# UNITED
STATESSECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549

# FORM 10-KSB

|[X] | Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
               1934 For the fiscal year ended December 31, 2007;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

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:
033-51406

THE MIDDLETON DOLL
COMPANY                                             (Name of small business issuer in its
charter)

|Wisconsin                                                      | 39-1364345                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|N22 W23977 Ridgeview Parkway, Suite 700                       
|Waukesha, Wisconsin                                            | 53188-1000                          
|(Address of principal executive offices)                       | (Zip Code)                          

Issuers telephone
number: (262) 347-2904

---

Securities registered
under Section 12(b) of the Exchange Act:
                                                                 None

Securities registered
under Section 12(g) of the Exchange Act:

|Title of Class                      | Title of Class                  
|----------------------------------- | --------------------------------
|Common Stock, 6-2/3 cents Par Value | Preferred Stock, $0.01 Par Value

Check
whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [   ]

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [   ]

Indicate
 by check mark  whether  the  registrant  is a shell  company  (as  defined in Rule 12b-2
of the  Exchange  Act.) Yes [   ]   No   [X]

The
issuers revenues for its most recent fiscal year were $12,782,779.

The aggregate
market value of voting and non-voting common equity held by non-affiliates of the
registrant at March 1, 2008 was $1,797,661. The number of shares of common stock
outstanding at March 21, 2008 was 3,824,811.

DOCUMENTS
INCORPORATED BY REFERENCE:

Portions of The Middleton Doll
Company Proxy Statement for the 2008 Annual Meeting of Shareholders (to be filed with the
Securities and Exchange Commission under Regulation 14A within 120 days after the end of
the Registrants fiscal year) are, upon such filing, to be incorporated by reference
into Part III.

Transitional
Small Business Disclosure Format (Check one):     Yes   [   ]   No   [X]

---

# THE MIDDLETON DOLL
COMPANY  Index to Annual Report on Form 10-KSBFor the Year Ended December 31, 2007

|Forward-Looking Statements |          | 3                                                                        
|-------------------------- | -------- | -------------------------------------------------------------------------
|                           |          |                                                                          
|PART  I                    |          |                                                                          
|                           | Item 1.  | Description of Business                                                  
|                           | Item 2.  | Description of Property                                                  
|                           | Item 3.  | Legal Proceedings                                                        
|                           | Item 4.  | Submission of Matters to a Vote of Security Holders                      
|PART  II                   |          |                                                                          
|                           | Item 5.  | Market for Common Equity, Related Stockholder Matters and                
|                           |          | Small Business Issuer Purchases of Equity Securities                     
|                           | Item 6.  | Managements Discussion and Analysis or Plan of Operation                
|                           | Item 7.  | Financial Statements                                                     
|                           | Item 8.  | Changes In and Disagreements With Accountants on                         
|                           |          | Accounting and Financial Disclosure                                      
|                           | Item 8A. | Controls and Procedures                                                  
|                           | Item 8B. | Other Information                                                        
|PART  III                  |          |                                                                          
|                           | Item 9.  | Directors, Executive Officers, Promoters, Control Persons and Corporate  
|                           |          | Governance; Compliance With Section 16(a) of the Exchange Act            
|                           | Item 10. | Executive Compensation                                                   
|                           | Item 11. | Security Ownership of Certain Beneficial Owners and Management and       
|                           |          | Related Stockholder Matters                                              
|                           | Item 12. | Certain Relationships and Related Transactions, and Director Independence
|                           | Item 13. | Exhibits                                                                 
|                           | Item 14. | Principal Accountant Fees and Services                                   

2

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# Forward-Looking
Statements

In
this report, The Middleton Doll Company and its subsidiaries make statements concerning
expectations, beliefs, plans, objectives, goals, strategies, and future events or
performance. Such statements are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. Although The Middleton
Doll Company and its subsidiaries believe that these forward-looking statements and the
underlying assumptions are reasonable, they cannot provide assurance that they will prove
correct. Except to the extent required by the federal securities laws, The Middleton Doll
Company and its subsidiaries undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or
otherwise.

In
addition to statements regarding trends or estimates in Managements Discussion and
Analysis or Plan of Operation, forward-looking statements included or incorporated in this
report include, but are not limited to statements regarding future:

| |  | revenues
or expenses, and
| | - | -------------------------

| |  | financing
sources and strategic alternatives.
| | - | ---------------------------------------------

Forward-looking
statements involve a number of risks and uncertainties. There are many factors that could
cause actual results to differ materially from those expressed or implied in this report.
Some risk factors that could cause results different from any forward-looking statement
include those described in Item 1 of this Annual Report on Form 10-KSB for the year ended
December 31, 2007. Other factors include:

| |  | the
ability of the Company to continue as a going concern;
| | - | ----------------------------------------------------------

| |  | the
ability of the Company to provide the necessary cash to meet operating and working
capital requirements;
| | - | ------------------------------------------------------------------------------------------------------------

| |  | the
ability of the Company to provide the necessary cash to redeem the remaining outstanding
preferred stock;
| | - | -------------------------------------------------------------------------------------------------------------

| |  | declining
demand for the Companys consumer products;
| | - | -----------------------------------------------------

| |  | the
degree of success of the strategy to reduce expenses and to increase revenue at the
consumer products business segment;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| |  | competition;
| | - | ------------

| |  | general
economic conditions, including the condition of the local real estate market;
| | - | -------------------------------------------------------------------------------------

| |  | legislative/regulatory
changes;
| | - | -------------------------------

| |  | monetary
and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| |  | the
quality or composition of the loan and real estate portfolios;
| | - | ------------------------------------------------------------------

| |  | payment
when due of principal and interest on loans made by the Company;
| | - | ------------------------------------------------------------------------

| |  | the
necessity to make additions to the Companys allowance for doubtful accounts;
| | - | ---------------------------------------------------------------------------------

| |  | the
necessity to make additions to the Companys allowance for obsolete inventory; and
| | - | --------------------------------------------------------------------------------------

| |  | the
timing of sale and the selling price of the Companys commercial property.
| | - | ------------------------------------------------------------------------------

These
risks and uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements.

3

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# Part I

|Item 1. | Description
of Business
|------- | -----------------------

The
Middleton Doll Company (the Company) was incorporated in 1980 and presently
consists of two business segments, the consumer products business segment and the
financial services business segment. The Company, when referred to singularly and not with
its subsidiaries, is referred to herein as the Parent.

The
consumer products business segment is a component of Lee Middleton Original Dolls, Inc.
(LMOD), which was incorporated in 1993, and its wholly-owned subsidiary
License Products, Inc. (LPI), which was incorporated in 1990. LMOD is a
designer and distributor of lifelike collectible and play dolls. LPI is a designer and
distributor of clocks and home décor products.

The
consumer products business segment has incurred net losses and negative cash flows from
operating activities over the past five years and the Company has an accumulated deficit
of $7.15 million at December 31, 2007. The Company anticipates generating losses for the
next twelve months. The Companys financial condition may also make it more difficult
for the Company to market its products to new and existing customers. Based on the
Companys financial performance and its current financial condition, the
Companys audit report contains an explanatory paragraph for going concern
uncertainty, pursuant to which the Companys auditors have expressed substantial
doubt as to the Companys ability to continue as a going concern.

The
Companys continuation as a going concern is dependent on its ability to meet its
obligations, to obtain additional financing as may be required and ultimately to attain
profitability. Management anticipates, based on current projections and absent any adverse
factors outside the control of the Company, that the cash that will be generated from
additional asset sales and existing operations together with existing cash balances and
other potential sources of financing, such as the loan agreements that the Company entered
into during 2007 providing for $1.75 million of funding (See Note 11 in the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-KSB), should be
sufficient to provide the necessary cash to meet operating and working capital
requirements through December 31, 2008. However, the Company anticipates that it will not
have sufficient funds to redeem its preferred stock by July 1, 2008. The Company is
actively pursuing various alternatives to address all of its financial obligations,
including the redemption of preferred stock, which could include a financing transaction,
a disposition of assets, a recapitalization of the Company, or a strategic business
combination. However, there can be no assurance that the Company will be able to generate
enough revenue and/or effect a transaction to address its financial obligations.

The
Company is required to redeem $9.39 million of preferred stock by July 1, 2008, to the
extent the Company has legally available funds for the redemption and it is otherwise
permitted under Wisconsin law. In accordance with Section 180.0640 of the Wisconsin
Business Corporation Law, the Company may not redeem shares of preferred stock if, after
giving effect to the redemption, either of the following would occur: (1) the Company
would not be able to pay its debts as they become due in the usual course of business; or
(2) the Companys total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at the time of
the redemption, to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those of the holders of the preferred stock.

The
Company will only have sufficient funds to redeem the preferred stock and to continue to
pay dividends on the preferred stock if the consumer products business segment can
generate sufficient earnings (the consumer products business segment has realized losses
from operations for the last five years) and/or is able to raise funds from other sources.
If the preferred stock is not redeemed by July 1, 2008, then the Company is obligated to
redeem the preferred stock as soon as it has legally available funds for the redemption,
and dividends continue to accrue and be payable following the failure to redeem at the
interest rate applicable prior to July 1, 2008 (5.37%). The holders of preferred stock
have the right to elect a majority of the Board of Directors if at any time accumulated
dividends equal to at least two full years dividends are due and unpaid. Management
believes based on its review of the documents and discussions with lenders, that failure
to redeem the preferred stock on July 1, 2008, will not be an event of default
under the loan agreements that the Company entered into during 2007. Nonetheless, if the
Company is unable to redeem the preferred stock, the Companys business, financial
condition and results of operations could be materially affected.

4

---

Prior
to January 1, 2006, the financial services business segment consisted of the Parent and
its wholly-owned subsidiary Bando McGlocklin Small Business Lending Corporation
(BMSBLC). On January 1, 2006, BMSBLC was merged with and into LMOD with LMOD
as the surviving corporation. During 2006, the Company sold substantially all of the
assets of the financial services business segment and used the net proceeds to pay off
indebtedness, fund working capital at the consumer products business segment, pay
preferred stock dividends, and partially redeem shares of the Companys outstanding
preferred stock. The Company does not intend to continue in the financial services
business segment after all of the segments assets are sold.

For
the year ended December 31, 2005, the Parent and BMSBLC were operated as a real estate
investment trust (REIT) pursuant to the provisions of Section 856 of the
Internal Revenue Code of 1986, as amended (the Code). To retain its tax exempt
status, a REIT must be in compliance with certain tests concerning the nature of its
assets and its income. In addition, a REIT must distribute substantially all of its
taxable income each year in dividends to its shareholders. LMOD and LPI are each operated
as C Corporations under the Code and are subject to corporate income tax rates. As a
result of BMSBLCs merger with and into LMOD, BMSBLC no longer qualifies as a REIT.
Therefore for the years ended December 31, 2006, and December 31, 2007, the Company
(consisting of the Parent, LMOD and LPI) operated as a C Corporation under the Code. The
Company filed a consolidated federal income tax return for the year ended December 31,
2006, and intends to file a consolidated federal income tax return for the year ended
December 31, 2007.

On
September 3, 1997, the Company capitalized InvestorsBancorp, Inc. (IBI), a
bank holding company, for approximately $6.2 million and subsequently distributed all of
the outstanding shares of IBI to the Companys shareholders. On January 4, 2006, LMOD
entered into an asset purchase agreement with InvestorsBank (the Bank)
pursuant to which it sold substantially all of its loans and loan participations to the
Bank for an aggregate total purchase price of $15.58 million, plus accrued interest. The
purchase price for the sale of the loans and loan participations was the outstanding
principal balance of all such loans and loan participations. The Bank completed the
purchase of the loans and loan participations on September 8, 2006. In addition, the Bank
separately purchased $4.16 million of loans and loan participations from LMOD under
substantially similar terms.

As
of January 1, 2006, Salvatore L. Bando was appointed as the Companys President and
Chief Executive Officer and Craig R. Bald was appointed as the Companys Vice
President  Finance and Chief Financial Officer. Kenneth A. Werner, Jr., became a
director of the Company on January 1, 2006. Also as of January 1, 2006, Chief Executive
Officer, George R. Schonath, Vice President Jon McGlocklin and Vice President 
Finance, Susan Hauke, ceased to be officers and/or directors of the Company. Messrs.
Schonath and McGlocklin and Ms. Hauke remain as officers and/or directors of the Bank and
IBI. The Bank administered the loan and real estate portfolios of the Company from January
1, 2006 to June 30, 2006.

The
following table sets forth (in thousands of dollars) revenues and other income
attributable to the Companys principal product groups for each of the last three
years.

# Revenues and Other
Income

|                     
|---------------------
|Revenues             
|Loan Portfolio       
|Real Estate Portfolio
|Dolls                
|Time Pieces          
|Other                
|                     
|Total                
|                     

5

---

In
June, 2004, the Board of Directors changed the common stock dividend policy from the
payment of quarterly dividends to the payment of a discretionary annual dividend payable
in January for the preceding year. For the years ended December 31, 2007 and 2006, no
dividends were paid to the common stock shareholders and the Company does not anticipate
paying any dividends on the common stock in the foreseeable future. The preferred stock
dividend of $0.335 per share per quarter ($1.34 annual dividend per preferred share) was
paid during 2007 and 2006. There can be no assurance that the Company will have sufficient
funds to continue to pay dividends on the preferred stock. The Company will only have
sufficient funds if it can generate sufficient earnings and/or it is able to raise funds
from other sources. See Risk Factors.

# Consumer Products

LMOD
is headquartered in Columbus, Ohio, and designs and distributes lifelike collectible and
play dolls through a dealer network and through major national retailers. LMOD competes
with various other doll manufacturers including Adora, Madam Alexander, Ashton Drake,
Mattels American Girl and a variety of small artist-owned manufacturers. In recent
years the demand for collectible dolls has decreased significantly resulting in a decrease
in sales at LMOD as shown in the table below. Due to intense pricing competition, LMOD
transferred doll production to a contract manufacturer in China in 2004. In 2005, a new
management team at LMOD began to focus on reducing operating expenses and developing new
products and marketing strategies. In August, 2006, LMOD announced the introduction of a
new and comprehensive collection of play dolls, Playbabies, which provides a
playmate for each stage of a young girls early development, from newborn through age
four. In April, 2007, LMOD introduced the Middleton NOW (NOW) line
of collector-quality dolls which have been safety tested for children ages three and up.
NOW dolls are priced between the Playbabies collection and the Artist Studio
Collection (ASC) doll line and reflect a more modern and trendy look. The
Newborn Nursery® dolls, which were first introduced in mid-2004, continue to appeal to
young girls from age five through the pre-teen years. The ASC line of artist-designed
collectible dolls has begun to introduce new artists who are designing and sculpting
collectible dolls with a more realistic style. LMOD has also introduced furniture, bedding
and décor items as well as doll clothing and accessories to complement the doll
lines. Distribution channels for the above product lines consist primarily of dealers or
individual store owners, larger retailers and regional specialty stores.

LPI
is headquartered in Waukesha, Wisconsin, and designs and distributes clocks and home
décor products through major national retailers. LPI imports finished goods from a
manufacturer in China and is in competition with various other clock and home décor
companies including Ingrahm, Infinity Instruments and Timewerks. LPI has experienced some
success at expanding its customer base and has been working to introduce new and updated
styles of clocks and home décor items that have resulted in increased sales. LPI
has reached a mature stage of development and has limited opportunities to expand its
sales channels based on currently available resources.

The
following table sets forth LMODs and LPIs net sales over the past five years.

|Year
Ended | LMODs
Net Sales | LPIs
Net Sales | Total
Consumer
Products
Net Sales
|---------- | ---------------- | --------------- | ---------------------------------
|12/31/2007 | $   6,866,197    | $   5,791,986   | $ 12,658,183                     
|12/31/2006 | $   7,711,376    | $   4,333,496   | $ 12,044,872                     
|12/31/2005 | $   9,196,607    | $   5,131,475   | $ 14,328,082                     
|12/31/2004 | $ 11,011,894     | $   4,933,966   | $ 15,945,860                     
|12/31/2003 | $ 12,425,040     | $   5,235,193   | $ 17,660,233                     

The
revenues for the consumer products business segment are highly dependent upon sales
during the Christmas holiday season. For the years ended December 31, 2007 and 2006,
approximately 39% of the consumer products business segment net sales occurred in the
fourth quarter. Additionally, five large customers accounted for approximately 56% of net
sales for the consumer products business segment during 2007. During  2006, five large
customers accounted for approximately 49% of net sales for the consumer products business
segment. During 2007, two customers each accounted for more than 10% of total net sales
and during 2006, one customer accounted for more than 10% of total net sales.

6

---

The
consumer products business segment imports substantially all of its finished goods from
two suppliers in China and relies on those suppliers to procure sufficient raw materials
to be used in production. The Company has not experienced any significant problems due to
the lack of availability of product. During 2007, finished goods prices increased due to
increases in labor costs and resin prices.

Patents
and trademarks are not material to the Companys business. However, the Company has
engaged in litigation in recent years to prevent competitors from infringing on the
unique, copyrighted designs of its collectible dolls. Additionally, LMOD pays royalties to
the designers of its dolls. The royalty arrangements vary among the designers and range
from 1% to 3% of sales of those dolls which were sculpted by the designer. LMODs
expense for royalties was approximately $59,000 for the year ended December 31, 2007, and
$205,000 for the year ended December 31, 2006. During the year ended December 31, 2006,
the royalty arrangement with LMODs primary designer required a minimum annual
guaranteed royalty payment of $200,000. The guaranteed minimum annual royalty amount was
not applicable for 2007 due to the expiration of the contract period.

The
consumer products business segment employs approximately 55 people of which 39 are
considered full-time employees. At LMOD, approximately five full-time and seven part-time
employees are subject to a collective bargaining agreement, which expires on April 30,
2009. Management and accounting duties for the financial services business segment are
performed by employees of LPI.

The
consumer products business segment incurs new product development costs at LMOD and at
LPI. New product development costs for the year ended December 31, 2007, were
approximately $0.73 million and for the year ended December 31, 2006, were approximately
$1.01 million. These costs are not directly charged to customers.

# Financial Services

At
December 31, 2007, LMODs loan portfolio consisted of three loans totaling $209,563,
one of which is in foreclosure proceedings. During the year ended December 31, 2006,
management established a loan loss allowance of $250,000 against the non-accrual loans.
One loan totaling $186,187, which was in foreclosure proceedings, was charged off against
the loan loss reserve in the second quarter of 2007. No interest income was accrued or
received on these non-accrual loans during the years ended December 31, 2007 and 2006.

At
December 31, 2007, LMODs real estate portfolio consisted of one commercial property,
located in Oconomowoc, Wisconsin, with a carrying cost of $1.39 million. At the present
time, the building is listed for sale for $2.0 million. For federal income tax purposes,
the tax basis of the building is $1.57 million, which is being depreciated by the straight
line method over thirty-nine years.

During
2006, LMOD sold eleven of the twelve leased properties it owned at December 31, 2005,
which resulted in a net gain of $2.24 million. The net proceeds from the sale of the
financial services assets were used to pay off indebtedness, to fund operations, and to
partially redeem shares of the Companys outstanding preferred stock. The Company
does not intend to continue in the financial services business segment after all of the
segments assets are sold.

# Risk Factors

In
addition to the other information set forth or incorporated by reference in this Annual
Report on Form 10-KSB, the risk factors described below should be carefully considered. If
any of the risk factors actually occur, the financial condition or results of operations
could be materially adversely affected. The following list of risk factors may not be
exhaustive. Additional risk and uncertainties not presently known or that are currently
believed to be immaterial may also adversely affect the Company.

7

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# The Company has a going
concern opinion from the auditors, indicating the possibility that the Company may not be
able to continue to operate.

The consumer products business
segment has incurred net losses and negative cash flows from operating activities over the
past five years and the Company has an accumulated deficit of $7.15 million at December
31, 2007. The Company anticipates generating losses for the next twelve months. The
Companys financial condition may also make it more difficult for the Company to
market its products to new and existing customers. Based on the Companys financial
performance and its current financial condition, the Companys audit report contains
an explanatory paragraph for going concern uncertainty, pursuant to which the
Companys auditors have expressed substantial doubt as to the Companys ability
to continue as a going concern.

The financial statements do not
reflect adjustments that would be necessary if the Company were unable to continue as a
going concern. If the Company were unable to continue as a going concern, then substantial
adjustments would be necessary to the carrying values of assets, the reported amounts of
its liabilities, the reported revenues and expenses, and the balance sheet classifications
used.

If the Company cannot continue as
a viable entity, shareholders may lose all or part of their investment.

LMOD has experienced significantly
declining net sales during the last six years.

The demand for collectible dolls has
significantly declined and LMOD has experienced intense competition from lower-priced
collectible dolls manufactured in China, resulting in a significant decline in net sales.

The consumer products segment has
realized losses from operations in each of the past six years.

The consumer products business
segment has not been able to reduce fixed costs and operating expenses sufficiently to
offset the decline in net sales. The Company may continue to experience losses unless it
is able to increase net sales and/or further reduce fixed costs and/or operating expenses.

# The Company has a
limited ability to obtain external financing.

The Company must, on its own,
generate sufficient cash to operate its business. Due to the continuing losses, the
Company has a limited ability to borrow operating funds to meet working capital
requirements. Unless the Company can generate sufficient cash flow from operations it will
eventually encounter significant problems in meeting its working capital requirements
which could lead to insolvency.

Outsourcing of the manufacturing
of the products sold by the consumer products segment to Chinese manufacturers could
adversely affect inventory levels.

Nearly all of the products sold by
the consumer products segment are manufactured in China. The amount of product to be
purchased from Chinese manufacturers must be ordered and paid for several months in
advance to allow for manufacturing and shipping time. If the amount of product ordered
exceeds future sales, inventories will increase which will reduce profits and/or increase
losses. On the other hand, if sales were to exceed the amount of product ordered, then
inventory would be insufficient to meet customer demand.

Five customers provide a
significant portion of the sales for the consumer products segment.

Five customers accounted for
approximately 56% of net sales for the consumer products segment during 2007. A loss of
any one or more of these customers could have a material adverse effect on the business.

There is no assurance that the
Company will have sufficient funds available to completely redeem the outstanding
preferred stock by July 1, 2008, or to continue to pay dividends on the preferred stock.

The Company is required to redeem
$9.39 million of preferred stock by July 1, 2008, to the extent the Company has legally
available funds for the redemption and it is otherwise permitted under Wisconsin law. The
Company will only have sufficient funds to redeem the preferred stock and to continue to
pay dividends on the preferred stock if the consumer products business segment can
generate sufficient earnings and/or is able to raise funds from other sources. In this
regard, the Company is continuing to review various alternatives, which could include a
financing transaction, a disposition of assets, a recapitalization of the Company, or a
strategic business combination, to address all of its financial obligations, including
the redemption of preferred stock. There can be no assurance that the Company will be
able to redeem the preferred stock on July 1, 2008. If the Company is unable to redeem
the preferred stock, the Companys business, financial condition and results of
operations could be materially adversely affected.

8

---

|Item 2. | Description
of Property
|------- | -----------------------

The
Companys headquarters are presently located at N22 W23977 Ridgeview Parkway, Suite
700, Waukesha, Wisconsin, in leased commercial space. The rented space has approximately
3,500 square feet of office space and approximately 36,000 square feet of warehouse space.
The lease commenced January 1, 2008, and expires February 28, 2013. On August 1, 2007, LPI
sold the commercial building in which the Company was previously headquartered at 1050
Walnut Ridge Drive, Hartland, Wisconsin. From August 1, 2007 to December 31, 2007, the
Company rented space in the Hartland building.

Beginning
May 1, 2006, LMOD relocated its corporate headquarters to leased office space in Columbus,
Ohio, in order to reduce operating expenses. The current lease for 7,400 square feet of
office space expires August 31, 2008. Prior to May 1, 2006, LMODs headquarters were
located in Westerville, Ohio, in 18,800 square feet of leased office space. Additional
retail and warehouse space is presently located in Belpre, Ohio, in a 48,000 square foot
building owned by LMOD. The land and building have a carrying cost of $1.15 million. For
federal income tax purposes, the tax basis of the building is $1.74 million, which is
being depreciated by the straight line method over thirty-one years.

From
June, 2000 until August, 2006, LMOD leased a 44,100 square foot warehouse facility in
Columbus, Ohio, which was used for distribution and for the storage of raw materials and
finished goods. Warehouse operations were moved to the Belpre location in June, 2005, in
order to reduce operating expenses. A retail outlet store in West Virginia was leased on a
month-to-month basis until December 31, 2006, when it was closed. A retail store in the
Polaris Fashion Mall in Columbus, Ohio, is leased until August 31, 2008.

At
December 31, 2007, LMODs real estate portfolio consisted of one commercial property
located in Oconomowoc, Wisconsin. The property is a one-story 27,000 square foot masonry
constructed office industrial building approximately sixteen years old. The carrying value
of the property at December 31, 2007, was $1.39 million and the building is presently
listed for sale for $2.0 million. The property was fully leased until July 15, 2007. At
the present time a portion of the buildings warehouse space is leased to a tenant
under a month-to-month lease for $1,100 per month. For federal income tax purposes, the
tax basis of the building is $1.28 million, which is being depreciated by the straight
line method over thirty-nine years.

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

As
of the date of this filing, LMOD (previously known as BMSBLC) is engaged in a foreclosure
proceeding with regard to two loans. On April 4, 2006, a foreclosure action was brought in
the State of Wisconsin, Milwaukee County Circuit Court, by LMOD against Benedict J. and
Grace T. Kosmatka. The suit is seeking a judgment in the amount of approximately $460,000.

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

No
matter was submitted to a vote of security holders during the quarter ended December 31,
2007.

9

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# Part II

|Item 5. | Market
for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of
Equity Securities
|------- | --------------------------------------------------------------------------------------------------------------

The
common stock of the Company is traded over the counter and pricing information is
displayed on the OTC Bulletin Board under the symbol DOLL. The following table
provides the high and low sales price for the Companys common stock and the cash
dividends paid per share for 2007 and 2006:

|               | Common Stock | Cash Dividends
|-------------- | ------------ | --------------
|
|2007           |              |               
|First Quarter  | $   0.350    | $   0.210     
|Second Quarter | $   0.490    | $   0.260     
|Third Quarter  | $   0.900    | $   0.410     
|Fourth Quarter | $   0.740    | $   0.450     
|2006           |              |               
|First Quarter  | $   0.700    | $   0.530     
|Second Quarter | $   0.650    | $   0.350     
|Third Quarter  | $   0.500    | $   0.280     
|Fourth Quarter | $   0.350    | $   0.170     

As
of March 1, 2008, there were approximately 614 shareholders of record of the
Companys common stock.

In
June, 2004, the Board of Directors changed the common stock dividend policy from the
payment of quarterly dividends to the payment of a discretionary annual dividend payable
in January for the preceding year. For the years ended December 31, 2007 and 2006, no
dividends were paid to the common stock shareholders and the Company does not anticipate
paying any dividends on the common stock in the foreseeable future. The preferred stock
dividend of $0.335 per share per quarter ($1.34 annual dividend per preferred share) was
paid during 2007 and 2006. There can be no assurance that the Company will have sufficient
funds to continue to pay dividends on the preferred stock. The Company will only have
sufficient funds if it can generate sufficient earnings and/or it is able to raise funds
from other sources.

In
August, 2007, the Company commenced a tender offer to redeem up to 300,000 shares of
preferred stock at a price of $14.00 per share. Shareholders tendered 38,827 shares of
preferred stock which the Company redeemed in September, 2007. Shareholders who tendered
their preferred stock in this offering did not receive a dividend payment for the quarter
ended September 30, 2007.

In
November, 2006, the Company commenced a tender offer to redeem up to 246,154 shares of
preferred stock (with a right to redeem up to an additional 13,483 shares) at a price of
$16.25 per share. Shareholders tendered 348,538 shares of preferred stock and the Company
redeemed 259,574 shares of preferred stock at $16.25 per share in December, 2006.
Shareholders who tendered their preferred stock in this offering did not receive a
dividend payment for the quarter ended December 31, 2006.

10

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|Item 6. | Managements
Discussion and Analysis or Plan of Operation
|------- | ---------------------------------------------------------

The
following is a discussion and analysis of the Companys financial condition and
results of operations including information on the Companys critical accounting
policies and liquidity. Information contained in this Managements Discussion and
Analysis should be read in conjunction with the disclosure regarding Forward-Looking
Statements, as well as the discussion set forth in Item 1. Description of
Business  Risk Factors and Item 7. Financial Statements.

# Overview

The
amounts presented in this Item 6 as of December 31, 2007 and December 31, 2006 include the
consolidation of the Companys consumer products and financial services business
segments. The term Company, when used in this Item 6, refers to the Parent,
LMOD and LPI on a consolidated basis.

Consumer Products

As
shown in the following table, during the past five years the Company has experienced a
significant decrease in net sales within the consumer products business segment due to
declining sales at LMOD. The consumer products business segment must significantly
increase net sales in order to generate a positive cash flow from operations. The revenues for the consumer products business
segment are highly dependent upon sales during the Christmas holiday season.

|           | Consumer Products
Net Sales | Consumer Products
Net Income (Loss)
|---------- | --------------------------- | -----------------------------------
|12/31/2007 | $12,658,183                 | ($1,398,233)                       
|12/31/2006 | $12,044,872                 | ($3,411,361)                       
|12/31/2005 | $14,328,082                 | ($1,918,713)                       
|12/31/2004 | $15,945,860                 | ($3,694,322)                       
|12/31/2003 | $17,660,233                 | ($1,568,622)                       

In
August, 2006, LMOD announced the introduction of a new and comprehensive collection of
play dolls, Playbabies, which provides a playmate for each stage of a young
girls early development, from newborn through age four. In April, 2007, LMOD
introduced the Middleton NOW (NOW) line of collector-quality dolls
which have been safety tested for children ages three and up. NOW dolls are priced between
the Playbabies collection and the ASC doll line and reflect a more modern and
trendy look. The Newborn Nursery® dolls, which were first introduced in mid-2004,
continue to appeal to young girls from age five through the pre-teen years. The ASC line
of artist-designed collectible dolls has begun to introduce new artists who are designing
and sculpting collectible dolls with a more realistic style. LMOD has also introduced
furniture, bedding and décor items as well as doll clothing and accessories to
complement the doll lines. Distribution channels for the above product lines consist
primarily of dealers or individual store owners, larger retailers and regional specialty
stores.

LPI
has experienced some success at expanding its customer base and has been working to
introduce new and updated styles of clocks and home décor items that have resulted
in increased sales. LPI has reached a mature stage of development and has limited
opportunities to expand its sales channels based on currently available resources.

As
noted above, the consumer products business segment has incurred net losses and negative
cash flows from operating activities over the past five years and the Company has an
accumulated deficit of $7.15 million at December 31, 2007. The Company anticipates
generating losses for the next twelve months. The Companys financial condition may
also make it more difficult for the Company to market its products to new and existing
customers. Based on the Companys financial performance and its current financial
condition, the Companys audit report contains an explanatory paragraph for going
concern uncertainty, pursuant to which the Companys auditors have expressed
substantial doubt as to the Companys ability to continue as a going concern.

11

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The
Companys continuation as a going concern is dependent on its ability to meet its
obligations, to obtain additional financing as may be required and ultimately to attain
profitability. Management anticipates, based on current projections and absent any adverse
factors outside the control of the Company, that the cash that will be generated from
additional asset sales and existing operations together with existing cash balances and
other potential sources of financing, such as the loan agreements that the Company entered
into during 2007 providing for $1.75 million of funding (See Note 11 in the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-KSB), should be
sufficient to provide the necessary cash to meet operating and working capital
requirements through December 31, 2008. However, the Company anticipates that it will not
have sufficient funds to redeem its preferred stock by July 1, 2008. The Company is
actively pursuing various alternatives to address all of its financial obligations,
including the redemption of preferred stock, which could include a financing transaction,
a disposition of assets, a recapitalization of the Company, or a strategic business
combination. However, there can be no assurance that the Company will be able to generate
enough revenue and/or effect a transaction to address its financial obligations.

The
Company is required to redeem $9.39 million of preferred stock by July 1, 2008, to the
extent the Company has legally available funds for the redemption and it is otherwise
permitted under Wisconsin law. In accordance with Section 180.0640 of the Wisconsin
Business Corporation Law, the Company may not redeem shares of preferred stock if, after
giving effect to the redemption, either of the following would occur: (1) the Company
would not be able to pay its debts as they become due in the usual course of business; or
(2) the Companys total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at the time of
the redemption, to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those of the holders of the preferred stock.

The
Company will only have sufficient funds to redeem the preferred stock and to continue to
pay dividends on the preferred stock if the consumer products business segment can
generate sufficient earnings (the consumer products business segment has realized losses
from operations for the last five years) and/or is able to raise funds from other sources.
If the preferred stock is not redeemed by July 1, 2008, then the Company is obligated to
redeem the preferred stock as soon as it has legally available funds for the redemption,
and dividends continue to accrue and be payable following the failure to redeem at the
interest rate applicable prior to July 1, 2008 (5.37%). The holders of preferred stock
have the right to elect a majority of the Board of Directors if at any time accumulated
dividends equal to at least two full years dividends are due and unpaid. Management
believes based on its review of the documents and discussions with lenders, that failure
to redeem the preferred stock on July 1, 2008, will not be an event of default under the
loan agreements that the Company entered into during 2007. Nonetheless, if the Company is
unable to redeem the preferred stock, the Companys business, financial condition and
results of operations could be materially affected.

Financial Services

At
December 31, 2007, LMODs loan portfolio consisted of three loans totaling $209,563,
one in the amount of $41,775, which is in foreclosure proceedings. During the year ended
December 31, 2006, management established a loan loss allowance of $250,000 against the
non-accrual loans. One loan totaling $186,187, which was in foreclosure proceedings, was
charged off against the loan loss reserve in the second quarter of 2007, leaving $63,813
in the loan loss reserve. No interest income was accrued or received on these non-accrual
loans during the years ended December 31, 2007 and 2006.

At
December 31, 2007, LMODs real estate portfolio consisted of one commercial property,
located in Oconomowoc, Wisconsin, with a carrying cost of $1.39 million. At the present
time, the building is listed for sale for $2.0 million.

During
the year ended December 31, 2006, InvestorsBank purchased $19.74 million of loans and
loan participations from LMOD and $3.58 million of loans were paid off by borrowers. Also
during 2006, eleven leased properties were sold to unrelated parties which resulted in
net proceeds of $14.00 million. The proceeds from the sales of the financial services
assets were primarily used to pay off $27.96 million of outstanding debt, to  advance
$1.85 million to the consumer products business segment for use in funding the operations
of the consumer products business segment, to partially redeem shares of the preferred
stock for an aggregate price of $4.22 million and to pay $0.89 million in preferred stock
dividends.

12

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The
Company does not intend to continue in the financial services business segment after all
of the segments assets are sold.

Pursuant
to a Loan and Real Estate Services Agreement (the Loan Services Agreement),
the Bank administered the loan and real estate portfolios of the Company from January 1,
2006 to June 30, 2006. The Bank received a monthly management fee equal to (a) 1/12 of
0.25% multiplied by the total outstanding principal balance of loans under management, (b)
1/12 of 0.25% multiplied by the total cost of all of the properties originally acquired by
BMSBLC from Bando McGlocklin Real Estate Investment Corporation (the Bando
Investment Properties) and (c) 6% of the rents from the real estate portfolio other
than the Bando Investment Properties. For the year ended December 31, 2006, management
fees paid to the Bank totaled $45,139. Between January 1, 2006, and June 30, 2006, Ms.
Hauke, Chief Financial Officer of the Bank, was required to provide a maximum of 140 hours
of accounting services under the Loan Services Agreement for an aggregate fee of $17,500.
Also under the Loan Services Agreement for the six months ended June 30, 2006, LMOD paid
the Bank a fee of $19,554 for rent, real estate taxes, and building related and overhead
expenses. No additional fees were paid under the Loan Services Agreement. The Loan
Services Agreement was terminated effective June 30, 2006.

# Critical Accounting
Policies

In
preparing consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The following areas
require management to make estimates that are susceptible to significant change in the
near term.

Consumer Products

Allowance
for doubtful accounts. LMOD and LPI provide an allowance for doubtful accounts based
on managements estimate of uncollectible amounts. Management reviews the trade
accounts receivable based on an aging of accounts, historical collection experience, and a
specific review of certain accounts in order to evaluate the collectibility of the
accounts receivable.

Inventory
and allowance for obsolete and excess inventory. Inventories are valued at the lower
of cost or market using the first-in, first-out (FIFO) method. LMOD and LPI provide an
allowance for obsolete inventory items based on managements estimate. Management
reviews all excess quantities, slow-moving or obsolete inventory items in order to
determine the appropriate allowance for obsolete inventory. The inventory allowance
reflects the estimated markdown necessary to liquidate the slow-moving inventory items.

Deferred
income tax assets and liabilities. Amounts provided for income tax expense are based
on income reported for financial statement purposes and do not necessarily represent
amounts currently payable under tax laws. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. As changes in tax laws or rates are enacted, deferred income tax
assets and liabilities are adjusted through the provision for income taxes. The
differences relate principally to different methods used for depreciation for income tax
purposes, vacation accruals, net operating losses, capitalization requirements of the
Code, allowances for doubtful accounts and obsolete inventory and charitable contribution
carryforwards. Valuation allowances are established when necessary to reduce deferred
income tax assets to the amount expected to be realized.

13

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Financial Services

Allowance
for loan losses. Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the amount of unpaid
principal, reduced by the allowance for loan losses. Management reviews the value of the
collateral securing each loan to determine if an allowance for loan losses is necessary.
In this review, management evaluates past loan loss experience, the level of nonperforming
loans, current economic conditions, loan volume, growth and composition of the loan
portfolio, adverse situations that may affect the borrowers ability to repay, the
estimated value of underlying collateral, and other relevant factors.

Leased
properties listed for sale or under contract to be sold. Leased properties are
classified as listed for sale or under contract to be sold, when a property is listed for
sale and/or under contract to be sold within the next twelve months. Leased properties are
valued at the lower of depreciated cost (carrying value) or estimated net realizable
value.

Impairment
of leased properties. The carrying value of leased properties is reviewed by
management at least annually for impairment. An impairment review is designed to determine
whether the fair value of a leased property is below its carrying value. Management
estimates the fair value based upon available information using appraisals, real estate
tax bills and recent sales.

Deferred
income tax assets and liabilities. Amounts provided for income tax expense are based
on income reported for financial statement purposes and do not necessarily represent
amounts currently payable under tax laws. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. As changes in tax laws or rates are enacted, deferred income tax
assets and liabilities are adjusted through the provision for income taxes. The
differences relate principally to different methods used for depreciation for income tax
purposes, allowances for loan losses, and allowances for impairment of leased properties.

Results of Operations for the
years ended December 31, 2007 and December 31, 2006

The
Companys total net loss applicable to common stock shareholders for the year ended
December 31, 2007 was $1.50 million, or $0.40 per common share (diluted), as compared to
$0.38 million, or $0.10 per common share (diluted), for the year ended December 31, 2006.

The
consumer products business segments net loss decreased $2.01 million when comparing
the year ended December 31, 2007 to the year ended December 31, 2006. Net sales increased
$0.61 million and gross profit increased $0.20 million when comparing the two years.
Operating expenses were reduced $1.22 million when comparing the year ended December 31,
2007 to December 31, 2006. During the year ended December 31, 2006, the consumer products
business segment wrote off $0.51 million of goodwill which is reflected in the 2006
operating expenses. During the year ended December 31, 2007, LPI sold the building in
which it was headquartered resulting in a gain of $0.60 million.

The
financial services business segments net income decreased $1.59 million when
comparing the year ended December 31, 2007 to the year ended December 31, 2006, primarily
due to the sale of most of the financial services assets during 2006. During 2006, the
Company sold substantially all of the assets of the financial services business segment
and used the net proceeds to pay off indebtedness, fund working capital at the consumer
products business segment, pay preferred stock dividends, and partially redeem shares of
the Companys outstanding preferred stock. The Company does not intend to continue in
the financial services business segment after all of the segments assets are sold.

Consumer Products

The
consumer products business segments net loss for the year ended December 31, 2007,
was $1.40 million. During the year ended December 31, 2007, operating expenses were
reduced $1.22 million when compared to the year ended December 31, 2006 and in August of
2007, LPI recorded a $0.60 million gain on the sale of the headquarters building located
in Hartland, Wisconsin.

14

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Net
sales from the consumer products business segment for the year ended December 31, 2007,
increased 5% to $12.66 million from $12.04 million for the year ended December 31, 2006.
Net sales at LMOD decreased $0.84 million and net sales at LPI increased $1.46 million. At
LMOD, net sales in the ASC category declined $1.60 million reflecting decreased sales of
dolls and accessories and Newborn Nursery® dolls. Newborn Nursery® boutiques were
first introduced in mid-2004 and an exclusivity agreement with Saks Department Store Group
was announced in February of 2005. Recently the Saks Department Store Group stores were
sold primarily to Belk, Inc. and The Bon Ton Stores, Inc. The exclusivity agreement
expired on December 1, 2007, and was not renewed. During the third quarter of 2007, both
Belk, Inc. and The Bon Ton Stores, Inc. closed the Newborn Nursery® boutiques located
in the stores they acquired. Newborn Nursery® products were returned by the stores to
LMOD and the returned products were placed in inventory. Belk, Inc. and The Bon Ton
Stores, Inc. are now carrying the newly introduced Middleton Playbabies and
Middleton NOW dolls. When comparing the year ended December 31, 2007 to
December 31, 2006, Newborn Nursery® sales of dolls and accessories declined
approximately $0.66 million. To offset the decline in sales outlets, management has
encouraged dealers to open mini-nurseries and in July of 2007, the FAO Schwarz
New York store expanded the size of its nursery. During 2006, sales of the original line
of play dolls were discontinued which accounted for $0.19 million of the sales decline.
Offsetting that decline, sales of the Playbabies line and the newly introduced
Middleton NOW line increased $1.25 million when comparing 2007 to 2006. Retail
sales decreased $0.30 million when comparing the two periods, partly due to the closing of
a retail outlet at the end of 2006. The increase in net sales at LPI was primarily due to
the introduction of new clock styles and home décor products resulting in increased
orders from two major customers.

Primarily
due to the increase in sales, cost of goods sold increased 5% to $9.33 million for the
year ended December 31, 2007, compared to $8.92 million for the year ended December 31,
2006. Total gross profit margin remained the same for both years at 26%. LMODs gross
profit margin increased to 29% from 27%. During 2006, in order to reduce old inventory
levels, LMOD offered special incentive ordering packages for ASC dolls and for play dolls
which had been discontinued, resulting in a lower gross profit margin in 2006. LPIs
gross profit margin decreased to 23% from 25% due to price concessions on certain product
lines and due to the sale of some older inventory items.

Total
operating expenses of the consumer products business segment for the year ended December
31, 2007, were $5.48 million compared to $6.70 million for the year ended December 31,
2006, an 18% decrease. When comparing the year ended December 31, 2007 to 2006, sales and
marketing expense decreased $0.82 million with all of the reduction at LMOD. Salary
expense and related employee benefit expenses decreased due to workforce reductions.
Expenses related to Newborn Nursery® boutiques and shared advertising expense also
decreased when comparing the two periods. Additionally, fees paid for royalties decreased
when comparing 2007 to 2006 since LMOD is no longer required to pay a guaranteed minimum
annual royalty amount due to the contract expiration of a doll designer. New product
development costs decreased $0.28 million when comparing the year ended December 31, 2007
to the year ended December 31, 2006, with all of the reduction at LMOD. The reduced
expenses were primarily due to reductions in salary expense and related employee benefit
expenses due to workforce reductions. Expenses for artist design costs and costs related
to travel decreased due to the designer contract expiration. General and administrative
expenses increased $0.39 million when comparing the two years. At LMOD, general and
administrative expenses decreased $0.35 million when comparing the two periods primarily
due to reductions in expenses related to depreciation and leased office space. On May 1,
2006, LMOD relocated its corporate headquarters to a smaller leased office space in order
to reduce operating expenses. At LPI, general and administrative expenses increased $0.03
million primarily due to the settlement of a judgment in the amount of $75,000 which was
related to a product dispute. The remaining net increase of $0.71 million in general and
administrative expense is attributable to ongoing expenses which were formerly absorbed by
the financial services business segment. These expenses primarily include directors fees,
salaries, accounting and legal fees for the Company. On August 1, 2007, LPI sold the
commercial building in which the Company was headquartered resulting in a gain of
approximately $600,000. During the year ended December 31, 2006, LMOD expensed
approximately $506,000 of goodwill.

Other
income for the year ended December 31, 2007, totaled $161,113 compared to $160,163 for
the year ended December 31, 2006. Other income is composed primarily of interest income
on cash holdings and rental income from a tenant in the commercial building which was
sold by LPI in 2007. During the third quarter of  2007, LMOD recorded interest expense of
$5,876 related to the line of credit. (See Note 11 in the Notes to Consolidated Financial
Statements in this Annual Report of Form 10-KSB.)

15

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For
the years ended December 31, 2007 and December 31, 2006, no income tax expense (benefit)
was recognized due to changes in the deferred income tax valuation allowance. Management
determined in 2004, based on the level of the continuing losses of the consumer products
business segment, that it would provide a valuation allowance for the full amount of net
operating loss carryforwards and other net deferred income tax assets, due to
uncertainties of realization in the near term. If the consumer products business segment
becomes profitable, the existing net operating loss carryforwards should be available to
be utilized against future taxable income. In assessing the recoverability of deferred
income tax assets, including net operating loss carryforwards, management considers
whether it is more likely than not, in the foreseeable future, that some portion or all of
the deferred income tax assets will not be realized. The realization of deferred income
tax assets in this instance is dependent upon the generation of future taxable income
during the periods in which the net operating loss carryforwards would be available to
offset the taxable income. The loss carryforwards expire at various dates through 2027. At
December 31, 2007 no income tax expense was recorded and there were unused net operating
loss carryforwards of approximately $14.0 million to be used to offset against future
federal taxable income.

Financial Services

The
financial services business segments net income decreased from $1.66 million to
$74,579 when comparing the year ended December 31, 2007 to the year ended December 31,
2006.

Prior
to January 1, 2006, the financial services business segment consisted of the Parent and
its wholly-owned subsidiary BMSBLC. On January 1, 2006, BMSBLC was merged with and into
LMOD with LMOD as the surviving corporation. During 2006, the Company sold substantially
all of the assets of the financial services business segment and used the net proceeds to
pay off indebtedness, to fund working capital at the consumer products business segment,
to pay preferred stock dividends, and to partially redeem shares of the Companys
outstanding preferred stock. The Company does not intend to continue in the financial
services business segment after all of the segments assets are sold.

As
a result of the sale of the assets, both interest income from loans and rental income
decreased when comparing the year ended December 31, 2007 to the year ended December 31,
2006. Interest income of $1,297 was recorded in 2007 from two loans which were paid off in
2007. Rental income of $107,020 was recorded in 2007 from the remaining leased property.
The former tenants lease payments ended on July 15, 2007, and the property is
presently only partially leased on a month-to-month basis. Other income is composed of
interest income on cash holdings, interest from the former building tenant and
miscellaneous receipts. Expenses in 2007 primarily consisted of depreciation on the
commercial building during the period in which it was leased, and expenses related to the
commercial building after the lease period ended for real estate taxes, utilities and
maintenance.

During
the year ended December 31, 2006, the financial services business segment paid in full the
outstanding balances on the line of credit and the term note. The prepayment of the term
note required a prepayment penalty of $289,034 in the first quarter of 2006. (See Note 12
in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-KSB.)
During the third quarter of 2006, a provision for impairment of leased properties of
$98,812 was recorded on a vacant leased property which was sold in the fourth quarter of
2006. Also in the third quarter of 2006, a loan loss provision of $250,000 was recorded
against the two loans which were in foreclosure. Operating expenses of $0.69 million were
reported by the financial services business segment in 2006. Operating expenses of $0.71
million for the year ended December 31, 2007, are now reflected in the general and
administrative expenses of the consumer products business segment. These expenses
primarily include directors fees, salaries, accounting and legal fees for the Company.

16

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Corporate

In
August, 2007, the Company commenced a tender offer to redeem up to 300,000 shares of
preferred stock at a price of $14.00 per share. Shareholders tendered 38,827 shares of
preferred stock which the Company redeemed in September 2007. Shareholders who tendered
their preferred stock in this offering did not receive a dividend payment for the quarter
ended September 30, 2007.

The
following table provides detail regarding the interest income related to shares of
preferred stock which were redeemed in 2007.

|                                                               | 12/31/2007
|-------------------------------------------------------------- | ----------
|Payment for the redemption of 38,827 shares of preferred stock |           
|Carrying value of shares at redemption date ($25 per share)    |           
|Accrued third quarter dividends on shares redeemed             |           
|Expenses incurred in connection with redemption                |           
|                                                               |           
|Gain on redemption of preferred stock                          |           
|                                                               |           

In
November, 2006, the Company commenced a tender offer to redeem up to 246,154 shares of
preferred stock (with a right to redeem up to an additional 13,483 shares) at a price of
$16.25 per share. Shareholders tendered 348,538 shares of preferred stock and the Company
redeemed 259,574 shares of preferred stock at $16.25 per share in December 2006.
Shareholders who tendered their preferred stock in this offering did not receive a
dividend payment for the quarter ended December 31, 2006.

The
following table provides detail regarding the interest income related to shares of
preferred stock which were redeemed in 2006.

|                                                                | 12/31/2006
|--------------------------------------------------------------- | ----------
|Payment for the redemption of 259,574 shares of preferred stock |           
|Carrying value of shares at redemption date ($25 per share)     |           
|Accrued fourth quarter dividends on shares redeemed             |           
|Expenses incurred in connection with redemption                 |           
|                                                                |           
|Gain on redemption of preferred stock                           |           
|                                                                |           

# Consolidated Balance
Sheets at December 31, 2007 and 2006

Consumer Products

Total
assets of the consumer products business segment were $11.92 million as of December 31,
2007, and $12.83 million as of December 31, 2006, a 7% decrease. Cash increased to $2.17
million at December 31, 2007, from $0.96 million at December 31, 2006 primarily due to
LPIs sale of the headquarters building located in Hartland, Wisconsin. From August
1, 2007 to December 31, 2007, the Company rented space in the Hartland building and on
January 1, 2008, the Parent and LPI relocated to rented space in Waukesha, Wisconsin.

Accounts
receivable, net of the allowance for doubtful accounts, remained the same at $2.20 million
for the year ended December 31, 2007 and December 31, 2006. LPIs trade receivables
decreased $0.21 million and LMODs trade receivables increased $0.21 million. At
December 31, 2007, LPI did not have any past-due accounts and LMOD had past-due accounts
totaling approximately $53,427.

Inventory
and prepaid inventory, net of the allowance for obsolescence, increased to $5.58 million
at December 31, 2007, compared to $4.19 million at December 31, 2006. LMODs
inventory level increased $0.86 million to $3.32 million, and LPIs inventory
increased $0.53 million to $2.26 million. The increase in the inventory  level at LMOD
was due to new product introductions and the increase in the inventory level at LPI was
due to orders that were shipped in the first quarter of 2008. Inventories are valued at
the lower of cost or market using the first-in, first-out (FIFO) method.

17

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Property
and equipment, net of accumulated depreciation, decreased by $3.53 million to $1.86
million as of December 31, 2007, compared to $5.39 million at December 31, 2006. On August
1, 2007, LPI sold the commercial building in which the Company was headquartered resulting
in a net decrease of $3.41 million to property and equipment. Property and equipment
purchases in 2007 totaled $0.35 million and depreciation expense in 2007 totaled $0.47
million. The net carrying value of LPIs remaining property and equipment is $0.07
million and the net carrying value of LMODs property and equipment is $1.79 million.
The retail and warehouse space in Belpre, Ohio, owned by LMOD, with a carrying cost of
$1.15 million, is the primary component of LMODs property and equipment.

Other
prepaid expenses increased $0.02 million to $0.11 million at December 31, 2007, from $0.09
million at December 31, 2006. Other liabilities decreased $0.41 million to $1.01 million
at December 31, 2007, from $1.42 million at December 31, 2006, primarily due to decreases
in accounts payable and accrued royalties. LMODs liabilities decreased $0.50 million
to $0.34 million and LPIs liabilities increased $0.09 to $0.67 million.

Financial Services

Total
assets of the financial services business segment were $1.69 million as of December 31,
2007 and $3.52 million as of December 31, 2006. Cash decreased to $126,178 at December 31,
2007 from $1.74 million at December 31, 2006, primarily due to the payment of preferred
stock dividends and to the redemption of 38,827 shares of preferred stock in 2007.

All
interest receivable was collected as of June 30, 2007. The tenant advance was paid off in
July of 2007.

At
December 31, 2007, the financial services business segments loan portfolio consisted
of three loans totaling $209,563, one of which is in foreclosure proceedings. During the
year ended December 31, 2006, management established a loan loss allowance of $250,000
against the non-accrual loans. One loan totaling $186,187, which was in foreclosure
proceedings, was charged off against the loan loss reserve in the second quarter of 2007.
No interest income was accrued or received on these non-accrual loans during the year
ended December 31, 2007.

The
financial services business segment owned one commercial property located in Oconomowoc,
Wisconsin, at December 31, 2007. The former tenants lease payments ended on July 15,
2007, and the property is presently only partially leased on a month-to-month basis. At
the present time, the building is listed for sale for $2.0 million. The carrying cost of
the commercial property at December 31, 2007, was $1.39 million and depreciation expense
of $21,276 was recorded during the year ended December 31, 2007.

Other
assets, totaling $27,062 at December 31, 2007, consisted primarily of prepaid insurance.
Accrued liabilities, totaling $167,740 at December 31, 2007, consisted primarily of items
related to the commercial property.

Corporate

The
Company is required to redeem $9.39 million of preferred stock by July 1, 2008, to the
extent the Company has legally available funds for the redemption and it is otherwise
permitted under Wisconsin law. In accordance with Section 180.0640 of the Wisconsin
Business Corporation Law, the Company may not redeem shares of preferred stock if, after
giving effect to the redemption, either of the following would occur: (1) the Company
would not be able to pay its debts as they become due in the usual course of business; or
(2) the Companys total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at  the time of
the redemption, to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those of the holders of the preferred stock.

18

---

The
Company will only have sufficient funds to redeem the preferred stock and to continue to
pay dividends on the preferred stock if the consumer products business segment can
generate sufficient earnings (the consumer products business segment has realized losses
from operations for the last five years) and/or is able to raise funds from other sources.
If the preferred stock is not redeemed on July 1, 2008, then the Company is obligated to
redeem the preferred stock as soon as it has legally available funds for the redemption,
and dividends continue to accrue and be payable following the failure to redeem at the
interest rate applicable prior to July 1, 2008 (5.37%). The holders of preferred stock
have the right to elect a majority of the Board of Directors if at any time accumulated
dividends equal to at least two full years dividends are due and unpaid. Management
believes based on its review of the documents and discussions with lenders, that failure
to redeem the preferred stock on July 1, 2008, will not be an event of default under the
loan agreements that the Company entered into during 2007. Nonetheless, if the Company is
unable to redeem the preferred stock, the Companys business, financial condition and
results of operations could be materially affected.

In
August, 2007, the Company commenced a tender offer to redeem up to 300,000 shares of
preferred stock at a price of $14.00 per share. Shareholders tendered 38,827 shares of
preferred stock which the Company redeemed in September 2007. Shareholders who tendered
their preferred stock in this offering did not receive a dividend payment for the quarter
ended September 30, 2007.

In
November, 2006, the Company commenced a tender offer to redeem up to 246,154 shares of
preferred stock (with a right to redeem up to an additional 13,483 shares) at a price of
$16.25 per share. Shareholders tendered 348,538 shares of preferred stock and the Company
redeemed 259,574 shares of preferred stock at $16.25 per share in December 2006.
Shareholders who tendered their preferred stock in this offering did not receive a
dividend payment for the quarter ended December 31, 2006.

Mandatorily
redeemable preferred stock consisted of the following as of December 31, 2007 and 2006:

|                                                  | 12/31/2007 | 12/31/2006
|------------------------------------------------- | ---------- | ----------
|Redeemable Preferred stock, 1 cent par value,     |            |           
|$25 carrying value, 3,000,000 shares authorized,  |            |           
|690,000 shares issued, 375,790 and 414,617 shares |            |           
|outstanding and 314,210 and 275,383 shares        |            |           
|redeemed as of December 31, 2007 and 2006,        |            |           
|respectively                                      |            |           

# Liquidity and Capital
Resources

The
consumer products business segment has incurred net losses and negative cash flows from
operating activities over the past five years and the Company has an accumulated deficit
of $7.15 million at December 31, 2007. The Company anticipates generating losses for the
next twelve months. The Companys financial condition may also make it more difficult
for the Company to market its products to new and existing customers. Based on the
Companys financial performance and its current financial condition, the
Companys audit report contains an explanatory paragraph for going concern
uncertainty, pursuant to which the Companys auditors have expressed substantial
doubt as to the Companys ability to continue as a going concern.

The
Companys continuation as a going concern is dependent on its ability to meet its
obligations, to obtain additional financing as may be required and to ultimately attain
profitability. At December 31, 2007, the Company had cash of $2.30 million and $1.65
million of available credit (See Note 11 in the Notes to Consolidated Financial
Statements in this Annual Report of Form 10-KSB). Management anticipates, based on
current projections and absent any adverse factors outside the control of the Company,
that the cash that will be generated from additional asset sales and existing operations
together with existing cash balances and other potential sources  of financing, should be
sufficient to provide the necessary cash to meet operating and working capital
requirements through December 31, 2008. The Company does not have any outstanding capital
commitments in 2008. However, the Company anticipates that it will not have sufficient
funds to redeem its preferred stock by July 1, 2008. The Company is actively pursuing
various alternatives to address all of its financial obligations, including the
redemption of preferred stock, which could include a financing transaction, a disposition
of assets, a recapitalization of the Company, or a strategic business combination.
However, there can be no assurance that the Company will be able to generate enough
revenue and/or effect a transaction to address its financial obligations.

19

---

The
Company is required to redeem $9.39 million of preferred stock by July 1, 2008, to the
extent the Company has legally available funds for the redemption and it is otherwise
permitted under Wisconsin law. In accordance with Section 180.0640 of the Wisconsin
Business Corporation Law, the Company may not redeem shares of preferred stock if, after
giving effect to the redemption, either of the following would occur: (1) the Company
would not be able to pay its debts as they become due in the usual course of business; or
(2) the Companys total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at the time of
the redemption, to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those of the holders of the preferred stock.

The
Company will only have sufficient funds to redeem the preferred stock and to continue to
pay dividends on the preferred stock if the consumer products business segment can
generate sufficient earnings (the consumer products business segment has realized losses
from operations for the last five years) and/or is able to raise funds from other
sources. If the preferred stock is not redeemed by July 1, 2008, then the Company is
obligated to redeem the preferred stock as soon as it has legally available funds for the
redemption, and dividends continue to accrue and be payable following the failure to
redeem at the interest rate applicable prior to July 1, 2008 (5.37%). The holders of
preferred stock have the right to elect a majority of the Board of Directors if at any
time accumulated dividends equal to at least two full years dividends are due and
unpaid. Management believes based on its review of the documents and discussions with
lenders, that failure to redeem the preferred stock on July 1, 2008, will not be an event
of default under the loan agreements that the Company entered into during 2007.
Nonetheless, if the Company is unable to redeem the preferred stock, the Companys
business, financial condition and results of operations could be materially affected.

# Off Balance Sheet
Arrangements

There
were no undisbursed construction or loan commitments at December 31, 2007.

As
of November 12, 2003, the Parent extended a guarantee to a supplier of LMOD in which the
Parent has agreed to unconditionally guarantee all obligations of LMOD to the supplier. It
is anticipated that the maximum amount of the guarantee will not exceed $0.60 million,
however, the amount of the guarantee is unlimited and the amount of the obligation could
increase in the future. As of December 31, 2007, the supplier did not have any outstanding
balance with LMOD.

20

---

# Recent Accounting
Pronouncements

Accounting for
Uncertainty in Income Taxes

In
June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, (FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. The interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. The
interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The provisions of FIN
No. 48 were adopted by the Company on January 1, 2007. See Note 18 in the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-KSB for further
disclosure.

Establishing Standards on
Measuring Fair Value

In
September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 157 Fair Value Measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with U.S. GAAP, and
expands disclosures about fair value measurements. The statement clarifies that the
exchange price is the price in an orderly transaction between market participants to sell
an asset or transfer a liability at the measurement date. The statement emphasizes that
fair value is a market-based measurement and not an entity-specific measurement. The
statement establishes a fair value hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair value. The Company
will be required to adopt this statement beginning in 2008.  Management believes the
adoption of this Statement is not expected to have a material impact on the Companys
consolidated financial statements.

Accounting for Defined
Benefit Pension and Other Postretirement Plans

In
September 2006, the FASB issued SFAS No. 158 Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans. SFAS No. 158
amends SFAS No. 87, 88, 106 and 132(R). SFAS No. 158 requires employers to recognize in
its statement of financial position an asset for a plans over-funded status or a
liability for a plans under-funded status. Secondly, it requires employers to
measure the plans assets and obligations that determine its funded status as of the end of
the fiscal year. Lastly, employers are required to recognize changes in the funded status
of a defined benefit postretirement plan in the year that the changes occur with the
changes reported in comprehensive income. The provisions of SFAS No. 158 were adopted by
the Company on January 1, 2007. Since the Company does not have any defined benefit plan
or other postretirement plans, SFAS No. 158 did not have an impact on the Companys
consolidated financial statements.

Quantifying Financial
Statement Misstatements

In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the views of the SEC
regarding the process of quantifying financial statement misstatements to determine if any
restatement of prior financial statements is required. SAB 108 addresses the two
techniques commonly used in practice in accumulating and quantifying misstatements, and
requires that the technique with the most severe result be used in determining whether a
misstatement is material. SAB 108 was adopted by the Company on December 31, 2006. The
adoption of SAB 108 did not have a material impact on the Companys consolidated
financial statements.

Fair Value Option

In
February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to
measure financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The decision to elect the fair value
option may be applied instrument by instrument, is irrevocable and is applied to the
entire instrument and not to only specified risks, specific cash flows or portions of
that instrument. An entity is restricted in choosing the dates to elect the fair value
option for an eligible item. Adoption of SFAS No. 159 is effective for the Company on
January 1, 2008.  Early adoption is permitted, provided the entity also elects to apply
the provisions of SFAS No. 157 Fair Value Measurements. Management of
the Company is currently evaluating the potential impact of SFAS No. 159 on the Companys
consolidated financial statements.

21

---

Noncontrolling Interests

In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements,an amendment of ARB No. 51, (SFAS No.
160). This statement establishes accounting and reporting standards for
noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries and
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS No. 160 also required expanded disclosures that clearly identify and
distinguish between the interests of the parent owners and the interests of the
noncontrolling owners of a subsidiary. The Company is required to adopt SFAS No. 160 on
January 1, 2009. Management of the Company is currently evaluating the potential impact of
SFAS No. 160 on the Companys consolidated financial statements.

Derivative Instruments
and Hedging Activities

In
March, 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,
(SFAS No. 161). This statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting designation. The
Company is required to adopt SFAS No. 161 on January 1, 2009. Management of the Company is
currently evaluating the potential impact of SFAS No. 161 on the Companys
consolidated financial statements.

22

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|Item 7. | Financial
Statements
|------- | --------------------

# The Middleton Doll
Company

# Consolidated Financial
Statements

# Contents

|Report of Virchow, Krause & Company, LLP, Independent Registered Public Accounting Firm | 24
|--------------------------------------------------------------------------------------- | --
|Consolidated Balance Sheets as of December 31, 2007 and 2006                            | 25
|Consolidated Statements of Operations                                                  
|For the years ended December 31, 2007 and 2006                                          | 27
|Consolidated Statements of Shareholders Equity                                        
|For the years ended December 31, 2007 and 2006                                          | 29
|Consolidated Statements of Cash Flows                                                  
|For the years ended December 31, 2007 and 2006                                          | 30
|Notes to Consolidated Financial Statements                                              | 32

# Financial Statement
Schedules

| | Schedule I  | Condensed Financial Information of Registrant | 55
| | ----------- | --------------------------------------------- | --
| | Schedule II | Valuation and Qualifying Accounts             | 55
| | Schedule IV | Mortgage Loans on Real Estate                 | 56

23

---

REPORT OF INDEPENDENT
REGISTEREDPUBLIC ACCOUNTING FIRM

Board of Directors and
ShareholdersThe Middleton Doll Company

We have audited the accompanying
consolidated balance sheets of The Middleton Doll Company and subsidiaries (the
Company), as of December 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders equity, and cash flows for the years then
ended. We have also audited the financial statement schedules listed in Item 7. These
financial statements and financial statement schedules are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

We conducted our audits in accordance
with auditing standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of The Middleton Doll Company and subsidiaries as of
December 31, 2007 and 2006, and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the financial statement
schedules listed in Item 7, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.

The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 of the financial statements, the Company has suffered recurring losses
from operations and operating cash outflows that raise substantial doubt about its ability
to continue as a going concern. Managements plans in regard to these matters are
also described in Note 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

/s/ Virchow, Krause &
Company, LLP

Milwaukee, WisconsinMarch 26, 2008

24

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS December 31, 2007 and 2006

# ASSETS

|                                               | 2007 | 2006
|---------------------------------------------- | ---- | ----
|CONSUMER PRODUCTS                              |      |     
|Current Assets:                                |      |     
|Cash and cash equivalents                      |      |     
|Accounts receivable, net                       |      |     
|Inventory, net                                 |      |     
|Prepaid inventory                              |      |     
|Other prepaid expenses                         |      |     
|                                               |      |     
|Total current assets                           |      |     
|Property and equipment, net                    |      |     
|                                               |      |     
|Total Consumer Products Assets                 |      |     
|                                               |      |     
|FINANCIAL SERVICES                             |      |     
|Cash and cash equivalents                      |      |     
|Interest receivable                            |      |     
|Tenant advance                                 |      |     
|Loans held for investment, net                 |      |     
|Leased property, net, listed for sale or under |      |     
|contract to be sold                            |      |     
|Other assets                                   |      |     
|                                               |      |     
|Total Financial Services Assets                |      |     
|                                               |      |     
|TOTAL ASSETS                                   |      |     
|                                               |      |     

See accompanying Notes
to Consolidated Financial Statements.

25

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS December 31, 2007 and 2006

# LIABILITIES AND
SHAREHOLDERS EQUITY

|                                                       | 2007 | 2006
|------------------------------------------------------ | ---- | ----
|LIABILITIES                                            |      |     
|CONSUMER PRODUCTS                                      |      |     
|Accounts payable                                       |      |     
|Accrued royalties                                      |      |     
|Accrued real estate and personal property taxes        |      |     
|Accrued salaries                                       |      |     
|Accrued vendor rebates                                 |      |     
|Accrued liabilities                                    |      |     
|                                                       |      |     
|Total Current Liabilities                              |      |     
|                                                       |      |     
|FINANCIAL SERVICES                                     |      |     
|Accrued liabilities                                    |      |     
|                                                       |      |     
|PREFERRED SHARES SUBJECT TO MANDATORY                  |      |     
|REDEMPTION ON JULY 1, 2008                             |      |     
|Total Company Liabilities                              |      |     
|                                                       |      |     
|SHAREHOLDERS EQUITY                                   |      |     
|Common stock, $0.0667 cents par value,                 |      |     
|15,000,000 shares authorized, 4,476,599 shares issued, |      |     
|3,802,589 shares outstanding at December 31, 2007 and  |      |     
|3,727,589 shares outstanding at December 31, 2006      |      |     
|Additional paid-in capital                             |      |     
|Accumulated deficit                                    |      |     
|Treasury stock, 674,010 shares, at December 31, 2007   |      |     
|and 2006, at cost                                      |      |     
|                                                       |      |     
|                                                       |      |     
|                                                       |      |     
|TOTAL LIABILITIES AND                                  |      |     
|SHAREHOLDERS EQUITY                                   |      |     
|                                                       |      |     

See accompanying Notes
to Consolidated Financial Statements.

26

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# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF OPERATIONS Years Ended December
31, 2007 and 2006

|                                             | 2007 | 2006
|-------------------------------------------- | ---- | ----
|
|NET SALES                                    |      |     
|COST OF GOODS SOLD                           |      |     
|                                             |      |     
|Gross Profit                                 |      |     
|                                             |      |     
|OPERATING EXPENSES                           |      |     
|Sales and marketing                          |      |     
|New product development                      |      |     
|General and administrative                   |      |     
|Impairment of goodwill                       |      |     
|                                             |      |     
|Total Operating Expenses                     |      |     
|                                             |      |     
|Gain on sale of property                     |      |     
|                                             |      |     
|Net operating loss                           |      |     
|                                             |      |     
|OTHER INCOME (EXPENSE)                       |      |     
|Interest expense                             |      |     
|Other income, net                            |      |     
|                                             |      |     
|Net other income                             |      |     
|CONSUMER PRODUCTS LOSS                       |      |     
|BEFORE INCOME TAXES                          |      |     
|                                             |      |     
|FINANCIAL SERVICES                          
|REVENUES                                     |      |     
|Interest on loans                            |      |     
|Rental income                                |      |     
|Gain on sale of leased properties            |      |     
|Other income                                 |      |     
|                                             |      |     
|Total Revenues                               |      |     
|                                             |      |     
|EXPENSES                                     |      |     
|Interest expense                             |      |     
|Depreciation expense                         |      |     
|Management fee expense                       |      |     
|Compensation expense                         |      |     
|Provision for impairment of leased property  |      |     
|Provision for losses on loans                |      |     
|Loss on early extinguishment of indebtedness |      |     
|Other operating expenses                     |      |     
|                                             |      |     
|Total Expenses                               |      |     
|                                             |      |     
|FINANCIAL SERVICES INCOME                    |      |     
|BEFORE INCOME TAXES                          |      |     
|                                             |      |     

See accompanying Notes
to Consolidated Financial Statements

27

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF OPERATIONS (Continued)Years Ended December 31, 2007 and 2006

|                                              | 2007 | 2006
|--------------------------------------------- | ---- | ----
|TOTAL COMPANY                                 |      |     
|INCOME (LOSS) BEFORE TOTAL COMPANY            |      |     
|OTHER INCOME AND INCOME TAX EXPENSE           |      |     
|Consumer products                             |      |     
|Financial services                            |      |     
|                                              |      |     
|Total Company                                 |      |     
|OTHER INCOME (EXPENSE)                        |      |     
|Interest expense related to preferred stock   |      |     
|Gain on redemption of preferred stock,        |      |     
|net of accrued interest and expenses          |      |     
|INCOME TAX EXPENSE                            |      |     
|                                              |      |     
|NET LOSS                                      |      |     
|                                              |      |     
|Basic loss per common share                   |      |     
|                                              |      |     
|Diluted loss per common share                 |      |     
|                                              |      |     
|Weighted average shares outstanding (basic)   |      |     
|                                              |      |     
|Weighted average shares outstanding (diluted) |      |     
|                                              |      |     
|Dividend paid per preferred stock share       |      |     
|                                              |      |     

See accompanying Notes
to Consolidated Financial Statements.

28

---

THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY Years Ended December
31, 2007 and 2006

|                             | Common
stock | Additional
paid-in
capital | Accumulated
deficit | Treasury
stock | Total
|---------------------------- | ------------ | -------------------------- | ------------------- | -------------- | -----
|BALANCES - December 31, 2005 |              |                            | $                   | 293,441        |      
|Net loss - 2006              |              |                            |                     | --             |      
|Stock-based compensation     |              |                            |                     | --             |      
|                             |              |                            |                     |                |      
|BALANCES - December 31, 2006 |              |                            | $                   | 293,441        |      
|Net loss - 2007              |              |                            |                     | --             |      
|Stock-based compensation     |              |                            |                     | --             |      
|                             |              |                            |                     |                |      
|BALANCES - December 31, 2007 |              |                            | $                   | 293,441        |      
|                             |              |                            |                     |                |      

See accompanying Notes
to Consolidated Financial Statements.

29

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# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWSYears Ended December
31, 2007 and 2006

|                                                   | 2007 | 2006
|-------------------------------------------------- | ---- | ----
|CONSUMER PRODUCTS                                  |      |     
|CASH FLOWS FROM OPERATING ACTIVITIES               |      |     
|Segment net loss                                   |      |     
|Adjustments to reconcile segment net loss to       |      |     
|net cash flows from operating activities           |      |     
|Depreciation                                       |      |     
|Impairment of goodwill                             |      |     
|Loss (gain) on sale of property and equipment      |      |     
|Stock based compensation expense                   |      |     
|Provision for losses on accounts receivable        |      |     
|Provision for obsolete inventory                   |      |     
|Net change in:                                     |      |     
|Accounts receivable                                |      |     
|Inventory                                          |      |     
|Other assets                                       |      |     
|Accounts payable                                   |      |     
|Other liabilities                                  |      |     
|                                                   |      |     
|Net Cash Flows used in Operating Activities        |      |     
|                                                   |      |     
|CASH FLOWS FROM INVESTING ACTIVITIES               |      |     
|Property and equipment expenditures                |      |     
|Proceeds from sale of property and equipment       |      |     
|                                                   |      |     
|Net Cash Flows from (used in) Investing Activities |      |     
|                                                   |      |     
|CASH FLOWS FROM FINANCING ACTIVITIES               |      |     
|Net intercompany transactions                      |      |     
|                                                   |      |     
|Net Change in Cash and Cash Equivalents            |      |     
|CASH AND CASH EQUIVALENTS - BEGINNING              |      |     
|OF YEAR                                            |      |     
|                                                   |      |     
|CASH AND CASH EQUIVALENTS - END OF YEAR            |      |     
|                                                   |      |     
|SUPPLEMENTAL CASH FLOW DISCLOSURES                 |      |     
|Cash paid for interest                             |      |     

See accompanying Notes
to Consolidated Financial Statements.

30

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWS (Continued)  Years Ended December 31, 2007 and 2006

|                                                              | 2007 | 2006
|------------------------------------------------------------- | ---- | ----
|FINANCIAL SERVICES                                            |      |     
|CASH FLOWS FROM OPERATING ACTIVITIES                          |      |     
|Segment net income                                            |      |     
|Adjustments to reconcile segment net income to                |      |     
|net cash flows from operating activities                      |      |     
|Depreciation                                                  |      |     
|Provision for losses on loans                                 |      |     
|Provision for impairment of leased property                   |      |     
|Gain on sale of leased properties                             |      |     
|Gain on sale of furniture and fixtures                        |      |     
|Stock-based compensation expense                              |      |     
|Net change in:                                                |      |     
|Interest receivable                                           |      |     
|Tenant advance and other assets                               |      |     
|Accrued liabilities                                           |      |     
|                                                              |      |     
|Net Cash Flows (used in) from Operating Activities            |      |     
|                                                              |      |     
|CASH FLOWS FROM INVESTING ACTIVITIES                          |      |     
|Net loan repayments received                                  |      |     
|Proceeds from sale of leased properties                       |      |     
|Proceeds from sale of loans                                   |      |     
|Purchase or improvements to leased property                   |      |     
|Proceeds from sale of furniture and fixtures                  |      |     
|                                                              |      |     
|Net Cash Flows from Investing Activities                      |      |     
|                                                              |      |     
|CASH FLOWS FROM FINANCING ACTIVITIES                          |      |     
|Net decrease in lines of credit                               |      |     
|Repayment of SWIB notes                                       |      |     
|Repayment of loan participations with repurchase options      |      |     
|Net intercompany transactions                                 |      |     
|                                                              |      |     
|Net Cash Flows used in Financing Activities                   |      |     
|                                                              |      |     
|Net Cash Flows from Financial Services                        |      |     
|Payment for redemption of preferred stock, including expenses |      |     
|Interest paid related to preferred stock                      |      |     
|                                                              |      |     
|Net Cash Flows used in Preferred Stock payments               |      |     
|                                                              |      |     
|Net Change in Cash and Cash Equivalents                       |      |     
|CASH AND CASH EQUIVALENTS - BEGINNING                         |      |     
|OF YEAR                                                       |      |     
|                                                              |      |     
|CASH AND CASH EQUIVALENTS - END OF YEAR                       |      |     
|                                                              |      |     
|SUPPLEMENTAL CASH FLOW DISCLOSURES                            |      |     
|Cash paid for interest                                        |      |     
|Cash paid for income taxes                                    |      |     
|NONCASH INVESTING AND FINANCING ACTIVITIES                    |      |     
|Loans held for investment transferred to loans held for sale  |      |     

See accompanying Notes
to Consolidated Financial Statements.

31

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# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies

Consolidation

The consolidated financial statements
of The Middleton Doll Company and Subsidiaries (the Company) include the
accounts of The Middleton Doll Company (the Parent), and its wholly-owned
subsidiary, Lee Middleton Original Dolls, Inc. (LMOD) and LMODs
wholly-owned subsidiary, License Products, Inc. (LPI). The consolidated
financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.

Nature of Business

The Company presently consists of two
business segments; the consumer products business segment and the financial services
business segment. The Companys segments conducted substantially all of their
business in the United States of America.

The consumer products business
segment consists of a portion of LMOD and LPI. LMOD is a designer and distributor of
lifelike collectible and play dolls and LPI is a designer and distributor of clocks and
home décor products.

Prior to January 1, 2006, the
financial services business segment consisted of the Parent and its wholly-owned
subsidiary Bando McGlocklin Small Business Lending Corporation (BMSBLC). On
January 1, 2006, BMSBLC was merged with and into LMOD with LMOD as the surviving
corporation. During 2006, the Company sold substantially all of the assets of the
financial services business segment and used the net proceeds to pay off indebtedness,
fund working capital at the consumer products business segment, pay preferred stock
dividends, and partially redeem shares of the Companys outstanding preferred stock.
The Company does not intend to continue in the financial services business segment after
all of the segments assets are sold.

Use of Estimates

In preparing consolidated financial
statements in conformity with accounting principles generally accepted in the United
States of America, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance sheet and
reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of allowances for loan
losses, doubtful accounts and the valuation of inventories and deferred income tax assets.

Segment Information

As discussed previously, the Company
has two reportable segments: consumer products (which includes a portion of LMOD and LPI)
and financial services (which includes the Parent and a portion of LMOD (formerly known as
BMSBLC)). Segment information required to be disclosed is included in the accompanying
consolidated financial statements. Intersegment charges are reflected gross between segments in the consolidated
statements of cash flows.

Cash and Cash Equivalents

For purposes of reporting cash flows,
cash and cash equivalents are defined as those financial assets with an original maturity
of three months or less. The Company may at times maintain balances at financial
institutions that exceed federally insured limits. The Company has not experienced any
losses in such accounts.

32

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# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies (continued)

Loans

Loans that management has the intent
and ability to hold for the foreseeable future or until maturity or payoff are reported at
the amount of unpaid principal, net of allowance for losses. Interest income is accrued on
the unpaid principal balance. The accrual of interest income on impaired loans is
discontinued when, in the opinion of management, there is reasonable doubt as to the
borrowers ability to meet payment of interest or principal when they become due.
Loans are returned to accrual status when the principal and interest amounts contractually
due are brought current and future payments are reasonably assured. At December 31, 2007,
no interest income was accrued or received on the loans held for investment.

Allowance for Loan Losses

A loan is considered on non-accrual
status when, based on current information and events, it is probable that the lender will
be unable to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in
determining non-accrual status include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Non-accrual
status is measured on a loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loans effective
interest rate, the loans obtainable market price or the fair value of the collateral
if the loan is collateral dependent. Management reviews the value of the collateral on
each loan to determine if an allowance for loan loss is necessary. During the year ended
December 31, 2007, $186,187 was charged off against the loan loss reserve. During the year
ended December 31, 2006, management established a loan loss allowance of $250,000.
Management makes certain assumptions when establishing the allowance for loan loss. The
assumptions made include that the borrower is able to find a finance company that is
willing to refinance certain real estate and that the equity in this certain real estate
is sufficient enough to repay the amount owed to the Company.

Rent Receivable

Rent receivable is accrued on a
monthly basis based on the lease agreement. If at any point it is determined that the
lessee will not make rent payments as dictated by the lease agreement, the accrual of rent
is discontinued until management determines the rent to be collectible.

Allowance for Rental
Losses

The allowance for rental losses is
established as losses are expected to occur through a provision for losses charged to
earnings. Management reviews the entire rent receivable portfolio when determining the
necessary allowance. Management has determined that no allowance for rental losses is
necessary.

Accounts Receivable

The Company provides an allowance for
doubtful accounts equal to the estimated uncollectible amounts. The Companys
estimate is based on historical collection experience and a review of the current status
of trade accounts receivable. It is reasonably possible that the Companys estimate
of the allowance for doubtful accounts will change. Accounts receivable are presented net
of an allowance for doubtful accounts of $181,333 and $175,248 at December 31, 2007 and
December 31, 2006, respectively. Accounts receivable are considered past-due when the
amount due is ninety days past the terms of the invoice. At December 31, 2007, LPI did not
have any past-due accounts and LMOD had past-due accounts totaling approximately $53,427. The Company
writes off accounts receivable when all collection efforts are exhausted.

Inventory

Inventories of LMOD and LPI are
valued at lower of cost or market using the first-in, first-out (FIFO) method. Allowances
are provided for obsolete and excess inventory. Inventories are presented net of an
allowance for obsolete and excess inventory of $480,862 and $482,847 at December 31, 2007
and December 31, 2006, respectively.

33

---

THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies (continued)

Leased Property, Listed
for Sale or Under Contract to be Sold

Leased properties are recorded at
cost. Depreciation is calculated using the straight-line method over 40 years for book
purposes and 39 years for tax purposes. The costs of normal repairs and maintenance are
charged to expense as incurred. Leased properties are classified as listed for sale or
under contract to be sold, when a property is listed for sale and/or under contract to be
sold within the next twelve months. The properties are carried at the lower of depreciated
cost or at net realizable value.

Property and Equipment

Property and equipment primarily
represent property and equipment of LMOD and LPI. Property and equipment are stated at
cost and depreciated using straight-line methods for financial statement purposes and
accelerated methods for income tax purposes. Maintenance and repair costs are charged to
expense as incurred, and renewals and improvements that extend the useful life of the
assets are added to the property and equipment accounts.

Impairment of Long-Lived
Assets and Goodwill

The Company evaluates the
recoverability of the carrying amount of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully recoverable.
The Company evaluates the recoverability of leased properties, property and equipment and
goodwill annually or more frequently if events or circumstances indicate that an asset
might be impaired. If an asset is considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the asset exceeds its
fair value. Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell. Management determines fair value using discounted future
cash flow analysis or other accepted valuation techniques. During the third quarter of
2006, an impairment provision of $98,812 was recorded on a vacant leased property which
was sold in the fourth quarter of 2006. During the fourth quarter of 2006, management
concluded that the remaining amount of goodwill was impaired and $506,145 was charged to
operations in 2006. The Companys continuing losses are a triggering event which
requires management to review assets for impairment. LMOD reviewed their assets for
impairment including their facility in Belpre, Ohio, and their commercial property in
Oconomowoc, Wisconsin. Management obtained appraisals and/or offers for these facilities
in order to estimate their market value. The information indicated that the market value
approximated book value with insignificant differences. Therefore, management concluded
that the assets were not impaired.

Revenue Recognition

Revenue is recognized when legal
title passes to the purchaser, which is primarily upon shipment of product or upon sale of
real estate. Rental income is accrued on a monthly basis, if rent payments are expected to
be made, based on lease agreements.

Product Development Costs

The costs of product development and
product improvement are charged to expense as they are incurred. Research, development and
product improvement costs are reported as a separate component of operating expenses and
totaled $734,843, and $1,014,943 for the years ended December 31, 2007 and 2006,
respectively.

Stock Based Compensation

On January 1, 2006, the Company
adopted Statement of Financial Accounting Standard (SFAS) No. 123R,
Accounting for Stock-Based Compensation (SFAS No. 123R). SFAS No. 123R
requires all share-based payment to employees, including grants of employee stock options,
to be recognized as expense in the statement based on their fair values. Prior to SFAS No.
123R, only certain pro forma disclosures of fair value were required. The amount of
compensation is measured at the fair value of the options when granted and this cost is
expensed over the required service period, which is normally the vesting period of the
options. SFAS No. 123R applies to awards granted or modified after January 1, 2006, or any
unvested awards outstanding at December 31, 2005.

34

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies (continued)

Income Taxes

For the year ending December 31,
2007, the Company (consisting of the Parent, LMOD and LPI) operated as a C Corporation
under the Internal Revenue Code of 1986, as amended (the Code). The Company
intends to file a consolidated federal income tax return for the year ended December 31,
2007, and filed a consolidated federal income tax return for the year ended December 31,
2006.

Prior to January 1, 2006, the Parent
and its subsidiary, BMSBLC, qualified as a real estate investment trust (REIT)
under the Code. Accordingly, the REIT was not subject to income tax on taxable income that
was distributed to common shareholders. However, the REIT was allowed to retain capital
gains from the sale of real estate and pay income taxes on that gain. In January, 2006,
the REIT paid $546,917 in income taxes from the sale of real estate during 2005. As of
January 1, 2006, BMSBLC merged with and into LMOD and no longer qualifies as a REIT.

Amounts provided for income tax
expense are based on income reported for financial statement purposes and do not
necessarily represent amounts currently payable under tax laws. Deferred income tax assets
and liabilities are computed annually for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. As changes in tax laws or rates are
enacted, deferred income tax assets and liabilities are adjusted through the provision for
income taxes. The differences relate principally to different methods used for
depreciation for income tax purposes, deferred revenue, net operating losses,
capitalization requirements of the Code, allowances for doubtful accounts and obsolete
inventory, and other carryforwards. Valuation allowances are established when necessary to
reduce deferred income tax assets to the amount expected to be realized.

Shipping and Handling
Costs

Shipping and handling fees charged to
customers have been included in net sales. Shipping and handling costs incurred by the
Company have been included in cost of goods sold.

Advertising Costs

Advertising costs are charged to
operations when incurred. Advertising expense was $381,289 and $466,425 for the years
ended December 31, 2007 and December 31, 2006, respectively.

Earnings Per Common Share

Earnings (loss) per common share are
computed based upon the weighted average number of common shares outstanding during each
year. In the computation of diluted earnings per common share, all dilutive stock options
are assumed to be exercised at the beginning of each year and the proceeds are used to
purchase shares of the Companys common stock at the average market price during the
year. At December 31, 2007, all dilutive securities are excluded because their effect is
anti-dilutive due to the net loss.

Fair Value of Financial
Instruments

SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it
is practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the derived fair
values cannot be substantiated by comparison to independent markets, and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.

35

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies (continued)

Recent Accounting
Pronouncements

Accounting for
Uncertainty in Income Taxes

In June 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109, (FIN No. 48). FIN No. 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes.
The interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and
transition. The provisions of FIN No. 48 were adopted by the Company on January 1, 2007.
See Note 18 for further disclosure.

Establishing Standards on
Measuring Fair Value

In September 2006, the FASB issued
Statement of Financial Accounting Standard (SFAS) No. 157 Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair
value measurements. The statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell an asset or transfer a liability
at the measurement date. The statement emphasizes that fair value is a market-based
measurement and not an entity-specific measurement. The statement establishes a fair
value hierarchy used in fair value measurements and expands the required disclosures of
assets and liabilities measured at fair value. The Company will be required to adopt this
statement beginning in 2008.  Management believes the adoption of this Statement is not
expected to have a material impact on the Companys consolidated financial
statements.

Accounting for Defined
Benefit Pension and Other Postretirement Plans

In September 2006, the FASB issued
SFAS No. 158 Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans. SFAS No. 158 amends SFAS No. 87, 88, 106 and 132(R).
SFAS No. 158 requires employers to recognize in its statement of financial position an
asset for a plans over-funded status or a liability for a plans under-funded
status. Secondly, it requires employers to measure the plans assets and obligations that
determine its funded status as of the end of the fiscal year. Lastly, employers are
required to recognize changes in the funded status of a defined benefit postretirement
plan in the year that the changes occur with the changes reported in comprehensive income.
The provisions of SFAS No. 158 were adopted by the Company on January 1, 2007. Since the
Company does not have any defined benefit plan or other postretirement plans, SFAS No. 158
did not have an impact on the Companys consolidated financial statements.

Quantifying Financial
Statement Misstatements

In September 2006, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.
108 (SAB 108). SAB 108 expresses the views of the SEC regarding the process of
quantifying financial statement misstatements to determine if any restatement of prior
financial statements is required. SAB 108 addresses the two techniques commonly used in
practice in accumulating and quantifying misstatements, and requires that the technique
with the most severe result be used in determining whether a misstatement is material. SAB
108 was adopted by the Company on December 31, 2006. The adoption of SAB 108 did not have
a material impact on the Companys consolidated financial statements.

36

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 1  Summary of
Significant Accounting Policies (continued)

Fair Value Option

In
February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to
measure financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The decision to elect the fair value
option may be applied instrument by instrument, is irrevocable and is applied to the
entire instrument and not to only specified risks, specific cash flows or portions of
that instrument. An entity is restricted in choosing the dates to elect the fair value
option for an eligible item. Adoption of SFAS No. 159 is effective for the Company on
January 1, 2008.  Early adoption is permitted, provided the entity also elects to apply
the provisions of SFAS No. 157 Fair Value Measurements. Management of
the Company is currently evaluating the potential impact of SFAS No. 159 on the Companys
consolidated financial statements.

Noncontrolling Interests

In December 2007, the FASB issued
SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements,an amendment of ARB No. 51, (SFAS No. 160). This statement establishes
accounting and reporting standards for noncontrolling interests in subsidiaries and for
the deconsolidation of subsidiaries and clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS No. 160 also required expanded
disclosures that clearly identify and distinguish between the interests of the parent
owners and the interests of the noncontrolling owners of a subsidiary. The Company is
required to adopt SFAS No. 160 on January 1, 2009. Management of the Company is currently
evaluating the potential impact of SFAS No. 160 on the Companys consolidated
financial statements.

Derivative Instruments
and Hedging Activities

In March, 2008, the FASB issued SFAS
No. 161, Disclosure about Derivative Instruments and Hedging Activities,an amendment of FASB Statement No. 133, (SFAS No. 161). This statement
requires that objectives for using derivative instruments be disclosed in terms of
underlying risk and accounting designation. The Company is required to adopt SFAS No. 161
on January 1, 2009. Management of the Company is currently evaluating the potential impact
of SFAS No. 161 on the Companys consolidated financial statements.

Reclassifications

Certain 2006 amounts have been
reclassified to conform with the 2007 presentation. The reclassifications have no effect
on reported amounts of net (loss) income or equity.

# NOTE 2  Going
Concern; Liquidity and Capital Resources

As noted above, the consumer products
business segment has incurred net losses and negative cash flows from operating activities
over the past five years and the Company has an accumulated deficit of $7.15 million at
December 31, 2007. The Company anticipates generating losses for the next twelve months.
The Companys financial condition may also make it more difficult for the Company to
market its products to new and existing customers. Based on the Companys financial
performance and its current financial condition, the Companys audit report contains
an explanatory paragraph for going concern uncertainty, pursuant to which the
Companys auditors have expressed substantial doubt as to the Companys ability
to continue as a going concern.

37

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 2  Going Concern;
Liquidity and Capital Resources (continued)

The Companys continuation as a
going concern is dependent on its ability to meet its obligations, to obtain additional
financing as may be required and ultimately to attain profitability. Management
anticipates, based on current projections and absent any adverse factors outside the
control of the Company, that the cash that will be generated from additional asset sales
and existing operations together with existing cash balances and other potential sources
of financing, such as the loan agreements that the Company entered into during 2007
providing for $1.75 million of funding (See Note 11), may be sufficient to provide the
necessary cash to meet operating and working capital requirements through December 31,
2008. However, the Company anticipates that it will not have sufficient funds to redeem
its preferred stock by July 1, 2008. The Company is actively pursuing various
alternatives to address all of its financial obligations, including the redemption of
preferred stock, which could include a financing transaction, a disposition of assets, a
recapitalization of the Company, or a strategic business combination. However, there can
be no assurance that the Company will be able to generate enough revenue and/or effect a
transaction to address its financial obligations.

The Company is required to redeem
$9.39 million of preferred stock by July 1, 2008, to the extent the Company has legally
available funds for the redemption and it is otherwise permitted under Wisconsin law. In
accordance with Section 180.0640 of the Wisconsin Business Corporation Law, the Company
may not redeem shares of preferred stock if, after giving effect to the redemption,
either of the following would occur: (1) the Company would not be able to pay its debts
as they become due in the usual course of business; or (2) the Companys total
assets would be less than the sum of its total liabilities plus the amount that would be
needed, if the Company were to be dissolved at the time of the redemption, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights are
superior to those of the holders of the preferred stock.

The Company will only have
sufficient funds to redeem the preferred stock and to continue to pay dividends on the
preferred stock if the consumer products business segment can generate sufficient
earnings (the consumer products business segment has realized losses from operations for
the last five years) and/or is able to raise funds from other sources. If the preferred
stock is not redeemed by July 1, 2008, then the Company is obligated to redeem the
preferred stock as soon as it has legally available funds for the redemption, and
dividends continue to accrue and be payable following the failure to redeem at the
interest rate applicable prior to July 1, 2008 (5.37%). The holders of preferred stock
have the right to elect a majority of the Board of Directors if at any time accumulated
dividends equal to at least two full years dividends are due and unpaid. Management
believes based on its review of the documents and discussions with lenders, that failure
to redeem the preferred stock on July 1, 2008, will not be an event of default under the
loan agreements that the Company entered into during 2007. Nonetheless, if the Company is
unable to redeem the preferred stock, the Companys business, financial condition
and results of operations could be materially affected.

The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As
discussed, the Company has suffered recurring losses from operations and operating cash
outflows that raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.

38

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 3  Related
Party Transactions

Pursuant to a Loan and Real Estate
Services Agreement (the Loan Services Agreement), which was terminated
effective June 30, 2006, InvestorsBank (the Bank) administered the loan and
real estate portfolios of the Company from January 1, 2006 to June 30, 2006. Certain
officers or directors of the Bank were former officers or directors of the Company. The
Bank received a monthly fee equal to (a) 1/12 of 0.25% multiplied by the total outstanding
principal balance of loans under management, (b) 1/12 of 0.25% multiplied by the total
cost of all of the properties originally acquired by BMSBLC from Bando McGlocklin Real
Estate Investment Corporation (the Bando Investment Properties) and (c) 6% of
the rents from the real estate portfolio other than the Bando Investment Properties. For
the year ended December 31, 2006, management fees totaled $45,139. In addition, Ms. Hauke,
Chief Financial Officer of the Bank, was required to provide between January 1, 2006, and
June 30, 2006, a maximum of 140 hours of accounting services under the Loan Services
Agreement for an aggregate fee of $17,500. Also under the Loan Services Agreement, LMOD
paid the Bank a fee of $19,554 for rent, real estate taxes, and building related and
overhead expenses, which is included in other operating expenses during the year ended
December 31, 2006. No additional fees were paid under the Loan Services Agreement. During
the year ended December 31, 2006, the Bank paid the Company $34,633 for fully depreciated
financial services furniture and fixtures which the Bank retained at the termination of
the Loan Services Agreement. The purchase price of the furniture and fixtures was
determined based on an estimate of fair value provided by a third party. (Also See Note
5.)

# NOTE 4 
Concentrations

The consumer products business segments
customers are not concentrated in any specific geographic region. For the year ended
December 31, 2007, the consumer products business segment had two customers that accounted
for $5.05 million or 40%, of the segments net sales. At December 31, 2007, these
customers accounted for 22% of the consumer products business segments outstanding
accounts receivable. For the year ended December 31, 2006, one customer accounted for
$2.39 million or 20%, of the segments net sales. At December 31, 2006, this customer
accounted for 12% of the consumer products business segments outstanding accounts
receivable. The Company establishes an allowance for doubtful accounts based upon the
factors surrounding the credit risk of specific customers, historical trends and other
information. The Company routinely assesses the financial strength of its customers, and,
as a consequence, believes that its trade accounts receivable credit risk exposure is
limited.

The consumer products business
segment imports substantially all finished goods inventory from two suppliers in China.

Approximately 29% of LMODs
labor force is subject to a collective bargaining agreement which has an expiration date
of April 30, 2009.

# NOTE 5  Loans Held
for Investment and Loans Held for Sale

On January 4, 2006, LMOD entered into
an asset purchase agreement to sell substantially all of its loans and loan participations
(previously owned by BMSBLC) to the Bank. The purchase price for the sale of the loans and
loan participations was the total of the outstanding principal balance of all such loans
and loan participations, plus accrued interest. During the year ended December 31, 2006,
the Bank purchased $15.58 million of loans and loan participations under the asset
purchase agreement. In addition, outside of the asset purchase agreement, the Bank
purchased an additional $4.16 million of loans and loan participations under the same
terms.

39

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

NOTE 5  Loans Held for
Investment and Loans Held for Sale (continued)

At December 31, 2007, LMODs
gross loan portfolio consisted of three loans totaling $209,563, one in the amount of
$41,775, which is in foreclosure proceedings. During the year ended December 31, 2006,
management established a loan loss allowance of $250,000 against the non-accrual loans.
One loan totaling $186,187, which was in foreclosure proceedings, was charged off against
the loan loss reserve in the second quarter of 2007, leaving $63,813 in the loan loss
reserve. No interest income was accrued or received on these non-accrual loans during the
years ended December 31, 2007 and 2006. Management believes that the collateral for these
loans is sufficient to repay the $145,750 in outstanding loan balances, although this assessment
is subjective and subject to significant judgement.

# NOTE 6  Loans Sold
with Repurchase Options

The Company did not sell any loans
with repurchase options to third parties during the years ended December 31, 2007 and
2006. As of December 31, 2005, the balance of loan participations sold with repurchase
options was $135,254. These loan participations were repurchased in the first quarter of
2006.

# NOTE 7  Inventory

Inventory consisted of the following
at December 31:

|                                            | 2007 | 2006
|------------------------------------------- | ---- | ----
|Raw materials                               |      |     
|Finished goods                              |      |     
|                                            |      |     
|                                            |      |     
|Allowance for obsolete and excess inventory |      |     
|                                            |      |     
|                                            |      |     
|                                            |      |     

# NOTE 8  Leased
Properties

At December 31, 2007 and 2006,
LMODs real estate portfolio consisted of one commercial property located in
Oconomowoc, Wisconsin. The carrying cost of the property is summarized in the following
table.

| | Leased
Properties, Listed for Sale or Under Contract to be Sold
| | ---------------------------------------------------------------

|                               | 2007 | 2006
|------------------------------ | ---- | ----
|Land                           |      |     
|Buildings                      |      |     
|                               |      |     
|Total                          |      |     
|Less: accumulated depreciation |      |     
|                               |      |     
|Net                            |      |     
|                               |      |     

Depreciation expense on leased
properties was $21,276, and $138,714 for the years ended December 31, 2007 and December
31, 2006, respectively.

40

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 8  Leased
Properties (continued)

At the present time, the Oconomowoc
building is listed for sale for $2.0 million. The property was fully leased until July 15,
2007. A portion of the buildings warehouse space is presently leased to a new tenant
under a month-to-month lease for $1,100 per month.

# NOTE 9  Property
and Equipment

The major categories of property and
equipment at December 31 are summarized as follows:

|                               | 2007 | 2006
|------------------------------ | ---- | ----
|Consumer Products:             |      |     
|Land                           |      |     
|Buildings                      |      |     
|Machinery and equipment        |      |     
|Furniture and fixtures         |      |     
|                               |      |     
|Total                          |      |     
|Less: accumulated depreciation |      |     
|                               |      |     
|Net                            |      |     
|                               |      |     

Depreciation expense for the consumer
products business segment was $472,485 and $716,110 for the years ended December 31, 2007
and December 31, 2006, respectively. In the year ended December 31, 2006, InvestorsBank
paid the Company $34,633 for fully depreciated financial services furniture and fixtures
which the Bank retained at the termination of the Loan Services Agreement.

On August 1, 2007, LPI sold the
commercial building in Hartland, Wisconsin, in which the Company was headquartered
resulting in net proceeds of $4.02 million and a gain of approximately $600,000. From
August 1, 2007 to December 31, 2007, the Company rented space in the Hartland building. As
of January 1, 2008, the Company relocated its headquarters to Waukesha, Wisconsin, in
rented space. (See Note 13.)

# NOTE 10  Goodwill

The goodwill associated with the
acquisition of the consumer doll business segment of LMOD amounted to $619,753. The
unamortized amount and carrying value of goodwill at December 31, 2005 was $506,145.
During the fourth quarter of 2006, after reviewing the operating results of the business
for the year ended December 31, 2006, and projected future results, management concluded
that the carrying value of goodwill was impaired and $506,145 was charged to operations in
2006. Based on the consumer products business segments losses from 2003 through
2006, and based on managements evaluation of fair value of the consumer products
business segments assets and upon the present value of future expected cash flows;
management concluded that at December 31, 2006, that there was no longer any value
associated with the goodwill.

41

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 11 
Short-Term Borrowings

On July 27, 2007, LPI and LMOD, as
co-borrowers, entered into a loan agreement with Town Bank, Hartland, Wisconsin, providing
for a line of credit of $750,000 bearing interest at 2.75% over the thirty day London
Interbank Offered Rate (LIBOR) rate. The note is payable upon demand and is
collateralized by receivables and inventory of LPI and LMOD and is guaranteed by the
Parent. The amount available under the line of credit has been reduced by a $100,000
outstanding letter of credit. There was no outstanding principal balance on the line of
credit at December 31, 2007. During the third quarter of 2007, the consumer products
business segment recorded interest expense of $5,876 related to the line of credit. The
interest rate on the line of credit was 8% as of December 31, 2007. (See Note 13.)

On October 1, 2007, the Company
entered into a loan agreement with Town Bank, Hartland, Wisconsin, providing for a term
note of $1,000,000 bearing interest at 2.75% over the thirty day LIBOR rate. The note is
payable on October 1, 2008, and is collateralized by the building located in Oconomowoc,
Wisconsin. There was no outstanding principal balance on the note at December 31, 2007.
The interest rate on the note was 8% as of December 31, 2007. The loan agreement contains
provisions requiring the Company to maintain compliance with certain covenants. As of
December 31, 2007, the Company was in compliance with all covenants.

# NOTE 12  Long-Term
Debt

As of December 31, 2007 and December
31, 2006, the Company did not have any long-term debt.

The financial services business
segment had a term note with the State of Wisconsin Investment Board (SWIB)
which had a fixed rate of interest of 6.98% per year through its maturity on June 1, 2013.
In February, 2006 the note was paid in full with proceeds from the bank line of credit.
The prepayment of the note resulted in a prepayment penalty of $289,034, which was
expensed in 2006 as a loss on the early extinguishment of indebtedness.

# NOTE 13  Operating
Leases

As of January 1, 2008, the Parent and
LPI relocated to rented space in Waukesha, Wisconsin. The rented space has approximately
3,500 square feet of office space and approximately 36,000 square feet of warehouse space.
The lease commenced January 1, 2008, and expires February 28, 2013. In order to obtain the
lease, a security deposit in the form of a letter of credit in the amount of $100,000 was
required which is in effect until February 28, 2013. The letter of credit effectively
reduces the line of credit available from $750,000 to $650,000 (See Note 11.)

As of December 31, 2007, LMOD leased
7,400 square feet of office space in Columbus, Ohio, and retail space in the Polaris
Fashion Mall in Columbus, Ohio, from third parties. Prior to August, 2006, LMOD leased a
44,100 square foot warehouse facility in Columbus, Ohio, and prior to May 1, 2006, LMOD
leased 18,800 square feet of office space in Westerville, Ohio. These leases were
classified as operating leases and lease expense was approximately $200,000 and $360,000
in 2007 and 2006.

42

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 13  Operating
Leases (continued)

At December 31, 2007, the future
minimum lease payments for each of the remaining years are as follows:

|     | 
|---- | 
|2008 | 
|2009 | 
|2010 | 
|2011 | 
|2012 | 
|2013 | 
|     | 
|     | 
|     | 

# NOTE 14 
Commitments and Contingencies

As of the date of this filing,
neither the Parent nor any of its subsidiaries is a party to any legal proceedings, the
adverse outcome of which, in managements opinion, would have a material effect on
the Companys consolidated financial statements.

As of November 12, 2003, the Company
extended a guarantee to a supplier of LMOD in which the Company has agreed to
unconditionally guarantee all obligations of LMOD to the supplier. It is anticipated that
the maximum amount of the guarantee will not exceed $600,000; however, the amount of the
guarantee is unlimited and the amount of the obligation could increase in the future. As
of December 31, 2007, the supplier did not have any outstanding balance with LMOD.

# NOTE 15  Mandatory
Redeemable Preferred Stock

The Company issued 690,000 shares of
Adjustable Rate Cumulative Preferred Stock, Series A, in a public offering dated October
13, 1993, at $25 per share less an underwriting discount of $1.0625 per share and other
issuance costs amounting to $295,221. The preferred stock is redeemable, in whole or in
part at the option of the Company, on any dividend payment date during the period from
July 1, 2006, to June 30, 2008, at $25 per share plus accrued and unpaid dividends. Any
shares of preferred stock not redeemed prior to July 1, 2008, are subject to mandatory
redemption on that date by the Company at a price of $25 plus accrued dividends. Dividends
on the preferred stock are paid quarterly at an annual rate of 5.37% for the dividend
period commencing July 1, 2003, and ending June 30, 2008.

The Company is required to redeem
$9.39 million of preferred stock by July 1, 2008, to the extent the Company has legally
available funds for the redemption and it is otherwise permitted under Wisconsin law. In
accordance with Section 180.0640 of the Wisconsin Business Corporation Law, the Company
may not redeem shares of preferred stock if, after giving effect to the redemption, either
of the following would occur: (1) the Company would not be able to pay its debts as they
become due in the usual course of business; or (2) the Companys total assets would
be less than the sum of its total liabilities plus the amount that would be needed, if the
Company were to be dissolved at the time of the redemption, to satisfy the preferential
rights upon dissolution to shareholders whose preferential rights are superior to those of
the holders of the preferred stock. The Company anticipates that it will not have
sufficient funds to redeem the preferred stock by July 1, 2008.

43

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 15  Mandatory
Redeemable Preferred Stock (continued)

The preferred stock has been
classified as a liability in accordance with SFAS No. 150 because the shares are
subject to mandatory redemption on a fixed date and at a fixed amount. Dividends on the
preferred stock are classified as interest expense in the accompanying statements of
operations.

The Company will only have sufficient
funds to redeem the preferred stock and to continue to pay dividends on the preferred
stock if the consumer products business segment can generate sufficient earnings (the
consumer products business segment has realized losses from operations for the last five
years) and/or is able to raise funds from other sources. If the preferred stock is not
redeemed on July 1, 2008, then the Company is obligated to redeem the preferred stock as
soon as it has legally available funds for the redemption, and dividends continue to
accrue and be payable following the failure to redeem at the interest rate applicable
prior to July 1, 2008 (5.37%). The holders of preferred stock have the right to elect a
majority of the Board of Directors if at any time accumulated dividends equal to at least
two full years dividends are due and unpaid. Management believes based on its review
of the documents and discussions with lenders, that failure to redeem the preferred stock
on July 1, 2008, will not be an event of default under the loan agreements that the
Company entered into during 2007. Nonetheless, if the Company is unable to redeem the
preferred stock, the Companys business, financial condition and results of
operations could be materially affected.

In August, 2007, the Company
commenced a tender offer to redeem up to 300,000 shares of preferred stock at a price of
$14.00 per share. Shareholders tendered 38,827 shares of preferred stock which the Company
redeemed in September 2007. Shareholders who tendered their preferred stock in this
offering did not receive a dividend payment for the quarter ended September 30, 2007.

In November, 2006, the Company
commenced a tender offer to redeem up to 246,154 shares of preferred stock (with a right
to redeem up to an additional 13,483 shares) at a price of $16.25 per share. Shareholders
tendered 348,538 shares of preferred stock and the Company redeemed 259,574 shares of
preferred stock at $16.25 per share in December 2006. Shareholders who tendered their
preferred stock in this offering did not receive a dividend payment for the quarter ended
December 31, 2006.

Mandatorily redeemable preferred
stock consisted of the following as of December 31, 2007 and 2006:

|                                                  | 12/31/2007 | 12/31/2006
|------------------------------------------------- | ---------- | ----------
|Redeemable Preferred stock, 1 cent par value,     |            |           
|$25 carrying value, 3,000,000 shares authorized,  |            |           
|690,000 shares issued, 375,790 and 414,617 shares |            |           
|outstanding and 314,210 and 275,383 shares        |            |           
|redeemed as of December 31, 2007 and 2006,        |            |           
|respectively                                      |            |           

44

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 15  Mandatory
Redeemable Preferred Stock (continued)

The following table provides detail
regarding the gain on the redemption of 38,827 shares of preferred stock in September of
2007.

|                                                               | 12/31/2007
|-------------------------------------------------------------- | ----------
|Payment for the redemption of 38,827 shares of preferred stock |           
|Carrying value of shares at redemption date ($25 per share)    |           
|Accrued third quarter dividends on shares redeemed             |           
|Expenses incurred in connection with redemption                |           
|                                                               |           
|Gain on redemption of preferred stock                          |           
|                                                               |           

The following table provides detail
regarding the gain on the redemption of 259,574 shares of preferred stock in December of
2006.

|                                                                | 12/31/2006
|--------------------------------------------------------------- | ----------
|Payment for the redemption of 259,574 shares of preferred stock |           
|Carrying value of shares at redemption date ($25 per share)     |           
|Accrued fourth quarter dividends on shares redeemed             |           
|Expenses incurred in connection with redemption                 |           
|                                                                |           
|Gain on redemption of preferred stock                           |           
|                                                                |           

# NOTE 16 
Retirement Plans

LPI and LMOD have 401(k) contribution
plans for eligible employees. Employer matching contributions to the plans were $19,434
and $17,548 for the years ended December 31, 2007 and December 31, 2006, respectively.

# NOTE 17 
Stockholders Equity

In December, 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123R which requires
compensation costs related to share-based payment transactions to be recognized in
financial statements. SFAS No. 123R replaced SFAS No. 123 Accounting for Stock
Based Compensation and supersedes Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, which generally resulted
in no compensation expense being recorded in the financial statements related to the grant
of stock options to employees if certain conditions were met.

On January 1, 2006, the Company
adopted SFAS No. 123R using the modified prospective method. SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock options, to be
recognized as expense in the consolidated statement of earnings based on fair value. The
amount of compensation expense is determined based on the fair value of the options when
granted and is expensed over the required service period, which is normally the vesting
period of the options. SFAS No. 123R applies to awards granted or modified after January
1, 2006, and any unvested awards outstanding at December 31, 2005. Consequently,
compensation expense is recorded for prior option grants that vest on or after January 1,
2006, the date of adoption. The Company has elected to use the Black-Scholes option
pricing model and the straight-line method of amortization expense over the requisite
service period of the grant.

45

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 17 
Stockholders Equity (continued)

At December 31, 2007, the Company had
a stock-based employee compensation plan, the 2003 Stock Option Plan. Prior to the
adoption of SFAS No. 123R, the Company accounted for plans under the recognition and
measurement principles of APB Opinion No. 25 which resulted in no compensation expense
being recorded. Under SFAS No. 123R, stock based compensation of $14,983 was recognized in
the year ended December 31, 2007, and $2,944 was recognized in the year ended December 31,
2006.

On April 5, 2007, the Boards
Compensation Committee awarded Messrs. Kenneth J. Werner, Jr. (President of LMOD and LPI)
and Craig R. Bald (Vice President of Finance of Parent) restricted shares of the
Companys common stock, 6-2/3 cents par value and nonqualified stock options. The
nonqualified stock options were granted under the 2003 Stock Option Plan. Mr. Werner was
granted 50,000 restricted shares of common stock and Mr. Bald was granted 25,000
restricted shares of common stock. Mr. Werner was granted an option to purchase 100,000
shares of common stock and Mr. Bald was granted an option to purchase 50,000 shares of
common stock. The option price was $0.33 per share, which represents the closing sale
price of a share of common stock on the grant date (the fair market value). The shares of
restricted stock vest ratably over a three year period from the date of grant, based upon
continued service as an employee, or earlier in the event of death or disability or change
of control. Prior to vesting, Messrs. Werner and Bald are entitled to receive dividends on
the shares of restricted stock (dividends paid in shares of common stock are subject to
the same risk of forfeiture and restrictions on transferability as the restricted shares)
and to exercise voting rights. All of the options vest ratably over a four year period
from the date of grant, and expire ten years from the date of grant.

At December 31, 2007, the 2003 Stock
Option Plan had outstanding options to purchase 40,900 shares at an exercise price of
$4.72 per share, of which options to purchase 32,720 shares were exercisable, and
outstanding options to purchase 150,000 shares at an exercise price of $0.33 per share,
which were not exercisable.

At the shareholder meeting on June 5,
2007, the shareholders approved the adoption of the 2007 Non-Employee Director Stock Plan.
The plan makes available 200,000 shares of common stock for the payment of director fees
in shares of common stock. The plan also allows directors to elect to receive shares of
common stock in lieu of cash fees. Any shares issued under a directors election to
receive shares of common stock in lieu of cash fees, would not reduce the 200,000 share
amount discussed above. Under the plan, the exercise prices for stock options may not be
less than the fair market value of the optioned stock at the date of grant. In February of
2008, one director received 22,222 shares of common stock for payment of director fees.

Under the 2003 Stock Option Plan, the
exercise prices for stock options may not be less than the fair market value of the
optioned stock at the date of grant. The exercise price of all options granted was equal
to the market value of the stock on the date of the grant. Options may be exercised based
on the vesting schedule outlined in the agreement. Options granted under the Plan are
considered non-qualified stock options as defined the Code. All options must
be exercised within ten years of the date of grant.

46

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 17 
Stockholders Equity (continued)

Activity is summarized in the
following table:

|                                                         | 2007                   | 2006  
|-------------------------------------------------------- | ---------------------- | ------
|Shares                                                   | Weighted
Average
Price | Shares
|OUTSTANDING - Beginning of Year                          |                        |       
|Options                                                  |                        |       
|Granted                                                  |                        |       
|Exercised                                                |                        |       
|Forfeited                                                |                        |       
|Expired                                                  |                        |       
|                                                         |                        |       
|OUTSTANDING - End of Year                                |                        |       
|                                                         |                        |       
|Exercisable at year end                                  |                        |       
|Available for future grant at year end                   |                        |       
|Total reserved shares                                    |                        |       
|Weighted Average Remaining Contractual Life - 8.38 years |                        |       

The weighted average fair value at
date of grant for options granted during 2007 was $0.33. The fair value of options, at
date of grant, for options granted in 2007 was estimated using the Black-Scholes
option-pricing model with the following assumptions:

|                        | 2007    
|----------------------- | --------
|Expected life (years)   | 10 years
|Risk-free interest rate | 4.50%   
|Expected volatility     | 70%     
|Expected dividend yield | 0%      

All outstanding options to purchase
shares of common stock for the years ended December 31, 2007 and 2006, respectively, were
excluded from the loss per common share calculations as they were non-dilutive.

# NOTE 18  Income
Taxes

As discussed previously, as of
January 1, 2006, BMSBLC merged with and into LMOD and on January 1, 2006, no longer
qualified as a REIT. Therefore, for the year ending December 31, 2007, the Company
(consisting of the Parent, LMOD and LPI) operated as a C Corporation under the Code. The
Company intends to file a consolidated federal income tax return for the year ended
December 31, 2007, and filed a consolidated federal income tax return for the year ended
December 31, 2006.

The Company accounts for income taxes
using an asset and liability approach which generally requires the recognition of deferred
income tax assets and liabilities based on the expected future income tax consequences of
events that have previously been recognized in the Companys consolidated financial
statements or tax returns. In addition, a valuation allowance is recognized if it is more
likely than not that some or all of the deferred income tax assets will not be realized in
the foreseeable future.

47

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 18  Income
Taxes (continued)

There were no income tax benefits
recognized for the years ended December 31, 2007 and December 31, 2006, due to changes in
the valuation allowance. There were no unrecognized tax benefits for the years ended
December 31, 2007 and December 31, 2006, due to the Companys net losses. No interest
or penalties relating to income taxes are included in these financial statements.

A reconciliation of the federal
statutory income tax rate to the effective income tax rate for the Company is as follows:

|                                                      | 2007 | 2006
|----------------------------------------------------- | ---- | ----
|Federal income taxes at statutory rate                |      |     
|State income taxes, net of federal benefit            |      |     
|Other                                                 |      |     
|Benefit of current year federal and state net         |      |     
|operating loss carryforwards and other                |      |     
|deferred income tax assets not recognized             |      |     
|                                                      |      |     
|Effective income tax rate before changes in valuation |      |     
|allowance                                             |      |     
|                                                      |      |     

Temporary differences that give rise
to deferred income tax assets and liabilities consisted of the following as of December
31:

|                                             | 2007 | 2006
|-------------------------------------------- | ---- | ----
|Deferred income tax assets:                  |      |     
|Accounts receivable and loan loss allowances |      |     
|Inventory allowances                         |      |     
|Accrued liabilities                          |      |     
|Federal net operating loss carryforwards     |      |     
|State net operating loss carryforwards       |      |     
|Other                                        |      |     
|                                             |      |     
|Total deferred income tax assets             |      |     
|Deferred income tax liabilities:             |      |     
|Property and equipment depreciation          |      |     
|Other                                        |      |     
|                                             |      |     
|Total deferred income tax liabilities        |      |     
|                                             |      |     
|Deferred income tax assets - net             |      |     
|Valuation allowance                          |      |     
|                                             |      |     
|Net deferred income tax assets recognized    |      |     
|in the consolidated balance sheets           |      |     
|                                             |      |     

48

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 18  Income
Taxes (continued)

In evaluating the Companys
ability to realize the net deferred income tax assets, the Company considers all available
evidence, both positive and negative, including past operating results, the existence of
cumulative losses in the most recent fiscal years, tax planning strategies that are
prudent and feasible, and the forecast of future taxable income. In considering this
information, the Company is required to make certain assumptions and judgments based on
plans and estimates. Any changes in the Companys assumptions and/or estimates may
materially impact the consumer products business segments income tax expense. In the
years ended December 31, 2007 and December 31, 2006, the Company provided valuation
allowances of $0.32 million and $1.02 million, respectively. A portion of the valuation
allowance is a significant component of the reconciliation between the provision for
income taxes computed at the Federal statutory rate versus the effective rate.

As of January 1, 2008, the Company
is subject to U.S. Federal income tax examinations for the tax years 2004 to 2007.  In
addition, the Company is subject to state and local income tax examinations for the tax
years 2003 to 2007.

As of December 31, 2007, the Company
had unused net operating loss carryforwards of approximately $14.0 million available to
offset against future federal taxable income and approximately $10.2 million to offset
against future state taxable income. The use of the net operating loss carryforwards are
subject to limitations. The state net operating loss carryforwards expire at various dates
beginning in 2010 and continuing through 2027. The federal carryforwards expire as
follows:

|    
|----
|2008
|2010
|2011
|2012
|2018
|2019
|2023
|2024
|2025
|2026
|2027

# Financial Services:

Prior to January 1, 2006, the Parent
and its subsidiary, BMSBLC, qualified as a REIT under the Code. Accordingly, the REIT was
not subject to income tax on taxable income that was distributed to common shareholders.
However, the REIT was allowed to retain capital gains from the sale of real estate and pay
income tax on that gain. In January, 2006, the REIT paid $546,917 in accrued income taxes
from the sale of leased properties during 2005.

# NOTE 19  Dividends

For the years ended December 31, 2007
and December 31, 2006, the Companys Board of Directors did not declare any common
stock dividends.

49

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 20  Fair Value
of Financial Instruments

The Companys financial
instruments consist of cash and cash equivalents, accounts receivable, loans receivable,
short-term borrowings, and accounts payable whose carrying values approximate fair value.

The estimated carrying values and
fair values of the Companys redeemable preferred stock at December 31, 2007 and
December 31, 2006 are as follows:

|                           | 2007                 | 2006          
|-------------------------- | -------------------- | --------------
|Carrying
Value             | Estimated
Fair Value | Carrying
Value
|Redeemable preferred stock |                      |               
|                           |                      |               

The estimated fair value of the
redeemable preferred stock was based on quoted market prices.

# NOTE 21  Pro Forma
Financial Information

The following table presents the
unaudited pro forma results of operations of the Company for the year ended December 31,
2006 assuming that the loan sales and leased property dispositions which occurred during
2006 had occurred on January 1, 2006.

The pro forma financial information
gives effect to all of the following transactions as if they had occurred on January 1,
2006.

| | The
sale of loans and loan participations to the Bank on various dates during the year ended
December 31, 2006 for the aggregate purchase price of $15.58 million, plus accrued
interest, pursuant to an asset purchase agreement entered into by LMOD and the Bank.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
sale of six additional loans to the Bank, outside of the asset purchase agreement, for
the aggregate purchase price of $4.16 million, plus accrued interest.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
sale of nine leased properties and two vacant properties to various unrelated parties
which resulted in a gain of $2.24 million. The net book value of the properties at the
time of the sales was $11.77 million. The pro forma condensed consolidated statement of
operations for the year ended December 31, 2006, excludes the gain on the sale of the
properties.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
reduction of indebtedness under the Companys revolving line of credit agreement, in
the amount of $22.82 million, the payoff of the notes payable to SWIB in full, in the
amount of $5.14 million, and the redemption of 259,754 shares of preferred stock with a
carrying amount at redemption of $4.22 million, with proceeds from the sales of the
Financial Services Assets. The prepayment of the notes payable to SWIB required a
prepayment penalty of $289,034 which has been excluded from the December 31, 2006 pro
forma financial information.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 21  Pro Forma
Financial Information (continued)

The pro forma financial information
adjusts the Companys historical results of operations for the transactions listed
above. The pro forma financial information should be read in conjunction with the
Companys historical financial information, but does not purport to be indicative of
the results which may be obtained in the future or which would actually have been obtained
had the transactions occurred as of January 1, 2006. For purposes of presenting the pro
forma information, income taxes have been excluded as no income tax was due on the 2006
transactions.

|                                               | Year Ended
12/31/2006
Historical | Pro Forma
Adjustments | Year Ended
12/31/2006
Pro Forma
|---------------------------------------------- | -------------------------------- | --------------------- | -------------------------------
|Consumer products segments net loss           |                                  |                       | $                              
|                                               |                                  |                       |                                
|Financial services segments total revenues    |                                  |                       |                                
|Financial services segments total expenses    |                                  |                       |                                
|                                               |                                  |                       |                                
|Financial services segments net income (loss) |                                  |                       |                                
|                                               |                                  |                       |                                
|Total Company net loss                         |                                  |                       |                                
|Preferred stock dividends                      |                                  |                       |                                
|Gain on redemption of preferred stock          |                                  |                       |                                
|                                               |                                  |                       |                                
|Net loss applicable to common shareholders     |                                  |                       | $                              
|                                               |                                  |                       |                                
|Basic and diluted loss per common share        |                                  |                       | $                              
|Weighted average shares outstanding            |                                  |                       |                                

51

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 22  The
Middleton Doll Company (Parent Company Only) Financial Information

# CONDENSED BALANCE
SHEETS

|                                                 | December 31,
|------------------------------------------------ | ------------
|
|ASSETS                                           |             
|Cash and cash equivalents                        |             
|Investment in and advances to subsidiaries       |             
|Other assets                                     |             
|                                                 |             
|TOTAL ASSETS                                     |             
|                                                 |             
|LIABILITIES AND SHAREHOLDERS EQUITY             |             
|LIABILITIES                                      |             
|Other liabilities                                |             
|Preferred shares subject to mandatory redemption |             
|                                                 |             
|Total Liabilities                                |             
|SHAREHOLDERS EQUITY                             |             
|                                                 |             
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY       |             
|                                                 |             

52

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 22  The
Middleton Doll Company (Parent Company Only) Financial Information (continued)

# CONDENSED STATEMENTS
OF OPERATIONS

|                                            | Years Ended December 31,
|------------------------------------------- | ------------------------
|
|REVENUES                                    |                         
|Equity in loss of subsidiaries              |                         
|Other income                                |                         
|                                            |                         
|Total Income                                |                         
|                                            |                         
|EXPENSES                                    |                         
|Other operating expenses                    |                         
|                                            |                         
|Net loss before other income (expense)      |                         
|OTHER INCOME (EXPENSE)                      |                         
|Gain on redemption of preferred stock,      |                         
|net of accrued interest and expenses        |                         
|Interest expense related to preferred stock |                         
|                                            |                         
|Total other income (expense)                |                         
|                                            |                         
|NET LOSS                                    |                         
|                                            |                         

53

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2007 and 2006

# NOTE 22  The
Middleton Doll Company (Parent Company Only) Financial Information (continued)

# CONDENSED STATEMENTS
OF CASH FLOWS

|                                              | Years Ended December 31,
|--------------------------------------------- | ------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES          |                         
|Net loss                                      |                         
|Adjustments to reconcile net income available |                         
|to common shareholders to net cash flows      |                         
|from operating activities                     |                         
|Stock-based compensation expense              |                         
|Equity in subsidiaries' earnings              |                         
|Dividends from subsidiary                     |                         
|Net change in                                 |                         
|Other assets                                  |                         
|Other liabilities                             |                         
|                                              |                         
|Net Cash Flows from Operating Activities      |                         
|                                              |                         
|CASH FLOWS FROM INVESTING ACTIVITIES          |                         
|Advances to subsidiaries                      |                         
|                                              |                         
|Net Cash Flows used in Investing Activities   |                         
|                                              |                         
|CASH FLOWS FROM FINANCING ACTIVITIES          |                         
|Payment for redemption of preferred stock,    |                         
|including expenses                            |                         
|Preferred stock dividend paid                 |                         
|                                              |                         
|Net Cash Flows used in Financing Activities   |                         
|                                              |                         
|Net Change in Cash and Cash Equivalents       |                         
|CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |                         
|                                              |                         
|CASH AND CASH EQUIVALENTS - END OF YEAR       |                         
|                                              |                         

54

---

Schedule I Condensed
Financial Information of Small Business Issuer(Refer to footnote 22 of the
consolidated financial statements)

# Schedule II  Valuation
and Qualifying Accounts

Changes in the reserves deducted from
assets in the consolidated balance sheets for each of the two years in the period ended
December 31, 2007, are as follows:

|                                            
|--------------------------------------------
|Allowance for loan losses:                  
|Year ended:                                 
|December 31, 2007                           
|December 31, 2006                           
|Allowance for doubtful accounts:            
|Year ended:                                 
|December 31, 2007                           
|December 31, 2006                           
|Allowance for obsolete and excess inventory:
|Year ended:                                 
|December 31, 2007                           
|December 31, 2006                           
|Deferred income taxes valuation allowance:  
|Year ended:                                 
|December 31, 2007                           
|December 31, 2006                           

55

---

# Schedule IVMortgage
Loans on Real Estate

|Description              | Interest
Rate | Final
Maturity
Date | Periodic
Payment
Terms | Prior
Liens | Face
Amount
of
Mortgages | Carrying
Amount
of
Mortgages
as of
12/31/2007 | Principal
amount
of loans
subject to
delinquent
Principal
or
Interest
|------------------------ | ------------- | ------------------- | ---------------------- | ----------- | ------------------------ | --------------------------------------------- | ---------------------------------------------------------------------
|Commercial               |               |                     |                        |             |                          |                                               |                                                                      
|Second Mortgage          | 8.00%         | Demand              | N/A                    | N/A         | N/A                      | 41,775                                        | $    41,775                                                          
|All others           (1) | N/A           | N/A                 | N/A                    | N/A         | N/A                      | 103,975                                       | $  167,788                                                           
|                         |               |                     |                        |             |                          |                                               |                                                                      
|Total loans              |               |                     |                        |             |                          | $  145,750                                   
|                         |               |                     |                        |             |                          |                                               |                                                                      

|(1) | This
category includes all non-mortgage loans on the balance sheet.
|--- | -------------------------------------------------------------------

|                             | For the Years Ended December 31,
|---------------------------- | --------------------------------
|
|Loans, beginning of period   |                                 
|Additions during the period  |                                 
|Loans made                   |                                 
|Write-off                    |                                 
|Deductions during period     |                                 
|Principal collected on loans |                                 
|                             |                                 
|Loans, end of period         |                                 
|Allowance for loan losses    |                                 
|                             |                                 
|Net loans, end of period     |                                 
|                             |                                 

56

---

|Item 8. | Changes
In and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.

|Item 8A. | Controls
and Procedures
|-------- | -----------------------

# Evaluation of the
Companys Disclosure Controls and Internal Controls.

As
of the end of the period covered by this annual report (the Report), the
Company evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (Disclosure Controls), and its internal
control over financial reporting (Internal Controls). This evaluation
(the Controls Evaluation) was done under the supervision and with the
participation of management, including the Companys Chief Executive Officer
(CEO) and Chief Financial Officer (CFO). Rules adopted by the
Securities and Exchange Commission (SEC) require that in this section of the
Report, the Company present the conclusions of the CEO and the CFO about the effectiveness
of the Disclosure Controls and Internal Controls based on and as of the date of the
Controls Evaluation.

# CEO and CFO
Certifications.

Attached
as exhibits to this Report are two separate forms of Certifications of the CEO
and the CFO. The first form of Certification is required in accordance with Section 302 of
the Sarbanes-Oxley Act of 2002 (the Section 302 Certification). This section
of the Report is the information concerning the Controls Evaluation referred to in the
Section 302 Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics presented.

# Disclosure Controls and
Internal Controls.

Disclosure
Controls are procedures that are designed with the objective of ensuring that information
required to be disclosed in the Companys reports filed under the Securities Exchange
Act of 1934 (the Exchange Act), such as this Report, is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and
forms. Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to the Companys management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Internal Controls are procedures which are designed with the objective of providing
reasonable assurance that (1) the Companys transactions are properly authorized; (2)
the Companys assets are safeguarded against unauthorized or improper use; and (3)
the Companys transactions are properly recorded and reported, all to permit the
preparation of the Companys consolidated financial statements in conformity with
accounting principles generally accepted in the United States. The Companys
management is responsible for establishing and maintaining adequate Internal Controls.

# Limitations on the
Effectiveness of Controls.

The
Companys management, including the CEO and CFO, does not expect that its Disclosure
Controls or its Internal Controls will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitation
in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; overtime, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.

57

---

# Scope of the Controls
Evaluation.

The
CFO/CEO evaluation of the Companys Disclosure Controls and the Companys
Internal Controls included a review of the controls objectives and design, the controls
implementation by the Company and the effect of the controls on the information generated
for use in this Report. In the course of the Controls Evaluation, the CEO and CFO sought
to identify data errors, controls problems or acts of fraud and to confirm that
appropriate corrective action, including process improvements, were being undertaken. This
type of evaluation is to be done on a quarterly basis so that the conclusions concerning
controls effectiveness can be reported in the Companys quarterly reports on Form
10-QSB and annual report on Form 10-KSB. The Companys Internal Controls are also
evaluated on an ongoing basis by the Company. The overall goals of these various
evaluation activities are to monitor the Companys Disclosure Controls and the
Companys Internal Controls and to make modifications as necessary; the
Companys intent in this regard is that the Disclosure Controls and the Internal
Controls will be maintained as dynamic systems that change (reflecting improvements and
corrections) as conditions warrant.

Among
other matters, the Company sought in its evaluation to determine whether there were any
significant deficiencies or material weaknesses in the
Companys Internal Controls, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Companys Internal Controls.
This information was important both for the Controls Evaluation generally and because Item
5 in the Section 302 Certifications of the CEO and CFO requires that the CEO and CFO
disclose that information to the Audit Committee of the Companys Board of Directors
and to the Companys independent auditors and report on related matters in this
section of the Report. In the professional auditing literature, significant
deficiencies are control issues that could have a significant adverse effect on the
ability to record, process, summarize and report financial data in the financial
statements. A material weakness is defined in the auditing literature as a
particularly serious reportable condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error or fraud may occur in
amounts that would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their assigned
functions. The Company also sought to deal with other controls matters in the Controls
Evaluation, and in each case if a problem was identified, the Company considered what
revision, improvement and/or correction to make in accordance with the on-going
procedures.

The
Companys management and Audit Committee were notified by Virchow, Krause &
Company, LLP (Virchow Krause), the Companys independent registered
public accounting firm, that during the course of their audit of the Companys
consolidated financial statements for 2007 they identified a potential material weakness.
After consultation with Virchow Krause, the Company concluded that it had a material
weakness due to the size of the Company and the limited number of persons involved in the
accounting functions, as the Company does not have a proper segregation of duties and
because the possibility of management override of controls exists. In addition, the
magnitude of a material error is very low given the Companys quantitative values of
income, equity and total assets. This fact makes it very difficult to detect a material
error through monitoring controls. To some degree, the Company mitigates the risk of
misstatement through certain of its entity-wide controls including the Presidents
review of the financial statements, and the Audit Committees review and approval of
its regulatory filings, but there can be no assurance such actions will effectively
mitigate the material weakness. However, the Companys size and financial resources
prevent it from being able to employ sufficient resources to enable it to have adequate
segregation of duties within its internal control system. The Companys management is
required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.

# Disclosure Controls
Conclusion.

Based
upon the Controls Evaluation, the Companys CEO and CFO have concluded that the
Companys Disclosure Controls were effective as of December 31, 2007, to ensure that
the information required to be disclosed by the Company in the reports that it files under
the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms and then accumulated and communicated
to Company management, including the CEO and CFO, as appropriate, to make timely decisions
regarding required disclosures.

58

---

# Management Report on
Internal Control Over Financial Reporting.

The
management of the Company is responsible for establishing and maintaining adequate
Internal Controls, and management has designed the Internal Controls to provide reasonable
assurance to the Companys management and Board of Directors regarding the
preparation and fair presentation of published financial statements. As noted above, all
internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.

Based
upon the Controls Evaluation, the Companys CEO and CFO have concluded that because
of the material weakness discussed above, the Companys Internal Controls were not
effective as of December 31, 2007. However, they concluded that this Internal Controls
material weakness did not impact the quality of the financial information in this Annual
Report on Form 10-KSB and that the consolidated financial statements included in this
Annual Report on Form 10-KSB fairly state, in all material respects, the Companys
financial position, results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles.

Although
the CEO/CFO evaluation of the effectiveness of the Companys Internal Controls was
based on the framework in Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, such evaluation did
not consist of a full-scale application of such framework. Notwithstanding the foregoing,
the Companys CEO and CFO concluded that such evaluation was appropriate and
sufficient given the Companys circumstances, such as its limited number of employees
and resources, the close involvement of management in day-to-day operations of the
Companys business and the relative non-complexity of the Companys operations
and related financial reporting.

This
Report does not include an attestation report of the Companys registered public
accounting firm regarding Internal Controls. Managements report was not subject to
attestation by the Companys independent registered public accounting firm pursuant
to temporary rules of the SEC that permit the Company to provide only managements
report in this Report.

# Changes in Internal
Control Over Financial Reporting

Based
on an evaluation performed by the Companys management, with the participation of the
CEO and CFO, except as identified above, there were no changes in the Companys
Internal Controls identified in such evaluation that occurred during the quarter ended
December 31, 2007 that have materially affected, or are likely to materially affect, the
Companys Internal Controls.

|Item 8B. | Other
Information
|-------- | -----------------

None.

59

---

# Part III

|Item 9. | Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With
Section 16(a) of the Exchange Act
|------- | -------------------------------------------------------------------------------------------------------------------------------------

The
information called for by Item 401 of Regulation S-B with respect to the directors of the
small business issuer and by Item 405 of Regulation S-B is incorporated herein by
reference from the small business issuers definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not later than 120
days after December 31, 2007 (the Proxy Statement) under the headings
Election of Directors and Security Ownership of Certain Beneficial
Owners and Management  Section 16(a) Beneficial Ownership Reporting
Compliance.

The
information concerning the audit committee financial expert and the identification of the
audit committee members required pursuant to Items 407(c)(3), 407(d)(4) and 407(d)(5) of
Regulation S-B is incorporated herein by reference from the Proxy Statement under the
heading The Board of Directors and Its Committees.

The
Company has adopted a Financial Officers Code of Ethics for its Chief Executive Officer,
its Chief Financial Officer and Controller (the Code of Ethics). The Company
has posted a copy of the Code of Ethics on the Companys website at
www.themiddletondollcompany.com. The Company intends to satisfy the disclosure
requirement of Item 10 of Form 8-K regarding amendments to, or waivers from the Code of
Ethics by posting such information on its website at
www.themiddletondollcompany.com.

|Item 10. | Executive
Compensation
|-------- | ----------------------

The
information called for by this Item 10 is incorporated herein by reference from the Proxy
Statement under the heading Executive Compensation; provided, however, that
the subsection entitled Compensation Committee Report shall not be deemed to
be incorporated by reference.

|Item 11. | Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The
information called for by Item 201(d) of Regulation S-B is incorporated herein by
reference from the Proxy Statement under the heading Executive Compensation 
Equity Compensation Plan Information and the information required under Item 403 of
Regulation S-B is incorporated herein by reference from the Proxy Statement under the
heading Security Ownership of Certain Beneficial Owners and Management.

|Item 12. | Certain
Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

The
information called for by this Item 12 is incorporated herein by reference from the Proxy
Statement under the heading Related Person Transactions.

|Item 13. | Exhibits
|-------- | --------

Reference
is made to the separate exhibit index contained on pages 62, 63, 64 and 65 hereof.

|Item 14. | Principal
Accountant Fees and Services
|-------- | --------------------------------------

The
information called for by this Item 14 is incorporated herein by reference from the Proxy
Statement under the heading Proposal No. 2  Ratification of Appointment of
Independent Auditors.

60

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the small
business issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 31, 2008.

| | THE MIDDLETON DOLL COMPANY           
| | -------------------------------------
| | By:/s/ Salvatore L. Bando            
| | Salvatore L. Bando,                  
| | President and Chief Executive Officer

In
accordance with the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the small business issuer and in the capacities
indicated on March 31, 2008.

| | /s/ Salvatore L. Bando                             
| | ---------------------------------------------------
| | Salvatore L. Bando                                 
| | President and Chief Executive Officer, Director    
| | /s/ Craig R. Bald                                  
| | Craig R. Bald                                      
| | Vice President Finance and Chief Financial Officers
| | (Principal Financial and Accounting Officer)       
| | /s/ Kenneth A. Werner, Jr.                         
| | Kenneth A. Werner, Jr.                             
| | Director                                           
| | /s/ Peter A. Fischer                               
| | Peter A. Fischer                                   
| | Director                                           
| | /s/ David A. Geraldson, Sr.                        
| | David A. Geraldson, Sr.                            
| | Director                                           
| | /s/ Jeffrey B. Rusinow                             
| | Jeffrey B. Rusinow                                 
| | Director                                           
| | /s/ Douglas M. Schosser                            
| | Douglas M. Schosser                                
| | Director                                           

61

---

# INDEX TO EXHIBITS

|Exhibit No. | Exhibit Description
|----------- | -------------------

|3.1 | Articles
of Incorporation,  as amended  (incorporated by reference to Exhibit 3.1 to the
                           Companys  Form  10-Q  for  the  quarterly  period  ended
 March  31,  1997)  (File  No.                            811-03787).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Amendment
to Articles of Incorporation, changing name to The Middleton Doll Company (incorporated
by reference to Exhibit 3.1 to the Companys Form 10-Q for the quarterly period
ended June 30, 2001) (File No. 811-03787).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | By-laws
 (incorporated  by reference to Exhibit 3.2 to the  Companys  Form 10-Q for the
                           quarterly period ended March 31, 1997) (File No. 811-03787).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.4 | Amendment
to By-Laws (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K, dated
February 15, 2007, as filed with the Securities and Exchange Commission on February 21,
2007) (File No. 033-51406).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 | Instruments
 defining  the Rights of Security  Holders  (incorporated  by  reference to Exhibit 3.1
to the                            Companys  Form  10-Q  for  the  quarterly  period
 ended  March  31,  1997)  (File  No.                            811-03787).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | Amended
and Restated Credit Agreement dated April 30, 1999, by and among Bando McGlocklin Small
Business Lending Corporation, Firstar Bank Milwaukee, N.A., as agent, and the Financial
Institutions parties thereto (incorporated by reference to Exhibit 4.1 to the Companys
Form 10-Q for the quarterly period ended March 31, 1999) (File No. 811-03787).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 | First
Amendment to Amended and Restated Credit Agreement between Bando McGlocklin Small
Business Lending Corporation and Firstar Bank, as agent for the Lenders, dated February
28, 2000 (incorporated by reference to Exhibit 4.3 to the Companys Form 10-K for
the year ended December 31, 2000) (File No. 811-03787).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 | Second
Amendment to Amended and Restated Credit Agreement between Bando McGlocklin Small
Business Lending Corporation and Firstar Bank, as agent for the Lenders, dated April 28,
2000 (incorporated by reference to Exhibit 4.3 to the Companys Form 10-Q for the
quarterly period ended June 30, 2000) (File No. 811-03787).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 | Third
Amendment to Amended and Restated Credit Agreement between Bando McGlocklin Small
Business Lending Corporation and Firstar Bank, as agent for the Lenders, dated June 30,
2000 (incorporated by reference to Exhibit 4.4 to the Companys Form 10-Q for the
quarterly period ended June 30, 2000) (File No. 811-03787).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 | Fourth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and Firstar Bank, N.A., as
agent for the Lenders, dated June 29, 2001 (incorporated by reference to Exhibit 4.2 to
the Companys Form 10-Q for the quarterly period ended June 30, 2001) (File No.
811-03787).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7 | Fifth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A.), as agent for the Lenders, dated June 28, 2002
(incorporated by reference to Exhibit 4.2 to the Companys Form 10-Q for the
quarterly period ended June 30, 2002) (File No. 811-03787).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

62

---

|4.8 | Sixth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A.), as agent for the Lenders, dated February 24,
2003 (incorporated by reference to Exhibit 4.8 to the Companys Form 10-K for the
year ended December 31, 2002) (File No. 811-03787).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 | Seventh
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A.) dated June 27, 2003 (incorporated by reference
to Exhibit 4.1 to the Companys Form 10-Q for the quarterly period ended June 30,
2003) (File No. 033-51406).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 | Eighth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A.) dated June 25, 2004 (incorporated by reference
to Exhibit 4.1 to the Companys Form 10-Q for the quarterly period ended June 30,
2004) (File No. 033-51406).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 | Ninth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A.) dated May 17, 2005 (incorporated by reference
to Exhibit 4.11 to the Companys Form 10-K for the year ended December 31, 2005)
(File No. 033-51406).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 | Tenth
Amendment to Amended and Restated Credit Agreement among Bando McGlocklin Small Business
Lending Corporation, the financial institutions party thereto and US Bank National
Association (formerly Firstar Bank, N.A., successor by merger to Firstar Bank Milwaukee,
N.A.), as Agent, dated June 24, 2005 (incorporated by reference to Exhibit 99.1 to
Current Report on Form 8-K, dated June 24, 2005, as filed with the Securities and
Exchange Commission on July 22, 2005) (File No. 033-51406).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.13 | Twelfth
Amendment to Amended and Restated Credit Agreement among Lee Middleton Original Dolls,
Inc. (as successor in interest to Bando McGlocklin Small Business Lending Corporation),
the financial institutions party thereto and US Bank National Association (formerly
Firstar Bank, N.A., successor by merger to Firstar Bank Milwaukee, N.A.), as Agent, dated
June 23, 2006 (incorporated by reference to Exhibit 10.1 to the Companys Form
10-QSB for the quarterly period ended June 30, 2006) (File No. 033-51406).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.14 | Master
Note Purchase Agreement dated January 1, 1997, between the State of Wisconsin Investment
Board, Bando McGlocklin Small Business Lending Corporation and Bando McGlocklin Capital
Corporation (incorporated by reference to Exhibit 4.7 to the Companys Form 10-Q for
the quarterly period ended March 31, 1997) (File No. 811-03787).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.15 | First
Amendment to Master Note Purchase Agreement dated June 1, 1998, by and among the State of
Wisconsin Investment Board, Bando McGlocklin Small Business Lending Corporation and Bando
McGlocklin Capital Corporation (incorporated by reference to Exhibit 4.2 to the Companys
Form 10-Q for the quarterly period ended June 30, 1998) (File No. 811-03787).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.16 | Third
Amended and Restated Credit Agreement dated June 1, 1998, by and among State of Wisconsin
Investment Board, Bando McGlocklin Small Business Lending Corporation and Bando
McGlocklin Capital Corporation (incorporated by reference to Exhibit 4.1 to the Companys
Form 10-Q for the quarterly period ended June 30, 1998) (File No. 811-03787).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

63

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|10.1* | Bando
McGlocklin Capital Corporation 1997 Stock Option Plan (incorporated by reference to
Exhibit 10.4 to the Companys Form 10-Q for the quarterly period ended March 31,
1997) (File No. 811-03787).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2* | The
 Middleton  Doll  Company  2003 Stock  Option Plan  (incorporated  by  reference  to
                           Appendix A to the definitive  Proxy  Statement of The
Middleton Doll Company dated April                            4, 2003) (File No.
811-03787).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Second
Amended and Restated Management Services and Allocation of Expenses Agreement dated
January 1, 2004, by and between InvestorsBank, The Middleton Doll Company, Bando
McGlocklin Small Business Lending Corporation and Lee Middleton Original Dolls, Inc.
(incorporated by reference to Exhibit 10.1 to the Companys Form 10-Q for the
quarterly period ended March 31, 2004) (File No. 033-51406).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Loan
and Real Estate Services Agreement dated October 14, 2005, by and between InvestorsBank,
The Middleton Doll Company, and Bando McGlocklin Small Business Lending Corporation
(incorporated by reference to Exhibit 10.4 to the Companys Form 10-K for the year
ended December 31, 2005) (File No. 033-51406).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Asset
Purchase Agreement dated January 4, 2006, by and between InvestorsBank, The Middleton
Doll Company, and Lee Middleton Original Dolls, Inc. (incorporated by reference to
Exhibit 2 to Current Report on Form 8-K, dated January 4, 2006, as filed with the
Securities and Exchange Commission on January 10, 2006) (File No. 033-51406).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6* | Restated
 Employment  Agreement,  dated  December  1, 2006,  by and among Lee  Middleton Original
Dolls, Inc., License Products, Inc. and Craig R. Bald (incorporated by reference to
Exhibit 99.1 to Current Report on Form 8-K, dated January 19, 2007, as filed with the
Securities and Exchange Commission on January 22, 2007) (File No. 033-51406).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7* | Employment
 Agreement,  dated June 20, 2005,  by and among The  Middleton  Doll Company,
                           Lee  Middleton  Original  Dolls,  Inc.,  License  Products,
 Inc.  and Kenneth A. Werner                            (incorporated  by  reference  to
 Exhibit  99.2 to  Current  Report on Form  8-K,  dated
                           October 5, 2006,  as filed with the  Securities  and Exchange
 Commission  on October 5,                            2006) (File No. 033-51406).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8* | The
Middleton Doll Company 2003 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K, dated April 5, 2007) (File No. 033-51406).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9* | Form
of Restricted  Stock Grant Agreement  (incorporated by reference to Exhibit 10.2 to
                           Current Report on Form 8-K, dated April 5, 2007) (File No.
033-51406).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10* | Form
of  Non-Qualified  Stock  Option  Agreement  (incorporated  by reference to Exhibit
                           10.3 to Current Report on Form 8-K, dated April 5, 2007) (File
No. 033-51406).
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11* | The
Middleton Doll Company 2007 Non-Employee Director Stock Plan (incorporated by reference
to Exhibit 10.4 to the Companys Form 10-QSB for the quarterly period ended June 30,
2007) (File No. 033-51406).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Revolving
Credit Agreement,  dated July 27, 2007, by and among License  Products,  Inc., Lee
Middleton Original Dolls, Inc. and Town Bank (incorporated by reference to Exhibit 10.1
to the Companys Form 10-QSB for the quarterly period ended September 30, 2007)
(File No. 033-51406).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

64

---

|10.13 | Term
Credit Agreement, dated October 1, 2007, by and between The Middleton Doll Company and
Town Bank (incorporated by reference to Exhibit 10.2 to the Companys Form 10-QSB
for the quarterly period ended September 30, 2007) (File No. 033-51406).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Industrial
 Lease,  dated November 30, 2007 by and between  License  Products,  Inc. and
                           Welsh  Pewaukee,  LLC  (incorporated  by  reference  to
 Exhibit  99.1 to the  Companys                            Current Report on Form 8-K,
dated December 8, 2007) (File No. 033-51406).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11 | Statement
Regarding Computation of Net Loss Per Share
|-- | -----------------------------------------------------

|21 | List
of subsidiaries of The Middleton Doll Company
|-- | --------------------------------------------------

|31.1 | Certification
of Chief Executive officer
|---- | ----------------------------------------

|31.2 | Certification
of Chief Financial Officer
|---- | ----------------------------------------

|32.1 | Written
 Statement of the President and Chief  Executive  Officer of The Middleton  Doll
                           Company pursuant to 18 U.S.C. Section 1350.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 | Written
 Statement of the President and Chief  Financial  Officer of The Middleton  Doll
                           Company pursuant to 18 U.S.C. Section 1350.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|* | Represents
a management compensatory plan or arrangement.
|- | ---------------------------------------------------------

65