due from retailers geographically
      dispersed. The Company's two largest customers accounted for 61% of the
      trade receivables outstanding at December 31, 1995 and 1994. The Company
      routinely assesses the financial strength of its customers and purchases
      credit insurance to limit its potential exposure to trade receivable
      credit risks. The Company routinely assesses the financial strength of the
      bank which is the counterparty to the forward exchange contracts. As of
      December 31, 1995, management believes it had no significant exposure to
      credit risks.

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

      RELIANCE ON LICENSED PRODUCTS - A licensing agreement (see Note 6) with a
      major entertainment company will expire at the end of 1996. Sales of
      products licensed under the agreement amounted to 20% of the Company's
      total net sales for year ended December 31, 1995. Management is in the
      process of renegotiating continuance of this agreement.

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

9.    SEVERANCE-RELATED EXPENSES

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

10.   OFFERING EXPENSES

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

                                   * * * * * *

                                     IV-16

<PAGE>   32
<TABLE>
                                                                              SCHEDULE II
THE FIRST YEARS INC.
(FORMERLY KIDDIE PRODUCTS INC.)

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
------------------------------------------------------------------------------------------
<CAPTION>
                                                     ADDITIONS
                                                      CHARGED
                                         BALANCE,     TO COSTS                    BALANCE,
                                        BEGINNING       AND                         END
         DESCRIPTION                     OF YEAR      EXPENSES    DEDUCTIONS (1)  OF YEAR

<S>                                      <C>           <C>         <C>           <C>
VALUATION ACCOUNTS DEDUCTED
  FROM ASSETS TO WHICH THEY APPLY-

    Allowance for doubtful accounts:
    1995                                 $185,000     $86,227      $ 86,227      $185,000
                                         ========     =======      ========      ========

    1994                                 $185,000     $23,673      $ 23,673      $185,000
                                         ========     =======      ========      ========

    1993                                 $270,000     $17,177      $102,177      $185,000
                                         ========     =======      ========      ========

<FN>
(1) Net accounts written off.
</TABLE>


                                       IV-17