UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X]	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period endedSeptember 30, 2007

[ ]	Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________

Commission file number: 0-22663

THE MIDDLETON DOLL COMPANY
(Exact name of small business issuer as specified in its charter)

Wisconsin	39-1364345
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1050 Walnut Ridge Drive
Hartland, Wisconsin
53029-8303
(Address of principal executive offices)

(262) 369-8163
(Issuer’s telephone number, including area code)

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

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

On November 2, 2007, there were 3,802,589 shares outstanding of the issuer’s common stock, 6-2/3 cents par value.

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

THE MIDDLETON DOLL COMPANY
FORM 10-QSB INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and
	December 31, 2006	3
	Condensed Consolidated Statements of Operations - For the Three Months and
	Nine Months Ended September 30, 2007 and 2006 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity - For the Nine
	Months Ended September 30, 2007 and 2006 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows - For the Nine Months Ended
	September 30, 2007 and 2006 (Unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis or Plan of Operation	17
Item 3.	Controls and Procedures	27
PART II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	29
	Signatures	30
	Exhibit Index	31

ITEM 1. FINANCIAL STATEMENTS

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	September 30, 2007		December 31, 2006
	(Unaudited)
CONSUMER PRODUCTS
Current Assets:
Cash and cash equivalents	$	1,744,477	$	961,527
Accounts receivable, net		1,819,034		2,203,751
Inventory, net		7,014,223		3,722,700
Prepaid inventory		23,946		466,699
Other prepaid expenses		96,819		87,448

Total current assets		10,698,499		7,442,125
Property and equipment, net		1,866,488		5,392,659

Total Consumer Products Assets		12,564,987		12,834,784

FINANCIAL SERVICES
Cash and cash equivalents		288,942		1,738,561
Interest receivable		--		423
Tenant advance		--		137,293
Loans held for investment, net		145,750		213,575
Leased properties, listed for sale, net		1,392,512		1,413,788
Other assets		18,696		20,610

Total Financial Services Assets		1,845,900		3,524,250

TOTAL ASSETS	$	14,410,887	$	16,359,034

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND SHAREHOLDERS’ EQUITY

	September 30, 2007			December 31, 2006
	(Unaudited)
LIABILITIES
CONSUMER PRODUCTS
Accounts payable	$	1,202,240		$	996,846
Accrued royalties		3,732			90,433
Accrued real estate taxes and personal property taxes		72,263			83,203
Accrued salaries		43,256			90,492
Accrued vendor rebates		49,162			56,667
Accrued liabilities		108,860			99,965

��Total Consumer Products Liabilities		1,479,513			1,417,606

FINANCIAL SERVICES
Accrued liabilities		230,668			56,333

PREFERRED SHARES SUBJECT TO
MANDATORY REDEMPTION ON JULY 1, 2008		9,394,750			10,365,425

Total Company Liabilities		11,104,931			11,839,364

SHAREHOLDERS’ EQUITY
Common stock, $0.0667 cents par value,
15,000,000 shares authorized, 4,476,599 shares issued,		293,441			293,441
3,802,589 shares outstanding at September 30, 2007 and
3,727,589 shares outstanding at December 31, 2006
Additional paid-in capital		16,629,396			16,607,688
Accumulated deficit		(6,890,959	)		(5,655,537	)
Treasury stock, 674,010 shares, at September 30, 2007
and December 31, 2006, at cost		(6,725,922	)		(6,725,922	)

Total Shareholders’ Equity		3,305,956			4,519,670

TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	14,410,887		$	16,359,034

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2007			2006			2007			2006
CONSUMER PRODUCTS
NET SALES	$	3,347,173		$	2,617,902		$	7,772,876		$	7,332,024
COST OF GOODS SOLD		2,475,574			1,898,498			5,694,404			5,291,892

Gross Profit		871,599			719,404			2,078,472			2,040,132

OPERATING EXPENSES
Sales and marketing		371,183			538,690			1,059,287			1,645,187
New product development		179,777			254,666			572,096			742,625
General and administrative		830,790			669,787			2,458,116			2,148,981

Total Operating Expenses		1,381,750			1,463,143			4,089,499			4,536,793

Gain on sale of property		(599,165	)		--			(611,140	)		--

Net operating income (loss)		89,014			(743,739	)		(1,399,887	)		(2,496,661	)

OTHER INCOME (EXPENSE)
Interest expense		(5,876	)		--			(5,876	)		--
Other income, net		39,418			37,880			136,710			120,610

Other income		33,542			37,880			130,834			120,610
Income (loss) before income taxes		122,556			(705,859	)		(1,269,053	)		(2,376,051	)
Less: Applicable income tax expense		--			--			--			--

CONSUMER PRODUCTS INCOME (LOSS)	$	122,556		$	(705,859	)	$	(1,269,053	)	$	(2,376,051	)

FINANCIAL SERVICES
REVENUES
Interest on loans	$	--		$	32,203		$	1,297		$	308,593
Rental income		9,995			142,502			103,720			671,140
Gain on sale of leased properties		--			353,140			--			1,413,856
Other income		2,649			17,138			14,229			36,324

Total Revenues		12,644			544,983			119,246			2,429,913

EXPENSES
Interest expense		--			4,148			--			321,388
Loss on early extinguishment of indebtedness		--			--			--			289,034
Provision for impairment of leased property		--			98,812			--			98,812
Provision for losses on loans		--			250,000			--			250,000
Depreciation expense		1,636			24,566			21,276			120,276
Management fee expense		--			--			--			45,139
Compensation expense		--			66,313			--			219,753
Other operating expenses		9,082			91,616			16,878			415,481

Total Expenses		10,718			535,455			38,154			1,759,883

Income before income taxes		1,926			9,528			81,092			670,030
Less: Applicable income tax expense		--			--			--			--

FINANCIAL SERVICES INCOME	$	1,926		$	9,528		$	81,092		$	670,030

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – (Continued)
(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2007			2006			2007			2006
TOTAL COMPANY
Income (loss) before income taxes,
Consumer products	$	122,556		$	(705,859	)	$	(1,269,053	)	$	(2,376,051	)
Financial services		1,926			9,528			81,092			670,030

Total Company		124,482			(696,331	)		(1,187,961	)		(1,706,021	)
Interest expense related to preferred stock		(126,125	)		(226,275	)		(404,436	)		(678,826	)
Interest income on redemption of preferred
stock, net of accrued interest and expenses		361,826			--			356,975			--
Income tax expense		--			--			--			--

NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS	$	360,183		$	(922,606	)	$	(1,235,422	)	$	(2,384,847	)

Basic income (loss) per common share	$	0.09		$	(0.25	)	$	(0.33	)	$	(0.64	)

Diluted income (loss) per common share	$	0.09		$	(0.25	)	$	(0.32	)	$	(0.64	)

Weighted average shares outstanding (basic)		3,802,589			3,727,589			3,776,765			3,727,589

Weighted average shares outstanding (diluted)		3,875,546			3,727,589			3,812,182			3,727,589

Interest (dividend) paid per preferred stock share	$	0.335625		$	0.335625		$	0.335625		$	0.335625

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

	Common Stock		Additional Paid-In Capital		Accumulated Deficit			Common Treasury Stock			Total
BALANCES,
December 31, 2005	$	293,441	$	16,604,744	$	(5,279,449	)	$	(6,725,922	)	$	4,892,814
Net loss nine months
ended September 30, 2006		--		--		(2,384,847	)		--			(2,384,847	)
Stock-based compensation		--		2,208		--			--			2,208

BALANCES,
September 30, 2006	$	293,441	$	16,606,952	$	(7,664,296	)	$	(6,725,922	)	$	2,510,175

BALANCES,
December 31, 2006	$	293,441	$	16,607,688	$	(5,655,537	)	$	(6,725,922	)	$	4,519,670
Net loss nine months
ended September 30, 2007		--		--		(1,235,422	)		--			(1,235,422	)
Stock-based compensation		--		21,708		--			--			21,708

BALANCES,
September 30, 2007	$	293,441	$	16,629,396	$	(6,890,959	)	$	(6,725,922	)	$	3,305,956

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Nine Months Ended September 30,
	2007			2006
CONSUMER PRODUCTS
CASH FLOWS FROM OPERATING ACTIVITIES
Segment net loss	$	(1,269,053	)	$	(2,376,051	)
Adjustments to reconcile segment net loss to
net cash flows from operating activities
Depreciation		355,598			537,308
Gain on sale of property and equipment		(611,140	)		(1,930	)
Stock-based compensation expense		21,708			--
Provision for losses on accounts receivable		13,725			26,260
Net change in:
Accounts receivable		370,992			1,502,767
Inventory		(2,624,770	)		601,434
Other assets		(21,891	)		144,131
Accounts payable		(18,606	)		(521,950	)
Other liabilities		(143,487	)		(281,859	)

Net Cash Flows used in Operating Activities		(3,926,924	)		(369,890	)

CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment expenditures		(237,484	)		(121,661	)
Proceeds from sale of property and equipment		4,031,717			1,930

Net Cash Flows from (used in) Investing Activities		3,794,233			(119,731	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net intercompany transactions		915,641			1,239,568

Net Cash Flows from Financing Activities		915,641			1,239,568

Net Change in Cash and Cash Equivalents		782,950			749,947
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR		961,527			83,817

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	1,744,477		$	833,764

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest	$	5,876		$	--

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED) (Unaudited)

	For the Nine Months Ended September 30,
	2007			2006
FINANCIAL SERVICES
CASH FLOWS FROM OPERATING ACTIVITIES
Segment net income	$	81,092		$	670,030
Adjustments to reconcile segment net income to
net cash flows from operating activities
Depreciation		21,276			120,276
Provision for losses on loans		--			250,000
Provision for impairment of leased property		--			98,812
Gain on sale of leased properties		--			(1,413,856	)
Stock-based compensation expense		--			2,208
Net change in:
Interest receivable		423			105,389
Tenant advance and other assets		139,207			102,850
Accrued liabilities		174,335			(834,347	)

Net Cash Flows from (used in) Operating Activities		416,333			(898,638	)

CASH FLOWS FROM INVESTING ACTIVITIES
Net loan repayments received		67,825			3,565,869
Proceeds from sale of leased properties		--			9,333,061
Proceeds from sale of loans		--			18,893,379
Purchase or improvements to leased property		--			(5,477	)

Net Cash Flows from Investing Activities		67,825			31,786,832

CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in lines of credit		--			(22,820,000	)
Repayment of SWIB notes		--			(5,000,000	)
Repayment of loan participations with repurchase options		--			(135,254	)
Net intercompany transactions		(915,641	)		(1,239,568	)

Net Cash Flows used in Financing Activities		(915,641	)		(29,194,822	)

Net Cash Flows (used in) from Financial Services		(431,483	)		1,693,372
Interest paid related to preferred stock		(404,436	)		(678,826	)
Payment for redemption of preferred stock, including expenses		(613,700	)		--

Net Cash Flows used in Preferred Stock payments		(1,018,136	)		(678,826	)
Net Change in Cash and Cash Equivalents		(1,449,619	)		1,014,546
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR		1,738,561			203,356

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	288,942		$	1,217,902

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest	$	--		$	501,004
Cash paid for income taxes	$	--		$	546,917

See Notes to Condensed Consolidated Financial Statements

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.

NATURE OF BUSINESS

The Middleton Doll Company (the “Company”) consists of two business segments: the consumer products business segment and the financial services business segment. The Middleton Doll Company, when referred to singularly and not with its subsidiaries, is referred to herein as the “Parent”.

The consumer products business segment consists of a portion of Lee Middleton Original Dolls, Inc. (“LMOD”) and its wholly-owned subsidiary License Products, Inc. (“LPI”). LMOD is a designer and distributor of lifelike collectible and play dolls; while LPI is a designer and distributor of clocks and home décor products.

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

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

The consolidated financial statements of the Company include the accounts of the Parent, the former BMSBLC, LMOD and LPI. All significant intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management of the Company, all adjustments necessary to present fairly the financial position as of September 30, 2007 and December 31, 2006, the results of operations for the three and nine month periods ended September 30, 2007 and 2006 and the statements of changes in shareholders’ equity and cash flows for the nine months ended September 30, 2007 and 2006 have been made. Such adjustments consisted only of normal recurring items. Operating results for the nine month period ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 (the “Annual Report”). For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report.

The condensed consolidated balance sheets for the consumer products business segment are classified due to its normal business cycle being less than twelve months. The financial services business segment’s condensed consolidated balance sheets are not classified as its normal business cycle is greater than twelve months.

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of allowances for loan losses and doubtful accounts and the valuation of inventory and leased properties. See discussion of “Critical Accounting Policies” under “Management’s Discussion and Analysis or Plan of Operation”.

NOTE 3.

LIQUIDITY AND CAPITAL RESOURCES

The consumer products business segment has incurred net losses and negative cash flows from operating activities over the past four years and the Company has an accumulated deficit of $6.89 million at September 30, 2007. The sale of financial services assets during 2006 generated sufficient cash to allow the Company to pay off debt, to fund operations, and to partially redeem shares of the Company’s outstanding preferred stock. Absent any adverse factors outside the control of the Company, management expects that the cash that will be generated from additional asset sales and existing operations together with existing cash balances and other potential sources of financing, such as an asset based line of credit, will be sufficient to provide the necessary cash to meet operating and working capital requirements through June 30, 2008. The Company is required to redeem $9.39 million of preferred stock by July 1, 2008, to the extent the Company has legally available funds for the redemption and it is otherwise permitted under Wisconsin law. The Company will only have sufficient funds to redeem the preferred stock and to continue to pay dividends on the preferred stock if the consumer products business segment can generate sufficient earnings (the consumer products business segment has realized losses from operations for the last four years) and/or is able to raise funds from other sources. In this regard, the Company is continuing to review various alternatives, which could include a financing transaction, a disposition of assets, a recapitalization of the Company, or a strategic business combination, to address all of its financial obligations, including the redemption of preferred stock. There can be no assurance that the Company will be able to redeem the preferred stock on July 1, 2008. If the Company is unable to redeem the preferred stock, the Company’s business, financial condition and results of operations could be materially adversely affected. The Company has recently entered into loan agreements providing for $1.75 million of funding (see Notes 12 and 13).

NOTE 4.

INVENTORY

Inventories of LMOD and LPI are valued at the lower of cost or market using the first-in, first-out (FIFO) method to determine cost. The components of inventory are as follows:

	September 30, 2007			December 31, 2006
Raw materials	$	206,352		$	296,397
Finished goods		7,185,958			3,909,150

		7,392,310			4,205,547
Allowance for obsolete and excess inventory		(378,087	)		(482,847	)

	$	7,014,223		$	3,722,700

NOTE 5.

ALLOWANCES FOR DOUBTFUL ACCOUNTS AND LOANS

Accounts receivable are stated net of a $133,393 allowance for doubtful accounts as of September 30, 2007, and a $175,248 allowance as of December 31, 2006. Loans held for investment are stated net of a $63,813 allowance for doubtful loans as of September 30, 2007 and a $250,000 allowance as of December 31, 2006.

NOTE 6.

PROPERTY AND EQUIPMENT

On August 1, 2007, LPI sold the commercial building in which the Company is headquartered resulting in net proceeds of $4.02 million and a gain of $0.60 million. At the present time the Company is renting space in the building; however, management expects to relocate to new leased quarters by the end of the year. Other miscellaneous equipment was sold by LMOD and LPI for $14,800.

NOTE 7.

LEASED PROPERTIES

At September 30, 2007 and December 31, 2006, LMOD’s real estate portfolio consisted of one commercial leased property. The previous tenant made a final lease payment on July 15, 2007. A portion of the building’s warehouse space was leased to a new tenant during 2007 under a month-to-month lease for $1,100 per month. The building is listed for sale for $2.0 million.

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

	09/30/2007			12/31/2006
Land	$	107,800		$	107,800
Buildings		1,571,178			1,571,178

Total		1,678,978			1,678,978
Less: accumulated depreciation		(286,466	)		(265,190	)

Net	$	1,392,512		$	1,413,788

Leased properties are classified as listed for sale or under contract to be sold when such properties are listed for sale and/or under contract to be sold within the next twelve months. The properties are carried at the lower of depreciated cost or net realizable value. The Company sold seven properties during the nine months ended September 30, 2006, which resulted in a gain of $1.41 million. During the third quarter of 2006, an impairment provision of $98,812 was recorded on a vacant leased property, which was sold in the fourth quarter of 2006.

NOTE 8.

MANDATORY REDEEMABLE PREFERRED STOCK

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

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

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

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

Mandatorily redeemable preferred stock consisted of the following as of September 30, 2007 and December 31, 2006:

	09/30/2007		12/31/2006
Redeemable Preferred stock, 1 cent par value,	$	9,394,750	$	10,365,425

$25 carrying value, 3,000,000 shares authorized,
690,000 shares issued, 375,790 shares outstanding
as of September 30, 2007 and 414,617 shares
outstanding as of December 31, 2006, respectively

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

	Three Months Ended 09/30/2007
Payment for the redemption of 38,827 shares of preferred stock	$	(543,578	)
Carrying value of shares at redemption date ($25 per share)		970,675
Expenses incurred in connection with redemption		(65,271	)

Interest income related to preferred stock	$	361,826

	Nine Months Ended 09/30/2007
Payment for the redemption of 38,827 shares of preferred stock	$	(543,578	)
Carrying value of shares at redemption date ($25 per share)		970,675
Expenses incurred in connection with redemption		(70,122	)

Interest income related to preferred stock	$	356,975

NOTE 9.

INCOME TAXES

As discussed previously, as of January 1, 2006, BMSBLC merged with and into LMOD and on January 1, 2006, no longer qualified as a REIT. Therefore, for the year ended December 31, 2006, the Company (consisting of the Parent, LMOD and LPI) operated as a C Corporation under the Internal Revenue Code. The Company filed a consolidated federal income tax return for the year ended December 31, 2006. The Company will continue as a C Corporation in the foreseeable future.

The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s consolidated financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. There were no income tax benefits recognized for the year ended December 31, 2006, due to changes in the valuation allowance because of the Company’s continued income tax losses. At September 30, 2007, the Company’s valuation allowance was approximately $6.02 million.

NOTE 10.

STOCK-BASED COMPENSATION

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

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

At September 30, 2007, the Company had a stock-based employee compensation plan, the 2003 Stock Option Plan. Prior to the adoption of SFAS 123R, the Company accounted for plans under the recognition and measurement principles of APB Opinion No. 25, which resulted in no compensation expense being recorded. Under SFAS No. 123R, stock based compensation of $21,708 was recognized in the first nine months of 2007 and $2,208 was recognized in the first nine months of 2006.

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

At September 30, 2007, the 2003 Stock Option Plan had outstanding options to purchase 40,900 shares at an exercise price of $4.72 per share, of which options to purchase 32,720 shares were exercisable, and outstanding options to purchase 150,000 shares at an exercise price of $0.33 per share, which were not exercisable

At the shareholder meeting on June 5, 2007, the shareholders approved the adoption of the 2007 Non-Employee Director Stock Plan. The plan makes available 200,000 shares of common stock for the payment of director fees in shares of common stock. The plan also allows directors to elect to receive shares of common stock in lieu of cash fees. Any shares issued under a director’s election to receive shares of common stock in lieu of cash fees, would not

reduce the 200,000 share amount discussed above. As of September 30, 2007, no shares were issued under the 2007 Non-Employee Director Stock Plan.

NOTE 11.

PRO FORMA FINANCIAL INFORMATION

The following tables present the unaudited pro forma results of operations of the Company for the nine months and three months ended September 30, 2006, assuming that the loan sales and leased property dispositions, which occurred during 2006, had occurred on January 1, 2006.

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

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

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

The sale of nine leased properties and two vacant properties to various unrelated parties, which resulted in a gain of $2.24 million. The net book value of the properties at the time of the sales was $11.77 million. The pro forma condensed consolidated statement of operations for the nine months and three months ended September 30, 2006, excludes the gain on the sale of the properties.

The reduction of indebtedness under the Company’s revolving line of credit agreement, in the amount of $22.82 million, the payoff of the notes payable to SWIB in full, in the amount of $5.14 million, and the redemption of 259,754 shares of preferred stock with a carrying amount at redemption of $4.22 million, with the proceeds from the sales of the financial services business segment’s assets. The prepayment of the notes payable to SWIB required a prepayment penalty of $289,034, which has been excluded from the September 30, 2006 pro forma consolidated financial information.

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

	Nine Months Ended 09/30/2006 Historical			Pro Forma Adjustments			Nine Months Ended 09/30/2006 Pro Forma
Consumer products segment’s net loss	$	(2,376,051	)	$	--		$	(2,376,051	)

Financial services segment’s total revenues	$	2,429,913		$	(2,204,401	)	$	225,512
Financial services segment’s total expenses		(1,759,883	)		1,165,534		$	(594,349	)

Financial services segment’s net income (loss)	$	670,030		$	(1,038,867	)	$	(368,837	)

Total Company net loss	$	(1,706,021	)	$	(1,038,867	)	$	(2,744,888	)
Interest expense related to preferred stock dividends		(678,826	)		261,359			(417,467	)

Net loss applicable to common shareholders	$	(2,384,847	)	$	(777,508	)	$	(3,162,355	)

Basic and diluted loss per common share	$	(0.64	)	$	(0.21	)	$	(0.85	)
Weighted average shares outstanding		3,727,589			3,727,589			3,727,589

	Three Months Ended 09/30/2006 Historical			Pro Forma Adjustments			Three Months Ended 09/30/2006 Pro Forma
Consumer products segment’s net loss	$	(705,859	)	$	--		$	(705,859	)

Financial services segment’s total revenues	$	544,983		$	(475,586	)	$	69,397
Financial services segment’s total expenses		(535,455	)		393,869		$	(141,586	)

Financial services segment’s net income (loss)	$	9,528		$	(81,717	)	$	(72,189	)

Total Company net loss	$	(696,331	)	$	(81,717	)	$	(778,048	)
Interest expense related to preferred stock dividends		(226,275	)		87,120			(139,155	)

Net loss applicable to common shareholders	$	(922,606	)	$	5,403 606	)	$	(917,203)

Basic and diluted loss per common share	$	(0.25	)	$	--		$	(0.25	)
Weighted average shares outstanding		3,727,589			3,727,589			3,727,589

NOTE 12.

SHORT-TERM BORROWINGS

On July 27, 2007, LPI and LMOD, as co-borrowers, entered into a loan agreement with Town Bank, Hartland, Wisconsin, providing for a line of credit of $750,000 bearing interest at 2.75% over the thirty day LIBOR rate. The note is payable upon demand and is collateralized by receivables and inventory of LPI and LMOD and is guaranteed by the Parent. There was no outstanding principal balance on the line of credit at September 30, 2007. During the third quarter of 2007, the consumer products business segment recorded interest expense of $5,876 related to the line of credit. The interest rate on the line of credit was 8.47% as of September 30, 2007.

NOTE 13.

SUBSEQUENT EVENT

On October 1, 2007, the Company entered into a loan agreement with Town Bank, Hartland, Wisconsin, providing for a term note of $1,000,000 bearing interest at 2.75% over the thirty day LIBOR rate. The note is payable on October 1, 2008, and is collateralized by the building located in Oconomowoc, Wisconsin. At the present time no amount has been drawn against the term note.

NOTE 14.

INCOME (LOSS) PER SHARE

See Exhibit 11.1 for the computation of the net income (loss) per common share.

NOTE 15.

COMMITMENTS

There were no undisbursed construction or loan commitments at September 30, 2007.

NOTE 16.

RECENT ACCOUNTING PRONOUNCEMENTS

Establishing Standards on Measuring Fair Value

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. The Statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The Statement emphasizes that fair value is a market-based measurement and not an entity-specific measurement. The Statement establishes a fair value hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value. The Company will be required to adopt this statement beginning in 2008. Management

believes the adoption of this Statement is not expected to have a material impact on the Company’s consolidated financial statements.

Fair Value Option

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

Accounting for Uncertainty in Income Taxes

In June, 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The standard was adopted by the Company on January 1, 2007. There was no cumulative effect of adoption recorded to retained earnings. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of January 1, 2007, the Company is subject to U.S. Federal income tax examinations for the tax years 2003 to 2006. In addition, the Company is subject to state and local income tax examinations for the tax years 2002 to 2006.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

Amounts presented as of September 30, 2007, and December 31, 2006, and for the three and nine month periods ended September 30, 2007, and September 30, 2006, include the consolidation of the Parent, LMOD and LPI. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Over the past four years LMOD has experienced a significant decrease in net sales as shown in the following table. This decrease in sales has been a significant factor in the losses incurred by the consumer products business segment over the same period. Over the past year, management has developed new products and marketing strategies in an attempt to reverse the sales decline. The 2007 holiday season sales will be critical to the future success of the Company.

Nine Months Ended	LMOD’s Net Sales	LPI’s Net Sales	Total Consumer Products Net Sales
09/30/2007	$3,849,571	$3,923,305	$7,772,876
09/30/2006	$4,342,406	$2,989,618	$7,332,024
09/30/2005	$5,446,932	$3,847,368	$9,294,300
09/30/2004	$6,975,433	$3,416,017	$10,391,450

At LMOD sales of the higher margin Artist Studio Collection (“ASC”) doll line continue to decline. Sales of the newly introduced lower margin doll lines known as “Middleton Playbabies” (introduced in August of 2006) and “Middleton NOW” dolls (introduced in April of 2007) are improving.

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

At September 30, 2007, LMOD’s real estate portfolio consisted of one leased property, which is listed for sale, and the loan portfolio consisted of three loans. No payments were received in the first nine months of 2007 on the three loans, one of which is presently in foreclosure proceedings.

Income Tax Status

For the year ended December 31, 2006, the Company (consisting of the Parent, LMOD and LPI) operated as a C Corporation under the Internal Revenue Code and filed a consolidated federal income tax return. The Company will continue as a C Corporation for the foreseeable future.

Tax Benefits

The Company accounts for income taxes using an asset and liability approach, which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s consolidated financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. There were no income tax benefits recognized for the year ended December 31, 2006, due to changes in the valuation allowance because of the Company’s continued income tax losses. At September 30, 2007 and December 31, 2006, the Company’s valuation allowance was approximately $6.02 million and $5.53 million, respectively. As of December 31, 2006, the Company had unused net operating loss carryforwards of approximately $12.3 million available to offset against future federal taxable income and approximately $9.75 million to offset against future state taxable income. These net operating loss carryforwards comprise a significant portion of the valuation allowance.

Critical Accounting Policies

Consumer Products

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

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

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

Financial Services

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

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

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

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

Results of Operations

For the three months ended September 30, 2007 and September 30, 2006

The Company’s total net income for the three months ended September 30, 2007 equaled $0.36 million, or $0.09 per common share (diluted), compared to a net loss of $0.92 million, or $0.25 per common share (diluted), for the three months ended September 30, 2006.

Consumer Products

The consumer products segment’s net income for the three months ended September 30, 2007, totaled $122,556 compared to a net loss of $705,859 for the three months ended September 30, 2006. During the third quarter of 2007, LPI sold the commercial building in which the Company is headquartered resulting in a gain of $0.60 million.

Net sales for the three months ended September 30, 2007, increased 28% to $3.35 million from $2.62 million for the three months ended September 30, 2006. During the third quarter of 2007, LMOD’s net sales were $1.71 million (an increase of $0.06 million from the third quarter of 2006) and LPI’s net sales were $1.64 million (an increase of $0.67 million from the third quarter of 2006). At LMOD, net sales in the ASC category declined $0.38 million reflecting decreased sales of dolls and accessories, which includes a $0.09 decrease in Newborn Nursery® doll sales. In the third quarter of 2007, sales of the newly introduced doll lines known as “Middleton Playbabies” (introduced in August of 2006) and “Middleton NOW” dolls (introduced in April of 2007) were $0.50 million higher in the third quarter of 2007 as compared to the third quarter of 2006. Retail sales decreased $0.06 million when comparing the two periods, primarily due to the closing of a retail outlet at the end of 2006. The increase in net sales at LPI was primarily due to the introduction of new clock styles and home décor products resulting in increased orders from two major customers.

Newborn Nursery® boutiques were first introduced in mid-2004 and an exclusivity agreement with the Saks Department Store Group was announced in February of 2005. The exclusivity agreement will expire on December 1, 2007. Saks Department Store Group stores were recently sold primarily to Belk, Inc. and The Bon Ton Stores, Inc. Management does not expect the exclusivity agreement to be renewed. During the third quarter of 2007, both Belk, Inc. and The Bon Ton Stores, Inc. closed the Newborn Nursery® boutiques located in the stores they acquired. Newborn Nursery® products were returned by the stores to LMOD and the returned products were placed in inventory. Belk, Inc. and The Bon Ton Stores, Inc. are now carrying the newly introduced “Middleton Playbabies” and “Middleton NOW” dolls. During the third quarter of 2006, the Newborn Nursery® boutiques at these stores contributed approximately $0.21 million to the consumer products net sales or about 8% of net sales. To offset this decline in revenue, management has encouraged dealers to open “mini-nurseries” and in July of 2007, the FAO Schwarz New York store expanded the size of its nursery. Despite these efforts, net sales for Newborn Nursery® dolls have decreased through the third quarter of 2007, and management expects that this will continue, but is unable to estimate the full amount of the decline at the present time.

Cost of goods sold increased 31% to $2.48 million for the three months ended September 30, 2007, compared to $1.90 million for the three months ended September 30, 2006. LMOD’s cost of goods sold increased to $1.21 million from $1.14 million while LPI’s cost of goods sold increased to $1.27 million from $0.76 million. Total gross profit margin decreased to 26% from 27% in the prior year primarily due to the shift in sales from higher margin items at LMOD to lower margin sales at LPI. LMOD’s gross profit margin decreased to 29% from 31% primarily due to the sales decrease in the ASC line. LPI’s gross profit margin increased to 23% from 22% due to improved product mix.

Total operating expenses for the three months ended September 30, 2007, were $1.38 million compared to $1.46 million for the three months ended September 30, 2006, a 5% decrease. Sales and marketing expenses decreased $0.17 million when comparing the third quarter of 2007 to the third quarter of 2006, primarily due to reductions in expenses at LMOD. Salary expense and related employee benefit expenses decreased due to workforce reductions and reduced expenses related to Newborn Nursery® boutiques. Fees paid for royalties decreased in 2007 since LMOD is no longer required to pay a guaranteed minimum annual royalty amount due to the contract expiration of a doll designer. New product development decreased $0.07 million when comparing the third quarter of 2007 to the third quarter of 2006, primarily due to reductions in expenses at LMOD. Salary expense and related employee benefit expenses decreased due to workforce reductions and expenses for artist design costs and costs related to travel also decreased. General and administrative expenses increased $0.16 million when comparing the two quarters. At LMOD general and administrative expenses decreased $0.06 million when comparing the third quarter of 2007 to the third quarter of 2006 primarily due to a reduction in depreciation expense. At LPI, general and administrative expenses increased due to the settlement of a judgment in the amount of $75,000 which was related to a product dispute from approximately eight years ago. An increase of $0.15 million in general and administrative expense is attributable to ongoing expenses which were formerly absorbed by the financial

services business segment. These expenses primarily include directors fees, salaries, accounting and legal fees for the Company. On August 1, 2007, LPI sold the commercial building in which the Company is headquartered resulting in a gain of $0.60 million. At the present time the Company is renting space in the building; however, management expects to relocate to new leased quarters by the end of the year.

Other income for the third quarter of 2007 totaled $39,428 compared to $37,880 for the third quarter of 2006. Other income is primarily composed of interest income on cash holdings and one month of rental income from a tenant in the Company’s headquarter building previously owned by LPI. Also, during the third quarter of 2007, the consumer products business segment recorded interest expense of $5,876 related to the line of credit (See Note 12 to the Condensed Consolidated Financial Statements, “Short-Term Borrowings”).

Financial Services

The financial services segment’s net income decreased from $9,528 to $1,926 when comparing the third quarter of 2007 to the third quarter of 2006.

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

As a result of the sale of the assets, both interest income from loans and rental income decreased when comparing the third quarter of 2007 to the third quarter of 2006. There was no interest income from loans during the third quarter of 2007. The remaining loan portfolio consists of three loans totaling $209,563, one of which is in foreclosure proceedings. The rental income of $9,995 in the third quarter of 2007 was from the one remaining leased property. The tenant’s lease payments ended on July 15, 2007 and the property is presently listed for sale for $2.0 million.

No leased properties were sold in the third quarter of 2007. In the third quarter of 2006, two leased properties were sold resulting in a gain of $353,140. Other income in the third quarter of 2007 and 2006 is composed primarily of interest income from cash holdings and payments from a former leased property tenant.

Expenses in the third quarter of 2007 primarily consisted of depreciation and carrying costs on the property as well as legal fees related to the loan foreclosure action. Other ongoing operating expenses which were formerly reported by the financial services business segment are reported in the general and administrative expenses of the consumer products business segment for the third quarter of 2007. These expenses primarily include directors fees, salaries, accounting and legal fees for the Company.

Corporate

The following table provides detail regarding the interest income (expense) related to shares of preferred stock for the three months ended September 30, 2007 and 2006.

	Three Months Ended 09/30/2007			Three Months Ended 09/30/2006
Third quarter preferred stock interest (dividend) payments	$	(126,125	)	$	(226,275	)
Payment for the redemption of 38,827 shares of preferred stock		(543,578	)		--
Carrying value of shares at redemption date ($25 per share)		970,675			--
Expenses incurred in connection with redemption		(65,271	)		--

Interest income (expense) related to preferred stock	$	235,701		$	(226,275	)

For the nine months ended September 30, 2007 and September 30, 2006

The Company’s total net loss for the nine months ended September 30, 2007 equaled $1.24 million, or $0.33 per common share (diluted), compared to a net loss of $2.38 million, or $0.64 per common share (diluted), for the nine months ended September 30, 2006.

Consumer Products

The consumer products segment’s net loss for the nine months ended September 30, 2007, totaled $1.27 million compared to a net loss of $2.38 million for the nine months ended September 30, 2006. During the third quarter of 2007, LPI sold the commercial building in which the Company is headquartered resulting in a gain of $0.60 million.

Net sales for the nine months ended September 30, 2007, increased 6% to $7.77 million from $7.33 million for the nine months ended September 30, 2006. During the first nine months of 2007, LMOD’s net sales were $3.85 million (a decrease of $0.49 million from the first nine months of 2006) and LPI’s net sales were $3.92 million (an increase of $0.93 million from the first nine months of 2006). At LMOD, net sales in the ASC category declined $0.88 million reflecting decreased sales of dolls and accessories and Newborn Nursery® dolls. In 2006, sales of the original play dolls were discontinued which accounted for $0.27 million of the sales decline. Offsetting that decline, in the first nine months of 2007 sales of the newly introduced “Middleton Playbabies” and “Middleton NOW” doll line were $0.84 million. Retail sales decreased $0.18 million when comparing the two periods, partly due to the closing of a retail outlet at the end of 2006. The increase in net sales at LPI was primarily due to the introduction of new clock styles and home décor products resulting in increased orders from two major customers.

Newborn Nursery® boutiques were first introduced in mid-2004 and an exclusivity agreement with the Saks Department Store Group was announced in February of 2005. The exclusivity agreement will expire on December 1, 2007. Saks Department Store Group stores were recently sold primarily to Belk, Inc. and The Bon Ton Stores, Inc. Management does not expect the exclusivity agreement to be renewed. During the third quarter of 2007, both Belk, Inc. and The Bon Ton Stores, Inc. closed the Newborn Nursery® boutiques located in the stores they acquired. Newborn Nursery® products were returned by the stores to LMOD and the returned products were placed in inventory. Belk, Inc. and The Bon Ton Stores, Inc. are now carrying the newly introduced “Middleton Playbabies” and “Middleton NOW” dolls. For the year ended December 31, 2006, the Newborn Nursery® boutiques at these stores contributed approximately $1.31 million to the consumer products net sales or about 11% of net sales. For the nine months ended September 30, 2007, the Newborn Nursery® boutiques at these stores contributed approximately $0.46 million to the consumer products net sales or about 6% of net sales. To offset this decline in revenue, management has encouraged dealers to open “mini-nurseries” and in July of 2007, the FAO Schwarz New York store expanded the size of its nursery. Despite these efforts, the net sales for Newborn Nursery® dolls have decreased through the first nine months of 2007, and management expects that this will continue, but is unable to estimate the full amount of the decline at the present time.

Cost of goods sold increased 8% to $5.69 million for the nine months ended September 30, 2007, compared to $5.29 million for the nine months ended September 30, 2006. LMOD’s cost of goods sold decreased to $2.73 million from $3.08 million while LPI’s cost of goods sold increased to $2.96 million from $2.21 million. Total gross profit margin decreased to 27% from 28% in the prior year primarily due to the shift in sales from higher margin items at LMOD to lower margin sales at LPI. LMOD’s gross profit margin remained the same for both periods at 29%. LPI’s gross profit margin decreased to 25% from 26% due to price concessions on certain product lines and due to the sale of some older inventory items.

Total operating expenses for the nine months ended September 30, 2007, were $4.09 million compared to $4.54 million for the nine months ended September 30, 2006, a 10% decrease. Sales and marketing expenses decreased $0.59 million when comparing the first nine months of 2007 to the first nine months of 2006, primarily due to reductions in expenses at LMOD. Salary expense and related employee benefit expenses decreased due to workforce reductions. Expenses related to Newborn Nursery® boutiques and shared advertising expense also decreased when comparing the two periods. Fees paid for royalties decreased in 2007 since LMOD is no longer required to pay a guaranteed minimum annual royalty amount of $200,000 due to the contract expiration of a doll designer. New product development decreased $0.17 million when comparing the first nine months of 2007 to the first nine months of 2006. At LPI, product development costs increased $0.02 million due to small increases in salary expense, travel and sample costs. At LMOD, product development costs decreased $0.19 million primarily due to reductions in salary expense and related employee benefit expenses due to workforce reductions. Expenses for artist design costs and costs related to travel decreased due to the designer contract expiration. General and administrative expenses increased $0.31 million when comparing the two periods. At LMOD, general and administrative expenses decreased $0.33 million when comparing the first nine months of 2007 to the first nine months of 2006 primarily due to reductions in expenses related to depreciation and leased office space. On May 1, 2006, LMOD relocated its corporate headquarters to a smaller leased office space in order to reduce operating expenses. At LPI, general and administrative expenses increased due to the settlement of a judgment in the amount of $75,000 which was related to a product dispute from approximately eight years ago. The remaining net increase of $0.56 million in general and administrative expense is attributable to ongoing expenses which were formerly absorbed by the financial services business segment. These expenses primarily include directors fees, salaries, accounting and legal fees for the Company. On August 1, 2007, LPI sold the commercial building in which the Company is headquartered resulting in a gain of $0.60 million. At the present time the Company is renting space in the building; however, management expects to relocate to new leased quarters by the end of the year. Other miscellaneous equipment was also sold by LMOD and LPI for $14,800.

Other income for the first nine months of 2007 totaled $136,710 compared to $120,610 for the first nine months of 2006. Other income is primarily composed of interest income on cash holdings and rental income from a tenant in the Company’s headquarter building previously owned by LPI. Also, during the third quarter of 2007, the consumer products business segment recorded interest expense of $5,876 related to the line of credit (See Note 12 to the Condensed Consolidated Financial Statements, “Short-Term Borrowings”).

Financial Services

The financial services segment’s net income decreased from $670,030 to $81,092 when comparing the first nine months of 2007 to the first nine months of 2006.

As a result of the sale of the assets, both interest income from loans and rental income decreased when comparing the first nine months of 2007 to the first nine months of 2006. The $1,297 of interest income from loans in 2007 was from two loans which were paid off in 2007. One loan totaling $186,187, which was in foreclosure proceedings, was charged off against the loan loss reserve in the second quarter of 2007. The remaining loan portfolio consists of three loans totaling $209,563. One of these loans is in foreclosure proceedings and no payments were received during the first nine months of 2007 on these three loans. The rental income in the first nine months of 2007 was from the one remaining leased property. The tenant’s lease payments ended on July 15, 2007 and the property is presently listed for sale for $2.0 million.

No leased properties were sold in the first nine months of 2007. In the first nine months of 2006, seven leased properties were sold resulting in a gain of $1.41 million. Other income in the first nine months of 2007 and 2006 is composed primarily of interest income from cash holdings and payments from a former leased property tenant.

Expenses in the first nine months of 2007 consisted primarily of depreciation and carrying costs on the property as well as legal fees and other expenses related to the foreclosure action. Other ongoing operating expenses which were formerly reported by the financial services business segment are reported in the general and administrative expenses of the consumer products business segment for the first nine months of 2007. These expenses primarily include directors fees, salaries, accounting and legal fees for the Company.

Corporate

The following table provides detail regarding the interest expense related to shares of preferred stock for the nine months ended September 30, 2007 and 2006.

	Nine Months Ended 09/30/2007			Nine Months Ended 09/30/2006
Preferred stock interest (dividend) payments	$	(404,436	)	$	(678,826	)
Payment for the redemption of 38,827 shares of preferred stock		(543,578	)		--
Carrying value of shares at redemption date ($25 per share)		970,675			--
Expenses incurred in connection with redemption		(70,122	)		--

Interest expense related to preferred stock	$	(47,461	)	$	(678,826	)

Liquidity and Capital Resources

Due to the reduction in earning assets and the resulting decrease in income, in June 2004 the Board of Directors changed the common stock dividend policy from the payment of quarterly dividends to the payment of an annual discretionary dividend payable in January for the preceding year. For the years ended December 31, 2006 and 2005, no dividends were paid to the common stock shareholders and the Company does not anticipate paying any dividends on the common stock in the foreseeable future. The preferred stock dividend of $0.335 per share per quarter ($1.34 annual dividend per preferred share) was paid during 2006 and for the first nine months of 2007. There can be no assurance that the Company will have sufficient funds to continue to pay dividends on the preferred stock. The Company will only have sufficient funds if it can generate sufficient earnings and/or it is able to raise funds from other sources.

Consumer Products

Total assets of the consumer products segment were $12.34 million as of September 30, 2007, and $12.84 million as of December 31, 2006, a 4% decrease. Cash increased to $1.74 million at September 30, 2007, from $0.96 million at December 31, 2006. On August 1, 2007, LPI sold the commercial building in which the Company is headquartered resulting in net proceeds of $4.02 million. At the time of the sale, LPI settled a judgment of $75,000 against the property which related to a product dispute from approximately eight years ago. During the third quarter of 2007, the net proceeds from the building sale were used to purchase inventory, fund operations, and to partially redeem shares of the Company’s outstanding preferred stock. At the present time the Company is renting space in the building; however, management expects to relocate to new leased quarters by the end of the year.

Accounts receivable, net of the allowance for doubtful accounts, decreased to $1.82 million at September 30, 2007, from $2.20 million at December 31, 2006, due to normal collections after the year-end selling season. LPI’s receivables increased $0.02 million and LMOD’s receivables decreased $0.40 million.

Inventory and prepaid inventory, net of the allowance for obsolete and excess inventory, increased to $7.04 million at September 30, 2007, compared to $4.19 million at December 31, 2006. LMOD’s inventory increased $1.61 million to $4.29 million due to new product introductions and in anticipation of the year-end selling season. LPI’s inventory increased by $1.01 million to $2.75 million due to the introduction of new clock styles and in anticipation of the year-end selling season. Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method.

Other prepaid expenses increased $9,371 from December 31, 2006 to September 30, 2007. Property and equipment, net of accumulated depreciation, decreased by $3.53 million as of September 30, 2007, compared to December 31, 2006, primarily due to the building sale and to depreciation. The net carrying value of the building was $3.4 million. Property and equipment expenditures increased by $0.24 million while accumulated depreciation increased by $0.36 million during the first nine months of 2007.

Current liabilities increased $0.06 million to $1.48 million at September 30, 2007, from $1.42 million at December 31, 2006, primarily due to increased accounts payable related to inventory purchases. LMOD’s liabilities increased $0.34 million to $1.18 million and LPI’s liabilities decreased $0.28 million to $0.30 million.

Financial Services

Total assets of the financial services segment were $1.85 million as of September 30, 2007, and $3.52 million as of December 31, 2006, a 47% decrease. Cash decreased to $0.29 million at September 30, 2007 from $1.74 million at December 31, 2006. The reduction in cash was primarily due to the payment of preferred dividends, the partial redemption of outstanding preferred stock and the payment of operating expenses for the consumer products business segment. These expenses primarily include directors fees, salaries, accounting and legal fees for the Company.

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

At September 30, 2007, loans held for investment consisted of three loans totaling $209,563. At December 31, 2006, the loan portfolio consisted of six loans totaling $463,575. Two loans totaling $67,825 in the aggregate were paid off during the first six months of 2007. One loan totaling $186,187, which was in foreclosure proceedings, was charged off against the loan loss reserve in the second quarter of 2007. No payments were received during the first nine months of 2007 on the remaining three loans. At September 30, 2007, the allowance for loan losses was $63,813 and at December 31, 2006, the loan loss allowance was $250,000.

The financial services business segment owned one leased property at September 30, 2007 and December 31, 2006. The previous tenant’s final lease payment was made on July 15, 2007. At the present time the building is listed for sale for $2.0 million. Depreciation of $21,276 was recorded on the leased property in the first nine months of 2007.

Other assets decreased to $18,696 at September 30, 2007, from $20,610 at December 31, 2006, primarily due to decreases in prepaid items. Accrued liabilities increased to $230,668 at September 30, 2007, from $56,333 at December 31, 2006. Accrued liabilities at September 30, 2007, primarily include accrued legal fees and accrued real estate taxes and expenses on the leased property.

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

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may”, “will”, “could”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to:

•

the ability of the Company to provide the necessary cash to meet operating and working capital requirements beyond 2007;

•

the ability of the Company to provide the necessary cash to continue to pay dividends on the preferred stock and to redeem the remaining outstanding preferred stock;

•

demand for the Company’s consumer products;

•

the degree of success of the strategy to reduce expenses and to increase revenue in the consumer products business segment;

•

competition;

•

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

•

legislative/regulatory changes;

•

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

•

the quality or composition of the loan and real estate portfolios;

•

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

•

the necessity to make additions to the Company’s allowance for doubtful accounts;

•

the necessity to make additions to the Company’s allowance for obsolete inventory; and

•

the timing of sales and the selling prices of the Company’s remaining leased real estate.

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

ITEM 3. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-QSB. Based on this evaluation, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have concluded that, as of the end of the quarter ended September 30, 2007, the Company’s disclosure controls and procedures were effective.

As previously disclosed in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, (“the “2006 Annual Report”), the Company’s management and Audit Committee were notified by Virchow, Krause & Company, LLP (“Virchow Krause”), the Company’s independent registered public accounting firm, that during the course of their audit of the Company’s consolidated financial statements for 2006 they identified deficiencies in internal control. Virchow Krause indicated that it was their belief that the combination of the deficiencies constituted a material weakness.

The deficiencies related to the following: (1) the lack of timely account reconciliation for certain general ledger accounts; (2) duplicate payment of a certain vendor invoice; (3) entering into a business agreement to sell or lease property without a written contract; and (4) the lack of segregation of duties with respect to the payment of vendor invoices. Based on these deficiencies, the Company determined that, as of the end of the fiscal year 2006, there was a material weakness affecting the Company’s internal control over financial reporting and, as a result of that material weakness, the Company’s disclosure controls and procedures were not effective. However, the Company concluded that the internal control deficiencies identified above did not impact the quality of the financial information in the 2006 Annual Report and that the consolidated financial statements included in the 2006 Annual Report fairly stated, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

The Company discussed the deficiencies identified above with the Audit Committee and Virchow Krause and disclosed in the 2006 Annual Report that it believed that through measures already taken since such deficiencies were identified the Company had remediated the material weakness by remedying each of the internal control deficiencies. Specifically, the Company remedied the internal control deficiencies as follows: (1) the Company remedied the lack of timely account reconciliation for certain general ledger accounts by implementing additional procedures to improve the review of the monthly financial reports and by designating an additional employee to assist in the process; (2) the Company remedied the possibility of a duplicate payment being made for a vendor invoice by enhancing the review process that each invoice is subjected to before it can be authorized for payment; (3) the Company remedied the possibility of a business agreement to sell or lease property being entered into without a written contract by imposing a formal requirement that any such agreement requires a written contract and making the appropriate employees of the Company aware of this requirement; and (4) the Company remedied the lack of segregation of duties with respect to the payment of vendor invoices by requiring that each invoice be reviewed by two designated reviewers before it can be authorized for payment.

There can be no assurances that the Company’s disclosure controls and procedures will detect or uncover all failure of persons with the Company to report material information otherwise to be set forth in the reports that the Company files with the Securities and Exchange Commission.

Based on an evaluation performed by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, except as identified above, there were no changes in the Company’s internal control over financial reporting identified in such evaluation that occurred during the quarter ended September 30, 2007 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table disclosed information regarding the shares of preferred stock redeemed in the tender offer during the third quarter of 2007.

Period		Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

July 1 to July 31		--	--	--	None
Aug 1 to Aug 31		--	--	--	None
Sept 1 to Sept 30	(1)	38,827	$14.00	38,827	None
Total/Average		38,827	$14.00	38,827	None

(1) On August 10, 2007, the Board of Directors of the Company authorized the repurchase of up to 300,000 shares of the Company’s preferred stock at a price per share of $14.00 through a tender offer. The Company announced and commenced the tender offer on August 15, 2007. The tender offer expired on September 13, 2007.

Item 6. EXHIBITS

List of Exhibits

The Exhibits to this Quarterly Report on Form 10-QSB are identified on the Exhibit Index hereto.

SIGNATURE

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


	THE MIDDLETON DOLL COMPANY
	(Registrant)
Date: November 14, 2007	/s/ Salvatore L. Bando
	Salvatore L. Bando
	President and Chief Executive Officer
Date: November 14, 2007	/s/ Craig R. Bald
	Craig R. Bald
	Vice President Finance and Chief Financial Officer

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB

EXHIBIT INDEX

Exhibit Number

Exhibit

10.1	Revolving Credit Agreement, dated July 27, 2007, by and among License Products, Inc., Lee Middleton Original Dolls, Inc. and Town Bank.

10.2	Term Credit Agreement, dated October 1, 2007, by and between The Middleton Doll Company and Town Bank.

11.1	Computation of Net Loss Per Common Share.

31.1	Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2	Certification of Vice President Finance and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

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

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

Middleton Doll (DOLL) Inactive 10QSB2007 Q3 Quarterly report (small business)

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

THE MIDDLETON DOLL COMPANYFORM 10-QSB INDEX

ITEM 1. FINANCIAL STATEMENTS

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND SHAREHOLDERS’ EQUITY

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – (Continued)(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED) (Unaudited)

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

Critical Accounting Policies

Results of Operations

For the three months ended September 30, 2007 and September 30, 2006

For the nine months ended September 30, 2007 and September 30, 2006

Liquidity and Capital Resources

ITEM 3. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIESQUARTERLY REPORT ON FORM 10-QSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

THE MIDDLETON DOLL COMPANY
FORM 10-QSB INDEX

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – (Continued)
(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED) (Unaudited)

THE MIDDLETON DOLL COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB