SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
               THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                   For the fiscal year ended December 31, 1999
                                       OR
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

               For the transition period from ________ to ________
                        Commission File Number: 0-24269

                             THE HAVANA GROUP, INC.
                             ----------------------
             (Exact name of Registrant as specified in its charter)

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<CAPTION>
<S>                                                                                     <C>
                Delaware                                                                34-1454529
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(State or other jurisdiction of                                                        (I.R.S. Employer
incorporation or organization                                                          (Identification No.)
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                                  5701 Mayfair
                              N. Canton, Ohio 44720
        ------------------------------------------------------ --------
               (Address of principal executive offices) (Zip Code)

                         Registrant's telephone number,
                      including area code: (330) 492-8090
                                 --------------

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

                                      None

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

     Common Stock, $.001 par value, Class A Common Stock Purchase Warrants

                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x . No ___.

     Indicate by check mark if there is no disclosure  of  delinquent  filers in
response to Item 405 of  Regulation  S-B is not  contained in this form,  and no
disclosure  will  be  contained,  to the  best  of  Registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in part III
of this Form 10-KSB or any amendment to this Form 10-KSB [ ].

     As of March 17, 2000 at 4:00 P.M., the aggregate market value of the voting
stock held by  non-affiliates,  approximately  1,239,000 shares of Common Stock,
$.001 par value,  was  approximately  $1,393,000 based on the last sale price of
$1.125 for one share of Common Stock on such date.  The number of shares  issued
and  outstanding  of the  Registrant's  Common  Stock,  as of March 17, 2000 was
2,345,000.
<PAGE>
Item 1.           Description of Business

GENERAL

         The  Havana  Group,  Inc.  ("Havana"  or the  "Company")  is a Delaware
corporation  engaged in the  business  of (i)  operating a retail  smokeshop  in
Canton,  Ohio which primarily sells make your own cigarette kits, pipes,  cigars
and smoking  accessories;  (ii) marketing make your own cigarette  kits,  pipes,
cigars,  tobaccos and related accessories directly to consumers through its full
color catalog (the "Carey Smokeshop Catalog");  and (iii) providing a program of
automatic  periodic  shipments of pipe tobacco directly to consumers (the "Carey
Tobacco   Club").   The  Company  has   developed  a  website   under  the  name
"Smokecheap.com" and it intends to market its products through this website.

         The  Company  has one wholly  owned  subsidiary  namely,  Monarch  Pipe
Company  ("Monarch").  Monarch  manufactures  smoking pipes that are exclusively
sold by the Company.  Monarch is located in Bristow  Oklahoma.  Monarch  employs
three people and has the  production  capacity of 20,000 smoking pipes per year.
The wood used to produce the smoking  pipes (i.e.  briarwood)  is purchased on a
semi-finished  basis and Monarch  completes  the assembly and finishes the final
product.  Products produced by Monarch are marketed as middle market pipes, with
retail prices  ranging from  approximately  $20 to $40 and with factory costs of
$8.00 to $12.00 per unit.

         The  Company's   predecessor,   E.A.  Carey  of  Ohio,  Inc.,  an  Ohio
corporation  ("Carey"),  formed the Company as a Delaware subsidiary on November
26,   1997  and  merged   Carey  into  the   Company  for  the  purpose  of  its
reincorporation  in Delaware,  which merger was  effective  December 5, 1997. In
connection with this  reincorporation,  the Company issued  1,000,000  shares of
Common Stock to Duncan Hill, Inc. and assumed all liabilities of Carey.

         The Company through Carey has been in business for over 40 years. Carey
was formed to sell the  patented  Carey "Magic  Inch"  smoking pipe  exclusively
through mail order during the 1960's and 1970's.  In 1984, Duncan Hill purchased
Carey.  Since then,  Carey (and now the  Company)  has  operated as a subsidiary
under Duncan Hill's control. Duncan, a publicly-held corporation,  is controlled
approximately 68% by William L. Miller,  the Company's Chief Executive  Officer,
and his wife, Jeanne E. Miller.  Unless otherwise  indicated,  all references in
this  Form  10-KSB  to  the  Company  include  the  Company,   Monarch  and  its
predecessor, Carey.

RECENT DEVELOPMENT

         The Company  has an  agreement  in  principle  to purchase  100% of the
outstanding   stock  of  Phillips  &  King   International,   Inc.   ("P&K")  in
consideration  of  $1,000,000  in cash,  $400,000  in  short-term  notes  and an
estimated  300,000  unregistered  shares  of the  Company's  Common  Stock  with
"piggy-back"  registration  rights.  The  number of  Shares  of Common  Stock is
subject to downward  adjustment in the event the Company's  Common Stock exceeds
$3.00  per Share but not more than  $4.00  per  Share.  The  number of Shares of
Common Stock is subject to upward  adjustment in the event the Company's  Common
Stock is less than $3.00 per Share,  but in no event shall the Company's  Common
Stock be less than $2.00 per Share.  Closing  of the  transaction  is subject to
many conditions including, without limitation, the following:

     o The outstanding debt of the reorganized P&K will not exceed $1.96 million
on a net basis.

     o P&K's  usable  inventory  will have a value of not less than $1.9 million
and accounts receivable will not be less than $950,000.

     o Havana must obtain reasonable assurance of current suppliers' willingness
to do business with the reorganized P&K under Havana's ownership.
<PAGE>
     o A final  Order must be entered  confirming  P&K's Plan of  Reorganization
pursuant to which Mr. & Mrs.  John Parker and/or Mr. & Mrs.  Jerold  Christensen
(collectively  the "Sellers") will acquire 100% of the capital stock of P&K as a
reorganized  entity out of Chapter 11  Bankruptcy  and will  resell the  capital
stock to Havana pursuant to the terms described herein.

     o Havana completing  adequate due diligence  satisfactory to Havana and its
auditors.

     o Havana will have arranged  acceptable  financing in order to complete the
transaction.

     o  John  Parker  and  Jerald  Christensen  shall  enter  into  satisfactory
employment agreements, which shall include provisions pertaining to an agreement
not to compete.

     o Havana's Common Stock shall not be less than $2.00 per Share at closing.

     o Havana will  covenant to comply with all SEC  informational  requirements
under Rule 144(c) in order to permit the  subsequent  sale by the sellers  under
Rule 144.

     o The preparation and execution of a definitive  purchase agreement between
the Sellers and Havana.

Description of P&K Business

     No  assurances  can be given that the company  will enter into a definitive
agreement to acquire P&K or if completed that the transaction would be completed
on terms as described herein.

     Phillips & King International,  Inc. was organized by Mr. Harry Phillips in
1906. The controlling  interests in P&K today are fourth generation  descendants
of the founder.

     P&K is a wholesale  distributor of tobacco  products.  Their business is to
sell to retail smoke shops, and P&K has approximately  3,000 such accounts.  The
method of sale is by direct contact, and P&K employs nine sales  representatives
in that regard.

     P&K's  sales  reached  a peak of  $26.7  million  in 1997,  reflecting  the
popularity of premium  cigars.  Following the decline in  consumption of premium
cigars, P&K's sales dropped 33% in 1998 and 22% in 1999. Sales in 1999 were also
adversely affected by P&K's Chapter 11 Bankruptcy, filed on a voluntary basis on
February 8, 1999.

     During the 1997-1998  peak in premium  cigars,  Cuba Libre  Humidors,  Inc.
("Cuba   Libre")   claimed  to  have  received  a  verbal   purchase  order  for
humidification  devices for continuous monthly sale to P&K. This did not happen,
Cuba Libre filed suit and was awarded a judgment of $1.8 million.  P&K responded
by filing for protection under Chapter 11 provisions of the bankruptcy code, and
began  defensive  actions.  The  purchase  of P&K  presented  herein  presumes a
negotiated  resolution  of the Cuba Libre claim,  and  corresponding  successful
reorganization  under Chapter 11 provisions.  In this instance,  Havana fulfills
the role of "White Knight".

     Until its Chapter 11 filing,  P&K operated as a  Subchapter S  Corporation.
While  Havana will analyze the owners'  benefits as a part of its due  diligence
process,  it has not done so at  present,  and has not  identified  those  costs
beneficial to the owners which would not carry  forward on a post  transactional
basis.  The Company  has,  however,  identified  "Salaries  - Owners",  which it
believes should be considered separately from the operation results of P&K.


<PAGE>
INDUSTRY TRENDS AND DEVELOPMENTS

     The market for non-cigarette smoking products is often characterized as the
market for premium  cigars.  Premium cigars are the largest segment of sales for
traditional  smokeshops,   and  the  trends  for  premium  cigars,  measured  by
importation of premium cigars by the Cigar Association of America, have declined
27.9% since 1997.  While the  importation for premium cigars has declined 27.9 %
since  1997,  the number of units  imported in 1999 was 3.2 times  greater  than
1993. However, there can be no assurance that the market for premium cigars will
not continue the declining trends of the past two years.

Consolidations and Mergers

     In January 1999, France's SEITA S.A. acquired  Consolidated Cigar Holdings,
Inc. for $730 million in cash and debt. In May of 1999 Swedish Match AB acquired
certain assets of General Cigar  Holdings,  Inc.,  and in September  acquired El
Credito Cigars,  Inc., maker of Gloria Cubana,  El Rico Habano and other brands.
In the fourth  quarter of 1999 Spain's  Tabacalara S.A and France's SEITA merged
in a $3.3 billion  transaction  that formed the world's  largest cigar  company,
Altadis.  In the fourth  quarter of  2000,Swedish  Match AB  acquired a majority
interest in General Cigar  Holdings Inc. for $270  million,  a transaction  that
values General Cigar at $420 million.

     The Company  believes  that the large  consolidations  in the premium cigar
business will be accompanied by a proportionate amount of cost-cutting, and that
sales forces will be  consolidated,  producing an opportunity  for growth in the
distribution  business to smokeshops.  The Company intends to position itself to
take advantage of this trend.

Existing Methods of Distribution

Retail Smokeshops

     In August 1999 Smokeshop Magazine issued their 1998 annual survey of retail
smokeshops.  The magazine  reported  that the average  smokeshop had $400,000 in
retail sales for the year 1998,  and the  approximate  sales by category were as
follows: Premium Cigars 39.7%; Smoking Pipes and Tobaccos 11.9%; Smoking Related
Accessories  13.1%;  Other Products 35%.  Smokeshop further reported that 95% of
all smokeshops were owner-operator  managed, and 75% consisted of single stores.
The Company,  from its industry sources,  estimates that there are approximately
2,500 retail smokeshops in the United States.

Tobacco Outlet Stores

     The Company has  identified  Tobacco  Outlet Stores  ("TOS") as a potential
sales outlet for certain of its  products.  Tobacco  Outlet Stores are typically
800 square feet and  specialize  in selling  branded  cigarettes  at  discounts,
frequently  at state  minimums.  While  published  data  regarding the stores is
limited,  the Company believes that over 10,000 such stores were in operation at
December 31, 1999.

     The Company has had limited  discussions  with TOS  operators who desire to
add other smoking  related  products which have higher gross profit margins than
branded cigarettes.  The Company believes that their branded smoking pipes, pipe
tobaccos, and make-your-own cigarettes are potential TOS product in additions.

Direct To Consumers

     The non-cigarette tobacco business has a limited number of companies,  that
offer their products direct to consumers.  The Company believes that the largest
of these is 800 JR Cigar,  which sells  cigarettes  at retail,  along with other
tobacco  and  related  products  at retail and by mail  order.  Other  companies
include Thompson Cigar Company and Finck Cigar Company.

     The Company has historically offered its products to consumers only through
its Carey's Smokeshop  Catalog,  exclusively by mail order. The Company believes
that Carey's  Smokeshop  catalog  provides a good initial revenue base, and that
the  catalog  can be used for both  retail  and  wholesale  sales.  The  Company
believes  that it can maintain its customer  base of direct sales to  consumers,
but  significant  expansion  of the  customer  base  by  direct  advertising  to
consumers is expensive  and  inefficient.  In 1999 the Company  established  the
Carey  "Tobacco  Lover's  Club" which offers  discounted  prices to consumers in
return for an annual  membership fee,  currently $20 per year. The intent of the
Company is to establish both wholesale and retail prices in its catalog, so that
the catalog can be mailed to both retailers and consumers.


<PAGE>
Internet e-commerce Sites

         Beginning with the increasing popularity of premium cigars in 1997-1998
and  coincidental  with the  development of the capability of the Internet,  the
Company believes that numerous  Internet sites have been offering premium cigars
and other smoking related products. The Company has no data regarding the number
of such sites or the amount of sales generated by this medium.  The Company does
believe that an Internet  e-commerce  site can be highly  effective when used in
conjunction  with other  methods of  distribution  namely,  business-to-business
wholesale distribution.

         During 1999, the Company has undertaken the development of two Internet
web   sites,   www.havanagroup.com   and   www.smokecheap.com.   The   Company's
www.smokecheap.com  became  operational  in  September  1999 as a part of Yahoo!
Shopping.  The Company's other Internet site,  www.havanagroup.com  has not been
completed.  The Company estimates that  www.havanagroup.com is approximately 60%
complete, and can be modified to accommodate both wholesale and retail business.
At December 31, 1999 the Company had invested over $110,000 in Internet web site
development.

         The Company  believes  that it can develop its business in  e-commerce,
and  convert  its  Internet  site  developments  to both  wholesale  and  retail
activity. The Company desires to use the wholesale business-to-business activity
("B2B") to serve both smokeshops and suppliers,  so that the movement of product
from the  manufacturing  level to the  consumer  would be  conducted in the most
efficient manner.

STRATEGIES

         The company has been in the business of manufacturing  and developing a
balanced line of  non-cigarette  smoking products for over 20 years. The Company
has sold  these  products  through  its "Cary  Smokeshop  Catalog"  directly  to
consumers who use smoking pipes, tobaccos, cigars, and accessories.  The Company
believes  that it can  capitalize  on its  experience  in quote its business and
wholesale distribution by use of the following strategies:

     o  Expand  its  business  in  wholesale  distribution  by  acquisition  and
proprietary brand development.

     o Expand its brand ownership through product development and acquisition.

     o   Convert   its   Internet   site  to   accommodate   both   retail   and
business-to-business  activity;  add PCs, which are Internet  based, to customer
(smokeshop) sites for their use in placing orders with the Company.

     o Develop wholesale supplier relationships, which are Internet based.

     o Maintain  Carey's  Smokeshop  Catalog,  by  converting  it for us in both
retail and wholesale sales environments.

     o Discontinue or sell the Company's "Havana Group Smokeshop" retail store.

     o Develop its brand of make-your-own  cigarettes for sale through catalogs,
retail smokeshops, and Tobacco Outlet Stores.

Expand its business in wholesale  distribution  by acquisition  and  proprietary
brand development.

     The Company  currently owns certain brands namely,  E.A.Carey  "Magic Inch"
smoking pipes, Duncan Hill "AEROSPHERE" smoking pipes,  "Carey's Private Reserve
Blends" of smoking tobaccos,  and "Carey's Handmade Honduran Cigars",  which the
Company  historically  offered only by mail order for exclusivity and to provide
the  "not  available  in  stores"  claim.  The  Company  believes  that  it  has
established  brand equity in these product areas,  and that it can leverage this
brand equity through wholesale distribution.


<PAGE>
     The Company  also  believes  that it can expand its  wholesale  business by
adding suppliers that have been affected by recent  consolidations  and mergers.
The Company believes that certain non-cigar products and suppliers  displaced by
consolidations are in search of distribution channels to smokeshops.

Expand its brand ownership through product development and acquisition.

         During the third and fourth  quarters of 1999 the  Company  began brand
development  of a proprietary  line of  Make-Your-Own  cigarettes  ("MYO").  The
Company has applied for a federal trademark,  has received a federal license for
the  possible  future  importation  of  tobaccos,  and  expects  the  commercial
introduction  of the product  during the second quarter of 2000. At December 31,
1999 the Company had invested over $50,000 in the  development of this brand and
its related products.

Convert its Internet site to  accommodate  both retail and  business-to-business
activity;  add PCs that are  Internet  based to customer  (smokeshop)  sites for
their use in placing orders with the Company.

         During 1999, the Company has undertaken the development of two Internet
web   sites,   www.havanagroup.com   and   www.smokecheap.com.   The   Company's
www.smokecheap.com  became  operational  in  September  1999 as a part of Yahoo!
Shopping.  The Company's other Internet site,  www.havanagroup.com  has not been
completed.  The Company estimates that  www.havanagroup.com is approximately 60%
complete, and can be modified to accommodate both wholesale and retail business.
At December 31, 1999 the Company had invested over $110,000 in Internet web site
development.

         At present PC vendors are  offering  computers  as a premium for buying
the  Internet  service  offered,  and the Company  desires to make PC  computers
available to selected  smokeshops.  While the Company has no specific  basis for
determining  the  feasibility  of this program at the present  time, it believes
that PC computers installed in selective smokeshops with Internet connections to
the  Company can  provide a cost  effective  means of  expanding  the  Company's
wholesale  business.  However,  the  Company  anticipates  that  its  plans  for
acquisition of the wholesale business of Phillips & King International, Inc. are
necessary to provide the basis for expansion into this method of distribution.

Develop wholesale supplier relationships that are Internet based.

         The Company  believes that an Internet based  distribution  system,  if
incorporated,  must  also  link  suppliers  to  the  Company  to be  of  maximum
effectiveness.  If adopted,  the Company's goal would be to link any supplier to
the Company from any location in the world, so that the supplier can be informed
of inventory  levels and sales of his products at any time on a real-time basis.
However,  there can be no  assurance  that  this  will  occur due to a number of
factors  including,  but  not  limited  to,  the  Company's  acquisition  of the
wholesale business of Phillips & King International, Inc

Maintain Carey's Smokeshop Catalog by converting the catalog to be used for both
retail and wholesale sales.

         The Company  believes that Carey's  Smokeshop  catalog  provides a good
initial  revenue  base,  and that the  catalog  can be used for both  retail and
wholesale  sales. The Company believes that it can maintain its customer base of
direct sales to consumers.  In 1999 the Company  established  the Carey "Tobacco
Lover's  Club" which  offers  discounted  prices to  consumers  in return for an
annual  membership fee,  currently $20 per year. The intent of the Company is to
establish both  wholesale and retail prices in its catalog,  so that the catalog
can be mailed both to retailers and consumers.


<PAGE>
Discontinue or sell the Company's "Havana Group Smokeshop" retail store.

         Company had operated a smokeshop named "Carey's Smokeshop" from 1984 to
1996 to maintain a retail presence, which can provide the Company with a factory
outlet for its  overstock  products,  which have not been sold through the Carey
Smokeshop Catalog or the Carey Tobacco Club. In October 1996, the Company closed
its retail  store,  leased an  off-mall  retail  location  in Canton  Ohio,  and
reopened as "The Havana Group" ("hereinafter  referred to as the "Smokeshop") on
December  8,1997.  The  Smokeshop  sells make your own  cigarette  kits,  pipes,
cigars,  smoking  accessories,  and fine wines.  The Company  believes  that its
experience in the retail smokeshop business has provided valuable  experience to
enable the Company to be a provider of products and services to other smokeshops
on a wholesale  basis. At present the Company  believes that owning retail store
is not  consistent  with its  current  strategies,  and  intends to explore  the
possibility of sale of its retail store.

Develop its brand of make-your-own cigarettes for sale through catalogs,  retail
smokeshops, and Tobacco Outlet Stores.

         In July 1999 the Company  introduced  Make-Your-Own  cigarettes  in its
Carey's  Smokeshop  Catalog.  The  Company  offered  three  types  of  cigarette
machines, paper tubes with and without filters, and three varieties of cigarette
tobacco.  The  Company  devoted   approximately  9%  of  its  catalog  space  to
Make-Your-Own  cigarettes,  and market tested the direct sell advertising in the
third and fourth  quarters of 1999.  The  products  were sold under a variety of
supplier  brand  names.  Based upon its success in its 1999  efforts,  it is the
Company's  intent to develop its own line of  Make-Your-Own  cigarettes for sale
through catalogs, smokeshops, and Tobacco Outlet stores.

MERCHANDISING AND PRODUCT DEVELOPMENT

         The  Company  designs  all of its Carey  "Magic  Inch" and Duncan  Hill
"Aerosphere"  smoking  pipes and produces  them at its Monarch Pipe  facility in
Oklahoma.  The  current  Carey  catalog  contains 18 design  groups  marketed as
various series,  such as "The Executive  Collection" or "Carey Classic  Series."
Additionally,  the Company offers other hand made imported  smoking pipes in its
catalog,  generally  at retail  prices from $19.95 to $79.95  each.  The Company
sources  these   products  from   international   suppliers  and  from  domestic
distributors of imported pipes.

         The Company  merchandises  tobaccos and cigars from  domestic  sources,
which either  import their  products or  manufacture  them  domestically.  Carey
offers 28 tobacco blends in its current catalog,  along with 23 different brands
and sizes of cigars.  Because of the composition of the catalog's customer base,
cigar sales are generally  mid-range in the cigar market,  with the most popular
cigar the Carey  Honduran  bundle,  which retails from $1.15 to $1.60 per cigar.
Because of the upscale target market of the retail store, cigar sales range from
$2.50 to $7.50 per cigar, with an average price of $5.00 per cigar.

         In July 1999 the Company  introduced  Make-Your-Own  cigarettes  in its
Carey's  Smokeshop  Catalog.  The  Company  offered  three  types  of  cigarette
machines, paper tubes with and without filters, and three varieties of cigarette
tobacco.  The  Company  devoted   approximately  9%  of  its  catalog  space  to
Make-Your-Own  cigarettes,  and tested the direct sell  advertising in the third
and fourth  quarters of 1999. The products were sold under a variety of supplier
brand  names,  and  supplier  relationships  were  developed  for the  supply of
cigarette tobacco, paper cigarette tubes, and related cigarette making machines.
The merchandising efforts in this area included supply of existing products, and
provided for the future supply of products on a private label basis.


<PAGE>
MARKETING

         Currently,  the Company  markets  its  products  directly to  consumers
through its "Carey's Smokeshop"  catalog,  and through its "Carey Tobacco Club."
For the year ended  December 31,  1999,  Carey mailed  293,534  catalogs,  which
generated  average  gross  revenues  of $4.33 per  catalog  mailed.  The catalog
consists  of 56  full  color  pages,  with  approximately  60%  offering  pipes,
tobaccos,  and related accessories,  approximately 20% offering cigars and cigar
related accessories,  9% offering  make-Your-Own  cigarettes,  and the remaining
balance of the catalog offering various men's products.

         Carey Tobacco Club, in operation  since 1975, is a program of automatic
periodic  shipments of tobacco  directly to consumers.  Members are solicited in
the  catalog,  and in return for their  membership  agreement  they are  offered
products at a discounted  price.  The member selects the blend,  the quantity of
tobacco per shipment and the  frequency of the  shipments.  Billing is by credit
card or a Carey open account.  Carey Tobacco Club relies upon brand loyalty, and
the Company  estimates  that 80% of the Club members have been members in excess
of five years. At December 31, 1999, Carey Tobacco Club had 1,768 active members
who placed 12,469 orders during the year ended  December 31, 1999, and generated
$264,593 in gross sales in 1999 for the Company.

         During  the  third  and  fourth  quarters  of 1999  the  Company  began
marketing Make-Your-Own Cigarettes, using a variety of supplier brand names. The
Company's  marketing  strategy was to devote  approximately 9% of its catalog to
this product area, and test direct sales to consumers through Weekly World News,
The National  Enquirer,  USA Today,  and various  Sunday  newspapers.  While the
direct  marketing  success of  unsolicited  reorders  from this program is still
being analyzed,  the Company estimates that approximately 23% of its gross sales
in the third and fourth quarters of 1999 were derived from this product area.

         The Company has operated a retail outlet,  "Carey's  Smokeshop,"  since
1984. In October 1996,  the Company  closed the outlet,  redesigned the planning
and marketing  strategies,  and reopened the  Smokeshop in Canton,  Ohio, as The
"Havana  Group" during  December  1997.  The retail outlet offers product groups
proven  historically  in the  smokeshop  industry,  and has added other  product
lines,  such as make  your  own  cigarette  kits  and fine  wines.  The  Company
considers  that the "Havana  Group"  retail store has served the Company well in
providing the Company with valuable  retail  experience.  The Company intends to
sell or license the business to others.

CUSTOMER SERVICE AND TELEMARKETING

         During  1999,  the Company  derived  approximately  67% of its non-club
revenues through orders placed over the telephone, emphasizing superior customer
service.  The Company's  payment  terms have been major credit cards,  checks or
open account. The Company's return policy is unconditional, and provides that if
a customer is not satisfied  with his or her purchase for any reason,  it may be
returned  within 30 days for a full refund or exchange.  If a shipping error has
occurred  the  Company  will issue call tags to pick up  merchandise  shipped in
error  and  will  send a  corrected  shipment.  The  Company's  return  rate  is
approximately 4% of sales. The Company purchases telemarketing services from its
affiliate,  Kids  Stuff,  Inc.  ("Kids  Stuff"),  a  publicly  held  corporation
controlled  by Duncan  Hill.  During the past  three  fiscal  years,  Kids Stuff
processed over 57,000 telephonic  customer orders,  catalog requests and service
requirements on behalf of the Company.

FULFILLMENT AND DELIVERY

         The  Company's   fulfillment  and  delivery  objective  is  to  provide
excellent  customer service within a low cost structure.  The Company  purchased
its fulfillment operations from its affiliate, Kids Stuff. Kids Stuff's facility
consists of 39,000 square feet of owned  facilities in North Canton,  Ohio.  The
facility is designed to process  incoming  shipments  on a  palletized  or boxed
basis, and to process  outgoing  shipments on an  individualized  cost effective
basis.  Orders shipped were individually  recorded and posted through the use of
barcode   scanners,   so  that  sales  records  and  credit  card  deposits  are
electronically  posted.  Kids Stuff's  fulfillment center processed over 100,000
Havana Group shipments in the past three fiscal years.


<PAGE>
         In November 1999 the Company  leased an operations  facility  effective
January 1, 2000.  The  facility  consists  of 6,000  square  feet of offices and
11,000  square feet of warehouse  space.  The Company will pay $96,000 per annum
for this facility,  less any sub-lease  income that the Company may realize from
unused  office space.  The Company  moved into this facility in March,  2000. At
that time the Company  assumed direct  responsibility  for its  fulfillment  and
delivery functions, and incurring direct costs for these functions.

INVENTORY/PURCHASING

         The Company  conducts its purchasing  operations at its general offices
in  Canton,   Ohio.  Each  catalog  contains   approximately   436  products  or
stock-keeping units (SKU's).  Each product is reviewed weekly through the use of
computerized  reports  that provide  detailed  information  regarding  inventory
value,  unit sales,  and  purchasing  delivery  times.  Products  are ordered as
required for the Company's inventory.

PRODUCT SOURCING

         The Company acquires  products for resale in its catalogs from numerous
domestic  and  international  vendors.  All "Carey" and "Duncan  Hill" pipes are
manufactured by the Company's wholly-owned subsidiary, Monarch. Monarch supplies
approximately  11% of the Company's catalog  products.  Other than Monarch,  the
Company  currently  has three  vendors  that supply more than 10% of its catalog
products.  These companies  include Havatampa Inc. (21%), Lane Limited (14%) and
CTC Industries  (10%). Any disruption of service from any of these companies may
have an adverse effect on the Company's  future sales.  Although these suppliers
provide a substantial  portion of the  Company's  catalog  product,  the Company
believes that, with the exception of products made by Monarch, most products can
be sourced from alternative suppliers. The Company acquires products for sale in
the retail store from numerous domestic vendors.

SEASONALITY

         The  Company's  revenues  are not  significantly  impacted  by seasonal
fluctuations,  as compared  to many other  retail and  catalog  operations.  The
Smokeshop  customer is believed to be  generally  the end user of the product so
purchases are spread throughout the year, rather than being concentrated between
October and December, as are traditional gift purchases.

         The  Company's  experience  with the  Smokeshop has been limited to one
season and has not afforded the Company the opportunity to determine seasonality
fluctuations for that segment of its business.  However, the Company estimates a
slight  increase in fourth  quarter sales due to  traditional  gift  purchasing.
Otherwise, the Company estimates a steady revenue flow from month to month.

DATA PROCESSING

         At the  present  time the  Company  relies  upon  Kids  Stuff  for data
processing  services  to process  its orders and  shipments.  Additionally,  the
Company has invested  approximately $52,000 in data processing equipment to link
to the Kids Stuff system to provide e-mail,  networking, and high-speed Internet
access. The Company is allocated its portion of data processing costs.

AGREEMENT WITH KIDS STUFF

         Prior to January 1, 1997, all fulfillment and  administrative  services
of the Company  were  performed  and paid for by Duncan  Hill who also  provided
similar services to its subsidiary,  Kids Stuff.  Fulfillment  services included
order  taking,  order  processing,   customer  service,  warehouse  packing  and
delivery, telephone contracts and shipping contracts.  Fulfillment services were
charged to the Company and Kids Stuff based on the actual  cost.  Administrative
services  included  wages and  salaries  of  officers,  accounting,  purchasing,
executive  and  creative/marketing  personnel.  It also  included,  all  leases,
contracts,  equipment  rentals and purchases,  audit,  legal,  data  processing,
insurance  and building  rent and  maintenance.  The  administrative  costs were
allocated by Duncan Hill to the Company and Kids Stuff based upon the percentage
of assets for each  operating  subsidiary  to the total assets for all operating
subsidiaries.  The  percentages for 1996 were 31% to the Company and 69% to Kids
Stuff.


<PAGE>
         During 1997, all administrative and fulfillment services were performed
or paid by Kids Stuff on behalf of the Company.  All  fulfillment  services were
contracted and paid by Kids Stuff and charged to the Company based on the actual
cost. All administrative costs were allocated between the Company and Kids Stuff
based upon the percentage of assets for each respective operating company to the
total assets for both  operating  companies  with 33% charged to the Company for
the period  January 1, 1997 through June 30, 1997 and 21% charged to the Company
for the period July 1, 1997  through  December 31,  1997.  Duncan Hill  incurred
certain  other  costs  that  included  legal  and  outside   accounting/auditing
expenses.  These costs were allocated to the Company and Kids Stuff based on the
same method and percentages as described above.

         Effective  January  1,  1998,  the  Company  entered  into  a  one-year
agreement with Kids Stuff whereby Kids Stuff provides  administrative  functions
to the Company at an annual cost of $206,100 based upon the  following:  $34,000
for  accounting  and  payroll  services,  $51,600 for  administration  and human
resource management,  $34,900 for data processing,  $32,200 for office equipment
and facilities use, $38,100 for merchandising and marketing services and $15,300
for purchasing  services.  Kids Stuff is also providing  fulfillment services to
the Company at a cost of $2.40 per order  processed.  The Company has calculated
these fees based on actual 1997 costs, and it is Management's  belief that these
fees would represent actual costs should the Company  undertake to provide these
services  itself.  The  Company was also  obligated  to pay Kids Stuff an amount
equal to 5% of the Company's 1998 pre-tax profits,  of which there were none, as
additional   consideration   for  Kids  Stuff   providing   the   Company   with
administrative  and fulfillment  services.  At January 1, 1999 the agreement was
modified and extended on a  month-to-month  basis as the Company  began to incur
direct costs for its administrative functions. The Company paid to Kids Stuff an
accounting,  data processing, and administrative charge of $15,000 per year plus
$1.75 per shipment for warehouse services.  The Company is also obligated to pay
5% of its 1999 pretax profits to Kids Stuff in connection  with these  services,
however the Company had no pre-tax  profits for 1999. This agreement is still in
effect,  but as of this printing the Company has started providing some of these
services themselves.

COMPETITION

         The Company has  identified  four  companies  that are involved in mail
order as a primary  method of sales and  distribution,  and  believes  that this
constitutes  the  Company's  primary  current mail order  competition.  The four
identified  competitors,  which  include 800 JR Cigar,  Thompson's  Cigar,  Fred
Stoker & Sons,  Inc.,  and Fink are all mail  order  cigar  businesses  that are
substantially  larger than the Smokeshop.  Management  believes that the largest
competitor in the mail order cigar business is 800-JR Cigar.  Competition in all
aspects of the Company's  business is intense.  No assurances  can be given that
the Company will be able to successfully  compete in all aspects of its business
in the future.

REGULATORY MATTERS

         The Company's  business,  and the catalog industry in general,  is also
subject to  regulation by a variety of state and federal laws relating to, among
other things,  advertising and sales taxes. The wine is regulated in Ohio by the
Ohio Department of Liquor Control,  which requires the Company to be licensed in
order  to sell  such  products.  The  Federal  Trade  Commission  regulates  the
Company's  advertising  and trade  practices  and the  Consumer  Product  Safety
Commission has issued regulations governing the safety of the products which the
Company  sells  in its  catalogs.  Under  current  law,  catalog  retailers  are
permitted  to make sales in states  where  they do not have a physical  presence
without collecting sales tax. The Company has no claims or regulatory matters in
process or pending as of March 17, 2000.

         The tobacco  industry is subject to  regulation in the United States at
the federal,  state and local levels,  and the recent trend is toward increasing
regulation.  Although hearings have been held on certain of these proposals,  to
date, none of such proposals have been passed by Congress.


<PAGE>
         Beyond  Congressional   action,   federal  regulators  have  also  been
examining  whether the cigar industry  merits  tougher rules,  as well. In early
1998, the Federal Trade  Commission  ordered cigar  manufacturers  to report how
they market cigars, how much they spend on advertising,  and who is buying their
products.  The Federal Trade  Commission is considering  regulations  that would
require manufacturers to affix warning statements to cigar packaging in the year
2000.

TOBACCO INDUSTRY LITIGATION.

         The tobacco  industry has experienced  and is experiencing  significant
health-related  litigation.  Private  plaintiffs in such  litigation are seeking
compensatory and, in some cases punitive, damages for injuries claimed to result
from the use of tobacco products or exposure to tobacco smoke, and some of these
actions  have  named  cigarette   distributors  as  well  as   manufacturers  as
defendants.

         While the Master  Settlement  Agreement  (MSA) has not been codified by
federal  law, 46 states have  adopted,  or are likely to adopt  during year 2000
legislative  terms,  "model laws" which were defined in the  agreement  with the
states.  These model laws provide,  in part,  for bans on outdoor  billboard and
transit advertising of tobacco products,  significant document disclosure by the
settling  tobacco  companies,  bans on sports  advertising  and product logos on
non-tobacco products.

         Under the model laws adopted by most states,  tobacco  companies  which
are not  signatories to the MSA are required to place funds  equivalent to their
respective market share assessments of the total settlement payments into escrow
funds on a state-by-state  basis over a period of 25 years.  Roll-your-own (RYO)
cigarette  tobaccos are considered to be the equivalent of cigarettes  under the
model laws and  manufacturers  may be  compelled  to either sign the MSA or make
equivalent escrow payments into state funds.

         Sales of these tobaccos and accessories used by consumers to make their
own cigarettes have become an important source of revenues for the Company since
June 1999. While the Company is not a manufacturer of RYO tobaccos,  there is no
guarantee that it will not become liable, directly or indirectly, for settlement
payments in the states  where the Company may have nexus  (property or personnel
located within the states). There can be no assurances that the Company will not
be drawn into future  litigation by individuals or classes  regarding  claims of
injury allegedly resulting from tobacco use or exposure to tobacco smoke.

         The potential  costs to the Company of defending  prolonged  litigation
and any settlement or successful  prosecution of any  health-related  litigation
could have a  material  adverse  effect on the  Company's  business,  results of
operations  and  financial  condition.  The recent  increase in the sales of RYO
tobaccos,  as  well  as the  continued  popularity  of  cigar  smoking,  and the
publicity of such increases may increase the probability of legal claims.

POTENTIAL PRODUCT LIABILITY.

         There is a  possibility  that someone  could claim  personal  injury or
property damage  resulting from the use of products  purchased from the Company.
As a seller of tobacco products,  the Company is exposed to potential liability.
Since  1990,  Duncan  Hill  has  maintained,  for  itself  and its  subsidiaries
(including the Company),  product liability insurance.  Currently, the amount of
coverage  is $1 million  per  occurrence  and $2 million in the  aggregate.  The
policies  are for a period  of two  years and are  currently  in effect  through
September 17, 2002.

 EMPLOYEES

         As of  January  1,  2000,  the  Company  has  four  full-time  salaried
management  employees,  five  salaried  non-management  employees,  seven hourly
full-time employees, and one hourly part-time employee; this includes its retail
store and, Monarch pipe manufacturing facility.


<PAGE>
Item 2.           Properties.

         At December 31, 1999, the Company's  principal  offices were located in
North Canton,  Ohio,  and were shared with the Company's  parent and Kids Stuff.
The  facility  consists of 38,600  square feet of offices and  warehouse  and is
owned by Kids Stuff.  The Company  utilizes  approximately  5,000 square feet of
warehouse and 1,000 of office space in this building. The Company currently pays
$32,200 per annum to Kids Stuff for the use of the aforementioned facilities and
for use of certain equipment.

         In November 1999 the Company  leased an operations  facility  effective
January 1, 2000.  The  facility  consists  of 6,000  square  feet of offices and
11,000  square feet of warehouse  space.  The Company pays $96,000 per annum for
this  facility,  less any  sub-lease  income that the  Company may realize  from
unused office space. The Company moved into this facility in March, 2000.

         The facility is located  approximately  three miles from the Kids Stuff
facility, and this proximity will enable the Company to connect to Kids Stuff by
high-speed  telephone line connections.  The Company anticipates that it will be
able to utilize the computer  systems,  telephone system hardware,  and Internet
connections at Kids Stuff.


<PAGE>
Item 3.           Legal Proceedings

         In the normal  course of  business,  the  Company  may be  involved  in
various legal proceedings from time to time. Presently,  however, the Company is
not a party to any litigation, whether routine or incidental to its business, or
otherwise.

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

                  Not applicable.
                                     PART II

Item 5.           Market for Common Equity and Related Stockholder Matters.

         In May 1998,  the Company sold 460,000  Units to the public;  each Unit
consisted  of one share of Common  Stock,  $.001 par value,  and two  Redeemable
Class A Common Stock Purchase Warrants. Each Class A Warrant entitles the holder
to purchase one share of Common Stock at a price of $5.25 and is  exercisable at
any time until the close of business on May 14, 2003. The Common Stock and Class
A  Warrants  are quoted on the OTC  Electronic  Bulletin  Board of the  National
Association of Securities  Dealers,  Inc.  ("NASD") under the symbols "HVGP" and
"HVGPW",  respectively.  As of February 25, 2000 at 4:00 P.M.  Eastern  Standard
Time,  the last sale  price of the  Common  Stock and  Class A  Warrants  in the
over-the-counter market were $1.25 and $0.312, respectively. The following table
reflects the high and low sales prices for the Company's  Common Stock and Class
A Warrants for the periods indicated as reported by the NASD.
<TABLE>
<CAPTION>

                                  Common Stock

         Fiscal Year Ended December 31, 1999                                             HIGH                    LOW
         -----------------------------------                                             ----                    ---
<S>                                                                                     <C>                    <C>
             First Quarter                                                              $5.25                  $1.50
             Second Quarter                                                              5.50                   1.63
             Third Quarter                                                               4.00                   2.00
             Fourth Quarter                                                              3.75                   0.19

         Fiscal Year Ended December 31, 1998                                            HIGH                     LOW
         -----------------------------------                                            ----                     ---
             May 15 - June 30                                                         $12.50                  $5.750
             Third Quarter                                                              7.50                   3.125
             Fourth Quarter                                                            5.125                   3.375


                                Class A Warrants

        Fiscal Year Ended December 31, 1999                                              HIGH                    LOW
        -----------------------------------                                              ----                    ---
            First Quarter                                                               $1.88                  $0.08
            Second Quarter                                                               1.75                   1.00
            Third Quarter                                                                1.13                   0.30
            Fourth Quarter                                                               0.81                   0.03


         Fiscal Year Ended December 31, 1998                                             HIGH                    LOW
         -----------------------------------                                             ----                    ---
             May 15 - June 30                                                          $2.125                  $0.75
             Third Quarter                                                              2.625                   0.50
             Fourth Quarter                                                             2.125                   0.25
</TABLE>
<PAGE>
         The quotations in the tables above reflect  inter-dealer prices without
retail markups, markdowns or commissions.

          The Company had approximately 6 record holders as of March 17, 2000 as
reported by its transfer agent (Harris Trust Company of New York). The foregoing
does not include beneficial holders of the Company's Common Stock which are held
in "street name" (i.e. nominee accounts such as Depository Trust Company).

Item 6.            Managements Discussion and Analysis or Plan of Operation.

          This discussion  should be read in conjunction with the information in
the financial statements of the Company and notes thereto appearing elsewhere in
this Form 10-KSB.

          The Company is a consumer  catalog  business  specializing  in smoking
pipes,  tobaccos,  cigars and related accessories.  The Company manufactures and
distributes  the "Magic Inch" and  "Aerosphere"  smoking pipe  systems,  and the
"Carey Honduran" lines of proprietary hand made cigars.  The Company's  products
are presently offered through the "Carey's Smokeshop" catalog. The Carey Tobacco
Club is also offered through the catalog,  which is a monthly program of tobacco
shipments to Club members.  During  December 1997 the Company  opened The Havana
Group retail store.


<PAGE>
RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.

     Total net sales for the year ended  December 31, 1999 were  $1,551,624,  an
increase of 14.6% from 1998 sales of  $1,354,164.  Net sales  include sales from
merchandise, shipping and handling charges and mailing list rental. Tobacco Club
sales  decreased  slightly  by  $6,481,  a decline  of 2.4%  from 1998  sales of
$271,052.  This decline was in addition to revenue decrease of the retail store,
which  decreased  slightly to $115,484 in 1999  compared  with $122,480 in 1998.
Sales of the "Carey Smokeshop"  catalog segment increased 15.6% to $1,171,569 in
1999, compared to $1,013,336 in 1998.

     Cost of sales as a percentage of net sales remained  unchanged at 66.5% for
both 1998 and 1999. Merchandise costs increased slightly from 42.6% of net sales
in 1998 to 43.0% of net sales in 1999. The Company  attributes  this increase to
product tests and promotions of premium cigars, especially in the fourth quarter
of 1999.  Premium cigars typically carry lower gross margins and higher costs of
sales than the Company's proprietary pipes and tobaccos.

     Selling  expenses,  as a percentage of net sales,  decreased from 32.1% for
1998 to 29.9% for 1999. This reflects  slightly lower catalog  advertising costs
from  20.0% of sales  in 1998 to  18.6%  of  sales in 1999,  and also  decreased
marketing expense due to retail store operations. The expense of sales personnel
in the retail store is reflected in the Company's selling expenses.  General and
administrative  expenses  during  1999  were  $412,931,  or 26.6% of net  sales,
compared with $473,598,  or 35.0% of net sales,  for the year ended December 31,
1998. The decrease is attributable to decreased direct costs of operations, such
as executive wages,  professional  fees, and travel expense which are lower than
those  provided  for in the  Company's  operating  agreement  with  Kids  Stuff.
Effective  January 1, 1998, the Company has an agreement with Kids Stuff whereby
Kids Stuff provides administrative functions to the Company at an annual cost of
$206,100.  Kids Stuff is also providing fulfillment services to the Company at a
cost of $2.40 per  order.  This  agreement  is still in  effect,  but as of this
printing, the Company has started providing some of these services themselves.

     Net loss for the year ended December 31, 1999 was $288,448  compared with a
net loss of $3,829,372 for the year 1998.  Non-cash interest expense  associated
with a note conversion  contributed $3,350,000 of the loss incurred in 1998, and
is described  more fully in the Company's  financial  statement  footnotes.  The
Company's loss was due to reduced gross profit margins for premium cigars.

LIQUIDITY AND CAPITAL RESOURCES

         In May 1998,  the  Company  sold its  securities  in an initial  public
offering (IPO) as described under Item 5. Net proceeds of the offering  amounted
to approximately $1,917,282.

         At December 31, 1999, the Company had a deficit in retained earnings of
$4,294,707, compared to a deficit in retained earnings of $4,006,259 at December
31, 1998.  This resulted  from an operating  loss of $288,448 for the year ended
December 31,  1999.  For the year ended  December  31,  1999,  the impact of the
operating  loss on the  Company's  cash  position  was  increased  by changes in
working capital,  which affected operating activities.  The operating activities
consumed $270,493 in cash through increases in accounts receivable, inventories,
other assets,  deferred  catalog  expenses and prepaid  expenses.,  but provided
$152,778 from an increase in accounts  payable.  The net effect of these changes
and non-cash charges of $72,483 relating to depreciation and amortization,  when
added  to the  Company's  net  loss,  resulted  in net  cash  used by  operating
activities  of  $333,680.  For the year ended  December  31,  1999,  the Company
purchased  property and  equipment  in the amount of $136,493.  The Company also
invested $93,412 in catalog and product development. Financing activities during
1999  used  cash of  $12,301  as a  result  of  decrease  of  $54,301  in due to
affiliates  and the issuance of $200,000  options to the CEO providing  $42,000.
The Company's ending cash balance decreased to $1,058,390 at December 31, 1999.


<PAGE>
         The  Company  has no credit  facility  at the  current  time,  but is a
guarantor  on  Kids  Stuff,  Inc.  line  of  credit.  The  balance  on the  line
was$500,000 at December 31, 1999.

     At December  31,  1998,  the Company had a deficit in retained  earnings of
$4,006,259,  compared to a deficit in retained  earnings of $176,887 at December
31, 1997.  This resulted  from an operating  loss of $454,603 for the year ended
December 31, 1998 and a $3,374,769 charge to earnings as interest expense, which
includes $3,350,000 non-cash portion relating to a note conversion. For the year
ended  December 31, 1998, the impact of the operating loss on the Company's cash
position was decreased by changes in working capital,  which affected  operating
activities.  The operating activities consumed $79,270 in cash through increases
in accounts  receivable,  inventories and other assets and decreases in accounts
payable,  but provided  $24,998 from a decrease in deferred catalog expenses and
prepaid  expenses.  The net  effect of these  changes  and  non-cash  charges of
$54,608 relating to depreciation and  amortization,  when added to the Company's
net loss, resulted in net cash used by operating activities of $479,036. For the
year ended  December 31, 1998, the Company  purchased  property and equipment in
the amount in the amount of $53,791.  Financing  activities during 1998 provided
cash of  $2,087,492 as a result of net proceeds from the sale of Common Stock of
$1,917,282  proceeds  from the sale of a  convertible  note of  $100,000  and an
increase in amounts due to  affiliates  of $70,210.  The  Company's  ending cash
balance increased to $1,634,276 at December 31, 1998.

         On January 23, 1998, the Company borrowed  $200,000 in bridge financing
from a bridge lender. The Company issued a non-convertible note in the principal
amount of  $100,000,  which was  repaid in May 1998 upon the  completion  of the
Company's IPO and a convertible note in the principal  amount of $100,000.  Each
note bore interest at the rate of eight (8%) percent per annum.  The convertible
note  automatically  converted  into a total of 400,000  shares of the Company's
Common Stock and  1,400,000  Class A Warrants on May 14, 1998 as a result of the
Company's  completion  of its  initial  public  offering.  As a  result  of this
financing,  the  Company  recognized  a  one-time  non-cash  interest  charge to
earnings  of  approximately  $3,350,000  in 1998.  See  "Notes  to  Consolidated
Financial Statements.

         In October 1995,  Statement of Financial  Accounting Standards No. 123,
Accounting for Stock-Based Compensation, was issued which establishes accounting
and  reporting  standards  for  stock-based  compensation  plans.  This standard
encourages  the  adoption  of the fair  value-based  method  of  accounting  for
employee stock options or similar equity instruments, but continues to allow the
Company to measure  compensation  cost for those  equity  instruments  using the
intrinsic  value-based method of accounting  prescribed by Accounting Principles
Board Opinion No. 25,  Accounting for Stock Issued to Employees.  Under the fair
value-based method, compensation cost is measured at the grant date based on the
value of the award. Under the intrinsic value-based method, compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date or
other  measurement  date over the amount the  employee  must pay to acquire  the
stock.  The  Company  uses the  intrinsic  value-based  method  for  stock-based
compensation to employees.  As a result,  there will be no effect to the Company
other  than  to  require  a  pro  forma  footnote  disclosure.   See  "Notes  to
Consolidated Financial Statements."

         In March 1998,  Statement  of Position  98-1,  Accounting  for Costs of
Computer  Software  Developed or Obtained for Internal Use, was issued.  The SOP
provides  guidance on  accounting  for costs of computer  software  based on the
project stage and other  criteria and is effective for financial  statements for
fiscal years  beginning  after December 15, 1998. The Company  believes that the
effect of adoption will not be material.

         In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative  Instruments  and Hedging  Activities.  This statement
established  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities.  It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. The Company does not anticipate  engaging in such transactions,  but will
comply with  requirements of SFAS 133 when adopted.  This statement is effective
for all fiscal  quarters  beginning  after June 15, 1999. The effect of adopting
SFAS 133 is not expected to be material.


<PAGE>
Item 7. Financial Statements

         The information  required by Item 7, and an index thereto  commences on
page F-1, which pages follow this page.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

         Not applicable.



<PAGE>
                             THE HAVANA GROUP, INC.

                                 AND SUBSIDIARY

                                FINANCIAL REPORT


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                                    CONTENTS

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

                                                                                                            Page

<S>                                                                                                          <C>
INDEPENDENT AUDITORS' REPORT                                                                                 F-3

FINANCIAL STATEMENTS
    Consolidated  balance  sheet                                                                             F-4  through  F-5
    Consolidated statements of operations                                                                    F-6
    Consolidated statements of stockholders' equity                                                          F-7
    Consolidated  statements of cash flows                                                                   F-8
    Notes to consolidated financial statements                                                               F-9 through F-21

</TABLE>



                                      F-2
<PAGE>
                          Independent Auditors' Report

To the Stockholders and Board of Directors
The Havana Group, Inc.
Canton, Ohio

         We have  audited the  accompanying  consolidated  balance  sheet of The
Havana Group,  Inc. and  subsidiary  (subsidiaries  of Duncan Hill,  Inc.) as of
December  31,  1999,  and the related  consolidated  statements  of  operations,
stockholders'  equity,  and cash flows for the years ended December 31, 1999 and
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material  respects,  the financial position of The Havana
Group,  Inc. and  subsidiary  as of December 31, 1999,  and the results of their
operations  and their cash flows for the years ended December 31, 1999 and 1998,
in conformity with generally accepted accounting principles.

Canton, Ohio
March 17, 2000

                                      F-3
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                               December 31, 1999
<TABLE>
<CAPTION>

                                     ASSETS

         CURRENT ASSETS

<S>                                                                                              <C>
         Cash                                                                                    $         1,058,390
         Accounts receivable, net of allowance
         for doubtful accounts of $5,500                                                                      56,460
         Inventories                                                                                         706,070
         Due from affiliates                                                                                 143,753
         Prepaid expenses                                                                                     23,171
         Deferred catalog expenses                                                                            57,357
                                                                                                           ---------
         Total current assets                                                                              2,045,201

         DEFERRED FEDERAL INCOME TAX                                                                          29,070

         PROPERTY AND EQUIPMENT
         Leasehold improvements                                                                               92,244
         Furniture and fixtures                                                                               20,571
         Data processing equipment                                                                            52,343
         Website development                                                                                 110,849
         Machinery and equipment                                                                              10,981
                                                                                                           ---------
                                                                                                             286,988

         Less accumulated depreciation                                                                        51,394
                                                                                                           ---------
                                                                                                             235,594

         OTHER ASSETS, net of accumulated amortization
         Customer lists                                                                                      387,067
         Catalog and product development                                                                      92,518
         Deposits and other                                                                                    9,654
                                                                                                           ---------
                                                                                                             489,239
                                                                                                           ---------
                                                                                                 $         2,799,104
                                                                                                           =========
</TABLE>

   The accompanying notes are an integral part to these financial statements

                                      F-4
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                               December 31, 1999

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

         CURRENT LIABILITIES
<S>                                                                                              <C>
         Accounts payable                                                                        $           276,734
         Accrued expenses                                                                                     10,062
         Due to affiliate                                                                                    290,054
         Customer advances                                                                                     7,679
                                                                                                           ---------
         Total current liabilities                                                                           584,529

         COMMITMENTS AND CONTINGENCIES                                                                           -

         STOCKHOLDERS' EQUITY
         Preferred stock - $.001 par value, 10,000,000
              shares authorized:
                Series A - 5,000,000 shares issued and outstanding                                             5,000
                Series B - 1,100,000 shares issued and outstanding                                             1,100
         Common stock - $.001 par value,
             25,000,000 shares authorized,
                1,860,000 shares issued and outstanding                                                        1,860
         Additional paid-in capital (including warrants)                                                   6,501,322
         Retained earnings (deficit)                                                                      (4,294,707)
                                                                                                           ---------
         Total stockholders' equity                                                                        2,214,575
                                                                                                           ---------
                                                                                                 $         2,799,104
                                                                                                           =========
</TABLE>
   The accompanying notes are an integral part to these financial statements

                                      F-5

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

                                                                                        1999                 1998
                                                                                        ----                 ----
<S>                                                                         <C>                 <C>
   NET SALES                                                                $        1,551,623  $           1,354,164

   COST OF SALES                                                                     1,032,582                900,272
                                                                                     ---------              ---------
   GROSS PROFIT                                                                        519,041                453,892

   SELLING EXPENSES                                                                    463,972                434,897

   GENERAL AND ADMINISTRATIVE EXPENSES                                                 412,931                473,598
                                                                                    ----------             ----------
   LOSS FROM OPERATIONS                                                               (357,862)              (454,603)

   INTEREST INCOME                                                                      79,597                      -

   INTEREST EXPENSE                                                                     10,183              3,374,769
                                                                                    ----------             ----------
   NET LOSS                                                                 $         (288,448) $          (3,829,372)
                                                                                     ==========            ===========
   BASIC AND DILUTED LOSS PER SHARE
        AFTER CONSIDERING PREFERRED
        STOCK CUMULATIVE DIVIDEND                                           $            (0.21) $               (2.61)
                                                                                     ==========            ===========
</TABLE>

   The accompanying notes are an integral part to these financial statements

                                      F-6

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     Years Ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                   Common     Preferred       Paid-In          Retained
                                                   Stock        Stock         Capital          Earnings          Total
                                                   -----        -----         -------          --------          -----

<S>                   <C>                      <C>          <C>          <C>               <C>              <C>
    BALANCE - JANUARY 1, 1998                  $      1,000 $      6,100 $      1,092,900  $      (176,887) $      923,113

    NET PROCEEDS FROM THE ISSUANCE
       OF 460,000 COMMON SHARES IN
       PUBLIC OFFERING                                  460           -         1,916,822             -          1,917,282

    ISSUANCE OF 400,000 COMMON
        SHARES AND 1,400,000
        WARRANTS FOR CONVERSION
        OF NOTE PAYABLE                                 400           -         3,449,600             -          3,450,000

    NET LOSS                                             -            -               -         (3,829,372)     (3,829,372)
                                                -----------   ----------        ---------       -----------     -----------
    BALANCE - DECEMBER 31, 1998                       1,860        6,100        6,459,322       (4,006,259)      2,461,023

    ISSUANCE OF 200,000 OPTIONS TO
        COMPANY CEO IN LIEU OF
        ACCRUED COMPENSAION                              -            -         42,000               -              42,000

    NET LOSS                                             -            -               -           (288,448)       (288,448)

    BALANCE - DECEMBER 31, 1999                $      1,860   $    6,100      $ 6,501,322     $ (4,294,707)    $ 2,214,575
                                                ============  ===========     ===========     =============    ===========
</TABLE>

   The accompanying notes are an integral part to these financial statements

                                      F-7

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>

                                                                                           1999                  1998
                                                                                           ----                  ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                <C>                   <C>
    Net loss                                                                       $         (288,448)   $       (3,829,372)
    Adjustments to reconcile net loss to net cash
        (used) by operating activities:
            Non-cash interest expense incurred on note conversion                                   -             3,350,000
            Depreciation and amortization                                                      72,483                54,608
            (Increase) in accounts receivable                                                 (10,000)               (8,886)
            (Increase) in inventories                                                        (205,305)              (22,858)
            (Increase) decrease in deferred catalog expenses                                  (24,585)               21,411
            (Increase) decrease in prepaid expenses                                           (23,171)                3,587
            (Increase) in deposits and other                                                   (7,432)               (2,500)
            Increase (decrease) in accounts payable, customer advances
                and accrued expenses                                                          152,778               (45,026)
                                                                                            ----------            ----------
Net cash (used) by operating activities                                                      (333,680)             (479,036)

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                                       (136,493)              (53,791)
 Investment in catalog and product development                                                (93,412)                    -
                                                                                            ----------            ----------
Net cash (used) by investing activities                                                      (229,905)              (53,791)

CASH FLOWS FROM FINANCING ACTIVITIES
   Change in due to/from affiliates - net                                                     (54,301)               70,210
   Issuance of 200,000  options to Company CEO
      in lieu of accrued compensation                                                          42,000                     -
    Net proceeds from sale of common stock                                                          -             1,917,282
    Proceeds from convertible note                                                                  -               100,000
                                                                                            ----------            ----------
Net cash (used) provided by financing activities                                              (12,301)            2,087,492
                                                                                            ----------            ----------
NET (DECREASE) INCREASE IN CASH                                                              (575,886)            1,554,665

CASH - BEGINNING                                                                            1,634,276                79,611
                                                                                            ----------            ----------
CASH - ENDING                                                                      $        1,058,390    $        1,634,276
                                                                                            ==========            ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Cash paid during the year for interest                                         $           10,183    $           24,769
                                                                                            ==========            ==========
</TABLE>

   The accompanying notes are an integral part to these financial statements

                                      F-8

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

     A. Business Description and Principles of Consolidation - The Havana Group,
Inc. is in the mail order business and sells to customers  throughout the United
States.  The Company  sells  tobacco,  cigars,  smoking  pipes and  accessories.
Products  are  purchased  from a  variety  of  manufacturers.  The  consolidated
financial  statements  include the accounts of The Havana Group,  Inc.,  and its
wholly-owned  subsidiary,  Monarch Pipe Company  (collectively,  "the Company").
Monarch  Pipe  Company  (Monarch)  manufactures  smoking  pipes and  sells  them
exclusively  to  the  Company.   All  significant   intercompany   accounts  and
transactions have been eliminated in consolidation. The Company grants credit to
its tobacco club members.

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

     C. Fair Value of Financial  Instruments - The fair value of cash,  accounts
receivable,  accounts payable and other short-term obligations approximate their
carrying values because of the short maturities of those financial instruments.

     D.  Trade  Receivables  - It is the  Company's  policy to  record  accounts
receivable net of an allowance for doubtful  accounts.  The allowance was $5,500
as of December 31,  1999.  Bad debt expense was $5,514 and $13,965 for the years
ended December 31, 1999 and 1998, respectively.

     E.  Inventories  are stated at the lower of cost or market  with cost being
determined by the first-in, first-out (FIFO) method.

     F.  Deferred  catalog  expenses  are costs of catalogs  mailed to customers
which are deferred  and  amortized  over periods  ranging from four weeks to six
months,  the estimated length of time customers  utilize catalogs and other mail
order  mailings.  Catalog  expense was $274,099 and $271,158 for the years ended
December 31, 1999 and 1998, respectively.

     Product  development  expenses are costs of developing new flavored tobacco
and the new  Make-Your-Own  cigarette  products.  These costs are  deferred  and
amortized over 48 months.

                                      F-9
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Summary of Significant Accounting Policies (continued)

     G.  Property and equipment  are carried at cost and  depreciated  using the
straight-line and accelerated  methods over their estimated useful lives ranging
from five to ten years. Depreciation expense amounted to $32,883 and $15,624 for
the years ended December 31, 1999 and 1998, respectively.

     Maintenance,  repairs, and minor renewals are charged against earnings when
incurred. Additions and major renewals are capitalized.

     H. A customer list was obtained by the Company's predecessor, E.A. Carey of
Ohio, Inc. in 1984 for $889,000.  The list is being amortized on a straight-line
basis through 2008. At December 31, 1999, accumulated amortization was $501,933.

     I. Deferred  taxes have been  recognized to reflect  temporary  differences
between financial reporting and income tax purposes.  The principal  differences
are due to net operating losses and the treatment of deferred catalog expense.

     J. The  Company  maintains  its cash at a financial  institution.  The bank
balance is $1,146,683  (which exceeds book amounts due to reconciling  items) as
of December 31, 1999 and at times throughout the year exceeds  federally insured
amounts.

     K. Per  Share  Amounts  - Net  income  per  share is  calculated  using the
weighted  average number of shares  outstanding  during the year.  There were no
securities  outstanding  or granted as of December  31, 1999 and 1998 that would
have  a  dilutive  effect  on  per  share  amounts.  Additionally,  the  Company
experienced a net loss in 1999 and 1998.  Therefore,  no potential common shares
have been included in the computation of diluted per share amounts in accordance
with Statement of Financial  Accounting  Standard (SFAS) No. 128,  "Earnings per
Share." The weighted average number of common shares  outstanding for both basic
and diluted  earnings per share was  1,860,000  and 1,511,287 for 1999 and 1998,
respectively. The 1999 and 1998 earnings per share calculations include a charge
of  $110,000  relative  to the  cumulative  dividends  on the Series B Preferred
Stock.



                                      F-10
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Summary of Significant Accounting Policies (continued)

     L. New Authoritative Pronouncements

     In June 1998,  the Financial  Accounting  Standards  Board issued SFAS 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
established  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities.  It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. The Company does not anticipate  engaging in such transactions,  but will
comply with  requirements of SFAS 133 when adopted.  This statement is effective
for all fiscal quarters beginning after June 15, 2000.

     In March  1998,  Statement  of  Position  98-1,  "Accounting  for  Costs of
Computer  Software  Developed or Obtained for Internal  Use," was used.  The SOP
provides  guidance on  accounting  for costs of computer  software  based on the
project stage and other  criteria and is effective for financial  statements for
fiscal years  beginning  after December 15, 1998. The effect of adoption was not
material.

     In December 1999, the  Securities  and Exchange  Commission  issued SAB101,
"Revenue  Recognition  in Financial  Statements."  SAB101  provides  guidance on
applying generally accepted accounting  principles to revenue recognition issues
in financial  statements.  This  statement is effective in the second quarter of
2000.  The  Company  is  evaluating  the  effect  the  adoption  may have on the
Company's consolidated results of operations and financial position.

 Note 1.          Inventories

<TABLE>
<CAPTION>
                  Inventories consist of the following at December 31, 1999:

<S>                                                                                                <C>
                  Raw materials                                                                    $ 160,401
                  Tobacco, cigars, and pipes                                                         518,676
                  Supplies and catalogs                                                               26,993
                                                                                                    --------
                                                                                                   $ 706,070
</TABLE>

                                      F-11
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




 Note 2. Income Taxes

                  The Company  accounts for income taxes in accordance with SFAS
                  No. 109,  Accounting  for Income Taxes.  The Company files its
                  Federal income tax return as part of a consolidated group.

                  Deferred   income  taxes  reflect  the  effects  of  temporary
                  differences   between  the  carrying   amount  of  assets  and
                  liabilities  for financial  reporting  purposes.  Deferred tax
                  assets  (liabilities)  consisted of the  following at December
                  31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                        1999             1998
                                                        ----             ----

Deferred tax assets:
<S>                                                   <C>             <C>
    Net operating loss carryforward ............      $ 372,266       $ 261,256
    Depreciation ...............................           --               368
    Valuation allowance ........................       (318,701)       (221,412)
                                                      ---------       ---------
        Total deferred tax assets ..............      $  53,565       $  40,212

Deferred tax liabilities:
    Deferred catalog expense ...................      $ (19,501)      $ (11,142)
    Depreciation ...............................         (4,994)           --
                                                      ---------       ---------
        Total deferred tax liabilities .........        (24,495)        (11,142)
                                                      ---------       ---------
Net deferred tax asset .........................      $  29,070       $  29,070
                                                      =========       =========
</TABLE>

                  The  Company's  ability to  recognize  deferred  tax assets is
dependent on generating  future regular taxable  income.  In accordance with the
provisions  of SFAS 109,  management  has  provided a valuation  allowance.  The
significant  difference between 1998 book and tax income was $3,350,000 non-cash
interest expense incurred on the note conversion (see Note 5E).

                                      F-12
<PAGE>
                     THE HAVANA GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


 Note 2. Income Taxes (continued)

                  The Company has net operating  loss  carryforwards  which will
expire as follows:
<TABLE>
<CAPTION>

                                    Year                                    Amount

<S>                                 <C>                               <C>
                                    2008                              $       6,500
                                    2009                                     57,600
                                    2010                                    105,900
                                    2011                                    121,000
                                    2012                                     74,400
                                    2018                                    403,000
                                    2019                                    326,500
                                                                         ----------
                                                                        $ 1,094,900
</TABLE>

 Note 3. Lease Commitment

                  Havana  Group,  Inc.  has  entered  into  an  operating  lease
                  effective  January 1, 2000 for  warehouse  and  office  space.
                  Prior to January  1, 2000,  the  Company  occupied  space in a
                  building  owned  by  Kids  Stuff.  A  portion  of the  related
                  occupancy  costs are  allocated to the Company as described in
                  Note 4. Total future  minimum lease  payments  required  under
                  this  noncancellable  operating  lease  for the  years  ending
                  December 31 are as follows:
<TABLE>
<CAPTION>

                                    Year                                     Amount

<S>                                 <C>                                    <C>
                                    2000                                   $ 96,000
                                    2001                                     96,000
                                    2002                                     96,000
</TABLE>

 Note 4. Agreement with Affiliated Company

                         Duncan  Hill,  Inc.,  the parent of The  Havana  Group,
                    Inc.,  owns 80% of the  outstanding  voting capital stock of
                    Kids Stuff,  Inc. (Kids Stuff). In January 1998, the Company
                    contracted  with Kids Stuff whereby Kids Stuff would provide
                    administrative,  executive,  and  accounting  services at an
                    annual cost of  approximately  $206,100 plus $2.40 per order
                    processed.  Havana is also  obligated  to pay 5% of its 1999
                    and 1998 pre-tax  profits to Kids Stuff in  connection  with
                    these  administrative  and  fulfillment  services.  However,
                    Havana had no pre-tax profits in 1999.

                                      F-13
<PAGE>
                     THE HAVANA GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   Note 4.        Agreement with Affiliated Company (continued)

                  or 1998.  At January 1, 1999,  the  agreement was modified and
                  extended on a  month-to-month  basis as Havana  began to incur
                  direct  costs  for  its   administrative   functions.   Havana
                  currently pays to Kids Stuff accounting,  data processing, and
                  administrative  charges of $15,000 per year plus  shipment and
                  warehouse  services on a per order basis.  Total costs charged
                  to Havana in 1999 and 1998  amounted to $225,086 and $293,432,
                  respectively.   This   agreement   has  been   extended  on  a
                  month-to-month   basis.   Management  believes  that  this  is
                  substantially  the same  cost  that it would  incur  should it
                  procure these services itself.
<TABLE>
<CAPTION>

<S>                                                                                                 <C>
                         Accounting and Payroll Services                                            $   34,000
                         Administration and Human Resource Management                                   51,600
                         Data Processing                                                                34,900
                         Office Equipment and Facilities Use                                            32,200
                         Merchandising and Marketing Services                                           38,100
                         Purchasing Services                                                            15,300
                                                                                                      --------
                         Total                                                                       $ 206,100
                                                                                                       =======
</TABLE>

                         The  accounts  receivable  and  inventory of Havana and
                    Kids Stuff are  pledged as  collateral  which  guarantees  a
                    $500,000   line  of  credit   reflected  on  the   financial
                    statements of Kids Stuff. The Company's  guarantee  relative
                    to the line of credit is irrevocable.  The outstanding  loan
                    balance on the line of credit was  $500,000 at December  31,
                    1999.

   Note 5.        Stockholders' Equity

         A.       Common Stock

                         The Havana Group,  Inc. has 25,000,000  shares of $.001
                    par value  common  stock  authorized.  The holders of Common
                    shares are entitled to one vote on all stockholder matters.

                         The Company is not currently subject to any contractual
                    arrangements   which  restricts  its  ability  to  pay  cash
                    dividends.   The  Company's   Certificate  of  Incorporation
                    prohibits  the payment of cash  dividends  on the  Company's
                    Common Stock in excess of $.05 per share per year so long as
                    any Serial  Preferred Stock remains  outstanding  unless all
                    accrued and unpaid  dividends on Serial  Preferred Stock has
                    been set apart and there are no  arrearages  with respect to
                    the redemption of any Serial Preferred Stock.

                                      F-14
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   Note 5.        Stockholders' Equity (continued)

                         In May 1998,  the Company  completed an initial  public
                    offering  (see Note 10) in which  460,000  units  were sold.
                    Each  unit  consisted  of one  common  share and two Class A
                    warrants

                         In May 1998,  the Company  issued 400,000 common shares
                    and  1,400,000  Class A warrants  relative  to a bridge loan
                    conversion (see Note 5E).

         B.       Series A Preferred Stock

                         The  Board  of  Directors  has the  authority,  without
                    further  action  by  the   stockholders,   to  issue  up  to
                    10,000,000  shares of Preferred  Stock in one or more series
                    and  to  fix  the  rights,   preferences,   privileges,  and
                    restrictions thereof,  including dividend rights, conversion
                    rights,  voting  rights,  terms of  redemption,  liquidating
                    preferences,  and the  number  of  shares  constituting  any
                    series or the designation of such series.

                         Duncan Hill,  Inc.  owns  5,000,000  shares of Series A
                    Preferred Stock (Series A), $.001 par value.  The holders of
                    the Series A stock are  entitled  to one vote for each share
                    held of record  on all  matters  submitted  to a vote of the
                    stockholders.

                  The  Series A stock is not  subject to  redemption  and has no
                  conversion   rights  or  rights  to  participate  in  dividend
                  payments.  In  the  event  of  any  voluntary  or  involuntary
                  liquidation,  dissolution  or winding up of the affairs of the
                  Company,  each  share  of  Series  A stock  has a  liquidation
                  preference of $.001 per share.

                                      f-15
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




   Note 5.        Stockholders' Equity (continued)

         C.       Series B Preferred Stock

                  The  Company  has  issued  1,100,000  shares  of its  Series B
                  Convertible  Preferred  Stock  (Series  B) $.001  par value to
                  Duncan  Hill,  Inc.  The  Series B stock  has the same  voting
                  privileges as the Common  Stock.  Each share of Series B stock
                  is convertible into one share of the Company's Common stock at
                  the  option  of either  the  holder  or the  Company  upon the
                  Company's net pre-tax  profit  reaching  $500,000 in any given
                  calendar  year. The holder of each share of Series B Preferred
                  Stock will be entitled to receive,  when,  as, and if declared
                  by the Board of Directors of the Company, out of funds legally
                  available therefor, cumulative quarterly cash dividends at the
                  rate of $.025  per  share,  quarterly  on March  31,  June 30,
                  September 30, and December 31  commencing  with March 31, 1998
                  before any dividend shall be declared,  set apart for, or paid
                  upon the Common Stock for such year,  and the remainder of the
                  surplus or net earnings applicable to the payment of dividends
                  shall be distributed as dividends  among the holders of Common
                  Stock as and when the  Board of  Directors  determines.  There
                  were no dividends  declared or paid during 1999 or 1998 on the
                  Series B Preferred Stock. Dividends in arrears on the Series B
                  preferred  stock  amount to $.20 per share or  $220,000 in the
                  aggregate at December 31, 1999.

                  The Series B stock is not subject to redemption.  In the event
                  of a voluntary  or  involuntary  liquidation,  dissolution  or
                  winding up of the affairs of the Company, each share of Series
                  B stock has a liquidation  preference of $.001 plus  dividends
                  in  arrears,   which  is   subordinated   to  the  liquidation
                  preference of the Series A stock.

         D.       Class A Warrants

                  As of December 31,  1999,  the Company has  2,658,000  Class A
                  warrants  outstanding,  which is comprised of 920,000 warrants
                  included in the units sold in the initial public offering (see
                  Note 10);  1,400,000  warrants issued in conjunction  with the
                  conversion of a note payable (see Note 5E);  138,000  warrants
                  issued to Duncan Hill in  replacement  of  warrants  issued in
                  conjunction  with the  reorganization;  and  200,000  warrants
                  issued to Mr. William Miller, the Company's CEO.

                                      F-16
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   Note 5.        Stockholders' Equity (continued)

                  Each Class A warrant entitles the holder to purchase one share
                  of common stock at a price of $5.25 and expires May 2003.  The
                  Company may redeem the Class A warrants at a price of $.10 per
                  warrant  effective May 1999, upon not less than 30 days' prior
                  written  notice,  if the closing bid price of the common stock
                  has been at least $10.50 per share for 20 consecutive  trading
                  days  ending  no more  than the 15th day  prior to the date on
                  which the notice of redemption is given.

         E.       Issuance of Securities in Note Conversion

                  In  January  1998,  the  Company  borrowed  $100,000  from one
                  private investor in exchange for a convertible promissory note
                  (Convertible  Note).  The Convertible Note bore interest at 8%
                  per annum and was due on December  31, 1998.  However,  as the
                  Company  completed its initial public offering,  in accordance
                  with  the note  agreement,  the  note  was  converted  into an
                  aggregate  of  400,000  shares of common  stock and  1,400,000
                  Class A warrants.  The beneficial  conversion  feature (in the
                  amount of $3,350,000) of the note was recognized as additional
                  paid-in capital and charged to interest expense during 1998.

   Note 6.        Bridge Loan

                  In  January  1998,  the  Company  borrowed  $100,000  from one
                  private  investor  evidenced by a promissory note of $100,000.
                  This is the same private investor  mentioned in Note 5E, "Sale
                  of Unregistered  Securities." The note bore interest at 8% per
                  annum  and was  paid  off with  proceeds  from  the  Company's
                  initial public offering.

   Note 7.        Stock Incentive Plan

                  The Company  maintains a Stock Incentive Plan. Under the Stock
                  Incentive  Plan,  the  Compensation  Committee of the Board of
                  Directors may grant stock  incentives to key employees and the
                  directors of the Company  pursuant to which a total of 400,000
                  shares of common stock may be issued; provided,  however, that
                  the maximum amount of common stock with respect to which stock
                  incentives  may be granted to any person  during any  calendar
                  year  shall be 20,000  shares,  except  for a grant  made to a
                  recipient upon the recipient's initial hiring by the Company,

                                      F-17
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




   Note 7.        Stock Incentive Plan (continued)

                  in which case the number shall be a maximum of 40,000  shares.
                  These  numbers  are  subject to  adjustment  in the event of a
                  stock split and similar events.  Stock incentive grants may be
                  in the  form  of  option,  stock  appreciation  rights,  stock
                  awards,  or a combination  thereof.  No stock  incentives were
                  granted under the Stock Incentive Plan in 1999 and 1998.

   Note 8.        Employment Agreements

         A.       The Company entered into a five-year employment agreement with
                  William L.  Miller  effective  December  1, 1997,  pursuant to
                  which Mr.  Miller is to serve as Chief  Executive  Officer and
                  President of the Company.  The employment  agreement  provides
                  for an annual base salary of $50,000,  increasing  to at least
                  $100,000 for the  remainder  of the contract if the  Company's
                  revenues for any fiscal year exceed $5,000,000.

                  Mr. Miller was granted under his employment  agreement 200,000
                  Common  Stock  Purchase  warrants  at  $6.00  per  share.  The
                  warrants  were  converted  into  Class  A  warrants  upon  the
                  completion of the Companies' initial public offering,  bearing
                  the same terms and conditions as those Class A warrants issued
                  by the Company being registered.

                  Mr. Miller was also granted under his employment  agreement an
                  option to  purchase  200,000  shares of the  Company's  Common
                  Stock,  which  will vest 20% on each of the  following  dates:
                  December 1, 1997; January 1, 1998; January 1, 1999; January 1,
                  2000; and January 1, 2001, regardless of whether the executive
                  is employed on such dates by the Company.  The vested  options
                  will be immediately  exercisable and will expire 10 years from
                  the date of the  agreement.  The exercise price of the options
                  will be $6.00 per share, subject to downward  adjustment.  The
                  exercise  price for vested options may be decreased if (a) the
                  Company meets certain  performance  goals,  and (b) Mr. Miller
                  timely elects to "lock-in" a lower exercise price with respect
                  to his vested  options.  The exercise price for vested options
                  may be reduced by $1.00 per share for each $200,000 of pre-tax
                  income of the Company for the prior fiscal  year.  The Company
                  shall report to Mr.  Miller,  promptly upon audited  financial
                  statements for the prior fiscal year becoming  available,  the
                  pre-tax  income of the Company for that year. Mr. Miller shall
                  have  thirty  days in which to  decide,  with  respect  to his
                  vested options for

                                      F-18
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   Note 8.        Employment Agreement (continued)

                  which an alternative  exercise  price has not previously  been
                  locked-in, whether to adjust the exercise price of such vested
                  options  based upon the pre-tax  income of the Company for the
                  prior year.

                  Mr.  Miller's  contract  allows for termination by the Company
                  for cause.  If the  agreement  is  terminated  by the  Company
                  without  cause,  or by Mr. Miller due to a material  change in
                  his responsibilities,  functions, or duties, the Company shall
                  pay  Mr.  Miller  a lump  sum on the  date of  termination  as
                  severance  pay an  amount  equal to 2.99  times the sum of Mr.
                  Miller's  salary  and bonus paid in the year prior to the year
                  of termination.

         B.       The Company  entered into an  employment  agreement  effective
                  February  1,  1999  through  December  31,  2002  with Gary J.
                  Corbett  whereby  Mr.  Corbett  will  serve  as the  Company's
                  President at an annual base salary of $80,000 plus bonus to be
                  determined  by the  Board of  Directors.  He was also  granted
                  options to  purchase  80,000  shares of the  Company's  common
                  stock at an  exercise  price of $3.50  per  share  subject  to
                  downward  adjustments  in the  exercise  price if the  Company
                  meets certain performance goals. The options vest 25% on March
                  1,  1999  and 25% on  each of the  first,  second,  and  third
                  anniversary dates of the employment agreement.

   Note 9.        Fair Value of Stock Based Compensation

                  In 1999, in addition to the options to purchase 200,000 shares
                  of common stock and Common Stock Purchase Warrants to purchase
                  200,000  shares of common stock  issued to Mr.  Miller and the
                  options to purchase  80,000  shares of common  stock issued to
                  Mr. Corbett (all described in Note 8), the Company has granted
                  options to purchase  60,000  shares of common stock to certain
                  directors (see Note 11).

                  The Company  accounts for employee  stock options under APB 25
                  and, accordingly, no compensation cost has been recognized. If
                  the  Company  had  elected  to  recognize   compensation  cost
                  consistent  with  the  method  prescribed  by  SFAS  123,  the
                  Company's net loss would have been increased by  approximately
                  $172,700  or $.11 per share for the year  ended  December  31,
                  1998  and  $241,500  or $.13  per  share  for the  year  ended
                  December 31, 1999.

                                      F-19
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Note 9.           Fair Value of Stock Based Compensation (continued)

                  For purposes of the pro forma disclosures presented above, the
                  Company  computed  the fair values of options  granted  during
                  1999 using the Black-Scholes  option pricing model assuming no
                  dividends,  211%  volatility,  an expected  life of 50% of the
                  ten-year option terms, and a risk-free  interest rate of 6.0%.
                  The fair  value of Class A warrants  issued to Mr.  Miller was
                  calculated as the value of compensation  forgone in return for
                  the warrants.  The fair value of options and warrants  granted
                  during 1999 was $339,200.

                  The Company computed the fair values of options granted during
                  1998 using the Black-Scholes  option pricing model assuming no
                  dividends,  72%  volatility,  an  expected  life of 50% of the
                  ten-year option terms, and a risk-free  interest rate of 5.0%.
                  The fair value of options granted during 1998 was $226,800. No
                  options or warrants  have been  exercised  as of December  31,
                  1999.

Note 10.          Public Offering

                  In May 1998, the Company  completed an initial public offering
                  in which 460,000 units were sold for $2,760,000. In connection
                  with  the  initial  public  offering,   the  Company  incurred
                  issuance costs of $842,718.  Each unit consisted of one common
                  share  and two Class A  warrants  and sold for $6.00 per unit.
                  The common  stock and warrants  are  separately  transferable.
                  During  June 1998,  an  additional  69,000  units were sold by
                  Duncan  Hill as the  overallotment  of the  Company's  initial
                  public offering.

                  A portion of the proceeds of the public  offering were used to
                  pay off the  bridge  loan and  increase  inventory  levels and
                  working capital.

Note 11.          Non-Qualified Stock Option Agreement

                  During 1998, the Company  entered into a  non-qualified  stock
                  option  agreement  with John Cobb,  Jr.  and Peter  Stokkebye,
                  directors of the Company.  Each of Mr. Cobb and Mr.  Stokkebye
                  were  granted  the  option to  purchase  30,000  shares of the
                  Company's  common  stock,  which will vest 25% on January  29,
                  1998 and 25% on each January 29, 1999,  January 29, 2000,  and
                  January  29,  2001.  The vested  options  will be  immediately
                  exercisable  and will  expire  10  years  from the date of the
                  agreement.  The exercise  price of the options  shall be $6.00
                  per share of common stock, subject to downward adjustment.

                                      F-20
<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 11. Non-Qualified Stock Option Agreement (continued)

                         The exercise  price for vested options may be decreased
                    if (a) the Company meets certain  performance goals, and (b)
                    the director  timely  elects to  "lock-in" a lower  exercise
                    price with respect to his vested options. The exercise price
                    for  vested  options  may be  reduced by $1.00 per share for
                    each $200,000 of pre-tax income of the Company for the prior
                    fiscal  year.  The  Company  shall  report to the  director,
                    promptly  upon audited  financial  statements  for the prior
                    fiscal year becoming  available,  the pre-tax  income of the
                    Company for that year.  The director  shall have thirty days
                    in which to decide,  with respect to his vested  options for
                    which an alternative  exercise price has not previously been
                    locked-in,  whether  to adjust  the  exercise  price of such
                    vested  options based upon the pre-tax income of the Company
                    for the prior year.

                         The pro forma  effect on the net loss of the Company of
                    the fair value of the options is included in the  disclosure
                    in Note 9.

Note 12. Subsequent Event

                         In February  2000,  the Company  cancelled  the 200,000
                    options  granted to Mr.  Miller as described in Note 8A. The
                    Company  concurrently  issued 200,000  options to Mr. Miller
                    exercisable at $.40.  The fair value of the options  granted
                    to Mr.  Miller in February  2000 was $78,000,  as calculated
                    using the  Black-Scholes  option  pricing model  assuming no
                    dividends,  211% volatility, an expected life of five years,
                    and a risk-free interest rate of 6.0%.




                                      F-21
<PAGE>
                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act

(a)      Identification of Directors

         The names,  ages and principal  occupations  of the  Company's  present
directors, and the date on which their term of office commenced and expires, are
as follows:
<TABLE>
<CAPTION>

                                                                   First
                                               Term of             Became                 Principal
Name                                Age        Office              Director               Occupation

<S>                                 <C>         <C>                 <C>                   <C>
William L. Miller                   63          (1)                 1997                  Chairman of the
                                                                                          Board, Chief
                                                                                          Executive Officer,
                                                                                          and Principal
                                                                                          Financial Officer of
                                                                                          the Company

John W. Cobb, Jr.                   58          (1)                 1997                  Director of Marketing
                                                                                          Global Outreach
                                                                                          University of Maryland

Peter Stokkebye VI                  69          (1)                 1997                  Retired

Clark D. Swisher                    48          (1)                 3/31/00               Vice President,
                                                                                          Employee Benefits
                                                                                          Division of Leonard
                                                                                          McCormick Agency
</TABLE>

-----------

     (1) Directors are elected at the annual  meeting of  stockholders  and hold
office until the following annual meeting.

(b)      Identification of Executive Officers.

     William L.  Miller is  Chairman  of the  Board,  Chief  Executive  Officer,
Principal  Financial  Officer and  Treasurer of the Company.  Gary J. Corbett is
President.

     The  terms of all  officers  expire  at the  annual  meeting  of  directors
following the annual stockholders  meeting.  Subject to their contract rights to
compensation,  if any, officers may be removed, either with or without cause, by
the Board of Directors,  and a successor elected by a majority vote of the Board
of Directors, at any time.


<PAGE>
(c)      Business Experience

     William  L.  Miller  has been  Chairman  of the Board of  Directors  of the
Company and Chief Executive Officer since December 1997. He previously served as
President of the Company from December 1997 - March 1999. Previously, he was the
sole director and  executive  officer of Carey from 1984 to December  1997.  Mr.
Miller has held  identical  positions at Kids Stuff,  Inc. from its formation in
July 1996 to the present time. Mr. Miller had been a director of Perfectly Safe,
Inc.  and its Vice  President  since it was formed by Duncan  Hill in 1990 until
July 1996.  Mr. Miller is  President,  Founder and a director of Duncan Hill. He
holds a Bachelors Degree in Mechanical  Engineering from Purdue University and a
Masters Degree in Business Administration from Indiana University.

     Gary J. Corbett has been  President of the Company since February 1999. Mr.
Corbett has over 25 years of management  experience in the tobacco  industry and
has served the  industry  as a retail  owner,  franchise  merchandiser,  tobacco
manufacturer,  and direct marketing  executive.  Mr. Corbett was Vice President,
Fred Stoker & Sons,  Dresden,  Tennessee,  a manufacturer and direct marketer of
tobacco  products from 1992 to 1998,  and Vice  President  and General  Manager,
World  Tobacco,  Ltd.,  Louisville,  Kentucky from 1980 to 1992.  Mr.  Corbett's
merchandising ability permits the Company to strengthen its direction in premium
cigars and extend its  marketing  reach to other  tobacco areas in the lower and
mid-price range. Mr. Corbett attended California State University.

     John W. Cobb,  Jr., has been a Director of the Company since December 1997.
Mr. Cobb is the Director of Marketing,  Global  Outreach,  at the  University of
Maryland  since  10/99.  Previously,  Mr.  Cobb was a Senior Vice  President  of
Marketing at McGraw-Hill  Continuing  Education  center in  Washington,  DC from
1981-1999.   From  1979-1981,  he  was  the  Vice  President  of  Marketing  and
Syndication Sales for C.B.S., Inc., Columbia House Division in New York and Vice
President,  Direct Mail  Marketing/Special  Markets  for Bell & Howell  Consumer
Products Group in Chicago (1969-1979).  As a result of his experience,  he has a
comprehensive  understanding of the direct mail business. Mr. Cobb has serves as
a  director  of Duncan  Hill from 1993 to the  present  time.  Mr.  Cobb holds a
Bachelors Degree in Economics, with a Minor in Marketing from Central College of
Iowa and a  Masters  Degree in  Marketing  with a Minor in  Management  from the
University of Iowa Graduate School of Business.

     Peter Stokkebye VI, has been a Director of the Company since December 1997.
From  1962 to 1992,  he  served  as the  Managing  Director  (retired)  of Peter
Stokkebye  International  a/s,  Denmark.  He  currently  holds the  position  of
Honorary  Chairman.  Established in Odense,  Denmark,  in 1882,  Peter Stokkebye
International  a/s manufactures  fine quality smoking tobaccos and sells premium
cigars.  This company  developed  and supplied the British Prime  Minister,  Sir
Winston  Churchill,  with his preferred cigar brand,  Santa Maria. Mr. Stokkebye
began his  career by serving in the Royal  Guard of the late King  Fredrick  the
Ninth of  Denmark,  and with  employment  by various  tobacco  manufacturers  in
Denmark,  Switzerland  and the U.S.A.  In 1962, Mr.  Stokkebye  became  Managing
Director of Peter Stokkebye International a/s.

     Peter  Stokkebye  VI is  considered  by  Management  to be the only current
outside  (independent)  director of the Company.  The Company is  attempting  to
identify and appoint one other individual who is not affiliated with the Company
or its affiliates as a director.  Since this person has not yet been identified,
there can be no  assurance  given  that the  Company  will be able to  attract a
suitable  candidate  to serve  as a  director.  If  successful,  this  presently
unidentified  person combined with Peter Stokkebye VI, would provide the Company

<PAGE>
with two  independent  directors  and the Board would  establish a  Compensation
Committee and an Audit Committee. The Audit Committee,  which will consist of at
least a majority of outside  directors who are not affiliated  with the Company,
will  among  other  things,  make  recommendations  to the  Board  of  Directors
regarding  the  independent  auditors for the Company,  approve the scope of the
annual audit activities of the independent auditors and review audit results and
have general  responsibility for all auditing related matters.  The Compensation
Committee will consist entirely of outside directors who are not affiliated with
the Company,  Kids Stuff or Duncan Hill. The Compensation  Committee will review
and  recommend  to the Board of Directors  the  compensation  structure  for the
Company's  officers and other  management  personnel,  including  salary  rates,
participation  in incentive  compensation  and benefit plans,  fringe  benefits,
non-cash perquisites and other forms of compensation.

     Clark D.  Swisher is a director of Kids Stuff,  Inc.  since July 1996.  Mr.
Swisher  has been  Vice  President  of the  Employee  Benefits  Division  of the
Leonard-McCormick  Agency, a general insurance agency, since 1984. Mr. Swisher's
professional  background includes membership in the National Association of Life
Underwriters and the University of Akron Business Advisory Council.  Mr. Swisher
has been a director of Duncan Hill, Inc. since 1995.

     As of the date of the 10-KSB,  the Company does not have any  committees of
the Board of Directors although it may have committees in the future.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
?Exchange Act?), requires the Company's officers and directors,  and persons who
own  more  than ten  percent  of a  registered  class  of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange Commission (the "Commission").  Officers,  directors and
greater  than  ten  percent   stockholders  are  required  by  the  Commission's
regulations  to furnish the Company with copies of all Section  16(a) forms they
file. To Management's knowledge, no officer, director or person owning more than
10% of the Company's  Common Stock filed any reports late during its fiscal year
ended December 31, 1999.


<PAGE>
Item 10. Executive Compensation

                  The following table provides a summary compensation table with
respect to the compensation of William L. Miller,  the Company's Chief Executive
Officer (CEO) for the past three years.
<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

                                                              Long Term Compensation
                           Annual Compensation                     Awards                 Payouts
          (a)          (b)        (c)         (d)    (e)             (f)       (g)             (h)         (i)
                                                    Other                                                  All
         Name                                       Annual       Restricted                               Other
         and                                        Compen-        Stock                   LTIP          Compen-
       Principal                                    sation       Award(s)   Number of      Payouts       sation
       Position    Year    Salary ($)   Bonus ($)    ($)          ($)(3)    Options         ($)            ($)

<S>                <C>         <C>         <C>      <C>            <C>       <C>            <C>           <C>
W. Miller,
Chief Executive    1999       -0-(5)      -0-       3,600         -0-        200,000         -0-           -0-
Officer (2)
                   1998    46,400         -0-       3,600         -0-          -0-           -0-           -0-

                   1997    28,167(1)      -0-       4,000         -0-(3)     400,000(4)      -0-           -0-
</TABLE>

     (1)  Compensation  was paid by Kids Stuff or Duncan  Hill,  which  provided
management  and general  and  administrative  services  to the Company  (and its
predecessor,  Carey),  and which  after  Carey's  reincorporation  in  Delaware,
continued to maintain the named Executive Officer on its payroll.  Approximately
20% of  Miller's  compensation  paid by Duncan  Hill or Kids Stuff to Miller was
expensed to the Company in 1997. The table  reflects the amount of Mr.  Miller's
compensation allocated to the Company.

     (2)  Mr.  Miller   served  as  the  President  of  Carey  Inc.   until  its
reincorporation  in Delaware after which time he became Chief Executive  Officer
of the Company.  Since December 1, 1997, Mr. Miller is being paid by the Company
for services rendered to it under his employment contract with the Company.  Mr.
Miller  also has an  employment  contract  with  Duncan  Hill and an  employment
contract with Kids Stuff for services rendered by him to those companies.

     (3) Does not include  securities  issued to Duncan Hill,  a public  company
controlled  by Mr.  Miller or 240,000  shares sold to Mr.  Miller on February 7,
2000  at a  price  of  $.4044  per  share.  See  "Certain  Transactions"  for  a
description of these transactions,  which transactions  include 1,000,000 shares
of the Company's  Common Stock in  connection  with the  reincorporation  of the
Company in Delaware,  5,000,000  shares of Series A Preferred  Stock issued as a
dividend to Duncan Hill,  1,100,000 shares of Series B Preferred Stock issued to
Duncan Hill in  connection  with  Duncan  Hill's  assumption  of $300,000 of the
Company's  indebtedness  to Kids Stuff and a dividend to Duncan Hill of Warrants
to purchase 138,000 shares of the Company's Common Stock,  which Warrants on May
14, 1998  automatically  converted  into 138,000  Class A Warrants  identical to
those sold in the Company's initial public offering.
<PAGE>
     (4) Includes  warrants to purchase  200,000 shares of the Company's  Common
Stock,  which  warrants  automatically  converted  into 200,000 Class A warrants
identical to those sold in the Company's  initial public offering and options to
purchase 200,000 shares of the Company's Common Stock as described herein.

     (5) Mr. Miller's  employment  contract  required him to be paid a salary of
$50,000 for 1999. On June 30, 1999, Mr. Miller modified his employment agreement
to receive  200,000  Class A Warrants  identical  to those sold to the public in
exchange for $42,000 in accrued salary. Accordingly,  Mr. Miller did not receive
any cash compensation in 1999 but did receive 200,000 Class A Warrants.


                               OPTION GRANTS TABLE

      The  information  provided in the table below  provides  information  with
respect to individual  grants of stock options (or warrants)  during fiscal 1999
to the Company's Chief Executive Officer.
<TABLE>
<CAPTION>

                        Option Grants in Last Fiscal Year
                                                                                               Potential
                                                                                          Realizable Value at
                                                                                             Assumed Annual
                              Individual Grants                                    Rates of Stock Price Appreciation
                                                                                          for Option Term (2)

        (a)               (b)           (c)            (d)           (e)             (f)                  (g)
                                        % of
                                       Total
                                      Options/
                                     Granted to
                        Options      Employees       Exercise      Expira-
                        Granted      in Fiscal        Price          tion
        Name              (#)         Year (1)        ($/Sh)         Date           5% ($)              10% ($)

<S>                   <C>              <C>            <C>            <C>  <C>      <C>                 <C>
William L. Miller     200,000          100%           5.25           5/14/03       226,000             488,000
</TABLE>

     (1) The percentage of total options  granted to employees in fiscal year is
based upon options granted to officers, directors and employees.

     (2) The potential  realizable  value of each grant of options  assumes that
the market price of Havana's Common Stock  appreciates in value from the date of
grant  to the  end  of the  option  term  at  annualized  rates  of 5% and  10%,
respectively,  and after  subtracting  the  exercise  price  from the  potential
realizable value.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

         The information  provided in the table below provides  information with
respect to each exercise of the Company's stock option during fiscal 1999 by the
Company's Chief Executive Officer and the fiscal year end value of the Company's
unexercised options.

<TABLE>
<CAPTION>
           (a)                  (b)            (c)                  (d)                         (e)

                                                               Number of
                                                           Securities Underlying
                                                                Unexercised                   Value of
                                                               Options/Warrants             Unexercised
                              Shares                            at FY-End (#)               In-the-Money
                            Acquired on                         Exercisable/              Options/Warrants
          Name             Exercise (#)       Value             Unexercisable               at Fy-End($)
                                             Realized                                       Exercisable/
                                              ($)(1)                                      Unexercisable(1)

<S>                              <C>            <C>        <C>     <C>                        <C> <C>
William L. Miller               -0-            -0-         360,000/40,000                    -0-/-0-

</TABLE>


(1)      The  aggregate  dollar  values in column (c) and (e) are  calculated by
         determining the difference  between the fair market value of the Common
         Stock  underlying  the  options/warrants  and the exercise price of the
         options/warrants at exercise or fiscal year end,  respectively.  Column
         (e) is based upon a  year-end  value of Common  Stock of  approximately
         $.1875 per share. It does not reflect the value of the Warrants,  which
         could be sold in the open market.
<PAGE>
INCENTIVE COMPENSATION PLAN

         1997 LONG-TERM  STOCK  INCENTIVE  PLAN. In November 1997, the Company's
majority  stockholder  approved the  adoption of the  Company's  1997  Long-term
Incentive Plan (the  "Incentive  Plan").  Under the Incentive Plan, the Board of
Directors or a  Compensation  Committee of the Board of Directors  consisting of
not less than three  members  may grant stock  incentives  to  employees  of the
Company  pursuant  to which a total of  400,000  shares of  common  stock may be
issued: provided,  however, that the maximum amount of Common Stock with respect
to which stock  incentives may be granted to any person during any calendar year
shall  be  20,000  shares,  except  for a grant  made to a  recipient  upon  the
recipient's  initial hiring by the Company,  in which case the number shall be a
maximum of 40,000  shares.  These numbers are subject to adjustment in the event
of a stock split and similar events.  Stock incentive  grants may be in the form
of options, stock appreciation rights, stock awards or a combination thereof.

         Options granted under the Incentive Plan may be either "Incentive stock
options,"  which  qualify  for special tax  treatment  under  Section 422 of the
Internal Revenue Code (the "Code"), or nonstatutory stock options,  which do not
qualify.  Incentive  stock  options  may  only be  granted  to  persons  who are
employees of the Company.  Options will expire at such time as the  compensation
Committee  determines,  provided that no stock option may be  exercisable  later
than ten years from its grant,  except  that the maximum  term of any  incentive
stock option granted to a person who owns,  directly or indirectly,  10% or more
of  the  combined   voting  power  of  the  Company's   capital  stock  (a  "10%
Shareholder")  shall be five years.  If an optionee  ceases to be an employee by
reason of death,  incapacity of retirement,  the option shall terminate  fifteen
months after the optionee ceases to be an employee.  If an optionee ceases to be
an  employee  because  of  resignation  with  the  consent  of the  compensation
committee,  the option will terminate  three months after the optionee ceases to
be an  employee.  If an optionee  ceases to be an  employee or director  for any
other reason, the option will expire thirty days after the optionee ceases to be
an employee.

         The option price per share is determined by the Compensation Committee,
except for  incentive  stock  options which cannot be less than 100% of the fair
market value of the Common Stock on the date such option is granted or less than
110% of such fair market value if the optionee is a 10% shareholder.  Payment of
the exercise  price may be made in cash,  or, unless  otherwise  provided by the
Compensation  Committee,  in shares of Common Stock  delivered to the Company by
the optionee or by withholding of shares issuable upon exercise of the option or
in a combination  thereof.  Each Option shall be  exercisable in full or in part
not less than six  months  after the date the Option is  granted,  or may become
exercisable  in one or more  installments  at such  later  time or  times as the
Committee  shall  determine.  In the event of a "change in  control"  as defined
under the  Incentive  Plan,  generally  any  stock  incentives  which  have been
outstanding  for at least six  months  shall be  immediately  exercisable.  Each
option shall be exercised in full or in part. Options are not transferable other
than by will or the  laws of  descent  and  distribution,  and may be  exercised
during the life of the  employee  or director  only by him or her. No  Incentive
Stock Options may be granted under the  Incentive  Plan after  November 8, 2007.
However,  any options  outstanding  on November 8, 2007 will remain in effect in
accordance with their terms.


<PAGE>
         The Incentive Plan also provides for the granting of stock appreciation
rights  ("SAR"),  which entitle the holder to receive upon exercise an amount in
cash and/or stock which is equal to the appreciation in the fair market value of
the Common  stock  between the date of the grant and the date of  exercise.  The
number of shares of Common Stock to which a SAR relates,  the period in which it
can be  exercised,  and other terms and  conditions  shall be  determined by the
Compensation committee,  provided,  however, that such expiration date shall not
be later than ten years from the date of the  grant.  SARS are not  transferable
other than by will or the laws of descent and distribution, and may be exercised
during the life of the grant only by the  grantee.  The SARS are  subject to the
same rules  regarding  expiration  upon a grantee's  cessation of  employment or
directorship, as pertains to options, discussed above.

         The  Compensation  Committee  may also  award  shares of  Common  Stock
("stock awards") in payment of certain incentive  compensation,  subject to such
conditions and restrictions as the committee may determine. All shares of Common
Stock  subject to a stock award will be valued at not less than 100% of the fair
market  value of such shares on the date the stock award is granted.  The number
of shares of Common  stock which may be granted as a stock award in any calendar
year may not exceed 80,000.

         The Incentive Plan will be administered by the compensation  Committee,
which has the  authority to prescribe,  amend and rescind rules and  regulations
relating  to the  Plan,  to  accelerate  the  exercise  date of any  option,  to
interpret the Plan and to make all necessary determinations in administering the
Plan.  The  Incentive  Plan  will  remain  in  effect  until  such time as it is
terminated by the Board of Directors.  The Incentive  Plan may be amended by the
Board of Directors upon the recommendation of the Compensation Committee, except
that, without stockholder approval, the Plan may not be amended to: increase the
number of shares subject to issuance under the Plan: change the class of persons
eligible to participate under the Plan:  withdraw the administration of the Plan
from the Compensation  Committee,  or, to permit any option to be exercised more
than ten years after the date it was granted. As of the date of the Form 10-KSB,
the  Compensation  Committee has yet to be formed,  and no stock incentives have
been granted under the Incentive Plan.


<PAGE>
EMPLOYMENT AGREEMENTS

         Pursuant to an employment  agreement  dated as of December 1, 1997, the
Company  employed  William  Miller  ("Miller")  as its Chairman of the Board and
Chief Executive  Officer over a term commencing on December 1, 1997 and expiring
on December 31, 2002. On February 7, 2000, the Company extended Mr. Miller's one
additional  year to December 31, 2003 and agreed to sell to Mr.  Miller  240,000
shares of  Havana's  Common  Stock at the then fair  market  value of $.4044 per
share. The agreement provides for the following compensation:  (i) a base annual
salary of $50,000 for 1998 (and each year thereafter)  subject to increase to at
least $100,000 for the beginning of the following  fiscal year and the remainder
of the term should the Company's gross revenues exceed  $5,000,000 for the prior
year;  (ii) a cash bonus pool for key management  personnel  administered by the
Board of Directors or a Compensation  Committee under which a cash bonus will be
paid to Miller in an amount ranging from 0% to 50% of Miller's prior year's base
salary;  (iii)  five-year  warrants to purchase  200,000 shares of the Company's
Common Stock at an exercise price of $6.00 per share,  which warrants on May 14,
1998  automatically  converted into 200,000 Class A Warrants  identical to those
sold to the public in connection with its initial public  offering;  (iv) in the
event the Company engages in any interim financing in order to raise capital for
any venture,  subsidiary  acquisition or similar transaction,  Miller shall have
the option to participate in, or match the terms of, any such interim  financing
such that the terms  offered to Miller  are the same or  similar to those  terms
offered to such non-affiliated  third party, and Miller is given the opportunity
to participate up to an amount equal to the amount of financing  provided by any
third  party (it being  noted that  Miller  elected  not to  participate  in the
$200,000 bridge financing);  and (v) ten-year options to purchase 200,000 shares
of the Company's  Common Stock. As March 30, 2000,  options to purchase  160,000
shares are vested and are currently exercisable at $.4044. The remaining options
become exercisable at the same exercise price on January 1, 2001. On February 4,
2000 Mr. Miller's options which were originally exercisable at $6.00, subject to
adjustment,  were cancelled and were  re-granted on terms  identical to those in
his original  options except the exercise price was lowered to $.4044 per common
share representing the market value of the Company's common stock at February 4,
2000.  Reference  is made to  footnote 5 to  Summary  Compensation  Table  under
"Executive  Summary"  for  a  discussion  of  a  modification  to  Mr.  Miller's
employment  contract  which resulted in the issuance of 200,000 Class A Warrants
in exchange for his waiver of a total of $42,000 of monies due him.

         Miller's employment  agreement provides for indemnification to the full
extent permitted by law. Provided Miller  beneficially owns less than 50% of the
Company's  then  outstanding  voting stock,  Miller is entitled to terminate the
agreement on 30 days' prior  written  notice upon the  incurrence  of one of the
following  events:  (a) the  failure  of the  Company to  re-elect  him as Chief
Executive Officer; (b) a material change in his  responsibilities,  functions or
duties;  (c) a  material  breach of the  agreement  by the  Company;  or (d) the
liquidation  or  dissolution,   or  consolidation,   merger  or  other  business
combination  of the  Company,  or  transfer of all or  substantially  all of the
Company' assets unless such consolidation,  merger, or business combination does
not adversely  affect Miller's  position or the dignity or  responsibilities  of
Miller.  The  employment  agreement can be terminated by the Company at any time
for cause (as defined in the agreement) on 30 days' prior written notice. In the
event that the agreement is terminated by the Company without cause or by Miller
(as described below) due to a material change in his responsibilities, functions
or duties, the Company shall pay Miller a lump sum on the date of termination as
severance  pay an amount  derived by  multiplying  the factor 2.99 by the sum of
Miller's salary and bonus paid in the year prior to the year of termination.  In
the event the  agreement  expires and Miller is not  re-hired as Chairman of the
Board and Chief Executive Officer of the Company on terms mutually acceptable to
the  parties,  the  Company  shall pay in a lump sum on the date of  termination
severance compensation to Miller in an amount equal to Miller's salary and bonus
paid in the year ending December 31, 2002.


<PAGE>
         In the event that (i) any person  other than  Miller,  Jeanne E. Miller
(Miller's  wife),  Duncan Hill or their  affiliates  by any means of purchase or
acquisition  becomes  the  beneficial  owner of more  than 50% of the  Company's
outstanding  Common  Stock or (ii)  the  Company  enters  into an  agreement  of
reorganization,  consolidation  or  merger  of the  Company  with  one  or  more
corporations  as a result of which the Company is not the surviving  corporation
or an agreement to sell all or  substantially  all of the assets of the Company,
then all of Miller's options to purchase Common Stock of the Company outstanding
at the time of the event and which were  granted six months or more prior to the
event,  shall  immediately  become  exercisable  in full.  Thereafter,  upon the
written election of Miller given within 180 days of the event, the Company shall
repurchase  for cash all or any part of the options as  specified in the written
election at a price per share equal to the  difference  in the fair market value
of the Company's  Common Stock on the date of the event and the option  exercise
price per share.

         Pursuant to an  agreement  dated as of  December  8, 1998,  the Company
entered  into an  employment  contract  effective  February 1, 1999 with Gary J.
Corbett  pursuant to which he agreed to serve as  President  of the Company at a
base  salary of $80,000  per annum,  bonuses  to be  determined  by the Board of
Directors and a signing bonus of $22,000 should he not receive this amount via a
performance  bonus  from his prior  employer.  He was also  granted  options  to
purchase  80,000  shares of the Company's  Common Stock at an exercise  price of
$3.50 per share with  one-fourth  of said  options  vesting on March 1, 1999 and
thereafter the balance of the options vesting in three equal annual installments
on the first three  anniversary  dates of the employment  contract.  The options
contain  certain  provisions  to decrease  the exercise  price  similar to those
provisions that apply to Mr. Miller's  options,  which are described  above. The
term of the employment contract commenced on February 1, 1999 and will expire on
December 31, 2002.  The contract may be  terminated  by Mr.  Corbett on 120 days
prior written notice, by mutual consent of the parties, by the Company for cause
as  defined  in the  contract  and by the  Company  without  cause on or  before
December 31, 1999. If terminated  without cause prior to December 31, 1999,  Mr.
Corbett is entitled to four months  termination pay.  Termination  without cause
after  January 1, 2000 shall  result in the  Company  being  required to pay Mr.
Corbett termination pay equal to twelve months base salary.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

         The  Company's  Certificate  of  Incorporation   contains  a  provision
eliminating the personal  monetary  liability of directors to the extent allowed
under the General Corporation Law of the State of Delaware. Under the provision,
a  stockholder  is able to prosecute  an action  against a director for monetary
damages only if he can show a breach of the duty of loyalty, a failure to act in
good faith,  intentional  misconduct,  a knowing  violation  of law, an improper
personal benefit or an illegal dividend or stock  repurchase,  as referred to in
the provision, and not "negligence" or "gross negligence" in satisfying his duty
of care. In addition,  the provision  applies only to claims  against a director
arising out of his role as a director  and not,  if he is also an  officer,  his
role as an officer or in any other capacity or to his responsibilities under any
other law,  such as the federal  securities  laws.  In addition,  the  Company's
Bylaws  provide  that  the  Company  will  indemnify  its  directors,  officers,
employees  and other agents to the fullest  extent  permitted  by Delaware  law.
Insofar as indemnification  for liabilities  arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors,  officers
and controlling persons of the Company pursuant to the foregoing provisions,  or
otherwise,  the Company has been advised that, in the opinion of the  Securities
and  Exchange  Commission,  such  indemnification  is against  public  policy as
expressed in the Securities Act and is, therefore, unenforceable.


<PAGE>
DIRECTORS COMPENSATION

         The Company  intends to pay its directors who are not also employees of
the Company $500 for each meeting attended and will reimburse such directors for
travel and other expenses incurred by them in connection with attending Board of
Directors meetings.  Miller received options and other compensation  pursuant to
his employment  contract as discussed under  "Employment  Contract." In December
1997, the Company  granted  options to purchase 30,000 shares to each of Messrs.
Cobb and Stokkebye.  These options are almost  identical to the options given to
Miller and described under  "Employment  Contract"  except for the date of grant
and number of options granted.

POTENTIAL CONFLICTS OF INTEREST

         The  Company's  Certificate  of  Incorporation   contains  a  provision
eliminating the personal  monetary  liability of directors to the extent allowed
under the General Corporation Law of the State of Delaware. Under the provision,
a  stockholder  is able to prosecute  an action  against a director for monetary
damages only if he can show a breach of the duty of loyalty, a failure to act in
good faith,  intentional  misconduct,  a knowing  violation  of law, an improper
personal benefit or an illegal dividend or stock  repurchase,  as referred to in
the provision, and not "negligence" or "gross negligence" in satisfying his duty
of care. In addition,  the provision  applies only to claims  against a director
arising out of his role as a director  and not,  if he is also an  officer,  his
role as an officer or in any other capacity or to his responsibilities under any
other law,  such as the federal  securities  laws.  In addition,  the  Company's
Bylaws  provide  that  the  Company  will  indemnify  its  directors,  officers,
employees  and other agents to the fullest  extent  permitted  by Delaware  law.
Insofar as indemnification  for liabilities  arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors,  officers
and controlling persons of the Company pursuant to the foregoing provisions,  or
otherwise,  the Company has been advised that, in the opinion of the  Securities
and  Exchange  Commission,  such  indemnification  is against  public  policy as
expressed in the Securities Act and is, therefore, unenforceable.

DIRECTORS COMPENSATION

         The Company  intends to pay its directors who are not also employees of
the Company $500 for each meeting attended and will reimburse such directors for
travel and other expenses incurred by them in connection with attending Board of
Directors meetings.  Miller received options and other compensation  pursuant to
his employment  contract as discussed under  "Employment  Contract." In December
1997, the Company  granted  options to purchase 30,000 shares to each of Messrs.
Cobb and Stokkebye.  These options are almost  identical to the options given to
Miller and described under  "Employment  Contract"  except for the date of grant
and number of options granted.


<PAGE>
         Miller is a co-founder of the Company's parent,  Duncan Hill. Miller is
currently  the  President  of Duncan  Hill,  as well as Chairman of the Board of
Directors and Chief  Executive  Officer of Kids Stuff and the Company.  Miller's
employment  agreement  with the Company  provides  that he shall be permitted to
devote  such  time  to  managing  Duncan  Hill  and  Kids  Stuff,  as  he  deems
appropriate. Accordingly, Miller will not be devoting his full-time attention to
managing the  operations  of the  Company.  Thus,  conflicts  of interest  could
potentially  develop  (i) to the  extent  that  Miller is not able to devote his
full-time and attention to a matter that would  otherwise  require the full-time
and attention of a business' chief executive officer, (ii) involving competition
for business opportunities, and (iii) involving transactions between the Company
and its  affiliated  companies.  The Company has not adopted any  procedure  for
dealing  with such  conflicts of interest,  except that the  Company's  Board of
Directors has adopted a policy that all new transactions between the Company and
Duncan Hill, Kids Stuff or any other  affiliated  company must be approved by at
least a majority of the Company's disinterested directors. Currently the Company
has only one  disinterested  director  and Duncan  Hill and Miller  control  the
election of the directors including the disinterested directors.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The  following  table  sets  forth  as  of  March  17,  2000,   certain
information with respect to the beneficial  ownership of Common Stock and Series
A and Series B Preferred  Stock by each person or entity known by the Company to
be the beneficial owner of 5% or more of such shares,  each officer and director
of the Company, and all officers and directors of the Company as a group.
<TABLE>
<CAPTION>

                                                          Shares of                       Shares of Series A and B
                                                         Common Stock                          Preferred Stock
                                                      Beneficially Owned                     Beneficially Owned
  NAME AND ADDRESS OF
  BENEFICIAL OWNER(1)                           NUMBER           PERCENT(3)             NUMBER          PERCENT(4)

<S>              <C>                             <C>               <C>              <C>                    <C>
     Duncan Hill (2)                             866,000(4)        36.9%            6,100,000(4)           100%

     William L. Miller (5)                     1,466,000(5)        54.6%            6,100,000(6)           100

     John W. Cobb (2)(6)                          22,500            1.0%                  -0-                 -0-

     Peter Stokkebye(2)(6)                        22,500            1.0%                  -0-                 -0-

     Gary Corbett (7)                             40,000            1.0%                  -0-                 -0-

     All five Officers and Directors           1,551,000            1.7%                  -0-                 -0-
</TABLE>

       * Represents less than 1% of the outstanding shares of Common Stock.
<PAGE>
     (1) Beneficial ownership as reported in the table above has been determined
in  accordance  with Rule 13d-3 of the  Securities  Exchange  Act. or investment
power, have been deemed beneficially owned. Accordingly, except as noted, all of
the  Company's  securities  over which the officers and  directors  and nominees
named, or as a group, directly or indirectly have, or share voting

     (2) All addresses are c/o The Havana  Group,  Inc.,  5701 Mayfair Rd, North
Canton, OH 44720.

     (3)  Calculated  based upon  2,345,000  shares of Common Stock  outstanding
without giving effect to the possible  exercise of outstanding  Class A Warrants
and Options.

     (4) Calculated  based upon 5,000,000 shares of Series A Preferred Stock and
1,100,000  Series B  Preferred  Stock  outstanding.  The holders of the Series A
Preferred  Stock are  entitled  to one vote for each share held of record on all
matters  submitted to a vote of the  stockholders.  The Series A Preferred Stock
has no conversion  right.  Each share of Series B Preferred Stock is convertible
at the option of the holder into one share of Common Stock at any time after the
Company has pre-tax earnings of at least $500,000 in any calendar year.

     (5) Mr. Miller may be deemed to  beneficially  own all Duncan Hill's shares
of capital  stock  based upon his and his wife's  68%  controlling  interest  in
Duncan Hill's shares of Common Stock.  The table above reflects his  controlling
interest of 866,000 shares owned by Duncan and 240,000 shares of Havana's Common
Stock,  Class A Warrants to purchase  200,000 shares of Common Stock and options
to purchase  160,000  shares of Common  Stock,  which are directly  beneficially
owned by him.  Not  included in the  foregoing  are  options to purchase  40,000
shares which are not deemed  beneficially owned by him as of March 17, 2000. Mr.
Miller by virtue of his beneficial ownership of Common Stock and Preferred Stock
(excluding  options  and  warrants)  has the right to vote  control  the vote of
7,606,000  shares of the  Company's  voting  capital  representing  88.4% of the
outstanding voting capital stock of the Company.

     (6) Messrs.  Cobb and Stokkebye each  beneficially  own options to purchase
15,000  shares  of  Common  Stock.  An  additional  7,500  options  will  become
beneficially owned on January 1, 2001.

     (7) Mr.  Corbett  beneficially  owns options to purchase  20,000  shares of
Common Stock.  An additional  20,000 options will become  beneficially  owned on
each of February 1, 2001 and February 1, 2002.


<PAGE>
Item 12.       Certain Relationships and Related Transactions.

         Prior to 1997,  fulfillment and administrative  services of the Company
were  performed  for the Company by Duncan  Hill,  which also  provided  similar
services to its  subsidiary,  Kids Stuff.  Fulfillment  services  included order
taking,  order  processing,  customer  service,  warehouse packing and delivery,
telephone contracts and shipping contracts. Fulfillment services were charged to
the Company and Kids Stuff based on the actual cost. The amount of these charges
was $295,558 during 1996. Administrative services included wages and salaries of
officers, accounting, purchasing, executive and creative/marketing personnel. It
also included, all leases,  contracts,  equipment rentals and purchases,  audit,
legal,  data  processing,  insurance  and  building  rent and  maintenance.  The
administrative costs were allocated by Duncan Hill to the Company and Kids Stuff
based upon the percentage of assets for each  operating  subsidiary to the total
assets for all operating subsidiaries.  The amount charged to the Company during
1996 was $360,873.  The  percentages for 1996 were 31% to the Company and 69% to
Kids Stuff.  During 1997,  all  administrative  and  fulfillment  services  were
performed  or paid by Kids  Stuff on  behalf  of the  Company.  All  fulfillment
services were contracted and paid by Kids Stuff and charged to the Company based
on the actual  cost.  The charges to the Company  were  $218,632  for 1997.  All
administrative  costs were  allocated  between  the Company and Kids Stuff based
upon the percentage of assets for each respective operating company to the total
assets for both  operating  companies  with 33%  charged to the  Company for the
period  January 1, 1997 through June 30, 1997 and 21% charged to the Company for
the period July 1, 1997  through  December 31,  1997.  The total  charges to the
Company from Kids Stuff were $255,120.  Duncan Hill also incurred  certain other
costs that were allocated to the Company and Kids Stuff based on the same method
and percentages as described above.

         These  costs were  incurred  and billed in the name of Duncan  Hill and
include such items as legal fees, outside accounting fees and insurance expense.
Though Duncan Hill was billed for the items the Company partially benefited from
the services received. The charge to the Company was $65,474.

         Effective  January  1,  1998,  the  Company  entered  into  a  one-year
agreement with Kids Stuff whereby Kids Stuff provides  administrative  functions
to the Company at an annual cost of $206,100 based upon the  following:  $34,000
for  accounting  and  payroll  services,  $51,600 for  administration  and human
resource management,  $34,900 for data processing,  $32,200 for office equipment
and facilities use, $38,100 for merchandising and marketing services and $15,300
for purchasing  services.  Kids Stuff is also providing  fulfillment services to
the Company at a cost of $2.40 per order  processed.  The Company has calculated
these fees based on actual 1997 costs, and it is Management's  belief that these
fees would represent actual costs should the Company  undertake to provide these
services  itself.  The  Company was also  obligated  to pay Kids Stuff an amount
equal to 5% of the Company's 1998 pre-tax  profits,  of which there was none, as
additional   consideration   for  Kids  Stuff   providing   the   Company   with
administrative  and fulfillment  services.  At January 1, 1999 the agreement was
modified and extended on a  month-to-month  basis as the Company  began to incur
direct costs for its administrative functions. The Company pays to Kids Stuff an
accounting,  data processing, and administrative charge of $15,000 per year plus
$1.75 per shipment for warehouse services. The Company is also obliged to pay 5%
of its 1999  pretax  profits to Kids  Stuff in  connection  with these  services
however the Company had no pre-tax  profits for 1999. This agreement is still in
effect, but as of this printing,  the Company has started provided some of these
services themselves.

         Until August  1997,  Duncan Hill  received  all revenues and  deposited
these funds in its own account for the benefit of the Company and made  payments
against Company charged expenses including,  without  limitation,  any funds due
Duncan Hill and Kids Stuff.


<PAGE>
         Effective   September  1997,  the  Company  obtained  its  own  banking
accounts,  whereby the Company  manages all deposits and  payments.  the Company
will manage its own functions with the exception of those discussed  above,  for
which the Company will make payment to Kids Stuff for services  provided by Kids
Stuff.  At January 1, 1998, the Company owed a net of $173,752 to Kids Stuff and
is  owed  a  net  amount,   which  consists  of  charges  for   fulfillment  and
administrative  services of $473,752  less  $300,000 of  affiliate  indebtedness
assumed by Duncan Hill relating to the sale of the Company's  Series B Preferred
Stock.  See "(iv)" below.  The Company is also owed a net of $43,860 from Duncan
Hill which consists of balances since 1984 totaling  $12,312,833  owed by Duncan
Hill for payments from the Company in the form of revenue  deposits as mentioned
above,  $8,455,066  in payments made on behalf of the Company by Duncan Hill for
accounts  payable  and other  payments  and  $3,813,907  owed to Duncan Hill for
fulfillment and administrative  expenses  allocated to the Company.  The Company
intends  to pay the  balance  due to Kids  Stuff from cash flow over the next 12
months.

         (ii) Pursuant to an employment  agreement,  the Company granted William
L. Miller five year Warrants to purchase  200,000 shares of the Company's Common
Stock in December  1997.  Upon the  completion of the Company's  initial  public
offering  ("IPO"),  the aforesaid  Warrants  which are  exercisable at $6.00 per
share  automatically  converted into Class A Warrants identical to those sold in
the IPO.

         (iii) On December 8, 1997,  the  Company  declared a stock  dividend of
5,000,000  shares of its  Series A  Preferred  Stock and five year  warrants  to
purchase  138,000  shares of the  Company's  Common  Stock to Duncan  Hill,  the
Company's sole common stockholder prior to the Offering.  Upon the completion of
the IPO,  the  aforesaid  warrants  which  are  exercisable  at $6.00  per share
automatically  converted  into Class A Warrants  identical  to those sold in the
IPO.

         (iv) On December  8, 1997,  the Company  sold  1,100,000  shares of its
Series B Preferred Stock to Duncan Hill in exchange for Duncan Hill's assumption
of $300,000 of indebtedness  owing to an affiliate.  The holder of each share of
Series B Preferred  Stock will be entitled to receive,  when, as and if declared
by the  Board  of  Directors  of the  Company,  out of funds  legally  available
therefore,  cumulative  quarterly cash dividends at the rate of $.025 per share,
quarterly on March 31, June 30,  September 30 and  December 31  commencing  with
March 31, 1998. All issued and  outstanding  shares of Series B Preferred  Stock
are owned by Duncan Hill.

         All the aforesaid  transactions occurred at a time when the Company was
a sole shareholder of Duncan Hill. All future transactions  between the Company,
Duncan  Hill and Kids Stuff must be  approved  by a  majority  of the  Company's
disinterested directors.

          (v) See  Footnote 5 in Summary  Compensation  Table  under  "Executive
Compensation"  for a description  of the issuance of 200,000 Class A Warrants to
Mr. Miller on June 30, 1999.

         (vi) On February 7, 2000, the Company sold 240,000 shares of its Common
Stock to Miller at a cash purchase price of $.4044 per share.

(vii) In March 2000,  the Company  sold  245,000  shares of its Common  Stock to
seven non-affiliated persons at a purchase price of $1.00 per share.
<PAGE>
Item 13.   Exhibits and Reports on Form 8-K.

(a)  Exhibits

All Exhibits have been  previously  filed herewith in connection  with Form SB-2
Registration Statement, file No. 333-45863 unless otherwise noted.

<TABLE>
<CAPTION>
       <S>    <C>
       2.0   Certificate of Merger (Ohio)
       2.1   Certificate of Merger (Delaware)
       2.2   Agreement and Plan of Merger
       3.0   Certificate of Incorporation
       3.1   Designation  of Rights of Series A and Series B Preferred  Stock
       3.2   By-Laws
       3.3   Form of  Certificate of Amendment  Correcting  Designation of Rights of Series A
             and Series B Preferred Stock
       4.0   Specimen of Common Stock
       4.1   Specimen  of Class A  Warrant
       4.2   Form of  Underwriter's  Unit  Purchase Option
       4.3   Form of Warrant Agreement
       5.0   Opinion of Lester Morse P.C.
      10.0   Employment Agreement with William L. Miller
      10.1   Agreement with Kids Stuff, Inc. as of January 1, 1998
      10.2   1997 Long-Term Incentive Plan
      10.3   Duncan Hill lease for principal office
      10.4   First Amendment to Exhibit 10.3 lease
      10.5   Kids Stuff credit facility with United National Bank
      10.6   Registrant's guarantee of Exhibit 10.5 (included in Exhibit 10.5)
      10.7   Employment Agreement dated as of December 8, 1998 with Gary Corbett.**
      27      Selected Financial Data*
</TABLE>

-------------------------
     *     Filed herewith.
     **    Incorporated by reference from the Issuer's Form 10-KSB

(b)        Reports on Form 8-K

              During the three  months  ended  December 31, 1999, a Form 8-K was
not filed or required to be filed.


<PAGE>
                                   SIGNATURES

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

                                                          THE HAVANA GROUP, INC.



                                                       By: /s/ William L. Miller
                                                              William L. Miller,
                                                         Chief Executive Officer

Dated:     Canton, Ohio
           March 30, 2000

              Pursuant to the  requirements  of the  Securities  Exchange Act of
1934,  this Report has been signed below by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>

         Signatures                    Titles                                       Date

<S>                                    <C>                                          <C>
/s/ William L. Miller                  Chairman of the
William L. Miller                      Board, Chief Executive Officer,
                                       Principal Financial Officer,
                                       Treasurer and Secretary                      March 30, 2000


/s/ Peter Stokkebye
Peter Stokkebye                        Director                                     March 30, 2000


/s/ John Cobb
John Cobb                              Director                                     March 30, 2000

</TABLE>