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, 1998

                                       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)


<TABLE>
<CAPTION>
<S>                                                                               <C>                
Delaware                                                                          34-1454529         
(State or other jurisdiction of                                                   (I.R.S. Employer
incorporation or organization                                                     (Identification No.)
</TABLE>


                     4450 Belden Village St., N.W., Ste. 406
                               Canton, Ohio 44718
               (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 29, 1999 at 4:00 P.M., the aggregate market value of the voting
stock held by  non-affiliates,  approximately  885,000  shares of Common  Stock,
$.001 par value,  was  approximately  $1,549,000 based on the last sale price of
$1.75 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 29, 1999 was
1,860,000.


<PAGE>
Item 1.           Description of Business

GENERAL

     The Havana Group, Inc. (the "Company") is a Delaware corporation engaged in
the business of (i) operating a retail smokeshop in Canton, Ohio which primarily
sells pipes, cigars and smoking accessories;  (ii) marketing pipes, 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 tobacco  directly to consumers  (the "Carey  Tobacco  Club").  The
Company  intends to create and develop a Cigar Club (the "Havana Group  Direct")
pursuant to which the  Company  will charge  certain  membership  fees and offer
certain  cigar  purchasing,  warehousing  and  shipping  services  in return for
membership,  purchasing and shipping fees. The Company does not sell cigarettes,
but it may choose to do so in the future.

     The Company has one wholly-owned  subsidiary  namely,  Monarch Pipe Company
("Monarch").  Monarch  manufactures  smoking pipes which 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
$6.00 to $9.50 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. ("Duncan Hill") 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.

STRATEGIES

     The Company believes that its expertise in the marketing and  merchandising
of smoking  products and the recent  introduction  of its smokeshop will provide
the basis for future growth by use of the following strategies:


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     Development  of the Havana Group  Direct.  The Company plans to develop the
Havana Group Direct,  a direct  marketing  cigar club.  The Company would obtain
membership inquiries through magazine and newspaper advertisements,  and solicit
memberships  by  offering  services  in  return  for an annual  membership  fee.
Services would include providing  individual humidor space for up to 50 boxes of
cigars, a personalized  buying service for the member's cigar preference,  and a
periodic  newsletter of items of interest for cigar  smokers.  The Company would
also sell cigars to its members at cost plus a handling charge in return for the
member's annual fee.

     The  Smokeshop.  The  Company  had  operated  a  smokeshop  named  "Carey's
Smokeshop"  from 1984 to 1996 to  maintain a retail  presence  and  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 pipes,  cigars,  smoking
accessories, fine wines and imported beers. The Company may expand the number of
retail  stores  depending  upon the success of its existing  store and available
external financing, if any.

     Maintain  Carey's  Smokeshop  Catalog.  The Company  believes  that Carey's
Smokeshop  catalog  provides a good initial  revenue base. The Company  believes
that it must maintain and expand its customer  base.  The Company plans to alter
the  merchandise mix of products  offered in the catalog,  change the pricing to
reflect more lower price goods,  and offer  discounts to members joining a Carey
"Tobacco  lovers"  price  club.   Additionally,   the  Company  plans  to  offer
"Make-Your-Own" and "Roll-Your-Own" cigarettes constructed of natural tobaccos.

     Establish the Carey site on the World-Wide-Web for e-commerce purposes. The
Company  believes  that it can  successfully  sell its  products and develop its
business through the world-wide-web and its web site, the havanagroup.com, which
is expected to be  established  in the second quarter of 1999. The Company would
offer a special  department  on its web site for Havana Group Direct  members so
that special prices could be obtained and the member could access his individual
humidor.  Non-member  cigar purchases could be made through a second  department
that has  non-member  sale  offers  and  special  cigar  auctions.  The  Carey's
Smokeshop  Catalog  would be  available  for  purchases  of pipes,  accessories,
tobaccos, and certain cigars selected for catalog use.

MERCHANDISING

     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.

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     The Company merchandises  tobaccos and cigars from domestic sources,  which
either import their  products or  manufacture  in this country.  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 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.

     The  Company  intends to  merchandise  cigars for its Havana  Group  Direct
marketing  cigar club by offering its own private  label  "Havana  Group" cigar,
plus other well known and established brand names, such as "Arturo Fuente",  "H.
Upmann", "Dunhill",  "Montecruz",  "Partagas", "Punch", "Ashton", "Macanudo" and
others.  It is the  Company's  intent to price  brand name cigars at full retail
markups  and  then  offer  the club  member  a  discount  for  purchases  in box
quantities for storage in their Havana Group personal humidor.

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, 1998,  Carey mailed 357,961  catalogs,  which  generated
average gross revenues of $2.54 per catalog mailed.  The catalog  consists of 48
full color pages, with approximately 80% offering pipes,  tobaccos,  and related
accessories, approximately 20% offering cigars and cigar related accessories 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  membership  have been  members in
excess of five years. At December 31, 1998,  Carey Tobacco Club had 1,804 active
members who placed 12,355 orders  during the year ended  December 31, 1998,  and
generated $271,942 in gross sales in 1998 for the Company.

     The Company plans to create and develop the "Havana Group Direct," a direct
marketing  cigar club.  The Company would develop its member base using the same
marketing  methods it has  historically  used in the  smaller  pipe and  tobacco
business,  namely using magazine and newspaper  advertising to generate a Havana
Group  inquiry and then  converting  the inquiry to a  membership  using  direct
marketing  techniques,  including  direct mail,  CD Rom and  telemarketing.  The
Company has retained  Simmons  Market  Research  Bureau to identify  advertising
media  containing  cigar  smokers of similar  demographic  characteristics.  The
Company  believes  that it can  successfully  generate  Havana  Group cigar club
members on the aforementioned basis.


                                        4

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     The Company plans to offer its Havana Group Direct cigar club membership on
an annual fee basis,  and to offer certain services in return for the membership
fee.  The  Havana  Group  Direct  would  construct  its  own  climate-controlled
warehouse,  and each member would  receive  their  personal  humidor  capable of
storing  up to 50 boxes of cigars  within  the Havana  Group  Direct  humidified
warehouse.  The Havana Group Direct would  encourage  purchase and collection of
fine cigars by each  member,  and  distribute  those cigars to the member in any
requested  quantity by first and second day air  shipment.  Each member would be
invoiced  for the  purchase  of the cigars and  courier  service.  To  encourage
collection  of fine cigars,  Havana  Group Direct would offer a personal  buying
service for any premium cigar desired by the  individual  member  (however,  the
Company will not sell products made in Cuba). The product would be supplied from
stock  or,  alternatively,  would be  sourced  and  purchased  for the  member's
account.  Upon  receipt,  the cigars would be shipped to the member or placed in
the member's personal humidor for later distribution as requested.  Havana Group
Direct would identify this as "Concierge Level" services.

     Havana Group Direct anticipates that all cigars cannot be supplied from its
own inventory, and that many requested brands will be subject to deliveries from
the major manufacturers. In cases where the requested cigars are not in stock at
the time of the member's  request,  Havana Group Direct will place the cigars on
order for the member's account.

     The Company had 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 new retail  outlets offer product  groups  proven  historically  in the
smokeshop  industry,  and has added other product lines,  such as fine wines and
imported beers. At its current  location,  the Company has determined the mix of
product by taking  proven  product  lines of  smokeshops,  and deleting  certain
product  lines  inconsistent  with The Havana  Group image.  Such product  lines
dropped include domestic cigarettes,  smokeless tobacco,  candy, gum, snacks and
greeting  cards.  The Company would expand its retail efforts upon evaluation of
its Canton, Ohio store.

CUSTOMER SERVICE AND TELEMARKETING

     During 1998, the Company derived  approximately 66% of its revenues through
orders placed over the telephone and emphasizes  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  4.2% of
sales. The Company  purchases  telemarketing  services from its affiliate,  Kids
Stuff, Inc. ("Kids Stuff"), a publicly-held corporation controlled by Duncan

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Hill.  During the past three  fiscal  years,  Kids Stuff  processed  over 75,000
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  purchases  its
fulfillment  operations from its affiliate,  Kids Stuff.  Kids Stuff's  facility
consist of 28,000 square feet of leased  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 are  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 80,000
Havana Group shipments in the past three fiscal years.

INVENTORY/PURCHASING

     The Company  conducts its purchasing  operations at its general  offices in
Canton, Ohio. Each catalog contains  approximately 336 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  16% 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 Lane Limited (30%), Hollco-Rohr Co. (15%) and
Consolidated  Cigar Inc.  (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

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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

     The  Company  currently  does not have any data  processing  equipment.  It
currently  relies  upon Kids  Stuff to provide  data  processing  services.  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 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.  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.

     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  which  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

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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. This agreement has been extended by the
parties on a  month-to-month  basis. In addition to the above,  the Company also
expects to incur  additional  administrative  costs such as the  salaries of the
Company's  Chief  Executive  Officer,   legal,   accounting,   depreciation  and
amortization  and tax  expenses  which  costs will be  incurred  by and paid for
directly by the Company.

COMPETITION

     The Company believes that there are currently  approximately 1,000 to 1,500
full line smoke shops in the United  States.  While  certain  retail smoke shops
have  adopted  catalogs  and mail  order  techniques  as a method  for  creating
additional  revenue,  the Company believes that the number of retailers involved
in this area of distribution to be relatively  small in number.  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
with many  competitors  having more experience and greater  financial  resources
than the Company.  No  assurances  can be given that the Company will be able to
successfully compete in all aspects of its business in the future.

TOBACCO INDUSTRY--GOVERNMENT REGULATIONS

     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.  A variety of bills  relating to tobacco  issues have been  recently
introduced  in the United  States  Congress,  including  bills that,  if passed,
would:  (i) curtail the  advertising  and promotion of all tobacco  products and
restrict or eliminate  the  deductibility  of such  advertising  expenses;  (ii)
increase  labeling  requirements  on tobacco  products to  include,  among other
things,  addiction  warnings  and lists of  additives  and toxins;  (iii) modify
federal  preemption  of  state  laws to  allow  state  courts  to  hold  tobacco
manufacturers  liable under common law or state statutes;  (iv) shift regulatory
control of tobacco  products at the federal level from the United States Federal
Trade  Commission (the "FTC") to the United States Food and Drug  Administration
(the "FDA") and require the tobacco  industry to fund the FDA's  oversight;  (v)
increase tobacco excise taxes;  (vi) restrict the access to tobacco products by,
among other things,  banning the  distribution of tobacco  products  through the
mail,  except for sales  subject to proof of age;  (vii)  require  licensing  of
retail tobacco product sellers; (viii) regulate tobacco product development; and
(ix) require  tobacco  companies  to pay for  healthcare  costs  incurred by the
federal  government  in  connection  with  tobacco  related  diseases.  Although
hearings  have been held on certain of these  proposals,  to date,  none of such
proposals have been passed by Congress. Future enactment of such

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proposals or similar bills may have a material  adverse  effect on the Company's
business, results of operations and financial condition.

     In August 1996,  the FDA determined  that nicotine is a drug.  Accordingly,
the FDA  determined  that it had  jurisdiction  over  cigarettes  and  smokeless
tobacco products, pursuant to the FDA determination that cigarette and smokeless
tobacco  products are drug  delivery  devices used for the delivery of nicotine.
Although certain legal challenges to the FDA's determination are pending,  there
can be no assurance that such  determination will not be upheld, nor that in the
future,  the FDA will not prevail in an attempt to extend such  jurisdiction  to
cigars.  In  addition,  a majority of states  restrict  or  prohibit  smoking in
certain public places and restrict sale of tobacco products  (including  cigars)
to minors.  Local legislative and regulatory  bodies have increasingly  moved to
curtail  smoking by  prohibiting  smoking in  certain  buildings  or areas or by
requiring designated "smoking" areas. Individual establishments such as bars and
restaurants  have further  prohibited  pipe and cigar  smoking even though other
tobacco products are permitted in such establishments. Further restrictions of a
similar nature could have a material adverse effect on the business,  results of
operations and financial condition of the Company.  Numerous proposals have also
been  considered  at the state and local  level  restricting  smoking in certain
public areas.  Federal law has required health warnings on cigarettes since 1965
and on smokeless tobacco since 1986.  Although no federal law currently requires
that cigars carry such  warnings,  California  has enacted laws  requiring  that
"clear  and  reasonable"  warnings  be given to  consumers  who are  exposed  to
chemicals  determined  by the state to cause  cancer or  reproductive  toxicity,
including  tobacco  smoke and  several  of its  constituent  chemicals.  Similar
legislation has been introduced in other states. In addition,  effective January
1, 1998,  smoking,  including  cigar  smoking,  has been  banned by the State of
California  in all bars,  taverns  and clubs  where food and  alcohol is served.
Other  legislation  recently  introduced in a state would,  if enacted,  require
warning  labels on cigar boxes.  Certain states have enacted  legislation  which
require  cigar  manufacturers  to provide  information  on the levels of certain
substances in their cigars to these states on an annual  basis.  There can be no
assurance that such  legislation  or more  restrictive  legislation  will not be
passed by one or more  states in the future.  Consideration  at both the federal
and state level also has been given to consequences of second hand smoke.  There
can be no assurance that  regulations  relating to second hand smoke will not be
adopted or that such regulations or related litigation would not have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.

     Increased  cigar  consumption  and the publicity such increase has received
may increase the risk of additional  regulation of cigars.  Increased  publicity
may prompt  research  studies by various  agencies  such as the National  Cancer
Institute,  the American Cancer Society,  and others.  Such research can, by its
ultimate content,  influence additional regulation of cigars by federal,  state,
and local regulatory bodies. There can be no assurance that any such legislation
or  regulation  would  not  have a  material  adverse  effect  on the  Company's
business, results of operations and financial condition.

     On a national  level,  Senate Bill 1415 had been introduced by Senator John
McCain. During 1998, this Bill proposed the comprehensive  regulation of tobacco
products, but at

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the time of its introduction,  it specifically excluded the regulation of cigars
and pipe  tobacco.  However,  the Bill did  contain a  provision  requiring  the
Secretary  of Health and Human  Services  to monitor  the use of cigars and pipe
tobacco by  underage  individuals.  The  Secretary  would have been  required to
notify Congress "if the Secretary  determines that a decrease in underage use of
tobacco  products  resulting from the enactment of Senate Bill 1415 has produced
an increase in underage  use of pipe tobacco and  cigars."  Presumably,  at that
time,  Congress  would have to consider  expanding  the  definition of regulated
products to include  cigars and pipe tobacco.  While this Bill was not passed by
the Senate  during 1998,  there is no assurance  that similar  bills will not be
passed by the current or future Congress.

     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 FTC Chairman indicated that warning labels might be justified in the future.

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 various 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.  Over 40 states have filed  lawsuits  against  the major  United
States  cigarette  manufacturers  to recover  billions  of  dollars in  damages,
primarily costs of medical treatment of smokers.  On June 20, 1997, the Attorney
General of 40 states and  several  major  cigarette  manufacturers  announced  a
proposed  settlement  of the  lawsuits  filed by  these  states  (the  "Proposed
Settlement").  The  Proposed  Settlement,  which  would  have  required  Federal
legislation to implement was rejected by Congress. The Proposed Settlement would
have  significantly  changed the way in which  cigarette  companies  and tobacco
companies do business. Among other things, the tobacco companies would have been
required to pay hundreds of billions of dollars to the various  states;  the FDA
could have regulated nicotine as a "drug" and tobacco products as "drug delivery
devices;" all outdoor  advertising,  sports event advertising and advertising on
non-tobacco  products would have to be banned and certain class action  lawsuits
and punitive damage claims against tobacco companies would have been prohibited.
There can be no assurance that similar  litigation  will not be brought  against
cigar  manufacturers  and  distributors.  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 State of Florida has entered  into a  settlement  agreement  with major
United  States  cigarette   manufacturers  with  respect  to  tobacco  products,
including  roll-your-own and little cigars. This settlement  agreement provides,
in part, for a ban on billboard and transit  advertising,  significant  document
disclosure by the settling cigarette companies and

                                       10

<PAGE>
billions of dollars in settlement payments. The State of Mississippi announced a
separate settlement agreement with major cigarette  manufacturers which provides
for a payment of $4.0  billion.  The recent  increase in the sales of cigars and
the publicity of such increases may increase the probability of legal claims.

     During 1998, five major cigarette  manufacturers  and one smokeless tobacco
manufacturer   entered  into  a  separate   agreement  (the  "Master  Settlement
Agreement") with 46 states to settle Medicaid claims. The manufacturers  pledged
$205 billion over a 25- year period and agreed to  eliminate  outdoor  billboard
advertising   of  tobacco   products   and  certain   other  minor   advertising
restrictions.  A "Model Law" was proposed as part of the  agreement but it is up
to each  individual  state  legislature  to  enact  legislation  to  codify  the
agreement on a state-by-state  basis. There is no guarantee that the states will
enact legislation similar to, or if at all like, the Model Law. As the agreement
is between the major manufacturers and the various states, there is no Provision
for  FDA  regulation  of  cigarette  and  smokeless  tobacco   manufacturing  or
marketing.  However, there is no guarantee that the U.S. Congress will not enact
legislation  granting  the  FDA,  or  other  governmental  agencies,  additional
regulatory  authority over the  manufacturing and marketing of tobacco products,
including cigars and pipe tobaccos.

PRODUCT LIABILITY INSURANCE

     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,  the Company's  parent,  Duncan Hill, has  maintained,  for itself and its
subsidiaries,  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 one year and are  currently in effect  through  September  17, 1999.
Although the Company believes that its present insurance  coverage is sufficient
for its current level of business  operations,  there is no assurance  that such
insurance  will be  sufficient  to cover  potential  claims,  or that  adequate,
affordable  insurance coverage will be available to the Company in the future. A
partially or  completely  uninsured  successful  claim  against the Company or a
successful  claim in excess of the  liability  limits or  relating  to an injury
excluded under the policy could have a material adverse effect on the Company.

OTHER REGULATORY MATTERS

     The Company's business,  and the catalog industry in general, is subject to
regulation  by a variety of state and  federal  laws  relating  to,  among other
things,  advertising and sales taxes.  The sale of beer and 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  believes that it collects  sales in
states where

                                       11

<PAGE>
     it is required to do so. The Company has no claims or regulatory matters in
process or pending as of the date of this Form 10-KSB.

PATENTS, TRADEMARKS AND TRADE NAMES

     The Company owns two patents:  one for the Aerosphere  Smoking system;  and
one for the  Carey  Magic  Inch  Smoking  System.  The  Company  also  owns  the
registered trademarks of the Duncan Hill smoking pipe, "EA Carey" the registered
trade name for the Carey smoking pipe,  and "Magic Inch," the  registered  trade
name of the Carey  smoking  system.  All  trademarks  and patents are  currently
maintained in effect,  with the exception of the U.S. patent for the Carey Magic
Inch Smoking System which has expired.

EMPLOYEES

     As of February 28, 1999, the Company has four full-time salaried management
employees, six hourly full-time employees, and two hourly part-time employees in
its order entry and customer service departments,  retail store, and its Monarch
pipe manufacturing facility.

Item 2.           Description of Property.

     The Company's principal offices are located in Canton, Ohio, and are shared
with the Company's parent and Kids Stuff. The facility  consists of 5,600 square
feet and is leased by Duncan Hill  through  September  30, 1999 with  options to
renew for a period of one year. The Company's  warehouse and distribution center
is currently  operated by Kids Stuff.  It is located in North  Canton,  Ohio and
consists of  approximately  28,000  square feet,  which is leased for a one year
term  expiring  September 30, 1999.  The Company  utilizes  approximately  5,000
square feet of this  building.  Currently,  all leases are in the name of Duncan
Hill, and the rent is paid by Kids Stuff. The Company currently pays $32,200 per
annum to Kids Stuff for the use of the aforementioned  facilities and for use of
certain equipment.

     Kids  Stuff  intends  to  establish  and lease a new  operations  center of
approximately  34,000  square  feet in 1999.  This  operation  center,  which is
expected  to be  located  in or  about  Canton,  Ohio,  would  include  customer
relations,  order entry and  warehouse  and  distribution  operations  and would
replace its existing warehouse  facility.  The Company intends to sublease these
planned facilities from Kids Stuff at market value.

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.

                                       12

<PAGE>
                                     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 March 29, 1999 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 $1.75 and $.53,  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, 1998:                       HIGH                                LOW
              <S>                                                  <C>                                 <C>  
              May 15 - June 30                                     $12.50.............................$ 5.75
              Third Quarter                                          7.50...............................3.125
              Fourth Quarter                                         5.125..............................3.375

                                                 Class A Warrants
         Fiscal Year Ended December 31, 1998:
              May 15 - June 30                                     $ 2.125.............................$0.75
              Third Quarter                                          2.625..............................0.50
              Fourth Quarter                                         2.125..............................0.25

</TABLE>

     The  quotations in the tables above  reflect  inter-dealer  prices  without
retail markups, markdowns or commissions.

     The  Company  had 6 record  holders as of March 29, 1999 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).

     No cash  dividends have been paid by the Company on its Common Stock and no
such payment is anticipated in the foreseeable future.


                                       13

<PAGE>
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.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR 
ENDED DECEMBER 31, 1997. 

     Total net sales for the year ended  December  31, 1998 were  $1,354,164,  a
decrease of 5.1% from 1997 sales of  $1,427,574.  Net sales  include  sales from
merchandise, shipping and handling charges and mailing list rental. Tobacco Club
sales decreased  $96,957,  a decline of 26.3% from 1997 sales of $368,009.  This
decline was largely  offset by the revenue  increase of the retail store,  which
increased to $122,480 in 1998 compared with $8,781 in 1997.  Sales of the "Carey
Smokeshop"  catalog  segment  declined 3.6% to  $1,013,336 in 1998,  compared to
$1,050,784 in 1997.

     Cost of sales as a percentage of net sales increased from 54.2% for 1997 to
66.5% for 1998.  The largest  factor for this was the  increase  in  merchandise
costs, as a percentage of net sales.  Merchandise  costs increased from 34.3% of
net sales in 1997 to 42.6% of net sales in 1998.  The  Company  attributes  this
increase to product tests and  promotions of premium  cigars,  especially in the
fourth quarter of 1998.  Premium cigars  typically carry lower gross margins and
higher costs of sales that the Company's proprietary pipes and tobaccos.

     Selling  expenses,  as a percentage of net sales,  increased from 22.2% for
1997 to 32.1% for 1998. This reflects slightly higher catalog  advertising costs
from  18.5% of sales  in 1997 to  20.0%  of  sales in 1998,  and also  increased
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  1998  were  $473,598,  or 35.0% of net  sales,
compared with $398,952,  or 27.9% of net sales,  for the year ended December 31,
1997. The increase is attributable to increased direct costs of operations, such
as executive wages,  professional fees, and travel expense that are in excess of
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

                                       14

<PAGE>
processed.  The aforesaid  $206,100 and $2.40 per order  processed is based upon
actual costs incurred by Kid Stuff in 1997.

     Net loss for the year ended December 31, 1998 was $3,829,372, compared with
a net loss of $61,772 for the year 1997.  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 operating loss of $454,603 was due to reduced gross profit margins and
higher  selling  expenses  due to premium  cigar  promotional  activity  and the
promotion of the Company's retail store.

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,  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  effected  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.

     At December  31,  1997,  the Company had a deficit in retained  earnings of
$176,887,  compared to retained  earnings of $684,885 at December 31, 1996. This
resulted from a net loss of $61,772 for the year ended  December 31, 1997 and an
$800,000  adjustment  to estimated  fair value of  1,100,000  shares of Series B
Preferred stock issued to Duncan Hill. For the year ended December 31, 1997, the
impact of the  operating  loss on the  Company's  cash position was increased by
changes in working capital which effected  operating  activities.  The operating
activities  consumed $224,327 in cash through increases in accounts  receivable,
inventories,  deferred  catalog  expenses  and prepaid  expenses,  but  provided
$37,104  from an increase  in  accounts  payable,  customer  advances  and other
accrued  expenses.  The net  effect of these  changes  and  non-cash  charges of
$39,780 relating to depreciation and  amortization,  when added to the Company's
net loss, resulted

                                       15

<PAGE>
in net cash  used by  operating  activities  of  $209,215.  For the  year  ended
December 31, 1997, the Company's financing activities provided $378,322 in cash,
from changes in current obligations  to/from  affiliates,  and used $500 for the
return of additional  capital  contribution  to Duncan Hill for net cash used by
financing  activities  of $377,822.  The  Company's  investing  activities  used
$94,891 in  investments in fixed assets during 1997. For the year ended December
31,  1997,  the  combined  effect of net cash used by  operating  activities  of
$209,215,  net cash provided by financing activities of $377,822,  and cash used
by investing  activities  of $94,891  resulted in an increase in cash of $73,716
from $5,895 at December 31, 1996 to $79,611 at December 31, 1997.

     The Company has no credit facility at the current time. However, the assets
of the Company are pledged as collateral along with the assets of Duncan Hill to
guarantee an $800,000 bank line of credit in the name of Kids Stuff. Kid Stuff's
bank  line of credit  had a balance  of  $762,000  at  February  28,  1999.  The
repayment of the facility is guaranteed  by Miller and the Company.  Interest is
charged at the rate of 1% over prime. It is the policy of the bank to review the
credit  facility  annually,  and to  require  that the  Company  maintain a zero
balance  on the credit  line for a period of thirty  consecutive  days  sometime
during  the  course of each year.  The bank  agreed to waive the "zero  balance"
required  for fiscal  1997 and 1998.  The amount  outstanding  under the line of
credit is payable upon  demand.  The line of credit  agreement  expired June 30,
1998 and Kids Stuff is in the process of  renegotiating  the line of credit with
the bank.

     In  December   1997,   the  Company's   predecessor,   Carey,   effected  a
reincorporation  in Delaware and  recapitalized the Company by replacing the 100
shares of no par value Carey common stock owned by the Company's parent,  Duncan
Hill with  1,000,000  shares of the  Company's  $.001 par value Common Stock and
5,000,000  shares  of Series A  Preferred  Stock  (and  138,000  warrants  which
converted  into Class A Warrants  identical  to those sold in the IPO) through a
stock split and stock dividend.

     The  Company  also  issued  to  Duncan  Hill  1,100,000  shares of Series B
Convertible  Preferred  Stock in  exchange  for Duncan  Hill's  assumption  of a
$300,000 liability due to Kids Stuff. The Series B Convertible  Preferred shares
are  convertible at the option of the holder into the Company's  Common Stock at
any time  after the  Company's  pre-tax  earnings  reach  $500,000  in any given
calendar year on a one to one conversion basis.

     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 IPO.  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."


                                       16

<PAGE>
     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."

     The Company has in the past  granted its  directors  options to purchase an
aggregate of 260,000  shares of the Company's  Common Stock at an exercise price
of $6.00 per share.  These  options  contain  provisions  pursuant  to which the
exercise price will decrease based upon the Company's operating performance. The
Company does not anticipate  that these options will have any material impact on
its future operations.

     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.

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.

                                       17

<PAGE>
                             THE HAVANA GROUP, INC.
                                 AND SUBSIDIARY

                                FINANCIAL REPORT






                                       F-1


<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-20

</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 as of December 31, 1998, and the related consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended  December  31,  1998  and  1997.   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, 1998,  and the results of their
operations  and their cash flows for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.

     As discussed in Note B to the financial statements,  The Havana Group, Inc.
was formed in December 1997 and prior to then had no operations.  The results of
operations  and cash flows prior to December 1997  included in the  accompanying
financial  statements  are those of the  predecessor  companies,  E. A. Carey of
Ohio, Inc. and Monarch Pipe Company.



HAUSSER + TAYLOR LLP




Canton, Ohio
April 5, 1999


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

                           CONSOLIDATED BALANCE SHEET

                                December 31, 1998

<TABLE>
<CAPTION>




                                     ASSETS

CURRENT ASSETS
<S>                                             <C>      
Cash                                            1,634,276
Accounts receivable, net of allowance
for doubtful accounts of $5,000                    46,460
Inventories                                       500,765
Deferred catalog expenses                          32,772
                                                ---------  
Total current assets                            2,214,273

DEFERRED FEDERAL INCOME TAX                        29,070

PROPERTY AND EQUIPMENT

Leasehold improvements                             89,244
Furniture and fixtures                             16,863
Data processing equipment                          28,607
Machinery and equipment                            15,781
                                                ---------  
                                                  150,495
Less accumulated depreciation                      18,511
                                                ---------  
                                                  131,984
OTHER ASSETS, net of accumulated amortization
Customer lists                                    425,773
Other                                               2,222
                                                ---------  
                                                  427,995
                                                ---------  


                                               $2,803,322 
                                                =========   
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-4

<PAGE>

                      THE HAVANA GROUP, INC. AND SUBSIDIARY


                           CONSOLIDATED BALANCE SHEET


                                December 31, 1998


<TABLE>
<CAPTION>


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                             <C>     
Accounts payable                $ 90,112
Accrued expenses                  49,190
Due to affiliates                200,602
Customer advances                  2,395
                              ----------
Total current liabilities        342,299

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)          6,459,322
Retained earnings (deficit)   (4,006,259)
                              ----------
Total stockholders' equity     2,461,023
                              ----------

                              $2,803,322
                              ==========


</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-5

<PAGE>


                     THE HAVANA GROUP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>


                                   1998                1997

<S>                           <C>                 <C>       
NET SALES                     $1,354,164          $1,427,574

COST OF SALES                    900,272             773,695 
                               ---------           ---------
GROSS PROFIT                     453,892             653,879    

SELLING EXPENSES                 434,897             316,699    

GENERAL AND ADMINISTRATIVE
 EXPENSES                        473,598             398,952
                               ---------            --------    
LOSS FROM OPERATIONS            (454,603)            (61,772) 

INTEREST EXPENSE               3,374,769                 -      
                               ---------            ---------
NET LOSS                      (3,829,372)            (61,772)
                              ===========           =========
BASIC AND DILUTED LOSS 
 PER SHARE                         (2.61)              (0.06)
                              ===========           =========

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIAKY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>




                                     Common     Preferred       Paid-In         Retained
                                      Stock      Stock          Capital         Earnings          Total

<S>             <C>                 <C>          <C>              <C>           <C>            <C>       
BALANCE-JANUARY 1, 1997             $   500      $   -            $ -           $684,885       $685,385

RETURN OF CAPITAL CONTRIBUTION
TO DUNCAN HILL, INC.                   (500)         -              -               -               (500)

ISSUANCE OF 1,000,000 SHARE OF
COMMON STOCK TO DUNCAN
HILL,INC.                             1,000           -           (1,000)           -              -

ISSUANCE OF 5,000,000 SHARES OF
CLASS A PREFERRED STOCK TO
DUNCAN HILL, INC.                        -           5,000        (5,000)           -              -

ISSUANCE OF 1,100,000 SHARES OF
CLASS B PREFERRED STOCK TO
DUNCAN HILL, INC.                        -           1,100        1,098,900      (800,000)         300,000

NET LOSS                                 -            -               -           (61,772)        (61,772)
                                     -------         -----        ---------     --------        ----------    
BALANCE- DECEMBER 31, 1997            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 OE 400,000 COMMON
SHARES AND 1,400,000
WARRANTS FOR CONVERSION                 400            -          3,449,600         -           3,450,000
OF NOTE PAYABLE

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
                                     =======         =====        =========     ============   ===========    
</TABLE>




   The accompanying notes are an integral part of these financial statements.

                                       F-7

<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>



                                                                            1998            1997
CASH FL0WS FROM OPERATING ACTIVITIES
<S>                                                                     <C>             <C>         
Net loss                                                                $   (3,829,372) $   (61,772)
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                                                  54,608        39,780
(Increase)in accounts receivable                                               (8,886)       (3,294)
(Increase) in inventories                                                     (22,858)     (206,569)
Decrease (increase) in deferred catalog expenses                               21,411       (12,215)
Decrease (increase) in prepaid expenses                                         3,587        (2,249)
(Increase) in other assets                                                     (2,500)         -
(Decrease) increase in accounts payable, customer advances
and accrued expenses                                                          (45,026)       37,104
                                                                           -----------     ------------    
Net cash (used) by operating activities                                      (479,036)     (209,215)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                                           (53,791)      (94,891)

CASH FL0WS FROM FINANCING ACTIVITIES
Increase in due to affiliates                                                  70,210       378,322
Net proceeds from sale of common stock                                      1,917,282           -
Return of capital contribution to Duncan Hill, Inc.                             -              (500)
Proceeds from convertible note                                                100,000           -
                                                                           -----------     ------------    
Net cash provided by financing activitics                                   2,087,492       377,822
                                                                           -----------     ------------    
NET INCREASE IN CASH                                                        1,554,665        73,716

 CASH - BEGINNING                                                              79,611         5,895
                                                                           -----------     ------------    
 CASH - ENDING                                                          $   1,634,276 $      79,611
                                                                           ===========     ============    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest                                  $     24,769 $          -
                                                                           ===========     ============    
Non-cash investing and tinancing activity disclosures are includcd in
the notes to the financial statements.

</TABLE>

   The accompanying notes are an integral part of 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
E. A. Carey Tobacco Club members.

     B.  Reorganization  - The Havana Group,  Inc. was formed as a  wholly-owned
subsidiary of Duncan Hill, Inc. in December 1997. The operations included in the
accompanying  financial  statements  prior to  December  1997 are those of E. A.
Carey of Ohio, Inc.  (Carey),  which was dissolved as part of a  reorganization,
and Monarch.  Carey and Monarch were both  wholly-owned  subsidiaries  of Duncan
Hill,  Inc.  prior to the  reorganization.  The Company  acquired the assets and
liabilities  of Carey and the common  stock of  Monarch  in the  reorganization,
which was  accounted  for at historical  cost as a  reorganization  of companies
under common control.

     C. 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.

     D. 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.

     E.  Trade  Receivables  - It is the  Company's  policy to  record  accounts
receivable net of an allowance for doubtful  accounts.  The allowance was $5,000
as of December 31, 1998.  Bad debt expense was $13,965 and $14,041 for the years
ended December 31, 1998 and 1997, respectively.



                                       F-9


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Summary of Significant Accounting Policies (continued)

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

     G.  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 $271,158 and $263,675 for the years ended
December 31, 1998 and 1997, respectively.

     H.  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 $15,624 and $1,074 for
the years ended December 31, 1998 and 1997, respectively.

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

     I. A customer  list was  obtained in the  acquisition  of Carey in 1984 for
$889,000.  The acquisition  was consummated  primarily to obtain Carey's mailing
list.  The list is being  amortized on a  straight-line  basis  through 2008. At
December 31, 1998, accumulated amortization was $463,227.

     J. 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.

     K. The  Company  maintains  its cash at a financial  institution.  The bank
balance is $1,615,999 as of December 31, 1998 and at times  throughout  the year
exceeds federally insured amounts.

     L. Per  Share  Amounts  - Net  income  per  share is  calculated  using the
weighted  average  number of shares  outstanding  during the year.  Duncan Hill,
Inc., the Company's  parent,  holds 1,000,000  shares of common stock which were
assumed to be  outstanding  during 1997 for  purposes of the basic  earnings per
share  calculation.  There  were no  securities  outstanding  or  granted  as of
December  31,  1998 that  would  have a  dilutive  effect on per share  amounts.
Additionally, the Company



                                      F-10


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Summary of Significant Accounting Policies (continued)

     experienced  a net loss in 1997 and 1998.  Therefore,  no potential  common
shares  shall be 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  1,511,287  and 1,000,000 for
1998 and 1997, respectively.  The 1998 earnings per share calculation includes a
charge  of  $110,000  relative  to the  cumulative  dividends  on the  Series  B
Preferred Stock.

     M. New Authoritative Pronouncements

     In June 1997, SFAS 130, "Reporting  Comprehensive Income," was issued. SFAS
130  established  new  standards  for  reporting  comprehensive  income  and its
components and is effective for fiscal years  beginning after December 15, 1997.
The Company  adopted this new standard  during 1998.  The effect of adoption was
not material.

     In June 1997,  the Financial  Accounting  Standards  Board issued SFAS 131,
"Dis-closure About Segments of an Enterprise and Related  Information.  SFAS 131
changes the  standards for reporting  financial  results by operating  segments,
related  products and  services,  geographical  areas and major  customers.  The
Company  adopted this new standard  during 1998.  The effect of adoption was not
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.




                                      F-11


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Summary of Significant Accounting Policies (continued)

     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 Company  believes that the
effect of adoption will not be material.

 Note 1.          Inventories

     Inventories consist of the following at December 31, 1998:
<TABLE>
<CAPTION>

<S>                                                                                                <C>      
                  Raw materials                                                                    $ 141,569
                  Tobacco, cigars, and pipes                                                         317,711
                  Supplies and catalogs                                                               41,485
                                                                                                    --------
                                                                                                   $ 500,765
</TABLE>

 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,
1998 and 1997:
<TABLE>
<CAPTION>

                                                                                          1998           1997
                                                                                          ----           ----

                       Deferred tax assets:
<S>                                                                                    <C>             <C>      
                           Net operating loss carryforward                             $ 261,256       $ 124,270
                           Depreciation                                                      368         -
                           Valuation allowance                                          (221,412)        (76,613)
                                                                                         -------        --------
                               Total deferred tax assets                                  40,212          47,657
                                                                                        --------        --------


</TABLE>


                                      F-12


<PAGE>
                     THE HAVANA GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



 Note 2.          Income Taxes (continued)
<TABLE>
<CAPTION>

                                                                                          1998           1997
                                                                                          ----           ----

                       Deferred tax liabilities:
<S>                                                                                   <C>             <C>        
                           Deferred catalog expense                                   $  (11,142)     $  (18,422)
                           Depreciation                                                  -                  (165)
                                                                                   -------------      ----------
                               Total deferred tax liabilities                            (11,142)        (18,587)
                                                                                        --------        --------
                       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 4E).

     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
                                                                            -------
                                                                          $ 786,400
</TABLE>

 Note 3.          Agreement with Affiliated Company

     Duncan Hill, Inc. owns 85% 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  and  $2.40  per order
processed.  Havana is also  obligated to pay 5% of its 1998  pre-tax  profits to
Kids Stuff in connection with these  administrative  and  fulfillment  services.
However, Havana had no pre-tax profits in 1998. Total costs charged to Havana in
1998 amounted to $293,432.  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.


                                      F-13


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



    Note 3.                Agreement with Affiliated Company (continued)

<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>

     Kids Stuff,  Inc. had provided  these  services to Havana during 1997 on an
actual cost basis.  Actual costs are those direct costs that can be charged on a
per order or per hour basis, plus general and administrative  costs allocated on
a pro rata basis by dividing the total assets of the operating entity requesting
services by the sum of the total assets of all operating entities of Duncan Hill
and the operating entity  requesting  services.  Costs charged to Havana in 1997
amounted to $450,443.

     The accounts  receivable and inventory of Havana and Kids Stuff are pledged
as  collateral  which  guarantees  an $800,000  line of credit  reflected on the
financial statements of Kids Stuff. The Company's guarantee relative to the line
of credit is  irrevocable.  The  balance on the line of credit was  $762,000  at
December 31, 1998.

    Note 4.                Stockholder's Equity

     A. Common Stock

     The Havana  Group,  Inc.  has  25,000,000  shares of $.001 par value common
stock authorized. In connection with the reorganization discussed in Note B, the
Company  issued  1,000,000  common shares to its parent,  Duncan Hill,  Inc. 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 4.                Stockholder's Equity (continued)

     In May 1998, the Company  completed an initial public offering (see Note 9)
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 4E).

     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.

     On December  24,  1997,  the Company  issued  5,000,000  shares of Series A
Preferred  Stock (Series A), $.001 par value to Duncan Hill, Inc. 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.

     C. Series B Preferred Stock

     On December 24, 1997, the Company issued  1,100,000  shares of its Series B
Convertible  Preferred  Stock  (Series  B) $.001 par value to  Duncan  Hill.  In
return, Duncan Hill assumed a $300,000 liability due to an affiliate. 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


                                      F-15


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




    Note 4.                Stockholder's Equity (continued)

     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 1997 or 1998 on the Series B Preferred Stock.

     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,  which is  subordinated  to the  liquidation  preference  of the Series A
stock.

     D. Class A Warrants

     As of  December  31,  1998,  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 9);  1,400,000  warrants  issued in
conjunction  with the  conversion  of a note  payable  (see  Note  4E);  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.

     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



                                      F-16


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




    Note 4.                Stockholder's Equity (continued)

     common stock and 1,400,000 Class A warrants.  In accordance with APB 14 and
EITF  Topic No.  D-60,  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 5.                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 4E, "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 6.                Stock Incentive Plan

     During 1997, the Company adopted 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,  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 1998 and 1997.

    Note 7.                Employment Agreements

     A. The Company  has 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.



                                      F-17


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




    Note 7.                Employment Agreement (continued)

     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 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.



                                      F-18


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




    Note 7.                Employment Agreement (continued)

     B. The Company has 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 8.                Fair Value of Stock Based Compensation

     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 (both  described  in Note 7), the Company has granted  options to
purchase 60,000 shares of common stock to certain directors (see Note 10).

     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
$744,000 or $.74 per share for the year ended  December 31, 1997 and by $172,700
or $.11 per share for the year ended December 31, 1998.

     For  purposes of the pro forma  disclosures  presented  above,  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, 1998.

     The Company  computed the fair values of options  granted during 1997 using
the Black-Scholes option pricing model assuming no dividends, 45% volatility, an
expected life of 50% of the ten-year option terms, and a risk-free interest rate
of 6.3%. The fair value of options granted during 1997 was $1,208,000.




                                      F-19


<PAGE>
                      THE HAVANA GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




    Note 9.                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 10.               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.

     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 8.


                                      F-20


<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: First Term of Became Principal Name Age Office Director Occupation
<TABLE>
<CAPTION>

<S>                                  <C>         <C>               <C>                  <C>               
William L. Miller                    62          (1)               1997                 Chairman of the
                                                                                        Board, Chief
                                                                                        Executive Officer,
                                                                                        and Principal
                                                                                        Financial Officer of
                                                                                        the Company

John W. Cobb, Jr.                   57         (1)                 1997                 Senior Vice President
                                                                                        of Marketing at
                                                                                        McGraw-Hill
                                                                                        Continuing Education

Peter Stokkebye VI                  68         (1)                 1997                 Retired
</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.

(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

                                       18

<PAGE>
     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 a Senior Vice  President  of  Marketing  at  McGraw-Hill  Continuing
Education  center in Washington,  DC. He has been with  McGraw-Hill  since 1981.
Previously,  he was the Vice  President of Marketing and  Syndication  Sales for
C.B.S.,  Inc.,  Columbia  House  Division  in  New  York  (1979-1981)  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
with two independent directors.

                                       19

<PAGE>
     Fairchild  Financial Group,  Inc. has been granted by the Company the right
to designate  one director to serve on the  Company's  Board of Directors  for a
period of three years until May 2001. As of the date hereof,  no such person has
been designated. Upon the appointment of one additional unaffiliated and outside
director,  the Board of Directors intends to 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.

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, 1998,  except ARO Trust No. 1, 1960 Trust filed a Form 5 late
in lieu of a Form 3 which was not filed.


                                       20

<PAGE>
Item 10.          Executive Compensation

     The following table provides a summary  compensation  table with respect to
the compensation of W. 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(4)        ($)       ($)
<S>                 <C>       <C>            <C>      <C>        <C>       <C>            <C>       <C>
W. Miller, ....     1998      46,400         -0-       3,600     -0-       -0-            -0-       -0-
Chief Executive
Officer (2)
                    1997      28,167(1)      -0-       4,000     -0-(3)    400,000        -0-       -0-
                    1996      31,000(1)      -0-        -0-      -0-       -0-            -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% and 31% of Miller's  compensation paid by Duncan Hill or
      Kids  Stuff to  Miller  were  expensed  to the  Company  in 1997 and 1996,
      respectively.  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.  See  Item  12  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.

(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.

                                       21

<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 1998 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                     Value of
                                                                     Securities                  Unexercised
                               Shares                                Underlying                  In-the-Money
                              Acquired                              Unexercised                Options/Warrants
                                 on              Value                                           at Fy-End($)
                              Exercise         Realized           Options/Warrants               Exercisable/
          Name                  (#)              ($)(1)                                        Unexercisable(1)
                                                                    at FY-End (#)
                                                                    Exercisable/
                                                                    Unexercisable
<S>                              <C>               <C>         <C>                                <C> 
William L.                      -0-               -0-          320,000/80,000                    -0-/-0-
Miller
</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
         $3.88 per share.  It does not reflect the value of the  Warrants  which
         could be sold in the open market.

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

                                       22

<PAGE>
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.

     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

                                       23

<PAGE>
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.

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. 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.  Options to
purchase 80,000 shares are vested and are currently  exercisable.  The remaining
options become  exercisable as to an additional 40,000 shares on each of January
1, 2000 and January 1, 2001. The initial  exercise price of the options shall be
$6.00 per share subject to adjustment as set forth below. The exercise price for
vested  options may be decreased if (a) the Company  meets  certain  performance
goals,  and (b) 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  net  income of the
Company for the prior fiscal year. The Company shall report to Miller,  promptly
upon audited financial  statements for the prior fiscal year becoming available,
for pre-tax net income of the  Company for that year.  Miller  shall have thirty
(30) 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.

     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-reelect  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

                                       24

<PAGE>
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.

     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,

                                       25

<PAGE>
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.

POTENTIAL CONFLICTS OF INTEREST

     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.



                                       26

<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following  table sets forth as of March 31, 1999,  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
            Common Stock                                and B
            Beneficially                           Preferred Stock
               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)                                931,000(4)                 50.0%        6,100,000(4)                   100%

  William L. Miller (5)                        1,251,000(5)                 57.4%        6,100,000(6)                    100

  John W. Cobb (2)(6)                                15,000                     *                 -0-                    -0-

  Peter Stokkebye (2)(6)                             15,000                     *                 -0-                    -0-

  Gary Corbett (7)                                   20,000                   1.1                 -0-                    -0-


  All four Officers and Directors
  and Duncan Hill as a Group                      1,301,000                 58.3%        6,100,000(6)                   100%

  Linda Gallenberger, Trustee
    ARO Trust #1, 1960 Trust (8)                    360,900                 16.5%                 -0-                    -0-
</TABLE>

     * Represents less than 1% of the outstanding shares of Common Stock.

     (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.,  4450 Belden  Village
Street, N.W., Suite 406, Canton, OH 44718.

     (3)  Calculated  based upon  1,860,000  shares of Common Stock  outstanding
without giving effect to the possible exercise of outstanding Class A Warrants..

     (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 931,000  shares  owned by Duncan and Class A Warrants  to  purchase
200,000 shares of Common Stock and options to purchase  120,000 shares of Common
Stock  which  are  directly  beneficially  owned  by him.  Not  included  in the
foregoing   are  options  to  purchase   80,000  shares  which  are  not  deemed
beneficially  owned by him as of February 28, 1999.  Mr. Miller by virtue of his
beneficial  ownership of Common Stock and Preferred Stock (excluding options and
warrants) has the

                                       27

<PAGE>
     right to vote control the vote of 7,031,000  shares of the Company's voting
capital  representing  88.3%  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 each of January 1, 2000 and 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, 2000, February 1, 2001 and February 1, 2002.

     (8) Linda  Gallenberger's  address  is N8939  Waterpower  road,  Deerbrook,
Wisconsin  54424.  The table reflects  43,900 shares of Common Stock and Class A
Warrants to purchase  371,000 shares of Common Stock  beneficially  owned by the
Trust.  Linda Gallenberger is the Trustee of the Trust. The Trust was created by
Alan R. Osowski (the  "Grantor") on January 5, 1960, who  established  the Trust
with  his own  personal  funds.  The sole  beneficiary  of the  trust is  Pamela
Osowski,  the  sister  of the  Grantor.  The  Trust is one of a series of trusts
established for other family members by the Grantor. The Trust is an irrevocable
family  Trust.  Upon the  death of the  beneficiary,  the  Trust  passes  to the
beneficiary's  children, if any, and if none, to the beneficiary's  siblings, or
the children of such  siblings per stirpes.  The terms of the Trust are that the
Trustee has full discretion to distribute or not the income and principal of the
Trust.  The  beneficiary  has no right to demand any  distribution  of income or
principal.  The Grantor has no rights  whatsoever with respect to the Trust. The
Trustee has the sole investment  decision to purchase  securities for the Trust,
including the Company's securities and the Trustee has the sole investment power
and voting control of the Company's securities owned by the Trust.

Item 12.            Certain Relationships and Related Transactions.

     (i) Over the last five years the Company's operations have been financed by
Duncan   Hill  (and  by  Kids  Stuff  in  1997  and  1998)   providing   certain
administrative  and other  services  for the benefit of the Company and charging
the Company for these services as described  below. On December 31, 1996,  Carey
entered  into an  agreement  with  United  Bank to pledge  all of its  assets as
collateral  along  with the  assets  of Duncan  Hill to  guarantee  an  $800,000
revolving bank line of credit in the name of Kids Stuff. The bank line of credit
is for an open term, payable on demand with a balance as of February 28, 1999 of
$762,000.  The  repayment  of this  credit  facility is  guaranteed  by both the
Company and Miller.  This transaction  occurred at a time when the Company was a
wholly-owned  subsidiary  of  Duncan  Hill and the  Company  did not  intend  to
undertake a public  offering of its  securities.  The  Company's  guarantee  was
without  consideration and is irrevocable without the line-of-credit  being paid
in full.  Although  United  Bank has been  requested  by Kids Stuff to waive the
Company's guarantee,  no assurance can be given that United Bank will honor such
request.

     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.

                                       28

<PAGE>
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. This agreement has been extended by the
parties on a month-to-month  basis. In addition to the above, the Company incurs
additional  administrative  costs such as legal,  accounting,  depreciation  and
amortization  and tax expenses which costs are incurred by and paid for directly
by the Company.

     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.

     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 fulfilment 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  owned 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  fulfilment  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 Miller five
year  Warrants to  purchase  200,000  shares of the  Company's  Common  Stock in
December 1997. 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 .

     (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

                                       29

<PAGE>
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
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. 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.

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.

(b)        Reports on Form 8-K

     During the three months  ended  December 31, 1998, a Form 8-K was not filed
or required to be filed.

                                       30

<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
           April 14, 1999


     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>
/s/ William L. Miller                    Chairman of the
William L. Miller                        Board, Chief Executive Officer,
                                         Principal Financial Officer,
                                         Treasurer and Secretary                        April 14, 1999


/s/ Peter Stokkebye             
Peter Stokkebye                          Director                                         April 14, 1999


/s/ John Cobb                      
John Cobb                                Director                                        April 14, 1999
</TABLE>



                                       31