##### Table of Contents



Form 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Quarter Ended                      June 30, 2002

Commission file number               0-7024

The First Years Inc.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Massachusetts                                                  |  | 04-2149581                          
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
|                                                              
|                                                              
|One Kiddie Drive, Avon, Massachusetts                          |  | 02322-1171                          
|                                                              
|                                                              
|                                                              
|                                                              
|(Address of principal executive offices)                       |  | (Zip Code)                          

(508) 588-1220
(Registrants telephone number, including area code)

n/a
(Former name, former address and former fiscal year, if changed since last report)

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 Box).    No  (Box).

The number of shares of Registrants common stock outstanding on July 31,
2002 was 8,205,749.





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TABLE OF CONTENTS



|                                                                                      |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                          
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                      
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                 
|Managements Discussion and Analysis of Financial Condition and Results of Operations
|Quantitative and Qualitative Disclosure about Market Risk                            
|PART II  OTHER INFORMATION                                                          
|SIGNATURES                                                                           
|EXHIBIT INDEX                                                                        
|Ex-99.1 Certification Pursuant to Section 906                                        



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##### Table of Contents



THE FIRST YEARS INC.

INDEX

|                                                                                      |  |      |        | 
|------------------------------------------------------------------------------------- |  | ---- | ------ | 
|                                                                                      |  | Page
|                                                                                      |  |     
|PART I  FINANCIAL INFORMATION:                                                       |  |      |        | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Condensed Consolidated Balance Sheets                                                 |  |      | 1      | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Condensed Consolidated Statements of Income                                           |  |      | 2      | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Condensed Consolidated Statements of Cash Flows                                       |  |      | 3      | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Notes to Condensed Consolidated Financial Statements                                  |  |      | 4-5    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 6-8    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Quantitative and Qualitative Disclosure about Market Risk                             |  |      | 8-9    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|PART II  OTHER INFORMATION                                                           |  |      |        | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Other Information                                                                     |  |      | 10-11  | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|SIGNATURES                                                                            |  |      | 12     | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|EXHIBIT INDEX                                                                         |  |      | 13- 14 | 





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##### Table of Contents



THE FIRST YEARS INC.




CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |   |            |            | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | - | ------------------------------------ | -------------------------- | - | ----------- | ---------- | ------------ | - | ---------- | ---------- | 
|                                           |                                                                                                                     |   |                                      |                            |   | June 30,    |            | December 31,
|                                           |                                                                                                                     |   |                                      |                            |   | 2002        |            | 2001        
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |             
|                                           |                                                                                                                     |   |                                      |                            |   | (Unaudited) |            |             
|CURRENT ASSETS:                            |                                                                                                                     |   |                                      |                            |   |             |            |             
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                                                                           |   | $                                    | 5,417,868                  |   |             | $          | 13,310,004   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net                                                                                            |   |                                      | 25,866,090                 |   |             |            | 17,318,497   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories                                                                                                         |   |                                      | 18,463,300                 |   |             |            | 20,331,823   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other assets                                                                                   |   |                                      | 1,012,447                  |   |             |            | 1,784,793    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred tax assets                                                                                                 |   |                                      | 2,156,500                  |   |             |            | 2,156,500    |  
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|                                           |                                                                                                                     |   | Total current assets                 |                            |   | 52,916,205  |            |              |   | 54,901,617 |           
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|PROPERTY, PLANT, AND EQUIPMENT:            |                                                                                                                     |   |                                      |                            |   |             |            |             
|                                          
|                                          
|                                          
|                                          
|                                           | Land                                                                                                                |   |                                      | 167,266                    |   |             |            | 167,266      |  
|                                          
|                                          
|                                          
|                                          
|                                           | Building                                                                                                            |   |                                      | 6,450,913                  |   |             |            | 5,309,915    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Machinery and molds                                                                                                 |   |                                      | 8,900,375                  |   |             |            | 7,809,664    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Furniture and equipment                                                                                             |   |                                      | 8,466,558                  |   |             |            | 7,826,605    |  
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|                                           |                                                                                                                     |   | Total                                |                            |   | 23,985,112  |            |              |   | 21,113,450 |           
|                                          
|                                          
|                                          
|                                          
|                                           | Less accumulated depreciation                                                                                       |   |                                      | 11,962,904                 |   |             |            | 10,739,306   |  
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|                                           |                                                                                                                     |   | Property, plant, and equipment  net |                            |   | 12,022,208  |            |              |   | 10,374,144 |           
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|TOTAL ASSETS                               |                                                                                                                     | $ | 64,938,413                           |                            |   | $           | 65,275,761 |             
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY      
|                                          
|                                          
|                                          
|                                          
|CURRENT LIABILITIES:                       |                                                                                                                     |   |                                      |                            |   |             |            |             
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable and accrued expenses                                                                               |   | $                                    | 10,539,322                 |   |             | $          | 12,824,321   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued royalty expenses                                                                                            |   |                                      | 279,801                    |   |             |            | 819,286      |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued selling expenses                                                                                            |   |                                      | 1,972,931                  |   |             |            | 3,200,951    |  
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|                                           |                                                                                                                     |   | Total current liabilities            |                            |   | 12,792,054  |            |              |   | 16,844,558 |           
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|DEFERRED TAX LIABILITY                     |                                                                                                                     |   | 1,202,800                            |                            |   |             | 1,202,800  |             
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|STOCKHOLDERS EQUITY:                      |                                                                                                                     |   |                                      |                            |   |             |            |             
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock                                                                                                        |   |                                      | 1,080,257                  |   |             |            | 1,074,840    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Paid-in-capital                                                                                                     |   |                                      | 9,758,269                  |   |             |            | 9,277,390    |  
|                                          
|                                          
|                                          
|                                          
|                                           | Retained earnings                                                                                                   |   |                                      | 70,203,335                 |   |             |            | 66,686,505   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Less treasury stock at cost, 2,596,820 and 2,574,537 shares as of
June 30, 2002 and December 31, 2001, respectively |   |                                      | (30,098,302                | ) |             |            | (29,810,332  | )
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|                                           |                                                                                                                     |   |                                      | Total stockholders equity |   |             | 50,943,559 |              |   |            | 47,228,403 | 
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                     | $ | 64,938,413                           |                            |   | $           | 65,275,761 |             
|                                           |                                                                                                                     |   |                                      |                            |   |             |            |              |  

See accompanying notes to condensed consolidated financial statements.

-1-



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##### Table of Contents



THE FIRST YEARS INC.




CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|-------------------------------------------- |  | ------------------ | ---------- | ---------------- |  | ---- | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                             |  | Three Months Ended |            | Six Months Ended
|                                             |  | June 30,           |            | June 30,        
|                                             |  |                    |            |                 
|                                             |  | 2002               |            | 2001             |  | 2002 |            | 2001
|                                             |  |                    |            |                  |  |      |            |     
|NET SALES                                    |  | $                  | 34,766,239 |                  |  | $    | 31,818,183 |      |  | $ | 68,077,079 |  |  | $ | 64,276,913 | 
|                                            
|                                            
|                                            
|                                            
|COST OF PRODUCTS SOLD                        |  |                    | 22,395,526 |                  |  |      | 21,542,353 |      |  |   | 44,077,657 |  |  |   | 42,804,282 | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|GROSS PROFIT                                 |  |                    | 12,370,713 |                  |  |      | 10,275,830 |      |  |   | 23,999,422 |  |  |   | 21,472,631 | 
|                                            
|                                            
|                                            
|                                            
|SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES |  |                    | 8,680,585  |                  |  |      | 7,912,375  |      |  |   | 16,690,441 |  |  |   | 15,269,613 | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|OPERATING INCOME                             |  |                    | 3,690,128  |                  |  |      | 2,363,455  |      |  |   | 7,308,981  |  |  |   | 6,203,018  | 
|                                            
|                                            
|                                            
|                                            
|INTEREST INCOME                              |  |                    | 18,305     |                  |  |      | 172,725    |      |  |   | 41,532     |  |  |   | 361,876    | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|INCOME BEFORE INCOME TAXES                   |  |                    | 3,708,433  |                  |  |      | 2,536,180  |      |  |   | 7,350,513  |  |  |   | 6,564,894  | 
|                                            
|                                            
|                                            
|                                            
|PROVISION FOR INCOME TAXES                   |  |                    | 1,520,400  |                  |  |      | 1,039,800  |      |  |   | 3,013,700  |  |  |   | 2,691,600  | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|NET INCOME                                   |  | $                  | 2,188,033  |                  |  | $    | 1,496,380  |      |  | $ | 4,336,813  |  |  | $ | 3,873,294  | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|BASIC EARNINGS PER SHARE                     |  | $                  | 0.27       |                  |  | $    | 0.16       |      |  | $ | 0.53       |  |  | $ | 0.42       | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 
|DILUTED EARNINGS PER
SHARE                   |  | $                  | 0.26       |                  |  | $    | 0.16       |      |  | $ | 0.52       |  |  | $ | 0.42       | 
|                                             |  |                    |            |                  |  |      |            |      |  |   |            |  |  |   |            | 

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents



THE FIRST YEARS INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)


|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |            |         |            |  
|------------------------------------------------------ | ----------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------- | -------------------------------------- | ---------- | ------- | ---------- | --------- | ---------- | ------- | ---------- | -
|                                                       |                                                                         |                                                       |                             |                                        |            | 2002    |            | 2001     
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |          
|CASH FLOWS FROM OPERATING ACTIVITIES:                  |                                                                         |                                                       |                             |                                        |            |         |            |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net income                                                              |                                                       | $                           | 4,336,813                              |            |         | $          | 3,873,294 |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Adjustments to reconcile net income to net cash provided by operations: |                                                       |                             |                                        |            |         |            |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Depreciation                                          |                             |                                        | 1,226,833  |         |            |           | 1,078,898  |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | (Bad debt recoveries) provision for doubtful accounts |                             |                                        | (5,765     | )       |            |           | 11,684     |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Loss on disposal of equipment                         |                             |                                        | 685        |         |            |           | 231,296    |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Increase (decrease) arising from working capital items:                 |                                                       |                             |                                        |            |         |            |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Accounts receivable                                   |                             |                                        | (8,541,828 | )       |            |           | (2,367,946 | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Inventories                                           |                             |                                        | 1,868,523  |         |            |           | (2,363,287 | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Prepaid expenses and other assets                     |                             |                                        | 796,946    |         |            |           | (258,819   | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Accounts payable and accrued expenses                 |                             |                                        | (2,284,999 | )       |            |           | (1,033,606 | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Accrued royalties                                     |                             |                                        | (539,485   | )       |            |           | (265,116   | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Accrued selling expense                               |                             |                                        | (1,228,020 | )       |            |           | (1,307,321 | )      
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|                                                       |                                                                         |                                                       |                             | Net cash used for operating activities |            |         | (4,370,297 | )         |            |         | (2,400,923 | )
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                  |                                                                         |                                                       |                             |                                        |            |         |            |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Expenditures for property, plant, and equipment       |                             |                                        | (2,875,582 | )       |            |           | (1,518,212 | )      
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                  |                                                                         |                                                       |                             |                                        |            |         |            |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Cash dividend                                         |                             |                                        | (819,983   | )       |            |           | (550,766   | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Common stock issued under stock option plans          |                             |                                        | 195,633    |         |            |           | 170,460    |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Purchase of treasury stock                            |                             |                                        | (21,907    | )       |            |           | (293,200   | )      
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|                                                       |                                                                         |                                                       |                             | Net cash used for financing activities |            |         | (646,257   | )         |            |         | (673,506   | )
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|DECREASE IN CASH AND CASH EQUIVALENTS                  |                                                                         |                                                       | (7,892,136                  | )                                      |            |         | (4,592,641 | )        
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD         |                                                                         |                                                       | 13,310,004                  |                                        |            |         | 21,180,242 |          
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|CASH AND CASH EQUIVALENTS, END OF PERIOD               |                                                                         | $                                                     | 5,417,868                   |                                        |            | $       | 16,587,601 |          
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      |                                                                         |                                                       |                             |                                        |            |         |            |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         | Cash paid for:                                        |                             |                                        |            |         |            |           |            |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         |                                                       |                             | Income taxes                           |            | $       | 2,002,147  |           |            | $       | 3,306,000  |  
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           
|SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: |                                                                         |                                                       |                             |                                        |            |         |            |          
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                         |                                                       | Treasury stock transactions |                                        | $          | 266,063 |            |           | $          | 132,507 |           
|                                                       |                                                                         |                                                       |                             |                                        |            |         |            |           |           

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents



THE FIRST YEARS INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     Amounts in the accompanying balance sheet as of December 31, 2001
are condensed from our audited balance sheet as of that date. All other
condensed financial statements are unaudited but, in our opinion, contain all
normal recurring adjustments necessary to present fairly our financial position
as of June 30, 2002, and our results of operations and cash flows for the
periods ended June 30, 2002 and 2001. Certain reclassifications were made to
prior year amounts in order to conform to the current year presentation. 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 disclosures 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.

2.     We
have 50,000,000 authorized shares of $0.10 par value common stock
with 10,802,569 and 10,748,404 shares issued and 8,205,749 and 8,173,867 shares
outstanding as of June 30, 2002 and December 31, 2001, respectively. We
acquired 22,283 shares of our common stock during the first six months of 2002
through delivery of mature shares of an employee for the exercise of stock
options.

On May 17, 2002, the Board of Directors authorized a $0.10 per share
annual cash dividend which was paid on June 15, 2002 to holders of record at
the close of business on May 30, 2002.

3.     Computation of Earnings Per Share (EPS) is as follows:

|                                            |  |                    |           |      |  |   |           | 
|------------------------------------------- |  | ------------------ | --------- | ---- |  | - | --------- | 
|                                            |  | Three Months Ended
|                                            |  | June 30,          
|                                            |  |                   
|                                            |  | 2002               |           | 2001
|                                            |  |                    |           |     
|WEIGHTED AVERAGE SHARES OUTSTANDING         |  |                    | 8,198,118 |      |  |   | 9,178,832 | 
|                                           
|                                           
|                                           
|                                           
|EFFECT OF DILUTIVE SHARES                   |  |                    | 199,648   |      |  |   | 177,569   | 
|                                            |  |                    |           |      |  |   |           | 
|WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING |  |                    | 8,397,766 |      |  |   | 9,356,401 | 
|                                            |  |                    |           |      |  |   |           | 
|NET INCOME                                  |  | $                  | 2,188,033 |      |  | $ | 1,496,380 | 
|                                            |  |                    |           |      |  |   |           | 
|BASIC EARNINGS PER SHARE                    |  | $                  | 0.27      |      |  | $ | 0.16      | 
|                                            |  |                    |           |      |  |   |           | 
|DILUTED EARNINGS PER SHARE                  |  | $                  | 0.26      |      |  | $ | 0.16      | 
|                                            |  |                    |           |      |  |   |           | 

|                                            |  |                  |           |      |  |   |           | 
|------------------------------------------- |  | ---------------- | --------- | ---- |  | - | --------- | 
|                                            |  | Six Months Ended
|                                            |  | June 30,        
|                                            |  |                 
|                                            |  | 2002             |           | 2001
|                                            |  |                  |           |     
|WEIGHTED AVERAGE SHARES OUTSTANDING         |  |                  | 8,187,866 |      |  |   | 9,184,908 | 
|                                           
|                                           
|                                           
|                                           
|EFFECT OF DILUTIVE SHARES                   |  |                  | 231,732   |      |  |   | 131,991   | 
|                                            |  |                  |           |      |  |   |           | 
|WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING |  |                  | 8,419,598 |      |  |   | 9,316,899 | 
|                                            |  |                  |           |      |  |   |           | 
|NET INCOME                                  |  | $                | 4,336,813 |      |  | $ | 3,873,294 | 
|                                            |  |                  |           |      |  |   |           | 
|BASIC EARNINGS PER SHARE                    |  | $                | 0.53      |      |  | $ | 0.42      | 
|                                            |  |                  |           |      |  |   |           | 
|DILUTED EARNINGS PER SHARE                  |  | $                | 0.52      |      |  | $ | 0.42      | 
|                                            |  |                  |           |      |  |   |           | 

Options to purchase 655,055 shares of common stock for the three months ended
June 30, 2002 and options to purchase 635,514 shares of common stock for the
six months ended June 30, 2002 were not included in the computation of diluted
EPS because the exercise prices of those options were greater than the average
market price of the Companys common stock. Options to purchase 438,990 shares of
common stock for the three months ended June 30, 2001 and options to purchase
585,910 shares of common stock for the six months ended June 30, 2001 were not
included in the computation of diluted EPS because the exercise prices of those
options were greater than the average market price of the
Companys common stock.

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##### Table of Contents



4.     The results of operations for the six month period ended June 30,
2002 are not necessarily indicative of the results to be expected for the full
year.

5.     During the first six months of 2002 and 2001, we did not borrow
against our $10,000,000 unsecured line of credit established with a bank.

6.     In 2001, the Emerging Issues Task Force (EITF) reached consensus
on Issue No. 01-09, Accounting for Consideration Given by a Vendor to a
Customer. The consensus in EITF No. 01-09 addresses the income statement
classification of various types of sales incentives, including discounts,
consumer coupons, rebates, and free products as well as slotting fees,
cooperative advertising arrangements and buydowns. The consensus requires
these sales incentives be classified as a reduction of revenue, versus a
selling, general, and administrative expense.

We adopted the consensus in EITF Issue No. 01-09 on January 1, 2002. EITF
Issue No. 01-09 was issued to codify and reconcile EITF Nos. 00-14, 00-22, and
00-25 which address the accounting for consideration given by a vendor to a
customer. With the adoption of this EITF in 2002, approximately $3.2 million
and $3.0 million of sales incentives for the six months ending June 30, 2002
and 2001, respectively, have been reclassified as a reduction to net sales and
a corresponding reduction to selling, general, and administrative expenses in
the consolidated statements of income. These reclassifications had no impact on
operating income and net income.

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS 141 supersedes Accounting Principles Board (APB)
Opinion 16 Business Combinations and SFAS No. 38 Accounting for
Pre-acquisition Contingencies and eliminates the pooling-of-interests method
of accounting for business combinations. SFAS No. 141 also includes enhanced
criteria for identifying intangible assets separately from goodwill. The
requirements of SFAS No. 141 were effective for any business combination
consummated by the Company subsequent to June 30, 2001. SFAS No. 142 was
effective for the Company as of January 1, 2002. SFAS No. 142 supersedes APB
Opinion No. 17, Intangible Assets, and requires that goodwill and intangible
assets with indefinite lives no longer be amortized, but reviewed for
impairment at least annually. Intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
adoption of these statements did not have a material impact on our consolidated
statements of income, consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment of and Disposal of Long-Lived Assets. This statement supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. The statement retains the previously
existing accounting requirements related to the recognition and measurement of
the impairment of long-lived assets to be held and used while expanding the
measurement requirements of long-lived assets to be disposed of by sale to
include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale. We
implemented SFAS No. 144 on January 1, 2002. The adoption of this statement did
not have a material impact on our consolidated financial position or results of
operations.

7.     We derive sales from products carrying The First Years brand as
well as products sold under licensing agreements. During the first six months
of 2002 and 2001, net sales of The First Years brand products were
approximately $48,136,000 and $42,998,000, respectively, while net sales
derived from licensed and specialty products amounted to approximately
$19,941,000 and $21,279,000 in the first six months of 2002 and 2001,
respectively. Net export sales, primarily to Europe, Canada, South America, and
the Pacific Rim, were approximately $8,529,000 and $7,159,000 during the first
six months of 2002 and 2001, respectively.

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##### Table of Contents



THE FIRST YEARS INC.

Part I, Item 2.




Managements Discussion and Analysis of Financial Condition and Results of Operations

Statements in this Quarterly Report on Form 10-Q that are not strictly
historical are forward looking statements, as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
typically identified by the words: believe, expect, anticipate, intend, are
confident, estimate and similar expressions, which by their nature refer to
future events. Actual future results may differ materially from those
anticipated depending on a variety of factors which include, but are not
limited to, trends in sales of The First Years Brand and licensed products
including the effect of slowing economic activity, continued success of new
Disney character refreshed graphics, continued success of market research
identifying new product opportunities, successful introduction of new products,
continued product innovation, the success of new enhancements to our brand
image, growth in international sales, ability to attract and retain key
personnel, and growth in sales and earnings. Information with respect to risk
factors is contained in our most recent Annual Report on Form 10-K as filed
with the Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. We do not intend to update any of the forward looking statements
after the date of this Report to conform these statements to actual results or
changes in our expectations, except as required by law.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses and related notes. Some of these
estimates require difficult, subjective and/or complex judgments about matters
that are inherently uncertain, and, as a result, actual results may differ from
those estimates. Due to the judgment and estimation involved, the following
summarized accounting policies and their application are considered to be
critical to understanding the business operations, financial condition, and
results of operations of The First Years Inc.

Revenue Recognition We recognize revenue when products are shipped to
customers. Common to our industry, customers may be authorized to return
selected products and we reduce sales and accounts receivable for actual
returns and estimate future returns based on historical trends and information
available to us, including the pattern of returns immediately following the
reporting period. We also maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Inventories Inventories, consisting of finished goods, unpackaged
components, and supplies, are stated at the lower of cost or market with cost
determined using the first-in, first-out method. We make certain obsolescence
and other assumptions to adjust inventory based on historical experience and
current information. We write down inventory for estimated obsolete or
unmarketable inventory equal to the difference between the costs of inventory
and estimated market value, based upon assumptions about future demand and
market conditions. In the event of a write down of inventory, we also review
molds associated with those products to determine whether there has been a
significant impairment to the carrying value of the asset. If the carrying
value of these assets is considered not to be recoverable, such assets are
written down as appropriate. These assumptions, although consistently applied,
can have a significant impact on current and future operating results and
financial position.

Sales Incentives Sales incentives offered to customers to promote the
sales of our products include costs related to cooperative advertising
programs, promotions, slotting fees or buydowns, and certain rebates. In
determining these costs, we reflect activity and make estimates of certain
costs of promotional activity based on historical arrangements and information
available to us.



|A. |  | Results of Operations  Second Quarter of 2002 Compared with Second Quarter of 2001
|-- |  | -----------------------------------------------------------------------------------

Net income for the second quarter of 2002 was $2.2 million or $0.26 per
diluted share, compared with $1.5 million or $0.16 per diluted share in 2001.
Net sales for the second quarter of 2002 were $34.8 million, compared with
$31.8 million in the comparable period in 2001. The increase in net sales was
due primarily to an increase in The First Years brand sales, which were
positively impacted by successful new product introductions, improved packaging
with enhanced graphics, and shifts in timing of certain promotions that took
place in the third quarter last year and occurred in the second quarter this
year. The increase in The First Years brand sales was partially offset by a
decrease in licensed and specialty sales.

-6-



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Cost of products sold for the second quarter of 2002 was $22.4 million, an
increase of $0.9 million from the comparable period in 2001, principally due to
increased sales. As a percentage of net sales, cost of products sold for the
second quarter of 2002 decreased to 64% from 68% in the comparable period of
2001, principally due to product mix and planned product cost savings.

Selling, general, and administrative expenses for the second quarter of
2002 were $8.7 million, an increase of $0.8 million from the comparable period
in 2001. The increase is primarily attributable to increased payroll and
payroll-related costs associated with infrastructure improvements, mainly in
the marketing and product development areas, offset by a decrease in
non-payroll related costs. As a percentage of net sales, selling, general, and
administrative expenses for the second quarter of 2002 remained unchanged from
the comparable period of 2001 at 25%.

In accordance with generally accepted accounting principles, we provide
for income taxes on an interim basis using our anticipated effective income tax
rate.



|B. |  | Results of Operations  First Half of 2002 Compared with First Half of 2001
|-- |  | ---------------------------------------------------------------------------

Net income for the first six months of 2002 was $4.3 million or $0.52 per
diluted share, compared with $3.9 million or $0.42 per diluted share in 2001.
Net sales for the first six months of 2002 were $68.1 million, compared with
$64.3 million in the comparable period in 2001. The increase in net sales was
due primarily to an increase in The First Years brand sales, partially offset
by a decrease in licensed and specialty sales.

Cost of products sold for the first six months of 2002 was $44.1 million,
an increase of $1.3 million from the comparable period in 2001, principally due
to increased sales. As a percentage of net sales, cost of products sold for the
first six months of 2002 decreased to 65% from 67% in the comparable period of
2001, principally due to product mix and planned product cost savings.

Selling, general, and administrative expenses for the first six months of
2002 were $16.7 million, an increase of $1.4 million from the comparable period
in 2001. The increase is primarily attributable to increased payroll and
payroll-related costs associated with infrastructure improvements, mainly in
marketing and product development areas, offset by decreases in non-payroll
related costs. As a percentage of net sales, selling, general, and
administrative expenses for the first six months of 2002 increased to 25% from
24% in the comparable period of 2001.

In accordance with generally accepted accounting principles, we provide
for income taxes on an interim basis using our anticipated effective income tax
rate.



|C. |  | Financial Condition
|-- |  | -------------------

With respect to the Condensed Consolidated Balance Sheet, consolidated
assets of $64.9 million at June 30, 2002 were approximately $0.3 million lower
than at December 31, 2001.

Cash and cash equivalents decreased to $5.4 million at June 30, 2002, from
$13.3 million at December 31, 2001. The decrease resulted primarily from $4.4
million, $2.9 million, and $0.6 million used in operating, investing, and
financing activities, respectively.

Net cash of $4.4 million used for operating activities consisted primarily
of $5.6 million from net income adjusted for non-cash items, offset by $9.9
million used in working capital and other activities. Net cash used in working
capital and other activities resulted primarily from an increase in accounts
receivable, together with decreases in accounts payable and accrued expenses,
accrued royalty and accrued selling expenses. Net cash provided by working
capital and other activities resulted primarily from a decrease in inventories
and prepaid expenses and other assets. Days sales outstanding were 58 for the
first six months of 2002 and 51 for the year ended December 31, 2001. The
increase in days sales outstanding is attributable to an increase in net sales
for the three months ended June 30, 2002 when compared to the three months
ended December 31, 2001. Inventory turns were 2.3 for the first six months of
2002 and 2.2 for the comparable period in 2001.

Net cash of $2.9 million used in investing activities resulted from
capital expenditures. Capital expenditures in 2002 consisted primarily of
additions to machinery and molds for new production molds, furniture and
equipment related to computer hardware and software, and building improvements
to our executive and administrative offices.

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Net cash of $0.6 million used for financing activities consisted primarily
of the payment of dividends and treasury stock purchases, which were partially
offset by the proceeds on the issuance of common stock under our stock option
plans.

For the remainder of 2002, we expect to fund expenditures for capital
requirements as well as liquidity needs from a combination of available cash
balances, internally generated funds, and financing arrangements. We have an
unsecured line of credit of $10 million, which is subject to annual renewal at
the option of the bank. Any amounts outstanding under the line are payable upon
demand by the bank. For the quarter ended June 30, 2002 we had no borrowings
under the line of credit.

Recent Accounting Pronouncements

In 2001, the Emerging Issues Task Force (EITF) reached consensus on
Issue No. 01-09, Accounting for Consideration Given by a Vendor to a
Customer. The consensus in EITF No. 01-09 addresses the income statement
classification of various types of sales incentives, including discounts,
consumer coupons, rebates, and free products as well as slotting fees,
cooperative advertising arrangements and buydowns. The consensus requires
these sales incentives be classified as a reduction of revenue, versus a
selling, general, and administrative expense.

We adopted the consensus in EITF Issue No. 01-09 on January 1, 2002. EITF
Issue No. 01-09 was issued to codify and reconcile EITF Nos. 00-14, 00-22, and
00-25 which address the accounting for consideration given by a vendor to a
customer. With the adoption of this EITF in 2002, approximately $3.2 million
and $3.0 million of sales incentives for the six months ending June 30, 2002
and 2001, respectively, have been reclassified as a reduction to net sales and
a corresponding reduction to selling, general, and administrative expenses in
the consolidated statements of income. These reclassifications had no impact on
operating income and net income.

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS 141 supersedes Accounting Principles Board (APB)
Opinion 16 Business Combinations and SFAS No. 38 Accounting for
Pre-acquisition Contingencies and eliminates the pooling-of-interests method
of accounting for business combinations. SFAS No. 141 also includes enhanced
criteria for identifying intangible assets separately from goodwill. The
requirements of SFAS No. 141 were effective for any business combination
consummated by the Company subsequent to June 30, 2001. SFAS No. 142 was
effective for the Company as of January 1, 2002. SFAS No. 142 supersedes APB
Opinion No. 17, Intangible Assets, and requires that goodwill and intangible
assets with indefinite lives no longer be amortized, but reviewed for
impairment at least annually. Intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
adoption of these statements did not have a material impact on our consolidated
statements of income, consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment of and Disposal of Long-Lived Assets. This statement supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. The statement retains the previously
existing accounting requirements related to the recognition and measurement of
the impairment of long-lived assets to be held and used while expanding the
measurement requirements of long-lived assets to be disposed of by sale to
include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale. We
implemented SFAS No. 144 on January 1, 2002. The adoption of this statement did
not have a material impact on our consolidated financial position or results of
operations.

Part I, Item 3.




Quantitative and Qualitative Disclosure about Market Risk

The First Years is subject to certain market risks, which include changes
in United States and international interest rates as well as changes in
currency exchange rates as measured against the U.S. dollar and each other. We
attempt to reduce material risks by using foreign currency forward exchange
contracts and managing our working capital to minimize currency and interest
rate exposure.

Foreign Currency Market Risk

Our international operations are subject to certain opportunities and
risks, including currency fluctuations. In the quarter ended June 30, 2002,
international sales accounted for 13% of total net sales. The value of the
United States dollar affects our financial results, and changes in exchange
rates may affect our revenues, gross margins, operating expenses, and retained
earnings as expressed in U.S. dollars. At times, we use forward exchange
contracts to hedge cash flows arising from sales denominated in foreign
currencies

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##### Table of Contents



to limit the impact of currency fluctuations. Principal currencies hedged
include the Euro, the British pound, and the Canadian dollar. We also attempt
to minimize currency exposure risk through working capital management. In the
first six months of 2002 and 2001, the impact of foreign exchange gains or
losses was not material. We had no outstanding foreign currency forward
exchange contracts as of June 30, 2002 and December 31, 2001.

In January 1999, certain member countries of the European Union
established irrevocable, fixed conversion rates between their currencies and
the European Unions common currency, the Euro. The introduction of the Euro
was phased in over a period ended January 1, 2002, when Euro notes and coins
came into circulation. The replacement of legacy currencies with the Euro did
not have and is not expected to have a material impact on our operations or
Consolidated Financial Statements.

Interest Rate Risks

Changes in interest rates affect interest income earned on our cash
equivalents and short-term investments, composed primarily of U.S. treasury
obligations and short-term money market instruments. We do not attempt to
reduce or eliminate our market exposure to changes in interest rates in the
U.S. or in international operations.

Also see our disclosure regarding Market Risk in Item 7A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with
the SEC.

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##### Table of Contents



THE FIRST YEARS INC.




PART II  OTHER INFORMATION

Item 1:   Legal Proceedings



| |  | We are not involved in any legal proceedings that are material to our
business or financial condition.
| |  | ------------------------------------------------------------------------------------------------------

Item 2:   Changes in Securities and Use of Proceeds



| |  | Not Applicable
| |  | --------------

Item 3:   Defaults Upon Senior Securities



| |  | Not Applicable
| |  | --------------

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

(a)  An Annual Meeting of the Stockholders of The First Years Inc. was held
on May 16, 2002.

(b)  The following matters were voted upon at such Annual Meeting and the
following votes were cast as to each such matter:



| | i. |  | Election of Class I Directors:
| | -- |  | ------------------------------

|                  |  |                        |           |          |  |           |           |  |  |        |   | 
|----------------- |  | ---------------------- | --------- | -------- |  | --------- | --------- |  |  | ------ | - | 
|                  |  | Number of Shares/Votes
|                  |  |                       
|                  |  |                        |           |          |  |           |           |  |  | Broker
|                  |  | For                    |           | Withhold |  | Non-Votes
|                  |  |                        |           |          |  |          
|Jerome M. Karp    |  |                        | 6,278,815 |          |  |           | 1,149,755 |  |  |        | 0 | 
|                 
|                 
|                 
|                 
|Fred T. Page      |  |                        | 6,305,915 |          |  |           | 1,122,655 |  |  |        | 0 | 
|                 
|                 
|                 
|                 
|Kenneth R. Sidman |  |                        | 6,286,915 |          |  |           | 1,141,655 |  |  |        | 0 | 



| | ii. |  | Proposal to ratify the selection of Deloitte & Touche LLP as
auditors for the Company for the
fiscal year 2002.
| | --- |  | ---------------------------------------------------------------------------------------------------------------

|                 |  |                  |           | 
|---------------- |  | ---------------- | --------- | 
|                 |  | Number of Shares
|                 |  |                 
|For              |  |                  | 6,298,125 | 
|                
|                
|                
|                
|Against          |  |                  | 1,130,045 | 
|                
|                
|                
|                
|Abstain          |  |                  | 400       | 
|                
|                
|                
|                
|Broker Non-Votes |  |                  | 0         | 



| |  |  | Following the Annual Meeting, the Board of Directors consists
of:                                                                                                     
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Ronald Sidman, Benjamin Peltz, Evelyn Sidman, Lewis M. Weston,
Walker J. Wallace, Jerome M. Karp, Fred T. Page, Kenneth R.
Sidman, Beth J. Kaplan and Richard E. Wenz.

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Item 5:   Not Applicable

Item 6:   Exhibits and Reports on Form 8-K



|(a) |  | Exhibits  The following exhibits are filed as part of this Report:
|--- |  | -------------------------------------------------------------------

|     |  |                                                                                                                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Restated Articles of Organization of the Company. Filed as Exhibit
3.1 to the Companys Registration Statement on Form S-1 on October 5,
1995 (File No. 33-62673) and incorporated herein by reference.                                   
|    
|    
|    
|    
|3.2  |  | By-laws of the Company. Filed as Exhibit (3)(ii) to the Companys
annual report on Form 10-K for the period ended December 31, 1999 and
incorporated herein by reference.                                                                 
|    
|    
|    
|    
|4.1  |  | Specimen certificate for shares of Common Stock of the Company. Filed
as Exhibit 4.1 to the Companys Registration Statement on Form S-1
(File No. 33-62673) and incorporated herein by reference.                                        
|    
|    
|    
|    
|4.2  |  | Rights Agreement, dated as of November 19, 2001, between the Company
and EquiServe Trust Company, N.A. Filed as Exhibit 4.1 to the
Companys Registration Statement on Form 8-A on November 20, 2001 and
incorporated herein by reference.
|    
|    
|    
|    
|99.1 |  | Certification of officers pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                       



|(b) |  | No reports on Form 8-K have been filed during the quarter covered by
this report.
|--- |  | ---------------------------------------------------------------------------------

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THE FIRST YEARS INC.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.

|             |  |                                                                                                              
|------------ |  | -------------------------------------------------------------------------------------------------------------
|             |  | THE FIRST YEARS INC.
Registrant                                                                              
|            
|            
|            
|            
|             |  |                                                                                                              
|            
|            
|            
|            
|Date 8/14/02 |  |                                                                                                              
|            
|            
|            
|            
|             |  |                                                                                                              
|            
|            
|            
|            
|             |  | By: /s/ Ronald J. Sidman                                                                                     
|             |  |                                                                                                              
|             |  | Ronald J. Sidman,
Chairman, President, and Chief Executive Officer,
(Duly Authorized Officer)                
|            
|            
|            
|            
|             |  |                                                                                                              
|            
|            
|            
|            
|             |  | By: /s/ John R. Beals                                                                                        
|             |  |                                                                                                              
|             |  | John R. Beals,
Senior Vice President and Treasurer,
(Duly Authorized Officer and Principal Financial Officer)

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THE FIRST YEARS INC.




EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                           
|3.1     |  | Restated Articles of Organization of the Company. Filed as Exhibit
3.1 to the Companys Registration Statement on Form S-1 on October
5, 1995 (File No. 33-62673) and incorporated herein by reference.                                   
|       
|       
|       
|       
|3.2     |  | By-laws of the Company. Filed as Exhibit (3)(ii) to the Companys
annual report on Form 10-K for the period ended December 31, 1999
and incorporated herein by reference.                                                                 
|       
|       
|       
|       
|4.1     |  | Specimen certificate for shares of Common Stock of the Company.
Filed as Exhibit 4.1 to the Companys Registration Statement on
Form S-1 (File No. 33-62673) and incorporated herein by reference.                                        
|       
|       
|       
|       
|4.2     |  | Rights Agreement, dated as of November 19, 2001, between the
Company and EquiServe Trust Company, N.A. Filed as Exhibit 4.1 to
the Companys Registration Statement on Form 8-A on November 20,
2001 and incorporated herein by reference.
|       
|       
|       
|       
|99.1    |  | Certification of Officers pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        

-13-