# U.S. SECURITIES AND
EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-K

[X]
               Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of                1934 For the year ended December 31, 2003;

OR

[  ]
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934                                    For the Transition Period from __________ to __________

Commission File Number:
0-22663

# THE MIDDLETON DOLL
COMPANY(Exact name of registrant as specified in its charter)

|Wisconsin                                      | 39-1364345                          
|---------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.)
|W239 N1700 Busse Road                         
|Waukesha, Wisconsin                            | 53188-1160                          
|(Address of principal executive offices)       | (Zip Code)                          

Registrants
telephone number, including area code: (262) 523-4300

Securities registered
pursuant to Section 12(b) of the Act:  None

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

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

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods 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   [   ]

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).

Yes   [   ]    No   [X]

The
aggregate market value of voting and non-voting common equity held by non-affiliates of
the registrant at March 15, 2004 was $12,943,578.

The
number of shares of common stock outstanding at March 15, 2004 was 3,727,589.

DOCUMENTS
INCORPORATED BY REFERENCE:

Portions of the The Middleton Doll
Company Proxy Statement for the 2004 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 year) are, upon such filing, to be incorporated by reference into
Part III.

---

# THE MIDDLETON DOLL
COMPANY

# Index to Annual Report
on Form 10-KFor the Year Ended December 31, 2003

|PART  I                                                                               | 3 
|------------------------------------------------------------------------------------- | --
|Item 1.    Description of Business                                                    | 3 
|Item 2.    Properties                                                                 | 8 
|Item 3.    Legal Proceedings                                                          | 9 
|Item 4.    Submission of Matters to a Vote of Security Holders                        | 9 
|PART  II                                                                              | 9 
|Item 5.    Market for Common Equity and Related Stockholder Matters                   | 9 
|Item 6.    Selected Financial Data (In  thousands, except per share data)             | 10
|Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
|Operations (for the years ended December 31, 2003, 2002 and 2001)                     | 10
|Item 7A.  Quantitative and Qualitative  Disclosures About Market Risk                 | 22
|Item 8.    Financial Statement and Supplementary Data                                 | 23
|Item 9.    Changes in and Disagreements with Accountants on                          
|Accounting and Financial Disclosure                                                   | 57
|Item 9A.  Controls and Procedures                                                     | 57
|PART  III                                                                             | 57
|Item 10.  Directors and Executive Officers of the Registrant                          | 57
|Item 11.  Executive Compensation                                                      | 57
|Item 12.  Security Ownership of Certain Beneficial Owners and Management             
|Related Stockholder Matters                                                           | 57
|Item 13.  Certain  Relationships and Related  Transactions                            | 58
|Item 14.  Principal  Accountant  Fees and Services                                    | 58
|PART  IV                                                                              | 58
|Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K            | 58

2

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# Part I

# Item 1.    Description
of Business

# Introduction

The
Middleton Doll Company was incorporated in February, 1980 to provide long-term
collateralized loans to small businesses. The Middleton Doll Company and its subsidiaries
are referred to herein as the Company. At present the Company consists of two
business segments, the Financial Services Business and the Consumer Products Business. The
Middleton Doll Company, when referred to singularly and not with its subsidiaries is
referred to herein as the Parent.

The
Financial Services Business segment consists of the Parent and its wholly-owned subsidiary
Bando McGlocklin Small Business Lending Corporation (BMSBLC). The principal
business of the segment is making loans and leasing buildings to small businesses. The
segment also participates in loans with third party loan originators. Both the Parent and
BMSBLC are 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 REIT does
not pay any corporate income taxes because it has a tax exempt status. To achieve the tax
exempt status a REIT must be in compliance with tests concerning the nature of the assets
of the REIT and the income earned. In addition, a REIT must distribute substantially all
of its taxable income each year in dividends to its shareholders.

The
Consumer Products Business segment consists of a 99% interest in Lee Middleton Original
Dolls, Inc. (LMOD). George R. Schonath, President and Chief Executive Officer,
owns the remaining 1% of the stock of LMOD. LMOD is a manufacturer of vinyl collectible
dolls and a distributor of vinyl play dolls. LMOD has a wholly-owned subsidiary, License
Products, Inc. (LPI), that designs, develops and markets a line of proprietary
time pieces. Prior to 2002, LMOD owned a 51% interest in LPI. On January 1, 2002, LMOD
acquired the remaining outstanding 49% interest in LPI. During 2002, LMOD disposed of its
51% interest in Middleton (HK) Limited (MHK), a Hong Kong corporation that
provided LMOD with raw material and finished goods from Asia. Neither of these
transactions had a material impact upon the financial statements.

In
order to qualify as a REIT under the Internal Revenue Code, the Parent cannot hold more
than 10% of the outstanding voting securities of any one issuer except for Taxable
Real Estate Investment Trust Subsidiaries (TRSs). LMOD and LPI became
TRSs as of January 1, 2001, which allowed the Company on June 25, 2001, to exchange its
non-voting stock in LMOD for voting stock. Both LMOD and LPI are operated as
C-Corporations under the Internal Revenue Code and are subject to corporate income tax
rates.

On
September 3, 1997, the Company capitalized InvestorsBancorp, Inc., a bank holding company
for approximately $6.2 million and then distributed all of the outstanding shares of
InvestorsBancorp, Inc. to the Companys shareholders. The Company and
InvestorsBancorp, Inc., together with its wholly-owned subsidiary, InvestorsBank (the
Bank), share common offices and personnel. Expenses are shared between the two
entities in accordance with a Management Services and Allocation of Expenses Agreement
(the Management Agreement). See Managements Discussion and
Analysis of Financial Condition and Results of Operation  Overview.

# Financial Services
Business

Loans

The
Company, through its Financial Services Business, (i) manages its loan portfolio comprised
primarily of loans to small business entities collateralized by first or second mortgages,
(ii) purchases loan participations from banks, including the Bank, and (iii) owns
industrial and commercial real estate for lease to small businesses.

Until
the distribution of the shares of InvestorsBancorp, Inc. in September, 1997, the Parent
and BMSBLC had engaged in the business of originating loans to small businesses.
Concurrent with such distribution, the Parent, BMSBLC, and the Bank agreed in the
Management Agreement that neither the Parent nor BMSBLC would originate any loans unless
agreed to by the Bank in writing, unless the loans were made to current customers or
unless the loans were outside the Banks lending limitations. Thus, except for the
making of loans to customers who desire to increase their loan amounts with the Parent or
BMSBLC and for loans outside the Banks lending limitations, neither the Parent nor
BMSBLC can solicit any loans.

3

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The
loan and leased property portfolio is managed by the Bank for an annual fee, payable
monthly, equal to 25 basis points of the total dollar amount of loans under management and
6% of the rents from leased properties. Operating expenses are also shared between the
Bank and BMSBLC, as well as certain expenses of employees providing accounting, reporting
and related services to the Company.

The
loan portfolio is primarily comprised of long-term, variable rate, collateralized loans to
small business entities. The loans are primarily collateralized by first mortgages on real
estate, although some loans are collateralized by second mortgages. Approximately 87% of
loans by dollar volume are loans to borrowers located in the State of Wisconsin.
Substantially all of the loan portfolio is held by BMSBLC.

The
borrowers include manufacturers, wholesalers, retailers, professionals and service
providers. The Parent and BMSBLC fund their lending operations through their equity
capital, bank and institutional borrowings, commercial paper sales and the sale of loan
participations.

The
Companys exposure to loss in the event of nonperformance by the borrower is
represented by the outstanding principal amount of loans of $52.29 million at December 31,
2003. Substantially all loans are fully secured by first or second mortgages on commercial
real estate. Diversification across industries is a means of managing market risk by
decreasing loan concentrations. The following table provides information regarding the
outstanding principal amount of loans by industry.

|Type of Business                    | Number
of Loans | Outstanding
Principal
Balance | Percent of
Total Loans
Outstanding
|----------------------------------- | --------------- | ----------------------------- | ----------------------------------
|Industrial Machinery                |                 |                               |                                   
|Construction                        |                 |                               |                                   
|Wholesale Goods                     |                 |                               |                                   
|Investment Property                 |                 |                               |                                   
|Retail                              |                 |                               |                                   
|Services                            |                 |                               |                                   
|Dies, Molds and Patterns            |                 |                               |                                   
|Metalworking Machinery              |                 |                               |                                   
|Commercial Printing                 |                 |                               |                                   
|Rubber Products                     |                 |                               |                                   
|Other Manufacturing                 |                 |                               |                                   
|Transportation                      |                 |                               |                                   
|Electronic and Electrical Equipment |                 |                               |                                   
|                                    |                 |                               |                                   
|Total                               |                 |                               |                                   
|                                    |                 |                               |                                   

4

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The
loans are further comprised of fixed rate loans, variable rate loans with fixed cap rates
and variable rate loans.

|                             | Outstanding
Balance | Percent of
Total Loans
Outstanding
|---------------------------- | ------------------- | ----------------------------------
|Fixed rate                   |                     |                                   
|Variable rate with fixed cap |                     |                                   
|Variable rate                |                     |                                   
|                             |                     |                                   
|Total                        |                     |                                   
|                             |                     |                                   

Further detail regarding the fixed
rate loans and the variable rate loans with a fixed cap is provided in the following
table.

|       | Maximum Interest Rates
|------ | ----------------------
|
|Demand |                       
|2004   |                       
|2005   |                       
|2006   |                       
|2007   |                       
|2008   |                       
|       |                       
|Total  |                       
|       |                       

A
loan is considered to be impaired when, based on current information and events,
management does not expect to collect all amounts due according to the contractual terms
of the loan agreement in the normal course of business. A loan is also impaired when the
loan contract is restructured by extending the due date of either principal or interest
payments or by reducing the interest rate on the loan. A loan is not impaired during a
period of delay in payment if management expects to collect all amounts due including
accrued interest at the contractual interest rate for the period of the delay. When the
projected cash flow of the business from all sources including capital contributions,
conversion of assets to cash and net income plus depreciation are inadequate to make
contractual payments as scheduled, then the loan is considered impaired. Impaired loans
totaled $0.25 million and $2.01 million at December 31, 2003 and 2002, respectively.
Interest income of $0.02 million would have been recorded during 2003 had the impaired
loans been current in accordance with their original terms.

5

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Real
Estate

At
December 31, 2003 BMSBLC owned 22 buildings and had entered into long-term lease
agreements on 20 of the properties. During the year BMSBLC completed construction of one
property and sold two properties. BMSBLC anticipates that it will continue to construct or
purchase additional industrial or commercial properties to lease. The total cost of the
BMSBLCs properties at December 31, 2003, was $33.60 million and the depreciated
carrying value was $30.81 million.

BMSBLC
anticipates that its rental properties will either be industrial real estate (i.e. used
for manufacturing purposes), or commercial real estate properties, such as office
buildings and retail stores and that substantially all of its properties will be located
in Wisconsin. The following table sets forth additional information regarding
BMSBLCs leased properties, all of which are located in Wisconsin.

|Property
Type | Location | Annual
Lease
Rents | Acquistion
Cost     | Square
Footage
|------------- | -------- | ------------------ | ------------------- | --------------
|Commercial    |          |                    | Hartland, WI        |               
|Industrial    |          |                    | Germantown, WI      |               
|Commercial    |          |                    | Franklin, WI        |               
|Commercial    |          |                    | Menomonee Falls, WI |               
|Commercial    |          |                    | Pewaukee, WI        |               
|Industrial    |          |                    | Berlin, WI          |               
|Industrial    |          |                    | Franklin, WI        |               
|Commercial    |          |                    | Mequon, WI          |               
|Commercial    |          |                    | Oconomowoc, WI      |               
|Industrial    |          |                    | Menomonee Falls, WI |               
|Commercial    |          |                    | Menomonee Falls, WI |               
|Commercial    |          |                    | Mequon, WI          |               
|Industrial    |          |                    | Waukesha, WI        |               
|Commercial    |          |                    | Franklin, WI        |               
|Industrial    |          |                    | Cudahy, WI          |               
|Commercial    |          |                    | Lake Geneva, WI     |               
|Industrial    |          |                    | Cudahy, WI          |               
|Commercial    |          |                    | Menomonee Falls, WI |               
|Commercial    |          |                    | Menomonee Falls, WI |               
|Commercial    |          |                    | Milwaukee, WI       |               
|Industrial    |          |                    | West Allis, WI      |               
|Commercial    |          |                    | Menomonee Falls, WI |               
|              |          |                    |                     |               
|              |          |                    |                     |               
|              |          |                    |                     |               

| | *
Property not leased
| | ---------------------

Competition

BMSBLC,
in managing its loan portfolio, competes primarily with commercial banks and commercial
finance companies, many of which have substantially more assets and capital than
BMSBLC. Banks, in particular, have been active in seeking to refinance outstanding loans.

In
owning and leasing real estate, BMSBLC competes primarily with other REITs and other
investors such as insurance companies and a variety of investment companies which seek to
own and lease real estate. In addition, BMSBLC competes with banks and other financial
institutions, which seek to lend money to potential tenants of BMSBLC in order to allow
the potential tenants to construct and own their own building rather than to lease a
building owned by BMSBLC.

6

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Employees

On
December 31, 2003, the Company employed only its President and Vice President. All other
duties are performed by Bank employees pursuant to the Management Agreement.

Credit
Concentration

As
of December 31, 2003, BMSBLC had seven loans with outstanding balances totaling $10.70
million to one customer and its affiliated companies, which accounted for approximately
20% of the total loans outstanding.

# Consumer Products
Business

Lee
Middleton Original Dolls, Inc.

Lee
Middleton Original Dolls, Inc. (LMOD), headquartered in Westerville, Ohio with
its manufacturing facility located in Belpre, Ohio, is a 99% owned subsidiary of the
Company, with the President of the Company owning the remaining 1%. LMOD is a manufacturer
of artist-designed vinyl collectible dolls and a distributor of vinyl play dolls. LMOD
uses a multi-step process to manufacture its vinyl collectible dolls that includes (1)
rotational molding to create body parts for dolls, (2) painting, eyeing and wigging each
doll, and (3) dressing the dolls in custom designed clothes.

LMOD
distributes its collectible doll lines through a network of independent, specialty retail
stores throughout the United States. Distribution is also slowly expanding into Canada,
Japan, Mexico and Europe. Competition is with various other doll manufacturers including
Adora, Madam Alexander, Ashton Drake, Mattels American Girl and a variety of small
artist-owned manufacturers. LMOD has two outlet stores and a mall-based retail location
showcasing the Newborn Nursery concept that was developed at the factory outlet retail
store. LMOD is continuing to focus its efforts on re-emphasizing the name recognition and
high product quality of LMOD in the collectible doll market by developing new products for
the artist studio collection line of dolls. The emphasis on marketing through the
traditional independent doll dealers is being accompanied during this transition period by
de-emphasizing the focus on play-dolls in the competitive mass merchandise market. In
addition, LMOD is pursuing a limited expansion of its Newborn Nursery Adoption
Centers that go beyond selling dolls to evoke an emotional experience as children
adopt their new baby doll.

License
Products, Inc.

License
Products, Inc. (LPI) is a wholly-owned subsidiary of LMOD. Prior to January 1,
2002, LMOD owned 51% of LPI. On January 1, 2002, LMOD acquired the remaining 49% of the
common stock of LPI. LPI, located in Hartland, Wisconsin, designs, develops and markets a
line of proprietary time pieces. LPIs products are distributed nationwide through
major retail account channels.

Employees

The
Consumer Products Business segment employs approximately 120 persons. At LMOD,
approximately 50 employees are subject to a collective bargaining agreement which expires
on April 30, 2004.

Large
Customers

Two
customers at LPI with total sales of $4.87 million and one customer at LMOD with total
sales of $0.86 million accounted for approximately 33% of the Consumer Products
Business total revenues for 2003.

7

---

Backlog

The
backlog of the Consumer Products Business was approximately $0.58 million as of December
31, 2003, all of which should be filled during 2004.

# Revenues of Principal
Product Groups

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

|                      | 12/31/03 | 12/31/02 | 12/31/01
|--------------------- | -------- | -------- | --------
|Revenues              |          |          |         
|Loan Portfolio        |          |          | $       
|Real Estate Portfolio |          |          |         
|Dolls                 |          |          |         
|Time Pieces           |          |          |         
|Other                 |          |          |         
|                      |          |          |         
|Total                 |          |          | $       
|                      |          |          |         

# Segment Information

Financial
information concerning the Companys business segments is incorporated by reference
from the consolidated financial statements on pages 25 to 28 herein.

# Executive Officers

George
R. Schonath, 63, has served as Chief Executive Officer of the Company since 1983, as
President since July, 1997, and as a director since May, 2001. Mr. Schonath has also
served as President and Chief Executive Officer of InvestorsBancorp, Inc. and the Bank
since they were established in 1997. From 1983 until July, 1997, he served as Chairman of
the Board of the Company.

Jon
McGlocklin, 60, has served as a Vice President of the Company since November, 2001. From
July, 1997, through November, 2001, he served as a Senior Vice President. Mr. McGlocklin
has served as a director of InvestorsBancorp, Inc. since 1997. Until February 2001, Mr.
McGlocklin had also served as Senior Vice President of InvestorsBancorp, Inc. and Senior
Vice President of the Bank since they were established in 1997. He has also served as
President of Healy Manufacturing, Inc., Menomonee Falls, Wisconsin, since 1997, and as an
announcer for the Milwaukee Bucks, an NBA basketball team, since 1976. From 1980 through
July, 1997, he served as a director of the Company and as President from 1991 through
July, 1997.

Susan
J. Hauke, 38, has been the Companys Chief Financial Officer since 2002 and Vice
President  Finance, Secretary and Treasurer since 1997. In 2002, Ms. Hauke was also
appointed Chief Financial Officer of InvestorsBancorp. She is also the Vice President
 Finance and Secretary of InvestorsBancorp, Inc. and Controller, Vice
President-Finance, and Treasurer of the Bank. From 1991 until 1997, Ms. Hauke served as
Controller for the Company and was a senior accountant at PricewaterhouseCoopers LLP
before joining the Company.

# Item 2.    Properties

In
October, 2002, the Company sold the building located at W239 N1700 Busse Road, Pewaukee,
Wisconsin, to the Bank for $2.4 million, which represented its fair market value at the
time of the sale as determined by an independent appraiser. The Company now leases 4,000
square feet of the building from the Bank.

8

---

LMOD
owns an approximately 51,000 square foot building that serves as its manufacturing
facility located at 1301 Washington Boulevard, Belpre, Ohio. The one-story building also
contains retail and warehouse space. During 1999, an additional leased retail outlet store
was opened in West Virginia. A new 44,100 square foot facility in Columbus, Ohio, was
leased beginning in June of 2000 which is used for distribution and to store raw materials
and finished goods. In September, 2000, LMOD entered into a five year office lease for
18,800 square feet in Westerville, Ohio, which is LMODs headquarters.

LPI
leases approximately 62,000 square feet of office and warehouse space in a building owned
by BMSBLC and located at 1050 Walnut Ridge Drive, Hartland, Wisconsin. During 2002, LPI
added approximately 35,000 square feet of additional warehouse space to the building in
order to accommodate future growth.

# Item 3.    Legal
Proceedings

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.

# Item 4.    Submission
of Matters to a Vote of Security Holders

No
matters were submitted to a vote of security holders during the quarter ended December 31,
2003.

# Part II

# Item 5.    Market
for Common Equity and Related Shareholder Matters

The
common stock of the Company is traded on the Nasdaq Stock Market under the symbol DOLL.
The table below represents the high and low sales price for the Companys common
stock as reported on the Nasdaq Stock Market and the cash dividends paid per share for
2003 and 2002.

|               | Common Stock |        
|-------------- | ------------ | -------
|
|2003           |              |        
|First Quarter  | $  5.76      | $  4.00
|Second Quarter | $  6.10      | $  4.20
|Third Quarter  | $  5.88      | $  5.05
|Fourth Quarter | $  5.40      | $  3.45
|2002           |             
|First Quarter  | $  7.00      | $  5.94
|Second Quarter | $  6.99      | $  6.20
|Third Quarter  | $  6.46      | $  5.55
|Fourth Quarter | $  6.10      | $  4.97

As
of March 15, 2004, there were approximately 850 shareholders of record of the
Companys common stock.

9

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# Item 6.    Selected
Financial Data (In thousands, except per share data)

The
following table sets forth certain Selected Consolidated Financial Data for the periods
and as of the dates indicated:

|                                         | For the years ended
|---------------------------------------- | -------------------
|
|(In thousands, except per share data)   
|Total revenues                           |                    
|Net income (loss) available              |                    
|to common shareholders                   |                    
|Total assets                             |                    
|Long-term debt                           |                    
|Total liabilities, other than redeemable |                    
|preferred stock                          |                    
|Redeemable preferred stock               |                    
|Total liabilities                        |                    
|Diluted earnings (loss) per common share |                    
|Cash dividends declared per common share |                    

(1)    
          Restated for 10% stock dividend as of December 31, 1999 record date.

# Item 7.    Management's
Discussion and Analysis of Financial Condition and Results of Operations

# Overview

Amounts
presented as of December 31, 2003, 2002 and 2001 include the consolidation of two
segments. The financial services segment includes The Middleton Doll Company (the
Parent) and Bando McGlocklin Small Business Lending Corporation
(BMSBLC), a 100% owned subsidiary of the Parent. The consumer products
segment includes Lee Middleton Original Dolls, Inc. (LMOD), a 99% owned
subsidiary of the Parent and License Products, Inc. (LPI), a 100% owned
subsidiary of LMOD. In 2002, Middleton (HK) Limited, a former subsidiary of LMOD, was
liquidated.

The
loan and real estate portfolios of the Parent and BMSBLC are administered and managed by
InvestorsBank (the Bank), a wholly-owned subsidiary of InvestorsBancorp, Inc.
under a Second Amended and Restated Management and Services and Allocation of
Expenses Agreement dated January 1, 2004, (the Management Agreement). In
addition, the Bank provides certain management services to LMOD. George R. Schonath,
President and Chief Executive Officer of the Parent and BMSBLC, is also President and
Chief Executive Officer of the Bank and InvestorsBancorp, Inc. George Schonath and members
of his family own all of the outstanding stock of InvestorsBancorp, Inc.

For
the loan and real estate management services provided under the Management Agreement, the
Bank receives an annual fee, payable monthly, equal to 0.25% (1/4 of 1%) of the total
amount of loans under management and 6% of the rents from the real estate portfolio. The
Management Agreement provides for the sharing of operating expenses between the Bank and
BMSBLC, as well as certain expenses of employees of the Bank who provide accounting,
reporting and related services to the Parent and BMSBLC. Additionally, for its services in
providing ongoing credit analysis, loan and lease monitoring, workout services, and
management services to LMOD, the Bank receives an annual fee of $365,000, payable monthly.
The Parent and BMSBLC currently have only one paid employee, a Vice President of the
Company and BMSBLC. George Schonath, the President and Chief Executive Officer, provides
services to the Parent, BMSBLC and LMOD under the Management Agreement and is not
separately compensated by any of those entities.

10

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During
the past four years there has been a significant decrease in net sales of the consumer
products segment. This decrease is primarily attributable to intense pricing competition
from dolls produced in China and is also due to a downturn in consumer discretionary
spending as a result of the recent soft economy. To deal with these concerns,
LMOD is pursuing legal action to prevent the sale of certain dolls that management
believes infringe on Lee Middletons copyrights. LMOD is also focusing efforts on
reemphasizing the name recognition and high product quality of LMOD in the collectible
doll market as well as developing new products for the artist studio collection line of
dolls. Operating expenses, particularly in the sales and marketing area, have been reduced
during the last two years. However, general and administrative expenses have not decreased
primarily due to long-term leases in effect until 2006 for its headquarters location in
Westerville, Ohio, and its warehouse facilities in Columbus, Ohio.

During
the past four years there has also been a significant decrease in the loan portfolio of
the financial products segment resulting in a corresponding decrease in interest income on
loans. The financial services segment is at a lending disadvantage with other institutions
such as banks, due to its higher cost of funds. Also, the existing management agreement
with InvestorsBank prevents it from making new loans to other than existing customers
without the prior consent of InvestorsBank. Because of this restriction, it is anticipated
that the majority of any new loans will consist of loan participations with InvestorsBank.
These two factors, in addition to the recent difficult business economy, has resulted in
BMSBLCs inability to maintain the size of its loan portfolio. If this trend continues, it may
result in the Company not being able to maintain its current level of dividend payments.

# Results of Operations

# For the years ended
December 31, 2003 and December 31, 2002

The
Companys total net (loss) income available for common shareholders for the year
ended December 31, 2003 equaled ($0.66) million or ($0.18) per common share (diluted) as
compared to $3.20 million or $0.86 per common share (diluted) for the year ended December
31, 2002.

|                                            | 12/31/2003      | 12/31/2002   
|------------------------------------------- | --------------- | -------------
|Consumer products segment net (loss) income | ($1.09) million | $0.75 million
|Per common share (diluted)                  | ($0.29)         | $0.20        
|Financial services segment net income       | $0.43 million   | $2.45 million
|Per common share (diluted)                  | $0.11           | $0.66        

The
consumer products segment decrease in income was primarily due to lower sales as a result
of the soft economy, pricing pressure from collectible dolls produced in China and lower
margins due to price reductions. The financial services segment decrease was due to a
decrease in both rental and loan income and smaller gains from the termination of interest
rate swaps and from the sale of leased properties.

Consumer Products

Net
sales from consumer products for the year ended December 31, 2003, decreased 25% to $17.60
million from $23.46 million for the year ended December 31, 2002. This was due to
decreased sales of $5.24 million at LMOD and decreased sales of $0.62 million at LPI. At
LMOD, sales of artist-designed collectible dolls have been materially and adversely
affected by foreign produced dolls which have been selling at a substantial discount from
LMODs dolls. To meet this challenge, LMOD lowered prices in June, 2003 on its line
of artist-designed collectible dolls in order to stimulate sales. Since the price
reduction, unit sales have increased 17% over the comparable period one year ago. Although
this pricing strategy has had a short-term impact on performance, management believes it
has the potential to generate improvement over the long term. LMOD is also continuing to
pursue legal action to prevent the sale of certain dolls that management believes infringe
on LMODs copyrights and other intellectual property. LMOD has settled with several
defendants and is continuing to pursue remedies in all pending lawsuits.

11

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LMOD
is focusing its efforts on reemphasizing the name recognition and high product quality of
LMOD in the collectible doll market as well as continuing to develop new products for the
artist studio collection line of dolls. At the American International Toy Fair in New York
City in 2004, LMOD introduced Breath of Life Babies. In addition, LMOD is
pursuing a limited expansion of its Newborn Nursery Adoption Centers that
provide customers with the experience of adopting their new baby doll. Both of
these new lines are featured on the LMOD website. To improve LMODs competitive
position in the marketplace, LMOD is evaluating other new products and additional
strategies to reduce costs.

Reflecting
the decline in net sales, cost of goods sold decreased 18% to $11.45 million for the year
ended December 31, 2003, compared to $13.91 million for the year ended December 31, 2002.
LMODs cost of goods sold decreased to $7.84 million from $9.84 million while
LPIs cost of goods sold decreased to $3.61 million from $4.07 million. Total gross
profit margin decreased to 35% from 41% in the prior year. LMODs gross profit margin
decreased to 34% from 42% due mainly to price reductions on the line of artist-designed
collectible dolls. LMOD lowered prices an average of 31% on its line of artist-designed
collectible dolls in order to stimulate sales and to meet the increased competition from
offshore dolls. The liquidation of slow-moving inventory also contributed to LMODs
reduced margin. LPIs gross profit margin increased to 37% from 36% due to a slightly
different product mix.

Total
operating expenses of the consumer products segment for the year ended December 31, 2003,
were $8.65 million compared to $9.76 million for the year ended December 31, 2002, an 11%
decrease. LMODs total operating expenses decreased $1.25 million to $7.09 million
for the year ended December 31, 2003. Sales and marketing expense decreased $1.42 million
of which staff reductions accounted for $0.30 million, advertising and promotion accounted
for $0.31 million, bad debt expense accounted for a reduction of $0.20 million, and
licensing fees were reduced $0.33 million due to the expiration of the Lee Middleton
licensing agreement. The remaining reduction of $0.28 million was due to decreases in
expenses for freight, samples, supplies, travel, commissions and royalties. New product
development decreased $0.09 million and general and administrative expenses increased
$0.26 million. General and administrative expenses increased due to a $0.09 million
increase in legal fees relating to the pending lawsuits and due to $0.08 million in
severance pay. LPIs operating expenses increased $0.14 million primarily due to
increased insurance costs.

Interest
expense decreased $0.16 million from December 31, 2002, to December 31, 2003, due to the
payoff of debt between LMOD and InvestorsBank. The debt was replaced with intercompany
loans from the Company to LMOD and from BMSBLC to LPI. Interest expense on these
intercompany loans has been eliminated for consolidation purposes. At December 31, 2003,
LMOD owed the Company $6.92 million which consisted of a first mortgage on real estate of
$2.12 million, a line of credit of $1.1 million, and an unsecured note of $3.7 million.
The interest rate on these notes averaged 4.3% at December 31, 2003. At December 31, 2003,
LPI owed BMSBLC $4.50 million composed of a line of credit of $2.0 million and an
unsecured note of $2.5 million. The interest rate on these notes was 4.0% at December 31,
2003. Before intercompany eliminations, interest expense to the consumer products segment
and interest income to the financial services segment was $0.47 million for the year ended
December 31, 2003. Intercompany eliminations also included $0.28 million in rent paid by
LPI to BMSBLC and $0.45 million in management fees paid by LMOD to BMSBLC.

Consumer
products income tax benefit, based on net losses before intercompany charges, was
$0.89 million for the year ended December 31, 2003 and $0.83 million for the year ended
December 31, 2002. At December 31, 2003, there were unused net operating loss
carryforwards of approximately $5.6 million to be used to offset against future federal
taxable income.

Financial Services

The
financial services segment decrease in net income for the year ended December 31, 2003,
compared to the year ended December 31, 2002, was due to a decrease in the net interest
income on loans of $0.76 million, a decrease in rental income of $0.57 million, a decrease
in the net gain from the sale of leased properties of $0.44 million, and a decrease in the
gain from termination of interest rate swaps of $0.27 million.

12

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Interest
income on loans decreased 33% to $3.26 million for the year ended December 31, 2003, as
compared to $4.85 million for the year ended December 31, 2002. This decrease was
primarily due to a $22.51 million decrease in the average total loans outstanding when
comparing the year ended December 31, 2003, to the year ended December 31, 2002. In
addition, interest income from variable rate loans decreased due to the decrease in the
average prime rate when comparing 2003 to 2002. The average prime rate was 4.16% for the
year ended December 31, 2003, compared to 4.68% for the year ended December 31, 2002. In
the present competitive interest rate environment, BMSBLC is at a lending disadvantage
with other institutions such as banks, due to its higher cost of funds. During 2003,
competitive pressures resulted in a reduction of $16.6 million in loans due to pay-offs,
and the recent difficult economy resulted in $5.0 million of loans being paid off due to
business closings, with the remaining decrease in loans due to normal principal
reductions. During 2003, $6.95 million of new loans and $2.17 million of intercompany
loans were added to the loan portfolio. The Parents and BMSBLCs management
agreement with InvestorsBank prevents it from making new loans to other than existing
customers without the prior consent of InvestorsBank. Because of this restriction, it is
anticipated that the majority of new loans will consist of loan participations with
InvestorsBank. Participations with InvestorsBank comprised approximately 48% of the loan
portfolio at December 31, 2003. These two factors, in addition to the difficult business
economy in 2003, resulted in BMSBLCs inability to maintain the size of its loan portfolio.

Rental
income decreased 16% to $3.07 million for the year ended December 31, 2003, as compared to
$3.64 million for the year ended December 31, 2002. Rental income decreased $0.51 million
due to the sale of two leased properties during 2002 and two leased properties during
2003. One property under construction at December 31, 2002, was completed and placed in
service in May, 2003, resulting in $0.17 million in new rental income for 2003 and
scheduled rent increases added $0.01 million. During 2003, one tenant was placed on
non-accrual resulting in $0.24 million of rental income which would have been recorded in
2003 had the tenant been current in accordance with the lease.

Net
interest margin is determined by dividing the total of interest income on loans and rental
income less interest expense by the total of average loans and leased properties. The
interest margin for the year ended December 31, 2003 was 3.65% compared to 3.99% for the
year ended December 31, 2002. During 2003, average loans outstanding (net of intercompany
loans) of $62.80 million generated $3.26 million in interest income and average leased
properties (net of intercompany properties) of $30.83 million generated $3.07 million in
rental income. The average gross return in 2003 on rental properties was approximately 10%
while the average gross return on loans was approximately 5%. During 2002, average loans
outstanding (net of intercompany loans) of $85.31 million generated $4.85 million in
interest income and average leased properties (net of intercompany properties) of $33.15
million generated $3.64 million in rental income. The average gross return in 2002 on
rental properties was approximately 11% while the average gross return on loans was
approximately 5.5%.

During
the year ended December 31, 2003, two leased properties were sold, resulting in a net gain
of $0.34 million (net of income taxes). During the year ended December 31, 2002, the net
gain from the sale of two leased properties (net of income taxes) was $0.78 million. At
December 31, 2003, BMSBLC owned 22 properties with a net carrying value of $30.81 million.
One vacant rental property with a net carrying value of $1.40 million was available for
lease at December 31, 2003, and two rental properties with a net carrying value of $3.57
million were on non-accrual status.

The
termination of interest rate swaps resulted in income of $0.48 million for the year ended
December 31, 2003, and $0.75 million for the year ended December 31, 2002. BMSBLC may
periodically use these derivative instruments for purposes of managing interest rate risk.
However, there were no interest rate swap agreements in effect at December 31, 2003.

Interest
expense decreased 22% to $2.87 million for the year ended December 31, 2003, as compared
to $3.70 million for the year ended December 31, 2002, primarily due to a decrease in the
outstanding average debt balance and due to lower interest rates. The average debt balance
decreased $21.97 million when comparing 2003 to 2002 as a result of the decrease in loans
as explained above. BMSBLCs cost of funds is based primarily on variable interest
rates, which were lower in 2003. BMSBLC was able to reduce certain higher fixed rate debt
in 2003 with proceeds from loan payoffs, resulting in an average cost of funds of 3.51% in
2003 as compared to 3.57% during 2002. In 2002, interest rate expense was reduced by $0.54
million in income from interest rate swaps.

13

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BMSBLCs
debt facility consists of commercial paper and drawn letters of credit backed by a $65
million line of credit that matures on June 25, 2004. At December 31, 2003, BMSBLC had
$10.17 million in lending capability with outstanding unfunded commitments of $1.77
million. During the first quarter of 2004, BMSBLC used this lending capability to add a
new loan of $1.65 million and to pay off $5.58 million in long-term debt. BMSBLC expects
that the remaining $1.17 million in lending capability will be used to fund other
commitments during 2004.

During
2003, commercial paper which had matured was not able to be replaced by sales of
additional commercial paper, requiring BMSBLC to draw upon the back-up bank line of credit
which has a higher interest rate than commercial paper. This higher cost of funds lessens
BMSBLCs ability to compete with banks and other financial institutions for loans,
resulting in a decreased ability to replace loans that are paid-off. BMSBLCs future
growth rate will depend upon the BMSBLCs ability to obtain additional sources of
acceptable funding at reasonable interest rates. BMSBLC is continually reviewing various
funding sources; however, to date, BMSBLC has not found any additional acceptable funding
sources. Additionally, the 2008 redemption requirements of $16.9 million of preferred
stock requires the Company to focus on asset quality while de-leveraging the balance
sheet. For further detail, see Liquidity and Capital  Financial Services
on page 18 hereof.

Other
income for the year ended December 31, 2003 included $0.11 million in loan prepayment
penalties, $0.02 million in late payment fees and $0.05 million in miscellaneous income.
For the year ended December 31, 2002, other income included $0.13 million in loan
prepayment penalties, $0.02 million in late payment fees and $0.06 million of
miscellaneous income.

Depreciation
expense decreased $0.05 million due to the decrease in leased properties when comparing
the year ended December 31, 2003 to 2002. Management fees under the management fee
agreement with InvestorsBank decreased $0.05 million due to the decrease in loans under
management when comparing 2003 to 2002. Other operating expenses increased $0.34 million
due to a $0.27 million increase in expenses involving the leased property portfolio and an
increase of $0.03 million was due to related legal expenses. Other legal expense increased
$0.03 million due to additional professional fees associated with complying with the
Sarbanes-Oxley Act of 2002. Due to the prepayment of certain loans, $0.02 million in debt
issue costs also were expensed in 2003.

The
Parent and its qualified REIT subsidiary, BMSBLC, qualify as a real estate investment
trust under the Internal Revenue Code. Accordingly, they are not subject to income tax on
taxable income that is distributed to common shareholders. During 2003 and 2002, the
Parent took advantage of a provision in the tax law that allows a REIT to retain any
capital gains on the sale of real estate properties by paying income tax on the gains. The
Parent retained $0.52 million in capital gains and paid $0.18 million in taxes as of
December 31, 2003, and retained $1.19 million in capital gains and paid $0.41 million in
taxes as of December 31, 2002.

At
December 31, 2003, LMOD owed the Parent and BMSBLC $6.92 million, which consisted of a
first mortgage on real estate of $2.12 million, a line of credit of $1.1 million, and an
unsecured note of $3.7 million. The interest rate on these notes averaged 4.3% at December
31, 2003. At December 31, 2003, LPI owed BMSBLC $4.50 million composed of a line of credit
of $2.0 million and an unsecured note of $2.5 million. The interest rate on these notes
was 4.0% at December 31, 2003. Before intercompany eliminations, the financial services
segment included $0.47 million of interest income, $0.28 million of rental income from LPI
to BMSBLC and $0.45 million in management fees paid by LMOD to BMSBLC. 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 may increase in the
future.

# For the years ended
December 31, 2002 and December 31, 2001

The
Companys total net income available for common shareholders for the year ended
December 31, 2002 equaled $3.20 million or $0.86 per share (diluted) as compared to $1.64
million or $0.44 per share (diluted) for the year ended December 31, 2001, a 95% increase.
The improved earnings were due to the consumer products segment recognizing a net
operating loss carryforward from LPI which resulted in an income tax benefit of $0.83
million and the financial services segment selling two leased properties resulting in
income net of related taxes of $0.78 million and terminating two interest rate swap
agreements resulting in income of $0.75 million.

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Consumer Products

Net
income (loss) for the consumer products segment before intercompany charges and after
income taxes and minority interest for the year ended December 31, 2002 was $0.41 million
compared to ($0.07) million for the year ended December 31, 2001.

Net
sales from consumer products for the year ended December 31, 2002 decreased 14% to $23.46
million from $27.23 million for the year ended December 31, 2001. This was due to
decreased sales of $5.93 million at LMOD offset by increased sales of $2.16 million at
LPI. The decrease in sales at LMOD was primarily due to a $6 million decrease in the
artist studio collection sales resulting from the soft economy and an increase in
competition in the collectible doll market. Sales decreased due to a net loss of over 130
dealers and the remaining dealers have been ordering conservatively, approximately 20%
below the previous years levels. If the difficult economic conditions in the
marketplace continue to result in sales decreases, then personnel reductions and/or
periodic plan shut-downs in 2003 might be required in order to further reduce costs. Cost
of sales decreased 7% to $13.91 million for the year ended December 31, 2002 compared to
$14.97 million for the year ended December 31, 2001. LMODs cost of sales decreased
to $9.84 million from $12.07 million, an 18% decrease. LPIs cost of sales increased
to $4.07million from $2.90 million, a 40% increase. Total gross profit margin decreased to
41% from 45% in the prior year. LMODs gross profit margin decreased to 42% from 48%
while LPIs increased to 36% from 31% during 2002. The decrease in the gross profit
margin at LMOD was primarily due to the liquidation of $1.0 million of slow moving
inventory, including the remaining 2001 artist studio collection dolls. Obsolete inventory
from the Small Wonder play doll line and the nursery bear line was also liquidated. The
increase in the gross profit margin at LPI was due to a change in suppliers which
decreased product costs and a decrease in sales to a less profitable customer, which
improved the product mix.

Total
operating expenses of consumer products for the year ended December 31, 2002 were $9.76
million compared to $11.98 million for the year ended December 31, 2001, a 19% decrease.
Total operating expenses as a percent of net sales was 42% in 2002 compared to 44% in
2001. Sales and marketing expense decreased 21% to $4.98 million, with LMODs expense
decreasing $1.48 million and LPIs increasing $0.14 million. The increase at LPI was
due to an increase in customer store allowances and promotions for customers new
store openings. Expense reduction at LMOD was accomplished by decreasing advertising,
catalog printing, and packaging costs. Due to the decrease in sales, cost reductions in
commissions, freight and merchant fees contributed to the overall decrease in sales and
marketing expenses. Reduced participation in trade shows and the associated reduction in
travel expenses also contributed to the decrease. New product development costs decreased
$0.26 million at LMOD due to the reclassification of quality administration costs.
LPIs new product development costs increased $0.14 million due to an increase in
sample prototypes being developed for customer approval. General and administrative
expenses were $3.91 million for the year ended December 31, 2002 compared to $4.66 million
for the year ended December 31, 2001. General and administrative expenses at LMOD
decreased $1 million and LPIs increased $0.25 million. LPIs increase was due
to increased shipping costs associated with the increase in sales and higher costs
associated with improved data processing capabilities. Expense reduction at LMOD was
accomplished through personnel reduction and a decrease in royalty payments due to the
decrease in sales.

Other
income, net decreased $0.10 million when compared to the same period a year ago due to a
decrease in interest expense. The minority interest in earnings of subsidiaries decreased
the consolidated net income of consumer products by $0.08 million for the year ended
December 31, 2002 and $0.10 million for the prior year. Consumer products income tax
expense, based on net income before intercompany charges, was ($0.83) million for the year
ended December 31, 2002 and $0.03 million for the year ended December 31, 2001. For the
year ended December 31, 2002, LMOD and LPI were allowed to file consolidated income tax
returns due to the change in stock ownership at LPI. The $0.83 million of income tax
benefit for the year ended December 31, 2002, was primarily due to the recognition of a
net operating loss carryforward of $0.72 million from LPI.

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Financial Services

Net
income from financial services for the year ended December 31, 2002 was $3.89 million
compared to $2.64 million for the year ended December 31, 2001, a 47% increase. The
increase resulted from the sale of two leased properties, which resulted in income net of
related taxes, of $0.78 million and from the termination of two interest rate swap
agreements totaling $0.75 million. In January, 2003, all remaining interest rate swap
agreements were terminated resulting in $0.48 million of income for 2003. Neither the
Parent or BMSBLC anticipates any further income from the termination of interest rate swap
contracts.

The
net interest margin for 2002 was 3.98% compared to 3.23% for 2001. Net interest margin is
determined by dividing the total of interest income on loans and rental income less
interest expenses by the total of average loans and leased properties. The increase is the
result of BMSBLCs cost of funds falling faster than the rates charged by BMSBLC to
borrowers and to tenants of leased properties.

Total
revenues were $10.63 million for the year ended December 31, 2002 compared to $12.37
million for the year ended December 31, 2001, a 14% decrease. Interest on loans decreased
39% to $4.85 million for the year ended December 31, 2002 compared to $7.89 million for
the year ended December 31, 2001. The large decrease in interest income from loans was
primarily due to the 32% decrease in the prime rate. The average prime rate was 4.68% for
the year ended December 31, 2002 compared to 6.92% for the year ended December 31, 2001.
Average loans under management decreased $19.73 million from a year ago. The decrease was
primarily due to maturing loans and the inability to replace them with BMSBLCs
current funding sources. BMSBLCs ability to make additional loans and to maintain
its earnings depends on the ability of the Company to obtain additional sources of
funding.

Rental
income was $3.64 million for the year ended December 31, 2002 compared to $3.89 million
for the year ended December 31, 2001, a 6% decrease. The sale of two leased properties
resulted in a reduction of $0.22 million in rents and the transfer of $0.05 million to
nonaccrual status further reduced rental income. Leased properties, net of accumulated
depreciation, decreased to $32.37 million as of December 31, 2002, compared to $34.88
million as of December 31, 2001. One new property is under construction and improvements
to existing properties totaled $1.64 million during 2002.

Other
income for the year ended December 31, 2002, included a gain of $1.19 million from the
sale of leased properties, $0.75 million from the termination of two interest rate swap
agreements, $0.13 million in loan prepayment penalties and $0.08 million of miscellaneous
income. For the year ended December 31, 2001, other income included a gain of $0.15
million from the sale of leased property, $0.25 million from the termination of two
interest rate swap agreements, $0.08 million of fees from letters of credit and $0.11
million of miscellaneous income.

Interest
expense decreased 47% to $3.70 million from $7.03 million for the year ended December 31,
2002 as compared with the year ended December 31, 2001 primarily due to lower rates for
the Companys cost of funds and a decrease in the outstanding average debt balance.
BMSBLCs debt cost is based primarily on variable interest rates which were
significantly lower due to the decrease in interest rates set by the Federal Reserve. The
average prime rate decreased 224 basis points during 2002. The average debt balance also
decreased $22.82 million during 2002 as a result of the decrease in loans as explained
above. As a result of interest rate swaps, the Parent and BMSBLC recognized a reduction in
interest expense of $0.54 million for the year ended December 31, 2002, and $0.69 million
for the year ended December 31, 2001.

Depreciation
expense decreased $0.04 million for the year ended December 31, 2002 as compared to the
year ended December 31, 2001, due to the decrease in leased properties. Management fees
did not change significantly between the years. Other operating expenses increased to
$0.82 million for the year ended December 31, 2002 compared to $0.78 million for the year
ended December 31, 2001. Legal expenses of $0.03 million were incurred to obtain a loan
recovery of $0.47 million, additional debt issue costs of $0.02 million were expensed due
to the prepayment of a real estate loan, and leased property expenses increased $0.03
million due to insurance and real estate tax expenses incurred with regard to two leased
properties.

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The
Parent and its qualified REIT subsidiary, BMSBLC, qualify as a real estate investment
trust under the Internal Revenue Code. Accordingly, they are not subject to income tax on
taxable income that is distributed to shareholders. During 2002 and 2001, the Parent took
advantage of a provision in the tax law that allows a REIT to retain any capital gains on
the sale of real estate properties by paying income tax on the gains. The Parent retained
$1.19 million in capital gains and paid $0.41 million in taxes as of December 31, 2002,
and retained $0.15 million in capital gains and paid $0.06 million in taxes as of December
31, 2001. Tax basis income for financial services (before the preferred stock dividend)
was approximately $4.98 million of $1.33 per share (diluted) for the year ended December
31, 2002. Book income for financial services (before the preferred stock dividend) was
$3.89 million or $1.04 per share (diluted) due to the elimination of intercompany revenue
and expenses from the consumer products segment and normal book/tax adjustments. For the
year ended December 31, 2001, tax basis income for financial services (before the
preferred stock dividend) was approximately $3.99 million or $1.07 per share (diluted) and
book income (before the preferred stock dividend) was $2.64 million or $0.71 per share
(diluted) due to the elimination of intercompany revenue and expenses from the consumer
products segment and normal book/tax adjustments.

# Liquidity and Capital

Consumer Products

During
2003, the consumer products segments net loss after intercompany transactions was
$2.28 million. Intercompany transactions financed $1.15 million of the loss and
depreciation financed $1.05 million of the loss. Based on projections for 2004, the
consumer products segment is expected to be able to meet its cash flow needs internally
from operating cash flows and by using its current line of credit facilities.

Total
assets of consumer products were $15.62 million as of December 31, 2003, and $17.07
million as of December 31, 2002, an 8% decrease. Cash increased to $0.70 million at
December 31, 2003, from $0.50 million at December 31, 2002.

Primarily
due to lower fourth quarter sales, accounts receivable, net of the allowance for doubtful
accounts, decreased to $2.17 million at December 31, 2003, from $3.23 million at December
31, 2002. LPIs receivables decreased $0.60 million and LMODs receivables
decreased $0.46 million. At December 31, 2003, LMOD had an outstanding receivable of $0.27
million from FAO, Inc. FAO, Inc. has filed for bankruptcy and LMOD has provided for 88% of
the receivable in its December 31, 2003, allowance for doubtful accounts. Also due to
lower sales, inventory, net of the allowance, decreased to $5.56 million at December 31,
2003, compared to $6.35 million at December 31, 2002. LMODs inventory decreased
$0.66 million and LPIs inventory decreased $0.13 million. Inventories are valued at
the lower of cost or market using the first-in, first-out (FIFO) method.

Property
and equipment, net of accumulated depreciation, decreased by $0.32 million as of December
31, 2003, compared to December 31, 2002. Property and equipment increased by $0.56 million
while accumulated depreciation increased by $0.88 million.

Prepaid
corporate taxes decreased $0.64 million from the prior year due to the refund in 2003 of
estimated income tax payments. The deferred income tax asset increased by $1.37 million
between December 31, 2003 and 2002 due to the recognition of the tax benefits related to
net operating loss carryforwards generated in 2003. At December 31, 2003, the consumer
products segment had unused federal net operating loss carryforwards of approximately $5.6
million. Other prepaid expenses decreased $0.04 million between 2003 and 2002.

A
licensing agreement, with an original cost of $2.5 million, gave LMOD the right to produce
certain dolls until April 28, 2003, and an additional twelve months to sell any remaining
inventory. It was treated as an intangible asset with a definite five year life and was
fully amortized at December 31, 2003. Sales of dolls designed under the licensing
agreement have decreased during the past few years and represented less than five percent
of LMODs sales during the year.

17

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Goodwill
was recorded when the Company purchased the remaining interest in the stock from the
estate of Lee Middleton, the founder of LMOD, on April 30, 1998. The purchase price
exceeded the carrying value by $0.62 million. As of December 31, 2003 and 2002, the
balance of the goodwill, net of previous accumulated amortization, was $0.51 million. For
the years ended December 31, 2003 and 2002, no impairment was recorded.

LMOD
decreased its short-term borrowings on a line of credit with InvestorsBank by $1.24
million during the year ended December 31, 2003. The debt was replaced with intercompany
loans of $3.10 million which are collateralized by LMODs and LPIs accounts
receivable and inventory. Accounts payable and other liabilities decreased $0.30 million
between 2003 and 2002.

Financial Services

During
2003, the financial products segments net income after intercompany transactions was
$2.79 million. Dividends of $1.17 million were paid to preferred stockholders and
dividends of $1.49 million were paid to common stockholders.

Total
assets of financial services were $86.59 million as of December 31, 2003 and $108.47
million as of December 31, 2002. Cash increased to $0.65 million at December 31, 2003 from
$0.43 million at December 31, 2002.

Interest
and rent receivable decreased to $0.36 million as of December 31, 2003, from $0.52 million
at December 31, 2002. The rent receivable is shown net of an allowance for doubtful
accounts of $150,000 at both periods. At December 31, 2003, four non-performing loans
totaling $0.45 million in principal were on non-accrual, resulting in $0.02 million of
interest income which would have been recorded for the year had the non-accruing loans
been current in accordance with their original terms. Two tenants were also on non-accrual
resulting in $0.45 million of rental income which would have been recorded for the year
had the tenants been current in accordance with their leases.

Property
and equipment and other assets, including prepaid amounts, increased by $0.93 million.
Property and equipment decreased by $0.06 million due to depreciation. Interest rate swap
contracts decreased by $0.51 million due to the termination of those contracts in 2003.
BMSBLCs other assets increased by $1.50 million due to a receivable from the sale of
a leased property on December 31, 2003. This receivable was collected in January, 2004.

Total
loans (excluding intercompany loans) decreased by $21.31 million, or 29%, to $52.29
million at December 31, 2003, from $73.60 million at December 31, 2002, with a
corresponding decrease in liabilities. As of December 31, 2003 and 2002, management did
not provide an allowance for loan losses due to managements belief that the
collateral which secured nonperforming loans was adequate to fully secure the
debtors obligation to BMSBLC.

Leased
properties, net of accumulated depreciation, decreased to $30.81 million as of December
31, 2003, compared to $32.37 million as of December 31, 2002. One property that was under
construction was completed in 2003 and two leased properties were sold during 2003. A
foreclosed loan of $1.75 million was added to the leased property portfolio during the
second quarter of 2003. This property was then sold on December 31, 2003, for $1.59
million. The decrease in the property value and other related foreclosure costs totaling
$0.33 million were expensed in 2003.

The
financial services total consolidated indebtedness at December 31, 2003 decreased
$18.58 million, primarily as the result of the reduction of the loan portfolio.

|12/31/2003                 | 12/31/2002    
|-------------------------- | --------------
|Short-term debt            | $53.23 million
|Long-term debt             | $18.54 million
|Redeemable preferred stock | $16.85 million

18

---

BMSBLCs
short-term debt facility consists of commercial paper and drawn letters of credit backed
by a $65 million line of credit that matures on June 25, 2004. At December 31, 2003, the
outstanding commercial paper balance was $34.0 million. BMSBLC also had drawn $18.2
million against its bank line of credit to replace outstanding commercial paper that had
matured and was unable to be replaced by sales of additional commercial paper. The bank
line of credit has a higher interest rate of approximately 40 basis points than that paid
on commercial paper which resulted in a reduction of net income for 2003. The Parent also
has a line of credit agreement with InvestorsBank providing for a line of credit of $1.41
million bearing interest at the prime rate. The outstanding balance on the line at
December 31, 2003, was $1.03 million.

Long-term
debt consists primarily of fixed rate debt. In 2004, BMSBLC paid off long-term debt of
$5.58 million and replaced it with short-term debt from the bank line of credit at a lower
interest rate.

Accrued
liabilities decreased to $1.13 million at December 31, 2003, as compared to $1.66 million
at December 31, 2002, due to the decrease in loan participations.

The
Parent has outstanding preferred stock of $16.85 million which is required to be redeemed
no later than July 1, 2008.

# 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. The estimate is based on
historical collection experience and a review of the current status of trade accounts
receivable.

Inventory
valuation. Inventories are valued at lower of cost or market using the first-in,
first-out (FIFO) method.

Allowance
for obsolete inventory. LMOD and LPI provide an allowance for obsolete inventory items
based on managements estimate. The estimate is based on items which are slow-moving
or obsolete and for which management feels that full value cannot be realized.

Amortization
of goodwill. The Financial Accounting Standards Board issued Statement 142, Goodwill
and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001
(i.e., January 1, 2002 for calendar year companies). This statement provides that goodwill
and indefinite lived intangible assets are no longer amortized against income but are
reviewed at least annually for impairment. An impairment review is designed to determine
whether the fair value, and the related recorded goodwill, of a reporting unit is below
its carrying value. In the year of adoption, any impairment loss will be recorded as a
cumulative effect of a change in accounting principle. Thereafter, goodwill impairment
losses will be charged to operations.

Deferred
income tax assets. 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, health insurance, deferred revenue, net operating losses,
capitalization requirements of the Internal Revenue 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.

19

---

Financial Services

Accrual
of interest income. Interest income is accrued on the unpaid principal balance of
loans. The accrual of interest income on loans is discontinued when, in the opinion of
management, there is reasonable doubt as to whether the collateral securing the
borrowers obligation is sufficient to pay all principal, accrued interest and other
expenses. Loans are returned to accrual status when the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.

Accrual
of rental income. Rent is accrued on a monthly basis based on lease agreements. If it
is determined by management that the lessee will not be able to make rent payments as
required by the lease agreement, the accrual of rent is discontinued until management
determines the rent to be collectible.

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 takes into account the projected cash flow of the business from
all sources including capital contributions, conversion of collateral to cash, and net
income plus depreciation.

Leased
properties. Leased properties are recorded at cost and are depreciated using the
straight-line method. The costs of normal repairs and maintenance are charged to expense
as incurred.

Nonperforming
loans. A loan is considered nonperforming when the scheduled principal and/or interest
payments are more than ninety days past due. Nonperforming loans are not automatically
placed on non-accrual status. For a discussion of when loans are placed on non-accrual
status, see Accrual of interest income above.

Unfunded
commitments. Unfunded commitments are recorded in the financial statements when they
are funded or when related fees are incurred or received.

Derivative
Instruments. The Company designates all derivative instruments as either fair value
hedges or cash flow hedges and to record the hedge on the balance sheet at its fair market
value. The net gain/loss on instruments classified as cash flow hedges are reported as
changes in other comprehensive income. The net gain/loss on instruments classified as fair
value hedges are reported as increases/decreases in current year earnings. All derivatives
are marked to market on the balance sheet.

Fair
Value of Financial Instruments. Financial Accounting Standards Board Statement 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 value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 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 (See Note 21 to the consolidated
financial statements).

# Off Balance Sheet
Arrangements

BMSBLC,
 in its ordinary  course of  business,  had  undisbursed  loan  commitments  and lines of
credit  totaling  $1.77  million and $1.28  million at  December  31,  2003 and 2002,
 respectively.  There were no letters of credit outstanding as of December 31, 2003.

20

---

# Contractual Obligations

The
Company has  obligations  and  commitments  to make future  payments under debt and
operating leases.  The following schedule details these obligations at December 31, 2003.

|                              | Payments due by period
|----------------------------- | ----------------------
|
|Consumer products segment     |                       
|Operating Lease Obligations   |                       
|Financial services segment    |                       
|Long-term debt                |                       
|Loan participations *         |                       
|Preferred stock               |                       
|Total contractual obligations |                       

| | * | Loan
participation payments are made when principal is paid on the corresponding notes.
   Therefore, the above estimates reflect expected principal payments on notes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995

This
report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934. The Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are generally
identifiable by use of the words may, will, could,
believe, expect, intend, anticipate,
estimate, project, or similar expressions. The Companys
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the operations
and future prospects of the Company and the subsidiaries include, but are not limited to,
changes in: interest rates, 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 or real estate portfolios, demand for loan
products, competition, demand for financial services in the Companys market area,
the accessibility of funding sources at competitive rates, demand for the Companys
consumer products, the degree of success of the Companys strategy to reduce prices
on its collectible dolls and reduce expenses, payment when due of principal and interest
on loans made by the Company, payment of rent by lessees on Company properties and the
necessity to make additions to the Companys loan loss reserve. These risks and
uncertainties should be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.

21

---

# Item 7A.    Quantitative
and Qualitative Disclosures About Market Risk

The
Parent and BMSBLC  assume  interest  rate risk (the risk that  general  interest  rate
levels will  change) as a normal  component  of its  operations.  As a result,  fair
values of the  Parents  and BMSBLCs financial  instruments  will change when interest
rate levels  fluctuate and that change may be either favorable or unfavorable to the
Company.

The
Parent and BMSBLCs  debt  structure  and interest  rate risk are managed  through the
use of fixed and variable rate debt.  Management  attempts to match  variable rate loans
with variable rate debt and fixed rate loans with fixed rate debt to the extent  believed
 necessary to minimize  interest rate risk.  The Parent and BMSBLCs  fixed rate loans
are matched with fixed rate debt,  which reduces  market rate risk.  Variable rate loans
are also matched against variable rate debt.

BMSBLCs
 $30.81  million of carrying  value of leased  properties  are  considered  a fixed rate
earning asset which is matched  against $16.85 million of fixed rate preferred  stock and
$8.24 million of variable rate  debt with the  remaining  $5.72  million  funded  with
 common  equity.  In the  present  low  interest  rate environment  the mismatch of $8.24
million  variable rate debt against fixed rate earning assets has been favorable to
BMSBLC.  In a rising interest rate  environment  the margin of difference  becomes
smaller and less favorable to BMSBLC.  For example,  an increase in the interest  rate
paid on the variable  debt of 1%, would  decrease  Company pre-tax profits in an amount
approximating $80,000.

22

---

# Item 8.    Financial
Statements and Supplementary Data

# The Middleton Doll
Company

# Consolidated Financial
Statements

# Contents

|Report of Virchow,  Krause & Company, LLP, Independent Auditors | 24
|--------------------------------------------------------------- | --
|Consolidated Balance Sheets as of December 31, 2003 and 2002    | 25
|Consolidated Statements of Income                              
|For the years ended December 31, 2003, 2002 and 2001            | 27
|Consolidated Statements of Changes in Shareholders Equity     
|For the years ended December 31, 2003, 2002 and 2001            | 29
|Consolidated Statements of Cash Flows                          
|For the years ended December 31, 2003, 2002 and 2001            | 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

---

INDEPENDENT
AUDITORS REPORT

Board of Directors and
ShareholdersThe Middleton Doll Company and SubsidiariesWaukesha, Wisconsin

We have audited the accompanying
consolidated balance sheets of The Middleton Doll Company and Subsidiaries as of December
31, 2003 and 2002, and the related consolidated statements of income, changes in
shareholders equity, and cash flows for the years ended December 31, 2003, 2002 and
2001. We have also audited the financial statement schedules listed in Item 8. These
consolidated financial statements and financial statement schedules are the responsibility
of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall consolidated 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
financial position of The Middleton Doll Company and Subsidiaries as of December 31, 2003
and 2002, and the results of their operations and their cash flows for the years ended
December 31, 2003, 2002 and 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the financial statement
schedules listed in Item 8, 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.

| | VIRCHOW, KRAUSE & COMPANY, LLP    
| | ----------------------------------
| | /s/ Virchow, Krause & Company, LLP

Milwaukee, WisconsinJanuary 28, 2004

24

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS December 31, 2003 and 2002

---

# ASSETS

|                               
|-------------------------------
|CONSUMER PRODUCTS              
|Current Assets:                
|Cash and cash equivalents      
|Accounts receivable, net       
|Inventory, net                 
|Prepaid inventory              
|Prepaid corporate taxes        
|Other prepaid expenses         
|                               
|Total current assets           
|Property and equipment, net    
|Deferred income taxes          
|Licensing agreement, net       
|Goodwill                       
|                               
|Total Consumer Products Assets 
|                               
|FINANCIAL SERVICES             
|Cash and cash equivalents      
|Interest receivable            
|Rent receivable, net           
|Loans                          
|Leased properties, net         
|Property and equipment, net    
|Interest rate swap contracts   
|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 (Continued) December 31, 2003 and 2002

---

# LIABILITIES, MINORITY
INTEREST AND SHAREHOLDERS' EQUITY

|                                                               
|---------------------------------------------------------------
|LIABILITIES                                                    
|CONSUMER PRODUCTS                                              
|Short-term borrowings                                          
|Accounts payable                                               
|Accrued salaries                                               
|Accrued liabilities                                            
|                                                               
|Total Consumer Products Liabilities                            
|                                                               
|FINANCIAL SERVICES                                             
|Commercial paper                                               
|Lines of credit                                                
|Direct pay letter of credit obligation                         
|State of Wisconsin Investment Board notes payable              
|Loan participations with repurchase options                    
|Other borrowings                                               
|Accrued liabilities                                            
|                                                               
|Total Financial Services Liabilities Excluding Preferred Shares
|Preferred shares subject to mandatory redemption, net          
|                                                               
|Total Financial Services Liabilities                           
|                                                               
|MINORITY INTEREST                                              
|Minority interest in subsidiaries                              
|SHAREHOLDERS' EQUITY                                           
|Common stock, 6 2/3 cents par value,                           
|15,000,000 shares authorized, 4,401,599 shares issued          
|Additional paid-in capital                                     
|Retained earnings                                              
|Treasury stock, 674,010 shares, at cost                        
|Accumulated other comprehensive income                         
|                                                               
|                                                               
|                                                               
|TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY  
|                                                               

See accompanying notes
to consolidated financial statements.

26

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF INCOME Years Ended December 31, 2003, 2002 and 2001

---

|                                                       
|-------------------------------------------------------
|CONSUMER PRODUCTS                                      
|NET SALES                                              
|COST OF GOODS SOLD                                     
|                                                       
|Gross Profit                                           
|                                                       
|OPERATING EXPENSES                                     
|Sales and marketing                                    
|New product development                                
|General and administrative                             
|                                                       
|Total Operating Expenses                               
|                                                       
|Net operating income (loss)                            
|                                                       
|OTHER INCOME (EXPENSES)                                
|Interest expense                                       
|Other income, net                                      
|                                                       
|Net Other Income (Expenses)                            
|                                                       
|Income (loss) before income taxes, minority            
|interest and intercompany charges                      
|Less:  Applicable income tax (expense) benefit         
|Minority interest in losses (earnings) of subsidiaries 
|                                                       
|INCOME (LOSS) BEFORE INTERCOMPANY CHARGES -            
|CONSUMER PRODUCTS                                      
|                                                       
|FINANCIAL SERVICES                                     
|REVENUES                                               
|Interest on loans                                      
|Rental income                                          
|Gain on sales of leased properties                     
|Gain on termination of interest rate swaps             
|Other income                                           
|                                                       
|Total Revenues                                         
|                                                       
|EXPENSES                                               
|Interest expense                                       
|Depreciation expense                                   
|Management fee expense                                 
|Other operating expenses                               
|                                                       
|Total Expenses                                         
|                                                       
|Income before income taxes and                         
|intercompany revenue                                   
|Less: Applicable income tax expense                    
|                                                       
|INCOME BEFORE INTERCOMPANY REVENUE - FINANCIAL SERVICES
|                                                       

See accompanying notes
to consolidated financial statements.

27

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF INCOME (Continued) Years Ended December 31, 2003, 2002 and 2001

---

|                                                      
|------------------------------------------------------
|TOTAL COMPANY                                         
|Income (loss) before income taxes, minority           
|interest and intercompany activity                    
|Consumer products                                     
|Financial services                                    
|                                                      
|Total Company                                         
|Income tax benefit                                    
|Minority interest in losses (earnings) of subsidiaries
|                                                      
|NET INCOME                                            
|Preferred stock dividends                             
|                                                      
|NET INCOME (LOSS) AVAILABLE TO COMMON                 
|SHAREHOLDERS                                          
|                                                      
|Basic earnings (loss) per common share                
|                                                      
|Diluted earnings (loss) per common share              
|                                                      
|Weighted average shares outstanding                   
|                                                      
|SEGMENT RECONCILIATION                                
|CONSUMER PRODUCTS                                     
|Income (loss) before intercompany charges             
|Interest and rent expense to parent                   
|Management fees to parent                             
|Applicable income tax benefit related to intercompany 
|charges                                               
|                                                      
|Total Segment Net Loss                                
|                                                      
|FINANCIAL SERVICES                                    
|Income before intercompany revenue                    
|Interest and rent income from subsidiary              
|Management fees from subsidiary                       
|                                                      
|Total Segment Net Income                              
|                                                      
|NET INCOME                                            
|                                                      

See accompanying notes
to consolidated financial statements.

28

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS EQUITY Years Ended December 31, 2003, 2002 and 2001

---

|                                    | Common
stock | Additional
paid-in
capital | Retained
earnings | Treasury
stock | Accumulated
other
comprehensive
income | Total
|----------------------------------- | ------------ | -------------------------- | ----------------- | -------------- | -------------------------------------- | -----
|BALANCES - December 31, 2000        |              |                            | $                 | 293,441        |                                        | $    
|                                    |              |                            |                   |                |                                        |      
|Comprehensive income                |              |                           
|Net income - 2001                   |              |                            |                   | --             |                                        |      
|Unrealized gains on cash            |              |                           
|flow hedges                         |              |                            |                   | --             |                                        |      
|Reclassification adjustment         |              |                           
|for gains realized on               |              |                           
|termination of cash flow            |              |                           
|hedges included in net              |              |                           
|income                              |              |                            |                   | --             |                                        |      
|Reclassification adjustment         |              |                           
|for  cash flow hedging              |              |                           
|gains included in net income        |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Total Comprehensive Income          |              |                            |                   |                |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Cash dividends on preferred stock - |              |                           
|8.53% dividend rate                 |              |                            |                   | --             |                                        |      
|Cash dividends on common stock -    |              |                           
|$.65 per share                      |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|BALANCES - December 31, 2001        |              |                            |                   | 293,441        |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Comprehensive income                |              |                           
|Net income - 2002                   |              |                            |                   | --             |                                        |      
|Unrealized gains on cash            |              |                           
|flow hedges                         |              |                            |                   | --             |                                        |      
|Reclassification adjustment         |              |                           
|for gains realized on               |              |                           
|termination of cash flow            |              |                           
|hedges included in net              |              |                           
|income                              |              |                            |                   | --             |                                        |      
|Reclassification adjustment         |              |                           
|for  cash flow hedging              |              |                           
|gains included in net               |              |                           
|income                              |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Total Comprehensive Income          |              |                            |                   |                |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Cash dividends on preferred stock - |              |                           
|8.53% dividend rate                 |              |                            |                   | --             |                                        |      
|Cash dividends on common stock -    |              |                           
|$.65 per share                      |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|BALANCES - December 31, 2002        |              |                            |                   | 293,441        |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Comprehensive Loss                  |              |                           
|Net income - 2003                   |              |                            |                   | --             |                                        |      
|Unrealized gains on                 |              |                           
|cash flow hedges                    |              |                            |                   | --             |                                        |      
|Reclassification adjustment         |              |                           
|for gains realized on               |              |                           
|termination of cash flow            |              |                           
|hedges included in net              |              |                           
|income                              |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Total Comprehensive Loss            |              |                            |                   |                |                                        |      
|                                    |              |                            |                   |                |                                        |      
|Cash dividends on preferred stock - |              |                           
|8.53% dividend rate in January,     |              |                           
|April and July and 5.37%            |              |                           
|dividend rate in October            |              |                            |                   | --             |                                        |      
|Cash dividends on common stock -    |              |                           
|$.40 per share                      |              |                            |                   | --             |                                        |      
|                                    |              |                            |                   |                |                                        |      
|BALANCES - December 31, 2003        |              |                            | $                 | 293,441        |                                        | $    
|                                    |              |                            |                   |                |                                        |      

See accompanying notes
to consolidated financial statements.

29

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWS Years Ended December 31, 2003, 2002 and 2001

---

|                                             
|---------------------------------------------
|CONSUMER PRODUCTS                            
|CASH FLOWS FROM OPERATING ACTIVITIES         
|Segment net loss                             
|Adjustments to reconcile segment net         
|loss to net cash flows from operating        
|activities                                   
|Depreciation and amortization                
|Provision for losses on accounts             
|receivable                                   
|(Gain) loss on disposal of leased property   
|Provision for inventory reserve              
|Deferred income tax benefit                  
|Change in minority interest in subsidiaries  
|Net change in                                
|Accounts receivable                          
|Inventory, net                               
|Other assets                                 
|Accounts payable                             
|Other liabilities                            
|                                             
|Net Cash Flows from Operating Activities     
|                                             
|CASH FLOWS FROM INVESTING ACTIVITIES         
|Property and equipment expenditures          
|Repayment of loans                           
|                                             
|Net Cash Flows from Investing Activities     
|                                             
|CASH FLOWS FROM FINANCING ACTIVITIES         
|Net (decrease) increase in short term        
|borrowings                                   
|Net decrease in other notes payable          
|Net intercompany transactions                
|                                             
|Net Cash Flows from Financing Activities     
|                                             
|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 (received) for income taxes        

See accompanying notes
to consolidated financial statements.

30

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS
OF CASH FLOWS (Continued) Years Ended December 31, 2003, 2002 and 2001

---

|                                                        
|--------------------------------------------------------
|FINANCIAL SERVICES                                      
|CASH FLOWS FROM OPERATING ACTIVITIES                    
|Segment net income                                      
|Adjustments to reconcile segment net                    
|income to net cash flows from                           
|operating activities                                    
|Depreciation                                            
|Loss on disposal of leased property                     
|Gain on sale of leased properties                       
|Net change in                                           
|Interest receivable                                     
|Rent receivable                                         
|Other assets                                            
|Accrued liabilities                                     
|                                                        
|Net Cash Flows from Operating Activities                
|                                                        
|CASH FLOWS FROM INVESTING ACTIVITIES                    
|Net loan repayments received                            
|Proceeds from sale of leased properties                 
|Purchase or construction of leased property             
|Net intercompany transactions                           
|                                                        
|Net Cash Flows from Investing Activities                
|                                                        
|CASH FLOWS FROM FINANCING ACTIVITIES                    
|Net change in commercial paper                          
|Net change in lines of credit                           
|Net payments on letter of credit                        
|Repayment of SWIB notes                                 
|Repayment of loan participations with repurchase options
|Net repayment of other long-term debt                   
|Preferred stock dividends paid                          
|Common stock dividends paid                             
|                                                        
|Net Cash Flows from Financing Activities                
|                                                        
|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.

31

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2003 and 2002

|                                                   
|---------------------------------------------------
|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
Company, Bando McGlocklin Small Business Lending Corporation (BMSBLC) and Lee Middleton
Original Dolls, Inc. (LMOD). LMOD includes the accounts of its wholly owned subsidiary
License Products, Inc. (LPI) and its 51% owned subsidiary, Middleton (HK) Limited (MHK).
In 2002, Middleton (HK) Limited was liquidated. 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 Middleton Doll Company and
Subsidiaries (the Company), was incorporated in February 1980, to provide long-term
secured loans to small businesses. At the present time, the Company consists of two
business segments, the financial services segment and the consumer products segment.

The financial services segment
consists of the Company and its wholly-owned subsidiary BMSBLC. Both the Company and
BMSBLC operated as a real estate investment trust (REIT) pursuant to the provisions of
Section 856 of the Internal Revenue Service Code of 1986, as amended. The principal
business of the segment is making loans and leasing buildings to small businesses. The
segment has participated in loans with third party loan originators.

The consumer products segment
consists of a 99% interest in LMOD and a 100% interest in LPI. On January 1, 2002, LMOD
acquired the remaining 49% interest in LPI. In 2002, LMODs 51% interest in Middleton
(HK) Limited was liquidated. LMOD is a manufacturer of collectible vinyl dolls and a
distributor of vinyl play dolls. LPI designs, develops and markets a line of quality,
proprietary time pieces.

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 the allowances for loan and lease
losses and doubtful accounts and the valuation of inventories and deferred income tax
assets.

Segment
Information

The Company is reporting segment
assets, liabilities, sales and operating income in the same format reviewed by the
Companys management. As discussed above, the Company has two reportable segments:
consumer products (which includes LMOD and LPI) and financial services (which includes the
Company and BMSBLC). Segment information required to be disclosed is included in the
accompanying consolidated financial statements. Intersegment charges are reflected in the
segment reconciliation on the consolidated statements of income and on 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

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

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. 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.

Allowance
for Loan Losses

A loan is considered impaired 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
impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Impairment 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 losses is necessary. Management has determined that no allowance for
loan losses is necessary.

Rent
Receivable

Rent receivable is accrued on a
monthly basis based on the lease agreement. If at any point it is determined 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. Rent receivable is
presented net of an allowance for lease losses of $150,000 at December 31, 2003 and 2002.

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 $555,738 and $332,386 at December 31, 2003 and
2002, respectively.

Interest
Rate Swap Agreements

The Company periodically enters into
interest rate swap agreements as a means of managing interest rate exposure. The
differential to be paid or received on all interest rate swap agreements is accrued as
interest rates change and is recognized over the life of the agreements. The swap
agreements are recorded at fair value on the consolidated balance sheet with the net
adjustment recorded as other comprehensive income.

Inventory

Inventories of LMOD and LPI are
valued at lower of cost or market using the first-in, first-out (FIFO) method.

Leased
Properties

Leased properties are recorded at
their cost value. 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.

33

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

Property
and Equipment

Property and equipment primarily
represent manufacturing property, plant and equipment of LMOD and LPI. Property and
equipment is 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.

Revenue
Recognition

Revenue is recognized when products
are shipped.

Research
and Development Costs

The cost of research, development and
product improvement costs are charged to expense as they are incurred. Research,
development and product improvement costs are reported as a separate component of
operating expenses and total $738,997, $868,100 and $991,648 for the years ended December
31, 2003, 2002 and 2001, respectively.

Stock
Based Compensation

At December 31, 2003, the Company has a
stock-based employee compensation plan which is described more fully in Note 18. The
Company accounts for this plan under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net loss, as
all options granted under this plan had an exercise price equal to the approximate market
value of the underlying common stock on the date of grant. The following table
illustrates, in accordance with SFAS No. 148 Accounting for Stock-Based Compensation
 Transition and Disclosure, the effect on (loss) earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123,Accounting
for Stock-Based Compensation, to stock-based employee compensation.

|                                                       
|-------------------------------------------------------
|Net (loss) income available to common shareholders - as
|reported                                               
|                                                       
|Basic (loss) earnings per common share - as reported   
|                                                       
|Diluted (loss) earnings per common share - as reported 
|                                                       

Income
Taxes

The Company and its qualified REIT
subsidiary, BMSBLC, qualify as real estate investment trusts under the Internal Revenue
Code. Accordingly, they are not subject to income tax on taxable income that is
distributed to shareholders. During 2003, 2002 and 2001, the Company took advantage of a
provision in the tax law that allows a REIT to retain any capital gains on sale of real
estate properties and pay the corresponding tax on the gains.

In order to qualify as a REIT under
the Internal Revenue Code, the Company, together with its qualified REIT subsidiary,
BMSBLC, among other requirements, must meet certain annual income and quarterly asset
diversification tests including not holding the securities of any one issuer valued at
more than 5% of total assets, and not holding more than 10% of the outstanding voting
securities of any one issuer, unless, in both cases, that issuer qualifies as a taxable
real estate investment trust subsidiary.

LMOD and LPI are taxed as C
corporations and file a consolidated federal income tax return and individual state income
tax returns.

34

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

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, vacation accruals, health insurance, deferred
revenue, net operating losses, capitalization requirements of the Internal Revenue 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.

Shipping
and Handling Costs

Shipping and handling costs 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 $762,779, $920,361 and $1,408,734 for
the years ended December 31, 2003, 2002 and 2001, respectively

Off-Balance
Sheet Financial Instruments

In the ordinary course of business
BMSBLC has entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.

Derivative
Financial Instruments Designated As Hedges

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities 
Deferral of the Effective Date of SFAS No. 133", and SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities. These statements
require the Company to designate all derivative instruments as either fair value hedges or
cash flow hedges and to record the hedge on the balance sheet at its fair value. The net
gain/loss on instruments classified as cash flow hedges are reported as changes in other
comprehensive income. The net gain/loss on instruments classified as fair value hedges are
reported as increases/decreases in current year earnings.

The Company has used interest rate
swap agreements to hedge various exposures or to modify interest rate characteristics of
various balance sheet accounts. Derivatives that are used as part of the asset/liability
management process are linked to specific assets or liabilities and have high correlation
between the contract and the underlying item being hedged, both at inception and
throughout the hedge period. The interest component associated with the contract is
recognized over the life of the contract as an adjustment to interest expense.

Contracts that do not meet the
hedging criteria are classified as trading activities and are recorded at fair value with
changes in fair value recorded in earnings.

35

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

Earnings
Per Common Share

Earnings 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.

Fair
Value of Financial Instruments

Financial Accounting Standards Board Statement
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 value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 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.

The following methods and assumptions
were used by the Company in estimating the fair value of its financial instruments:

| | Carrying
Amounts Approximate Fair Values for the Following Instruments
| | ----------------------------------------------------------------------

| | Cash
and cash equivalents                   Accounts receivable                   Interest
receivable                   Rent receivable                   Variable rate loans that
reprice frequently where no                          significant change in credit risk has
occurred                   Short-term borrowings                   Accounts payable
                  Variable rate long-term debt
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Quoted
Market Prices
| | --------------------

| | Where
available, or if not available, based on quoted market prices of comparable instruments
for the following instruments:
| | ----------------------------------------------------------------------------------------------------------------------------

| | Interest
rate swaps                  Mandatorily redeemable preferred stock
| | ---------------------------------------------------------------------------

| | Discounted
Cash Flows
| | ---------------------

| | Using
interest rates currently being offered on instruments with similar terms and with similar
credit quality:
| | ---------------------------------------------------------------------------------------------------------------

| | All
loans except variable rate loans described above
| | ----------------------------------------------------

| | Fixed
rate long-term debt
| | -------------------------

36

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

| | Quoted
fees currently being charged for similar instruments
| | -----------------------------------------------------------

| | Taking
into account the remaining terms of the agreements and the counterparties credit
standing:
| | --------------------------------------------------------------------------------------------------

| | Off-balance-sheet
instruments
| | -----------------------------

| | Letters
of credit
| | -----------------

| | Lending
commitments
| | -------------------

Since the majority of the
Companys off-balance-sheet instruments consist of nonfee-producing, variable rate
commitments, the Company had determined these do not have a distinguishable fair value.

Recent
Accounting Pronouncements

Statement of Financial Accounting
Standards No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, amends and clarifies financial accounting and reporting for derivative
instruments and requires that contracts with comparable characteristics be accounted for
similarly. In particular, this statement clarifies under what circumstances a contract
with an initial net investment meets the characteristic of a derivative discussed in
paragraph 6(b) of Statement 133, clarifies when a derivative contains a financing
component, and amends the definition of an underlying derivative to conform it to language used in
Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees. The provisions for this
statement are effective for contracts entered into or modified after June 30, 2003. The
Company adopted this statement and the implementation of this standard did not have a
material impact on the consolidated financial statements.

Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and
equity. This statement requires an issuer to classify the following instruments as
liabilities: 1) a financial instrument issued in the form of shares that is mandatorily
redeemable, 2) a financial instrument, other than an outstanding share, that, at
inception, embodies an obligation to repurchase the issuers equity shares or 3) a
financial instrument that embodies an unconditional obligation. The Company adopted this
statement and the implementation of this standard did not have a material impact on the
consolidated financial statements.

In January 2003 the FASB issued
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. The interpretation provides financial
reporting guidance to companies involved with variable interest entities (VIEs). It
requires variable interest entities to be consolidated by their primary beneficiary when
certain circumstances exist. The primary beneficiary is the entity that holds the majority
of the beneficial interests in the variable interest entity. The primary beneficiary of
the VIE is the entity that is subject to a majority of the risk of loss from the
VIEs activity or is entitled to receive a majority of its residual returns or both.
A VIE is a legal entity used for business purposes that either does not have equity
investors with voting rights or has equity investors that do not provide sufficient
financial resources for the entity to support its activities.

In addition, this interpretation
expands the disclosure requirements for both VIEs that are consolidated as well as those
from which the entity is the holder of a significant amount of beneficial interests, but
not the majority. The application of this interpretation is required in financial
statements of public entities that have interests in structures that are commonly referred
to as special-purpose entities for periods ending after December 15, 2003. Application by
public entities for all other types of variable interest entities is required in financial
statements for periods ending after March 15, 2004. The Company does not have any variable
interest entities, therefore the adoption of this statement will not have a material
impact on the consolidated financial statements.

37

---

|                                                           
|-----------------------------------------------------------
|NOTE 1  Summary of Significant Accounting Policies (cont.)

Reclassification

Certain 2002 and 2001 amounts have
been reclassified to conform with the 2003 presentation. The reclassifications have no
effect on reported amounts of net income or equity.

|                       
|-----------------------
|NOTE 2  Related Entity

The Company shares common ownership
and management with InvestorsBancorp, Inc. (the Bank). The Company and the Bank have a
Management Services and Allocation of Expenses Agreement (the Agreement). The Agreement
allows the employees of the Bank to provide loan management, leasing and accounting
services to the Company for a fee, payable monthly. Management fee expense relating to the
Agreement was $931,082, $985,720 and $991,511 for the years ended December 31, 2003, 2002
and 2001, respectively. Overhead expenses are also shared between the two
entities in accordance with the Agreement.  The Company also rents space from the Bank under a lease agreement dated October 31, 2002.  Rent expense was $57,996 and $9,666 for the years ended December 31, 2003 and 2002, respectively.

|                       
|-----------------------
|NOTE 3  Concentrations

The consumer products segments
customers are not concentrated in any specific geographic region. For the year ended
December 31, 2003, the consumer products segment had three customers, two customers at LPI
and one customer at LMOD, that accounted for $5,797,932, or 33%, of its total revenue. 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.

Approximately 50% of LMODs
labor force is subject to a collective bargaining agreement. The agreements
expiration date is April 30, 2004.

The financial services segment grants
loans and leases properties to small and medium-sized businesses primarily in southeastern
Wisconsin. As of December 31, 2003 and 2002, respectively, the Company had loans
outstanding to its largest borrower totaling $10,699,095 and $11,609,853, which
represented approximately 20% and 16% of the total loans outstanding, respectively.

|                                    
|------------------------------------
|NOTE 4  Allowance for Rental Losses

The allowance for rental losses is
established as losses are estimated to have occurred through a provision for losses
charged to earnings. Management reviews the entire rent receivable portfolio when
determining the necessary allowance. As of December 31, 2003, 2002 and 2001, the allowance
was $150,000.

38

---

|              
|--------------
|NOTE 5  Loans

Approximately 80% of the
Companys loan portfolio consists of variable-rate loans with terms of five to
fifteen years. Substantially all loans are collateralized by first or second mortgages on
commercial real estate.

Impaired loans were $245,829 and
$2,006,016 at December 31, 2003 and 2002, respectively. The average recorded amount of
impaired loans during 2003 and 2002 was $688,493 and $901,697, respectively. The interest
accrued on the impaired loans was $20,936 and $20,936 at December 31, 2003 and 2002,
respectively. There was no allowance for loan loss related to these loans at December 31,
2003 and 2002. Interest income on impaired loans of $0, $34,405 and $18,115 was recognized
for cash payments received in 2003, 2002 and 2001, respectively.

Undisbursed loan commitments and
lines of credit totaled $1,769,996 and $1,284,931 at December 31, 2003 and 2002,
respectively. There were no letters of credit outstanding as of December 31, 2003.

|                   
|-------------------
|NOTE 6  Loans Sold

The Company has the ability to sell
loans with the option to repurchase them at a later date. During 2003, the Company sold no
loans to third parties with repurchase options. During 2002, the Company sold $2,818,488
of loans to third parties with the option to repurchase them. These sales have been
accounted for as secured financings. As of December 31, 2003 and 2002, the balance of loan
participations sold with repurchase options was $6,289,827 and $17,184,176, respectively.
Of this amount approximately $3.6 million and $7 million was sold to a single non-related
party as of December 31, 2003 and 2002, respectively. These loan participations mature as
the corresponding notes mature with the maturities ranging from one to five years. Under
the terms of the repurchase agreements, the Company retains servicing rights for the
entire loan. As servicer and provider of recourse, certain agreements require the Company
to comply with various covenants, including the maintenance of net worth. As of December
31, 2003, the Company was in compliance with these covenants.

For the loans sold with no recourse,
the Company is susceptible to loss on the loans up to the percentage of the retained
interest to the extent the underlying collateral is insufficient in the event of
nonperformance by the borrower. The Companys retained interest is subordinated to
the portion sold. The Company has not sold any loans without recourse. For the loans sold
with full recourse, the Company is susceptible to loss equal to the total principal
balance of the loan to the extent the underlying collateral is insufficient in the event
of nonperformance. No associated loss reserve has been established as of December 31,
2003, 2002 and 2001, for loans which have been sold.

|                  
|------------------
|NOTE 7  Inventory

Inventory consists of the following
at December 31:

|                                
|--------------------------------
|Raw materials                   
|Work in process                 
|Finished goods                  
|                                
|                                
|Allowance for obsolete inventory
|                                
|                                
|                                

39

---

|                          
|--------------------------
|NOTE 8  Leased Properties

The major categories of leased
properties at December 31 are summarized as follows:

|                              
|------------------------------
|Land                          
|Buildings                     
|Construction in progress      
|                              
|Total                         
|Less: accumulated depreciation
|                              
|Net                           
|                              

Depreciation expense on leased properties
was $713,576, $757,308 and $775,122 for the years ended December 31, 2003, 2002 and 2001,
respectively.

The Company normally leases its
properties pursuant to a lease agreement with initial lease terms, primarily ranging from
five to fifteen years. The leases require the lessee to pay all operating expenses
including utilities, insurance and taxes. The lease agreements, all of which are operating
leases, expire at various dates through 2012 and provide the lessee with renewal and
purchase options. If it is determined that the lessee will not be able to make all
required lease payments, the lease is put on nonaccrual and no future amounts of rents are
accrued. At such time that the lessee becomes current on past lease payments, the Company
will resume the accrual of lease payments. Rent receivable is shown net of an allowance of
$150,000 at December 31, 2003, 2002 and 2001.

Minimum future rental income, by
year, from these leases based on the agreements in effect at December 31, 2003 is as
follows:

|Year         | Projected Rental
Income
|------------ | -----------------------
|2004         |                        
|2005         |                        
|2006         |                        
|2007         |                        
|2008         |                        
|Future years |                        
|             |                        
|             |                        
|             |                        

The Company had been leasing half of
its office space to InvestorsBank, a related party. Monthly rents were variable based on
LIBOR. Rental income from the related party for the years ended December 31, 2002 and 2001
was $48,015 and $57,618, respectively. In November 2002, the building was sold to
InvestorsBank, thus no rental income was recognized in 2003.

40

---

|                               
|-------------------------------
|NOTE 9  Property and Equipment

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

|                              
|------------------------------
|Consumer Products:            
|Land                          
|Building                      
|Machinery and equipment       
|Furniture and fixtures        
|                              
|Total                         
|Less: accumulated depreciation
|                              
|Net                           
|                              
|Financial Services:           
|Furniture and fixtures        
|Less: accumulated depreciation
|                              
|Net                           
|                              

Depreciation expense for consumer
products was $881,302, $857,557 and $568,860 and for financial services was $57,875,
$67,936 and $88,187 for the years ended December 31, 2003, 2002 and 2001, respectively.

|                                        
|----------------------------------------
|NOTE 10  Goodwill and Intangible Assets

The goodwill associated with the
acquisition of LMOD amounted to $619,753. The amount, under previous accounting
requirements, was amortized over a period of twenty years. The unamortized amount and
current carrying value of goodwill is $506,145.

On January 1, 2002, the Company
implemented Statement of Financial Accounting Standards Board Statement No. 142,
Goodwill and Other Intangible Assets. This Statement provides that goodwill and
indefinite lived intangible assets are no longer amortized against income but are reviewed
at least annually for impairment. An impairment review is designed to determine whether
the fair value, and the related recorded goodwill, is below its carrying value. Management
has conducted the impairment review and determined that the carrying value of goodwill has
not been impaired. Accordingly, there were no charges to operations for goodwill
impairment. However, adoption of this Statement had the following pro forma impacts to the
consolidated financial statements:

|                                                         
|---------------------------------------------------------
|Net income available to common shareholders - as reported
|Add back goodwill amortization                           
|                                                         
|Adjusted net income                                      
|                                                         
|Basic earnings per common share - as reported            
|Add back goodwill amortization                           
|                                                         
|Adjusted net income                                      
|                                                         
|Diluted earnings per common share - as reported          
|Add back goodwill amortization                           
|                                                         
|Adjusted net income                                      
|                                                         

41

---

|                                                
|------------------------------------------------
|NOTE 10  Goodwill and Intangible Assets (cont.)

The Company had a licensing agreement with a third party giving it the right to produce certain dolls under a
five year royalty agreement with an original cost of $2,500,000. The licensing agreement,
which expired in April of 2003, was amortized over five years. Amortization expense for
the licensing agreement amounted to $166,666 in 2003 and $500,000 in 2002 and 2001.
Accumulated amortization for the licensing agreement amounted to $2,500,000 and $2,333,334
at December 31, 2003 and 2002, respectively.

|                               
|-------------------------------
|NOTE 11  Short-Term Borrowings

Short-term borrowings consist of the
following at December 31:

|                           
|---------------------------
|Consumer Products:         
|Short-term borrowings      
|Financial Services:        
|Commercial paper           
|Lines of credit            
|                           
|Total short-term borrowings
|                           

Consumer Products:

In 2002, LMOD had a loan agreement
with InvestorsBank, a related party, providing for a line of credit of $4,075,000 at prime
plus .50%, which was 4.75% at December 31, 2002. The note matured on February 28, 2003, at
which time the note was paid in full. The note was paid with proceeds of a new note with
similar short-term financing from a related party. The agreement was collateralized by
receivables and inventory of LMOD and LPI.

Financial Services:

Commercial paper is issued for
working capital purposes and maturities within 90 days of the issuance date. The average
yield on commercial paper outstanding at December 31, 2003 and 2002 was 1.41% and 1.77%,
respectively.

As of December 31, 2003, BMSBLC has a
line of credit with three participating banks. The line of credit agreement provides for a
maximum line of credit of $65,000,000 less the outstanding principal amount of the
commercial paper and direct pay letter of credit obligation. The agreement bears interest
at the prime rate or at the 30, 60, or 90 day LIBOR rate plus one and three-eighths
percent. The interest rate index is determined by BMSBLC at the time funds are drawn.
Interest is payable monthly and the agreement expires on June 25, 2004. BMSBLC is also
required to pay a commitment fee equal to one-half of one percent per year on the unused
amount of the loan commitment. The outstanding principal balance was $18,200,000 and $0 at
December 31, 2003 and 2002, respectively.

The financial services
commercial paper and lines of credit are collateralized by a pool of loans with an
outstanding balance of $36.2 million and $38.8 million and leased properties with net
carrying value of approximately $29.1 million and $30.9 million as of December 31, 2003
and 2002, respectively.

The Company had a line of credit
agreement with one of its correspondent banks providing for a line of credit of $5,000,000
bearing interest at the prime rate. The note matured on February 28, 2003, at which time
the note was paid in full. As of December 31, 2002, the outstanding principal balance was
$3,480,000. The credit agreement was collateralized by the stock of LMOD and BMSBLC.

42

---

|                                       
|---------------------------------------
|NOTE 11  Short-Term Borrowings (cont.)

In 2003, the Company entered into a
loan agreement with InvestorsBank, a related party, providing for a line of credit of
$1,411,000 bearing interest at the prime rate. The note is payable upon demand. At
December 31, 2003, the outstanding principal balance was $1,025,000

The line of credit agreements and the
SWIB agreements described in Note 12 contain restrictions on BMSBLCs new
indebtedness, acquisition of its common stock, return of capital dividends, past due
loans, and realized losses on loans, and requires maintenance of collateral, minimum
equity and loan to debt ratios. As of December 31, 2003, BMSBLC is in compliance with all
such requirements.

|                        
|------------------------
|NOTE 12  Long-Term Debt

Long-term borrowings consist of the
following at December 31:

|                                                        
|--------------------------------------------------------
|Financial Services:                                     
|Direct pay letter of credit obligation                  
|State of Wisconsin Investment Board notes payable       
|Other borrowings                                        
|                                                        
|                                                        
|Loan participations with repurchase options (See Note 6)
|                                                        
|Total long-term borrowings                              
|                                                        

Letter
of Credit

BMSBLC has a Letter of Credit
Agreement with one of its correspondent banks to support the issuance, reissuance and
remarketing of industrial revenue bonds. The letter of credit expires on October 15, 2004
unless renewed. The promissory notes of the underlying obligors, which are classified as
loans on the Companys balance sheet with an outstanding balance of $2.6 million and
$7.3 million as of December 31, 2003 and 2002, respectively are used as collateral under
the agreement. The interest rate changes weekly based upon the remarketing agents
lowest rate to permit the sale of the bonds. The outstanding principal balance of the
letter of credit and the interest rate was $2,600,000 and 1.53% and $7,305,000 and 1.80%
as of December 31, 2003 and 2002, respectively.

BMSBLC entered into a Loan and Trust
Agreement with the City of Franklin, Wisconsin and a correspondent bank. The agreement
provides for a letter of credit to fund the issuance of industrial development revenue
bonds secured by real estate with a fair market value of $1.8 million. The bonds mature on
December 1, 2018 with interest payable monthly to the trustee. The interest rate changes
weekly based upon the remarketing agents lowest rate to permit the sale of the
bonds. As of December 31, 2003 and 2001, the interest rate was 1.25% and 1.70%,
respectively. The outstanding principal balance was $1,320,000 and $1,385,000 at December
31, 2003 and 2002, respectively.

State
of Wisconsin Investment Board

BMSBLC has a term note with the State of
Wisconsin Investment Board (SWIB) which bears interest at a fixed rate of 9.05% per year
through its maturity and is collaterized by specific loans with an outstanding balance of
$2.6 million and $4.0 million as of December 31, 2003 and 2002, respectively. The note is
payable in equal quarterly installments of $166,667 with a final payment of unpaid
principal due November 7, 2006. At December 31, 2003 and 2002, the outstanding principal
balance was $2,000,000 and $2,666,667, respectively.

In addition, BMSBLC has a term note
with SWIB which bears interest at a fixed rate of 6.98% per year through its maturity and
is secured by specific loans with an outstanding balance of $7.1 million and $6.9 million
as of December 31, 2003 and 2002, respectively. The note is payable in equal quarterly
installments of $166,667 with a final payment of unpaid principal due on June 1, 2013. At
December 31, 2003 and 2002, the outstanding principal balance was $6,333,333 and
$7,000,000, respectively.

43

---

# THE MIDDLETON DOLL
COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2003 and 2002

|                                
|--------------------------------
|NOTE 12  Long-Term Debt (cont.)

The SWIB agreements and the line of
credit agreements described in Note 11 contain restrictions on BMSBLCs new
indebtedness, acquisition of its common stock, return of capital dividends, past due
loans, and realized losses on loans, and requires maintenance of collateral, minimum
equity and loan to debt ratios. As of December 31, 2003, BMSBLC is in compliance with all
such requirements.

Other
Long-Term Debt

BMSBLC had a term note with the
Milwaukee Economic Development Corporation which bears interest at a fixed rate of 6.00%
per year through its maturity and was collaterized by a second mortgage on real estate.
The note was payable in equal monthly installments of $819 with a final payment due on
January 1, 2010. In 2003, the note was paid in full. The outstanding principal balance
$56,042 at December 31, 2002.

Expected annual maturities of
long-term debt as of December 31, 2003 are as follows:

|2004       |  |  | $ | 4,003,334  | 
|---------- |  |  | - | ---------- | 
|2005       |  |  |   | 1,403,334  | 
|2006       |  |  |   | 1,408,333  | 
|2007       |  |  |   | 741,667    | 
|2008       |  |  |   | 746,667    | 
|Thereafter |  |  |   | 3,949,998  | 
|           |  | 
|           |  |  | $ | 12,253,333 | 
|           |  | 

|                          
|--------------------------
|NOTE 13  Operating Leases

The consumer products segment leases
from third parties various buildings. The leases are classified as operating leases and
the buildings are used as offices, warehouses and outlet stores for the storage,
distribution and sale of Lee Middleton Original Dolls merchandise as well as for a variety
of equipment. Lease expenses were approximately $681,000, $746,000, and $580,000 in 2003,
2002 and 2001, respectively.

At December 31, 2003, the future
minimum lease payments for each of the five succeeding years and in the aggregate are as
follows:

|2004 |  |  | $ | 722,004   | 
|---- |  |  | - | --------- | 
|2005 |  |  |   | 685,655   | 
|2006 |  |  |   | 313,075   | 
|2007 |  |  |   | 81,872    | 
|2008 |  |  |   | 49,626    | 
|     |  | 
|     |  |  | $ | 1,852,232 | 
|     |  | 

44

---

|                             
|-----------------------------
|NOTE 14  Interest Rate Swaps

The Company periodically utilizes
derivative instruments for purposes of asset liability management. These derivative
transactions involve both credit and market risk. The notional amounts are amounts on
which calculations and payments are based. Notional amounts do not represent direct credit
exposures as the exposure is limited to the net difference between the calculated amounts
to be received and paid by the financial institutions participating in the interest rate
swap.

Interest rate swaps are contracts in
which a series of interest rate flows are exchanges over a prescribed period. Most
interest rate swaps involve the exchange of fixed and floating interest rates. An example
of a situation in which the Company would utilize an interest rate swap would be to
convert its fixed-rate debt to a variable rate. By entering into the swap, the principal
amount of the debt would remain unchanged but the interest payment streams would change.

There are no interest rate swap
agreements in effect at December 31, 2003.

As a result of hedge arrangements,
the Company recognized a reduction in interest expense of $0, $540,171 and $692,168 during
the years ended December 31, 2003, 2002 and 2001, respectively. In addition, the Company
recognized a gain of $484,304, $747,000 and $249,500 on the termination of interest rate
swaps during 2003, 2002 and 2001, respectively. The impact on earnings due to
ineffectiveness was immaterial.

|                                       
|---------------------------------------
|NOTE 15  Commitments and Contingencies

In the normal course of business, the
Company is involved in various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a material adverse effect on the
consolidated financial statements.

The Company is party to financial
instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to
extend credit, financial guarantees and standby letters of credit. They involve, to
varying degrees, elements of credit and interest rate risk in excess of amounts recognized
on the consolidated balance sheets.

The Companys exposure to credit
loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. The Company uses the same credit
policies in making commitments and issuing letters of credit as they do for
on-balance-sheet instruments.

The Company has extended a guarantee
to a supplier for LMOD in which the Company agrees to unconditionally guarantee all
obligations of LMOD to the supplier. It is anticipated that the maximum amount of the
guarantee should not exceed $600,000; however, the amount of the guarantee is unlimited
and the amount of the obligation may increase in the future.

|                                                
|------------------------------------------------
|NOTE 16  Mandatorily Redeemable Preferred Stock

The Company has issued 690,000 shares
of Adjustable Rate Cumulative Preferred Stock, Series A, in a public offering 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.

45

---

|                                                        
|--------------------------------------------------------
|NOTE 16  Mandatorily Redeemable Preferred Stock (cont.)

Mandatorily redeemable preferred
stock consists of the following as of December 31, 2003 and 2002:

|Redeemable Preferred stock, 1 cent par value,      |  |  |   |            |  
|-------------------------------------------------- |  |  | - | ---------- | -
|3,000,000 shares authorized, 690,000 shares issued |  |  | $ | 17,250,000 |  
|Redeemable Preferred Treasury stock 15,809         |  | 
|shares, at cost                                    |  |  |   | (395,225   | )
|                                                   |  | 
|Mandatorily redeemable shares, net                 |  |  | $ | 16,854,775 |  
|                                                   |  | 

|                          
|--------------------------
|NOTE 17  Retirement Plans

LMOD has a qualified defined
contribution plan for eligible employees. LMODs contribution to the plan is at the
discretion of LMODs Board of Directors. Contributions were $9,598, $12,371 and
$9,849 for the years ended December 31, 2003, 2002 and 2001, respectively.

The Company provided a supplemental
retirement benefit for an executive officer, which is included in the management fee
expense, totaling $130,610, $94,677, and $74,527 for the years ended December 31, 2003,
2002 and 2001, respectively. These payments were made at the sole discretion of the
independent members of the Board of Directors of the Company.

|                              
|------------------------------
|NOTE 18  Stockholders Equity

The Company has three stock option
plans, the 1993 Stock Option Plan, the 1997 Stock Option Plan and the 2003 Stock Option
Plan (the Plans). In accordance with the Plans provisions, 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 each agreement. Options granted under the 1993 Stock Option Plan are
incentive stock options as defined under Section 422 of the Code. Options
granted under the 1997 Stock Option Plan and the 2003 Stock Option Plan are considered
non-qualified stock options as defined by the Internal Revenue Code. All
options must be exercised within ten years of the date of grant.

Activity is summarized in the
following table:

|                                      
|--------------------------------------
|Shares                                
|OUTSTANDING - Beginning of Year       
|Options                               
|Granted                               
|Exercised                             
|                                      
|OUTSTANDING - End of Year             
|                                      
|Exercisable at year end               
|Available for future grant at year end
|Total reserved shares                 

46

---

|                                      
|--------------------------------------
|NOTE 18  Stockholders Equity (cont.)

The following table summarizes
information about Plan awards outstanding at December 31, 2003:

|              
|--------------
|Exercise Price
|              

The Company applies APB Opinion 25
and related interpretations in accounting for its Plan. Accordingly, no compensation cost
has been recognized for its stock option awards.

SFAS No. 123 encourages a fair
value based method of accounting for stock-based compensation plans. Had
compensation cost for the Companys plan been determined based upon the fair value at
the grant dates as prescribed by SFAS No. 123, the Companys proforma net income and
earnings per share would be the same as reported due to no options vesting in 2003, 2002
and 2001 and all proforma compensation being recognized in the year of granting.

A reconciliation of the numerators
and the denominators of earnings per common share and earnings per common share assuming
dilution are:

|                       
|-----------------------
|2003                   
|Earnings               
|                       
|Effect of options      
|                       
|Earnings - assuming dil
|                       
|2002                   
|Earnings               
|                       
|Effect of options      
|                       
|Earnings - assuming dil
|                       
|2001                   
|Earnings               
|                       
|Effect of options      
|                       
|Earnings - assuming dil
|                       

47

---

|                      
|----------------------
|NOTE 19  Income Taxes

# Consumer Products:

The provision for income taxes
included in the accompanying consolidated financial statements consists of the following
components at December 31:

|                                          
|------------------------------------------
|Current Taxes (Benefit)                   
|Federal                                   
|State                                     
|                                          
|                                          
|                                          
|Deferred Income Benefit                   
|Federal                                   
|State                                     
|                                          
|                                          
|                                          
|Total Provision for Income Taxes (Benefit)
|                                          

Tax expense is calculated on income
(loss) before the elimination of intercompany expenses. A reconciliation of consumer
products income before taxes to income subject to taxes is as follows:

|                              
|------------------------------
|Income (loss) before taxes    
|Less intercompany eliminations
|                              
|Loss subject to tax benefit   
|                              

A reconciliation of statutory federal
income taxes based upon income before taxes to the provision for federal and state income
taxes for consumer products for the period, as summarized previously, is as follows:

|                                                    
|----------------------------------------------------
|Reconciliation of statutory to effective rates      
|Federal income taxes at statutory rate              
|Adjustments for                                     
|State taxes                                         
|Over accrual of taxes                               
|Other                                               
|                                                    
|Effective income tax rate before valuation allowance
|Release of valuation allowance                      
|                                                    
|Effective Income Tax Rate                           
|                                                    

48

---

|                              
|------------------------------
|NOTE 19  Income Taxes (cont.)

The net deferred income tax assets in
the accompanying consolidated balance sheets include the following amounts of deferred
income tax assets and liabilities at December 31:

|                                
|--------------------------------
|Deferred Income Tax Assets:     
|Depreciation                    
|Accrued expenses and reserves   
|Net operating loss carryforwards
|Deferred Income Tax Liabilities:
|Depreciation                    
|Other                           
|                                
|                                
|                                

A valuation allowance of $718,000 was
released during 2002. Management believes it is more likely than not that the balance of
the deferred income tax assets will be fully realized.

As of December 31, 2003, LMOD and LPI
had unused net operating loss carryforwards of approximately $5,600,000 available to
offset against future federal taxable income and approximately $4,600,000 to offset
against future state taxable income. The use of the net operating loss carryforwards are
subject to limitations. The carryforwards expire as follows:

|       
|-------
|Federal
|2016   
|2017   
|2018   
|2019   
|2022   
|2023   

# Financial Services:

The Company and its subsidiary,
BMSBLC, qualify as a real estate investment trust under the Internal Revenue Code.
Accordingly, they are not subject to income tax on taxable income that is distributed to
shareholders. During 2003, 2002 and 2001, the Company took advantage of a provision in the
tax law that allows a REIT to retain any capital gains on sale of real estate properties
and pay the corresponding tax on the gains. Gains on sale of leased properties totaled
$518,967, $1,186,961 and $150,979 in 2003, 2002 and 2001, respectively, and the
corresponding tax paid by the company was $183,695, $406,173 and $64,970, respectively.

|                       
|-----------------------
|NOTE 20  Distributions

For the years ended December 31,
2003, 2002 and 2001, the Companys Board of Directors has declared the following
common stock distributions:

|                                                
|------------------------------------------------
|Total common stock distributions                
|                                                
|Common stock distributions per share (tax basis)
|                                                
|Distribution in cash                            
|                                                

49

---

|                                             
|---------------------------------------------
|NOTE 21  Fair
Value of Financial Instruments

The estimated fair values of
financial instruments at December 31, 2003 and 2002 are as follows:

|                                  
|----------------------------------
|Carrying Amount                   
|FINANCIAL ASSETS                  
|Cash and cash equivalents         
|                                  
|Accounts receivable               
|                                  
|Interest receivable               
|                                  
|Rent receivable                   
|                                  
|Variable rate loans               
|                                  
|Fixed rate loans                  
|                                  
|Interest rate swaps               
|                                  
|FINANCIAL LIABILITIES             
|Short-term borrowings             
|                                  
|Accounts payable                  
|                                  
|Variable rate long-term debt      
|                                  
|Fixed rate long-term debt         
|Practicable to estimate fair value
|                                  
|Not practicable                   
|                                  
|Redeemable preferred stock        
|                                  

The estimated fair value of fee
income on letters of credit at December 31, 2003 and 2002 is insignificant. Loan
commitments on which the committed interest rate is less than the current market rate are
also insignificant at December 31, 2003 and 2002.

The Company assumes interest rate
risk (the risk that general interest rate levels will change) as a result of its normal
operations. As a result, fair values of the Companys financial instruments will
change when interest rate levels change and that change may be either favorable or
unfavorable to the Company. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are less likely to prepay in a rising rate
environment and more likely to repay in a falling rate environment.

The Company has loan participations
with repurchase options. The underlying loans have various maturities and principal
reductions which makes it impracticable to measure the fair value.

50

---

|                                                     
|-----------------------------------------------------
|NOTE 22  Quarterly
Financial Information (Unaudited)

|                                            
|--------------------------------------------
|3/31/03                                     
|Total revenues                              
|Net operating income (loss) before income   
|taxes and minority interest                 
|Net income (loss) available to common       
|shareholders                                
|Basic earnings (loss) per common share      
|Diluted earnings (loss) per common share    
|3/31/02                                     
|Total revenues                              
|Net operating income before income taxes and
|minority interest                           
|Net income available to common shareholders 
|Basic earnings per common share             
|Diluted earnings per common share           
|3/31/01                                     
|Total revenues                              
|Net operating income before income taxes and
|minority interest                           
|Net income available to common shareholders 
|Basic earnings per common share             
|Diluted earnings per common share           

51

---

|                                                                                
|--------------------------------------------------------------------------------
|NOTE 23  The
Middleton Doll Company (Parent Company Only) Financial Information

# CONDENSED BALANCE
SHEETS

|                                                     
|-----------------------------------------------------
|2003                                                 
|ASSETS                                               
|Cash and cash equivalents                            
|Interest receivable                                  
|Loans                                                
|Investment in BMSBLC                                 
|Investment in other subsidiaries                     
|Property and equipment                               
|Other assets                                         
|Interest rate swap contracts                         
|                                                     
|TOTAL ASSETS                                         
|                                                     
|LIABILITIES AND STOCKHOLDERS' EQUITY                 
|LIABILITIES                                          
|Note payable                                         
|Other liabilities                                    
|Preferred shares subject to mandatory redemption, net
|                                                     
|Total Liabilities                                    
|                                                     
|SHAREHOLDERS' EQUITY                                 
|                                                     
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           
|                                                     

52

---

|                                                                                        
|----------------------------------------------------------------------------------------
|NOTE 23  The
Middleton Doll Company (Parent Company Only) Financial Information (cont.)

# CONDENSED STATEMENTS
OF INCOME

|                                             
|---------------------------------------------
|2003                                         
|REVENUES                                     
|Interest on loans                            
|Gain on termination of interest rate swaps   
|Equity in income of BMSBLC                   
|Equity in income of other subsidiaries       
|Other income                                 
|                                             
|Total Income                                 
|                                             
|EXPENSES                                     
|Interest expense                             
|Depreciation expense                         
|Other operating expenses                     
|Minority interest in earnings of subsidiaries
|                                             
|Total Expenses                               
|                                             
|Net Income                                   
|Preferred stock dividends                    
|                                             
|NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS 
|                                             

53

---

|                                                                                        
|----------------------------------------------------------------------------------------
|NOTE 23  The
Middleton Doll Company (Parent Company Only) Financial Information (cont.)

# CONDENSED STATEMENTS
OF CASH FLOWS

|                                             
|---------------------------------------------
|2003                                         
|CASH FLOWS FROM OPERATING ACTIVITIES         
|Net Income                                   
|Adjustments to reconcile net income available
|for common shareholders to net cash flows    
|from operating activities                    
|Depreciation                                 
|Equity in subsidiaries' earnings             
|Dividends from subsidiaries                  
|Net change in                                
|Interest receivable                          
|Other assets                                 
|Other liabilities                            
|                                             
|Net Cash Flows from Operating Activities     
|                                             
|CASH FLOWS FROM INVESTING ACTIVITIES         
|Net principal payments received (loans made) 
|                                             
|Net Cash Flows from Investing Activities     
|                                             
|CASH FLOWS FROM FINANCING ACTIVITIES         
|Net proceeds from (payments on) notes payable
|Preferred stock dividend paid                
|Common stock dividend paid                   
|                                             
|Net Cash Flows from 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 Registrant(Refer to footnote 23 of the financial
statements)

Schedule II Valuation and
Qualifying Accounts

Changes in the reserves deducted from
assets in the consolidated balance sheet other than accumulated depreciation for the years
ended December 31, 2003, December 31, 2002 and December 31, 2001 are as follows:

|                                           | Balance at
beginning
of period | Charged
to
expense | Deductions | Balance
at end
of period
|------------------------------------------ | ------------------------------ | ------------------ | ---------- | ------------------------
|Allowance for loan and lease losses:       |                                |                    |            |                         
|Year ended:                                |                                |                   
|December 31, 2003                          |                                |                    | $          | 150,000                 
|December 31, 2002                          |                                |                    | $          | 150,000                 
|December 31, 2001                          |                                |                    | $          | 150,000                 
|Allowance for doubtful accounts:           |                                |                   
|Year ended:                                |                                |                   
|December 31, 2003                          |                                |                    | $          | 332,386                 
|December 31, 2002                          |                                |                    | $          | 326,389                 
|December 31, 2001                          |                                |                    | $          | 120,639                 
|Allowance for obsolete inventory:          |                                |                   
|Year ended:                                |                                |                   
|December 31, 2003                          |                                |                    | $          | 96,757                  
|December 31, 2002                          |                                |                    | $          | 283,340                 
|December 31, 2001                          |                                |                    | $          | 189,811                 
|Deferred income taxes valuation allowance: |                                |                   
|Year ended:                                |                                |                   
|December 31, 2003                          |                                |                    | $          | --                      
|December 31, 2002                          |                                |                    | $          | 749,000                 
|December 31, 2001                          |                                |                    | $          | 752,334                 

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
12/31/2003 | Principal
amount
of loans
subject to
delinquent
Principal
or
Interest
|----------------- | ------------- | ------------------- | ---------------------- | ----------- | ------------------------ | --------------------------------------------- | ---------------------------------------------------------------------
|Commercial        |               |                     |                        |             |                          |                                               |                                                                      
|First Mortgage    | 3.38% to      | 1/1/04 to           | N/A                    | N/A         | N/A                      | 44,001,914                                    | 950,050                                                              
|                  | 9.00%         | 1/1/2015            |                        |             |                          |                                               |                                                                      
|Second Mortgage   | 4.50% to      | 1/1/04 to           | N/A                    | N/A         | N/A                      | 6,615,253                                     | 45,048                                                               
|                  | 8.25%         | 6/1/2007            |                        |             |                          |                                               |                                                                      
|Third Mortgage    | 4.0% to       | 1/1/04 to           | N/A                    | N/A         | N/A                      | 1,177,702                                    
|                  | 6.00%         | 10/1/2008           |                        |             |                          |                                               |                                                                      
|                  |               |                     |                        |             |                          |                                               |                                                                      
|Total Commercial  |               |                     |                        |             |                          | 51,794,869                                   
|All others    (2) | N/A           | N/A                 | N/A                    | N/A         | N/A                      | 491,057                                       | 206,052                                                              
|                  |               |                     |                        |             |                          |                                               |                                                                      
|Total loans       |               |                     |                        |             |                          | $52,285,926                                  
|                  |               |                     |                        |             |                          |                                               |                                                                      

(1)    
          Delinquent is defined as ninety days or more past due. (2)    This category
          includes all non-mortgage loans on the balance sheet.

|                             | For the Years Ended December 31,
|---------------------------- | --------------------------------
|
|Loans on balance sheet,      |                                 
|Beginning of period          |                                 
|Additions during the period  |                                 
|Loans made                   |                                 
|Loans purchased              |                                 
|Deductions during period     |                                 
|Principal collected on loans |                                 
|Principal charged off        |                                 
|                             |                                 
|Loans on balance sheet,      |                                 
|end of period                |                                 
|                             |                                 

56

---

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

None.

# Item 9a.    Controls and
Procedures

Based
on an evaluation performed by the Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the Companys disclosure controls and procedures, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2003.

Based
on an evaluation performed by the Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, there were no changes
in the Companys internal control over financial reporting identified in such
evaluation that occurred during the quarter ended December 31, 2003 that has materially
affected, or is likely to materially affect, the Companys internal control over
financial reporting.

# Part III

# Item 10.    Directors and
Executive Officers of the Registrant

The
information called for by Item 401 of Regulation S-K with respect to the directors of the
registrant and by Item 405 of Regulation S-K is incorporated herein by reference from the
registrant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, 2003
(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. In accordance with General Instructions
G(3) to Form 10-K, the information with respect to executive officers of the Company
required by Item 401 of Regulation S-K has been included in Part I hereof.

The
information concerning the audit committee financial expert and the identification of the
audit committee members required pursuant to Items 401(h) and 401(i) of Regulation S-K is
incorporated herein by reference from registrants Proxy Statement under the heading
The Board of Directors and Its Committees.

The
Company has adopted a 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 11.    Executive
Compensation

The
information called for by Item 11 is incorporated herein by reference from the
registrants 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 12.    Security
Ownership of Certain Beneficial Owners and Management Related Stockholder Matters

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

57

---

# Item 13.    Certain
Relationships and Related Transactions

The
information called for by Item 13 is incorporated herein by reference from the
registrants Proxy Statement under the heading Related Party
Transactions.

# Item 14.    Principal
Accountant Fees and Services

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

# Part IV

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

| | 1. | Exhibits
| | -- | --------

| | Reference
is made to the separate exhibit index contained on page 60 through 62 hereof.
| | ---------------------------------------------------------------------------------------

| | 2. | Financial
Statements and Financial Statement Schedules
| | -- | ------------------------------------------------------

| | Reference
is made to the separate index in Item 8 of this Annual Report on From 10-K with respect to
the financial statements and schedules filed herewith.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Reports
on Form 8-K
| | -- | -------------------

| | A
report on Form 8-K was filed on November 3, 2003, under Item 12, which reported the
Companys financial results for the quarterly period ended on September 30, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

58

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# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 29, 2004.

| | THE MIDDLETON DOLL COMPANY           
| | -------------------------------------
| | By: /s/ George R. Schonath           
| | George R. Schonath,                  
| | 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 registrant and in the capacities indicated on March
29, 2004.

|Signature                   | Title                                          
|--------------------------- | -----------------------------------------------
|/s/ George R. Schonath      | President and Chief Executive Officer, Director
|George R. Schonath          | (Principal Financial Officer)                  
|/s/ Susan J. Hauke          | Vice President Finance                         
|Susan J. Hauke              | (Principal Accounting Officer)                 
|/s/ Salvatore L. Bando      | Director                                       
|Salvatore L. Bando         
|/s/ Peter A. Fischer        | Director                                       
|Peter A. Fischer           
|/s/ David A. Geraldson, Sr. | Director                                       
|David A. Geraldson, Sr.    

59

---

# 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).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ----------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 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).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

60

---

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

|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).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 | Credit
Agreement dated April 30, 1998, between Bando McGlocklin Capital Corporation and Firstar
Bank Milwaukee, N.A., (incorporated by reference to Exhibit 4.5 to the Companys
Form 10-Q for the quarterly period ended June 30, 1998).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 | First
Amendment to Credit Agreement dated June 16, 1998, amends and supplements that certain
Credit Agreement dated April 30, 1998, between Bando McGlocklin Capital Corporation and
Firstar Bank Milwaukee, N.A., (incorporated by reference to Exhibit 4.6 to the Companys
Form 10-Q for the quarterly period ended June 30, 1998).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 | Second
Amendment to Credit Agreement dated April 30, 1999, amends and supplements that certain
Credit Agreement dated April 30, 1998, between Bando McGlocklin Capital Corporation and
Firstar Bank Milwaukee, N.A., (incorporated by reference to Exhibit 4.6 to the Companys
Form 10-Q for the quarterly period ended June 30, 1999).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.13 | Third
Amendment to Credit Agreement between Bando McGlocklin Capital Corporation and Firstar
Bank, dated April 28, 2000 (incorporated by reference to Exhibit 4.1 to the Companys
Form 10-Q for the quarterly period ended June 30, 2000).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.14 | Fourth
Amendment to Credit Agreement between Bando McGlocklin Capital Corporation and Firstar
Bank, dated June 30, 2000 (incorporated by reference to Exhibit 4.2 to the Companys
Form 10-Q for the quarterly period ended June 30, 2000).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.15 | Fifth
Amendment to Credit Agreement between The Middleton Doll Company (formerly Bando
McGlocklin Capital Corporation) and Firstar Bank, dated June 29, 2001 (incorporated by
reference to Exhibit 4.1 to the Companys Form 10-Q for the quarterly period ended
June 30, 2001).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.16 | Sixth
Amendment to Credit Agreement between The Middleton Doll Company and US Bank National
Association (formerly Firstar Bank), dated June 28, 2002 (incorporated by reference to
Exhibit 4.1 to the Companys Form 10-Q for the quarterly period ended June 30,
2002).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.17 | Seventh
Amendment to Credit Agreement between The Middleton Doll Company and US Bank National
Association, dated January 30, 2003 (incorporated by reference to Exhibit 4.16 to the
Companys Form 10-K for the year ended December 31, 2002).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.18 | Loan
Participation Certificate and Agreement dated May 1, 1997, by and between Bando
McGlocklin Small Business Lending Corporation and Security Bank SSB (incorporated by
reference to Exhibit 10 to the Companys Form 10-Q for the quarterly period ended
June 30, 1997).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.19 | 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).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.20 | 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).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

61

---

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

|4.21 | 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).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.22 | Trust
Indenture between Bando McGlocklin Small Business Lending Corporation and Firstar Bank,
National Association, as trustee, dated March 1, 2000 (incorporated by reference to
Exhibit 4.1 to the Companys Form 10-Q for the quarterly period ended March 31,
2000).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1* | Bando
McGlocklin  Capital  Corporation 1993 Incentive Stock Option Plan (incorporated by
                           reference to Exhibit (i)(6) to the Company's  Pre-Effective
 Amendment No. 1 to Form N-2                            Registration Statement,
Registration No. 33-66258).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2* | 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).
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3* | The
Middleton Doll Company 2004 Stock Option Plan (incorporated by reference to Appendix A to
the definitive Proxy Statement of The Middleton Doll Company dated April 4, 2003).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Amended
and Restated Management Services and Allocation of Expenses Agreement, dated May 9, 2001,
by and between InvestorsBank, The Middleton Doll Company and Bando McGlocklin Small
Business Lending Corporation (incorporated by reference to Exhibit 10.1 to the Companys
Form 10-Q for the quarterly period ended June 30, 2001).
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11 | Statement
Regarding Computation of Per Share Earnings
|-- | -----------------------------------------------------

|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.
|- | ---------------------------------------------------------

62