`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.


                                   FORM 10-KSB


                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                -------------------------------------------------

                       THE SECURITIES EXCHANGE ACT OF 1934
                       -----------------------------------


                     FOR THE FISCAL YEAR ENDED JULY 31, 2001
                     ---------------------------------------

                            THE MILLBROOK PRESS INC.
           (Name of Small Business Issuer as Specified in its Charter)

            DELAWARE                                      06-1390025
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)

                             2 OLD NEW MILFORD ROAD
                              BROOKFIELD, CT 06804
                    (Address of principal executive offices)
                                 (203) 740-2220
                (Issuer's telephone number, including area code)

Securities Registered pursuant to Section 12 (b) of the Exchange Act:
                                                                  Common Stock

Securities Registered pursuant to Section 12 (g) of the Exchange Act:
                                                                  None

            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 / /

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained,  to the best of Registrant's
knowledge,  in  definitive  proxy  of  information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any  amendment to this Form 10-KSB.
(X)

Revenues for the Fiscal year ended July 31, 2001 were $21.6 million.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant,  based upon the price of the Common Stock on October 29,  2001,  was
approximately  $5,862,000.  As of July 31, 2001, the Registrant had  outstanding
2,849,887 shares of Common Stock.






                            THE MILLBROOK PRESS INC.
                            FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS



                                     PART I

                                                                            Page
Item 1.   Description of Business.............................................4

Item 2.   Description of Properties..........................................12

Item 3.   Legal Proceedings..................................................12

Item 4.   Submission of Matters to a Vote of Security Holders................12


                                     PART II
                                     -------

Item 5.   Market for Common Equity and Related Stockholders Matters..........13

Item 6.   Management's Discussion and Analysis or Plan of Operations.........14

Item 7.   Financial Statements...............................................17

Item 8.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosures............................32


                                    PART III
                                    --------

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act..................33

Item 10.  Executive Compensation.............................................33

Item 11.  Security Ownership of Certain Beneficial Owners and
          Management.........................................................33

Item 12.  Certain Relationships and Related Transactions.....................33

Item 13.  Exhibits, List and Reports on Form 8-K.............................34

                                       3





PART I

ITEM 1.   DESCRIPTION OF BUSINESS

OVERVIEW

The  Millbrook  Press Inc.  (the  "Company" or  "Millbrook"),  is a publisher of
children's nonfiction books, in both hardcover and paperback, for the school and
library market and the consumer market. The Company began operations in 1989 and
has  published  more than 1,500  hardcover  and 700  paperback  books  under its
Millbrook,  Copper Beech, and Twenty-First Century imprints. The Company's books
have been placed on numerous recommended lists by libraries,  retail bookstores,
and educational organizations. Books published under the Millbrook imprint range
from  information  intensive  school and  library  books to  graphic,  colorful,
general  interest  titles.  Therefore,  many of its books are distributed to the
school  and  public  library  market  while  simultaneously  distributed  to the
consumer  market.  Copper  Beech books are  published in a number of formats for
both the consumer and library  markets.  Twenty-First  Century  Books titles are
published  primarily for the educational market at a secondary school level. The
Company's senior  management has extensive  experience in publishing  comprising
over 100 years of employment in the industry.

The consumer market in children's books consists of books purchased by consumers
through  traditional trade bookstores such as Barnes & Noble and Borders and
educational  stores  such  as  Discovery  Stores,  as  well  as  non-traditional
distribution channels such as direct sales,  catalogs,  direct mail, book clubs,
book  fairs,  non-book  retail  stores,   including  museums,   national  parks,
historical sites, theme parks, gift shops and toy stores.

The Company intends to expand and upgrade its publishing  program in both areas.
In addition  the Company is  embarking on new programs to publish and market (i)
high  quality  children's  picture  books and young  people's  fiction  and (ii)
develop  programs  for  classroom  sales  of  supplementary  reading  enrichment
materials.  Both  programs fit into the  Company's  marketing  capabilities  and
should allow the Company to expand its established  sales base on a minimal risk
basis. The editorial staff has been expanded to accommodate  these new programs.
The Company  does not believe it will  release any fiction  books until at least
the spring of 2002.


INDUSTRY BACKGROUND

SCHOOL AND LIBRARY MARKET

The school and public  library  market is undergoing  significant  change due to
long-term social and economic forces.  The United States Department of Education
predicts that the student  population  from  kindergarten  through twelfth grade
will  increase 8% from 2001 to 2008,  with an overall net gain of  approximately
3.8 million  students.  Because  many school  districts  allocate  instructional
material funds on a "per head" basis,  the Company believes that money allocated

                                       4





to schools for book  acquisitions  should  increase  as the  student  population
increases.  In  addition  to  demographic  changes,  demand  for  books has also
increased as a result of the school and public library market becoming aware of,
and  responsive  to,  supporting  the  innovative  instructional  programs being
developed  and used in the  classroom.  New  teaching  philosophies  such as the
"reading initiative," and "cross-curriculum teaching" developed in the 1980s and
1990s have  increased the demand for different and better books.  Librarians are
working with classroom  teachers to select books that meet classroom criteria of
being multicultural, visually stimulating,  interesting,  curriculum-related and
suitable for a range of reading ability.

CONSUMER MARKET

Demand for children's books in the consumer market has increased  because of the
increase in the number of channels in which  hardcover and  paperback  books are
distributed.  Traditionally, books were primarily sold at small local bookstores
with  limited  selections.  Many such  bookstores  were  replaced by larger mall
bookstores which in turn were replaced by book superstores (such as Barnes &
Noble).  Concurrently,  alternate  means of  distribution  have  developed.  For
example,  books are now sold by certain  retailers such as TJ Maxx,  educational
chain stores such as Discovery Stores, outlets and warehouse clubs such as Sam's
Warehouse,  Costco,  and B.J.'s as well as museums,  national parks,  historical
sites,  theme parks, gift shops and toy stores. The Company sells a considerable
quantity of books  through  direct  sellers  such as book clubs,  book fairs and
display sales operations. As more direct sales move to the internet, the Company
expects its direct sales over the internet to expand proportionately.

CROSSOVER OF SALES

Demand for children's books has also increased because a book can now be sold to
both the school and  public  library  and the  consumer  market.  Traditionally,
hardcover library books addressed topics typical for school reports and research
and were created with the purpose of maximizing  information content rather than
appealing  to  consumers.  Because  books sold in the school and public  library
market  in the past  were  sold to  librarians/teachers  based on  content,  the
product was often informationally rich, but somewhat aesthetically  unappealing.
Conversely,  a paperback book sold in the consumer market was not designed as an
information  source,  but rather to attract a consumer's  attention  and thereby
sell itself from the shelf.  Accordingly  these books failed to address  certain
topics and lacked the  informational  content of library  books.  The  Company's
books, and books for the children's book market in general,  are now designed to
appeal to both  markets.  A book filled  with  information  is combined  with an
attractive  title,  cover and  internal  design to catch the eye of the consumer
browsing the shelf. The same book can then be bound as a hardcover book and sold
to  school  and  public  libraries.  Additionally,  as either a  hardcover  or a
paperback,  the book appeals to teachers and can be used as supplemental reading
in the classroom.


COMPANY STRATEGY

The Company's goal is to be a "one-stop  publisher,"  publishing and marketing a
diverse product line servicing most of the major segments of the children's book
market.  The  Company's  strategy is to continue to  diversify  its products and
distribution  channels for those products by  capitalizing  on the long-term and

                                       5





short-term changes occurring in the children's book publishing  industry in both
the school and public library market and in the consumer market.

The Company believes that this diversified  approach to its product line enables
it to achieve market  penetration in the children's book market and minimize the
risk of  fluctuations  or weakness in any one  particular  segment.  The Company
believes that its experience in publishing  children's  books and its reputation
for  quality,  combined  with the  evolution  and  anticipated  growth rates for
children's books in the school and public library and consumer markets,  creates
an opportunity for the Company to expand the list of books in which it maintains
a  significant  ownership  interest and increase  the  recognition  of its brand
names. The Company believes that the elements  required to achieve this goal are
(i) publishing books of the highest quality, created in house, through packaging
or licensed arrangements, with the ability to satisfy two or more of the markets
which it now services, (ii) expanding its product offerings to take advantage of
its  investments  in  distribution  and its exposure to the consumer  market and
(iii) enhancing its existing  marketing  operations to support its  product-line
expansion initiatives. The key elements of the Company's strategy are:

o     CROSSOVER OF SALES. The Company  believes that  significant  opportunities
      exist to market  products  typically  developed  for one market into other
      markets.   The  Company   reformats  many  of  its  previously   published
      ("backlist")  school and public library books under its Millbrook  imprint
      into paperback books,  selling them in the consumer  market.  In addition,
      the  Company's  paperback  books  have  also  been  sold  as  supplemental
      materials for the  classroom.  Similarly,  the Company's  trade  paperback
      books under the Copper  Beech  imprint  are also  published  in  hardcover
      format to sell to the school and public library  market.  The Company will
      seek to continue to produce  books in the future under both the  Millbrook
      and Copper Beech imprints that will appeal to two or more markets in order
      to fully exploit a book's sales potential (see "Products").

o     NEW MARKET  OPPORTUNITIES.  Millbrook  will  continue to seek  appropriate
      acquisitions  along the lines of its 21st Century Books imprint from Henry
      Holt & Co., Inc. in fiscal 1998. The acquisition of 21st Century Books
      has been a major factor in enhancing  Millbrook's secondary school library
      sales.   The  Company   currently  has  no   commitments,   agreements  or
      understandings with respect to any acquisition.

      In fiscal 2001,  the Company  entered into a contract with Net Library,  a
      major seller of electronic books to academic,  public and school libraries
      which allows Net Library to reformat and distribute an electronic  version
      of over 300 of the  Company's  titles.  To date,  the Company has received
      only minimal  revenues  from this  agreement and there can be no assurance
      that this agreement will result in significant  revenues to the Company in
      the future.

o     EXPAND  DISTRIBUTION.  The  Company  believes  that  decision-making  with
      respect to purchasing  books is becoming more complex due to the expansion
      in types of outlets  selling books and that expanding the use of marketing
      techniques to put the Millbrook  imprint in direct  contact with children,
      parents and teachers  will increase  sales.  The Company will increase its
      participation  in  book  fairs,  book  clubs,  catalogs  and  continue  to
      distribute its books to alternative retail outlets as well as increase its
      direct  selling and direct mail  activities.  The Company may also seek to
      enter into additional strategic partnerships to extend its distribution in
      both the consumer and in school and public library market channels.

                                       6





o     ADAPT TO NEW  TECHNOLOGIES.  The Company intends to improve its website to
      make it more user friendly and provide  better  information  access to the
      library  community.  It will be promoted as a source of information on the
      Company's titles as well as a convenient way for libraries to purchase the
      Company's   titles.  At  some  future  date,  the  Company  will  consider
      implementing a general consumer website.

o     CONTINUE TO DEVELOP HIGH  QUALITY  BOOKS.  The Company  intends to develop
      additional  books through internal  development in collaboration  with its
      network of authors and artists.  The Company is now  selectively  entering
      into  agreements  with certain  high-profile  authors and  illustrators to
      increase the recognition of its brand names.


PRODUCTS

The Company  publishes  children's books in hardcover and paperback  formats for
the school and public  library  market and the consumer  market.  The  Company's
products  have evolved from mainly series books  intended to be sold  singularly
and in sets  into a  diverse  set of highly  graphic,  consumer-oriented  single
books.  The Company designs its books to appeal to teachers and  librarians,  as
well as to children and parents.  This approach allows the Company's books to be
introduced simultaneously in more than one market, with the intent of increasing
sales.  For example,  in fiscal 2001, the Company  published 80 hardcover  books
under the Millbrook  imprint for the school and public library market,  of which
31  books  were  suitable  for and  published  simultaneously  as  hardcover  or
paperback,  to be sold in the consumer market,  and 38 hardcover books under the
Copper Beech imprint for the school and library  market,  of which 11 books were
suitable for and published  simultaneously as hardcover or paperback, to be sold
in the consumer market.


PRODUCT DEVELOPMENT

The Company develops books through internal and external resources.  The Company
may also acquire books through co-publishing arrangements and/or the acquisition
of other licenses.

INTERNAL DEVELOPMENT

The Company's  editorial  staff produces most of the books  published  under the
Millbrook imprint. A book concept can originate from a number of sources such as
(i)  analysis of the  Company's  sales  statistics  of an existing  book to help
assess how a similar book targeting a similar age group will fare, (ii) analysis
of school age  demographics  and other  social  and  economic  factors  from the
current  philosophical  trends in education to the  globalization  of education,
(iii)  review of  competitors'  books to  determine  if and how the  Company can
publish a superior book on a similar topic, (iv) reading children's magazines to
determine  what young  people are  interested  in and (v)  maintaining  personal
contact with  librarians,  teachers,  and  booksellers.  Once conceived,  a book
proposal is circulated  to sales,  production,  marketing,  design and financial
departments  of the Company for their input and  depending on their  input,  the

                                       7





proposal will proceed or terminate.  A favorable  decision  causes the editorial
department to contract with an appropriate author and/or artist from its pool of
approximately  350 authors and artists.  The Company  believes it has  excellent
relationships  with its authors and artists,  including many well-known names in
the field.

Authors and artists are typically  engaged on a royalty basis.  Virtually all of
Millbrook's  contracts call for an advance payment against future royalties.  In
almost all  cases,  the  Company  retains  control  of all book  club,  reprint,
electronic, foreign, serialization,  and commercial rights. The income generated
from such arrangements is divided between the Company and the author.

Upon delivery of a manuscript from an author/illustrator and after editing, fact
checking  and  approval,  the  Company's  in-house  staff plans and prepares the
layout,  illustrations and cover to be used for the book. Upon completion of the
editing,  graphics and layout, a computer produces a mechanical of the book with
all  elements  in place.  A cost  estimate is prepared  which  determines  print
quantity  and  retail  price of the book.  Book  printing  is done by an outside
supplier,  usually in the United States,  on a bid contract basis. The Company's
products  require  varying  periods  of  development  time  depending  upon  the
complexity  of the  graphics  and design and the  editing  process.  Most of the
Company's  books can be  developed in a period that ranges from nine to eighteen
months.  Millbrook  is  often  cited in  reviews  of its  books  for one or more
outstanding design elements (cover,  layout,  type, etc.).  Jackets and interior
design are either  created  in-house or assigned to freelance  artists under the
supervision  of the  Company's  art  department.  The  use of  outside  authors,
illustrators and freelancers for jacket design,  fact-checking  and copy editing
allows the Company to produce a large number of books per year with a relatively
small staff and generally  allows for the flexibility  needed for the Company to
continue to produce a broad product line.

EXTERNAL DEVELOPMENT

Approximately 25% of books published under the Millbrook imprint are produced by
outside  sources.  Most of these books are  produced by outside  packagers  that
cooperate  and  consult  with  Millbrook  during  the  development  process  but
otherwise provide the full range of services needed to publish children's books.
The Company has entered into an exclusive,  long-term joint venture with Aladdin
Books Limited  ("Aladdin"),  a major children's  packager for the  international
market,  to produce 40  nonfiction  titles  per year to be  published  under the
Company's Copper Beech imprint.  The exclusive agreement between the Company and
Aladdin was  designed to produce  books with strong  consumer  market  appeal in
popularly priced paperback books as well as content suitable for hardcover books
for sales to libraries. Aladdin is responsible for the production,  printing and
binding of such books,  although  development costs for such books are shared by
Aladdin and the  Company.  Aladdin  retains the sales  rights for these books to
countries other than the United States,  Canada and the  Philippines.  Royalties
are paid to Aladdin based on the Company's sales.  Development  recovery amounts
are paid to the Company based on sales by Aladdin to other parts of the world.

LICENSES

In the normal course of its business, the Company acquires licenses from foreign
book  publishers  for the rights to market and sell in the United  States  books
that were created  either with or without input from the Company.  The licensing


                                       8





usually includes all subsidiary  rights such as first and second  serialization,
commercial rights,  electronic rights,  foreign and translation rights,  reprint
rights and rights to any means yet to be developed for transmitting information.
As the Company expands its own publishing program,  fewer books will be obtained
from foreign publishers.


MARKETING AND DISTRIBUTION

The  Company's  sales and  marketing  efforts are  designed  to broaden  product
distribution,  increase the number of first-time and repeat purchasers,  promote
brand-name  recognition,  assist  retailers and properly  position,  package and
merchandise  the Company's  products.  The Company  utilizes  various  marketing
techniques  designed to promote brand  awareness and recognition and to maximize
the  amount of shelf  space  devoted  to its  product  line in  retail  outlets,
including   complimentary   copies,   reviews  and  recommendations,   catalogs,
advertising,  brochures,  exhibits, publicity campaigns and in-store promotions.
The Company's marketing efforts are geared toward its two major markets: (i) the
school and public library market and (ii) the consumer market.

SCHOOL AND PUBLIC LIBRARY

The Company  targets the school and public  library  market  through  three main
channels:  wholesalers,  telemarketing and direct sales. Large school and public
library systems tend to purchase their books through wholesalers on a bid basis,
while smaller systems purchase  directly from a commission sales  representative
or through a telemarketing program such as the one the Company conducts.  During
the fiscal year ended July 31, 2001, a significant amount of the Company's sales
in the school and public  library  market were made through  wholesalers.  While
most  wholesalers do not engage in sales and marketing  efforts on behalf of the
Company's products,  they provide schools and public libraries with a wide range
of selection  and  convenience  as well as  discounts on bulk orders.  Through a
complementary marketing program of telemarketing,  advertising,  review programs
and direct sales calls, the Company believes that one of its greatest  strengths
is its ability to reach the individual  teacher,  principal or librarian  making
the purchase decision.  Telemarketing penetrates the market through its "preview
program" where books are given on loan to teachers and other  decision-makers on
the premise that the quality of the book will sell itself.  The Company also has
a website  that  allows  librarians  to  participate  in the  "preview  program"
electronically.  The  remaining  sales in this area result  from  direct-selling
efforts where commissioned salespersons conduct face-to-face meetings at schools
and libraries with  decision-makers  or by purchase from the Company's  catalogs
and advertising.

The Company markets its books in numerous ways to support the foregoing efforts.
The Company sends  complementary  copies of each newly published book to library
media  reviewers and columnists and major county or district school systems that
have their own review and  recommendation  process.  The Company believes that a
favorable review in a respected library journal can significantly  influence the
sales  prospects of a particular  book.  Many of the Company's  books  published
under the Millbrook imprint have received favorable  reviews.  The Company makes
certain that good reviews,  which can stimulate  sales,  are sent to schools and

                                       9





libraries on a regular basis. The Company produces six catalogs and one magazine
insert per year. For its school and library  accounts,  the Company produces one
full-line  catalog,  consisting of a complete  annotated backlist as well as new
publications  for the Fall that is mailed to  100,000  current  and  prospective
accounts.  The Company  produces a Spring  list  catalog for mailing to the same
audience.  The Company  produces a 21st Century Book catalog for mailing to most
secondary  schools.  Its direct  sales  force  also  distributes  the  Company's
catalogs.  The Company produces two full-line catalogs per year for the consumer
market  in May and  December.  The  Company  also  advertises  in many  consumer
journals, newsletters and newspapers. The Company produces promotional materials
for  individual  titles,  themes,  authors and  illustrators.  It also  produces
standard "leave-behind" sell sheets that refresh a librarian's recollection of a
sales  presentation.  Finally,  the Company  exhibits its books at many national
conventions covering the school and public library and consumer markets.

The expanding use of children's books in the classroom,  especially in paperback
formats,  provides  new  opportunity.  The  Company  intends  to create  special
publishing and marketing programs to take advantage of this development.

CONSUMER

The sales  channels in the consumer  market are more diverse than the school and
public library market and require a different  marketing  approach.  The Company
has recently attracted  experienced and talented sales and marketing  personnel.
The  in-house  consumer  sales  group  covers the two major  areas:  traditional
consumer book markets and non-traditional consumer book markets.

The Company has three sales groups:  the in-house sales group,  the commissioned
sales group and the special sales group. The in-house sales group consists of an
in-house  vice  president  of sales  and an  assistant  responsible  for  sales,
promotion and  merchandising to the major national and large regional  accounts.
The   commissioned   sales  group  consists  of  approximately  25  commissioned
representatives who are responsible for sales to independent  bookstores,  small
regional  chains and certain  special  sales outlets and regional  jobbers.  The
special sales group,  managed by a sales vice president,  markets to specialized
retail outlets such as museums,  national parks,  historical sites, theme parks,
gift shops and toy stores,  consumer  and school  catalogs,  direct  mail,  book
fairs,   book  clubs,   and  display  sales   companies.   The  Company's  sales
representatives sell the full range of the Company's products.  The sales groups
provide the Company  with highly  valuable  insight by obtaining  feedback  from
customers on current product  performance  and potential  acceptance of proposed
products.  In addition to the marketing  efforts  discussed  with respect to the
school and public library  market,  the Company  conducts  additional  marketing
designed to increase brand name recognition in the consumer market.  The Company
participates with various outlets in advertising directly to individuals through
media and catalogs.  In-store  promotions,  such as posters,  points of purchase
displays,  brochures,  holiday  end-of-counter and front-of-store  displays, are
also  utilized  by the  Company to  further  enhance  its sales in the  consumer
market.

                                       10





MANUFACTURING AND SHIPPING

All of the Company's  books are printed and bound by third-party  manufacturers.
During fiscal year 2001, approximately 30% of the Company's printing and binding
needs were provided by one major printer,  an industry leader in  library-bound,
short-run printing and binding.  Manufacturing is a significant expense item for
the Company,  with a total of $7.0 million (or  approximately  32% of net sales)
spent in fiscal 2001.  The Company has used this  printer's  services  since the
Company's  inception  and enjoys a good  working  relationship  with  them.  The
Company believes it has sufficient alternative sources of manufacturing services
to meet its  foreseeable  needs  should  this  printer's  services  no longer be
available  to the  Company,  although  manufacturing  costs  could be  adversely
impacted.

Shipping  orders  accurately  and  promptly  upon their  receipt is an important
factor in the Company's  customer service and in closing a sale. Most publishing
companies ship products within one week of receipt of a customer  order,  and in
general the  Company  meets or reduces  this  timetable.  The Company  processes
customer orders through an in-house  processing  department.  The Company leases
warehouse  space from,  and its products are shipped from Mercedes  Distribution
Center of Brooklyn, New York. In addition the Company processes transactions for
order entry,  inventory  and  accounts  receivable  using the Mercedes  Computer
System.


COMPETITION

The  children's  book  publishing  marketplace  in the school and public library
market  and  in  the  consumer  market  is  fragmented  and  very   competitive.
Competition  in the school and public  library  market is based upon  quality of
products,  brand name recognition and book content.  In the consumer market, the
primary  factors are brand name  recognition,  book  content,  availability  and
price.

There  are  many  publishers  of  material  similar  to  the  Company's  product
offerings.  The Company's chief and direct  competitors in the school and public
library  market  include  Childrens  Press,  Franklin  Watts  Inc.,  and  Lerner
Publications  Co. The  Company's  chief and direct  competitors  in the consumer
market include Barron's  Educational  Series Inc.,  Candlewick  Press,  Larousse
Kingfisher Chambers Inc., Random House Inc. and Usborne Publishing Ltd.

The Company also  competes  with a large number of other  publishers  for retail
shelf space in large bookstore  chains such as Barnes &  Noble,  Borders and
Waldenbooks. In addition to competition among like types of publishing programs,
the overall  competition for limited  educational  budgets is intense when other
producers of materials used in classrooms and libraries are included, especially
producers  and  distributors  of electronic  hardware and software.  A number of
these  competitors have considerably  greater financial and marketing  resources
than  the  Company.  Nevertheless,  the  Company  believes  that  the  depth  of
experience of its management and its  relationships in the education sector give
the Company a competitive edge not only in producing quality books marketable in
the school and library and consumer  markets,  but also in foreseeing  long-term
and  short-term  social and economic  forces  influencing  the  children's  book
industry.

                                       11





PROTECTION OF PROPRIETARY RIGHTS

Nearly all the Company's  books have been  copyrighted in the United States,  in
the name of the author or artist and then all such copyrights have been assigned
to the Company. As a result, the Company owns the exclusive right to exploit the
copyright in the marketplace.  On books created in-house by the Company, it owns
world  rights  for  all  aspects  of the  market,  including  first  and  second
serialization,  commercial rights,  electronic  rights,  foreign and translation
rights,  reprint  rights,  and  rights  to any  means  yet to be  developed  for
transmitting information.  There are a limited number of books for which foreign
rights and  electronic  rights will revert to the author if the Company does not
exploit  them in a given period of time.  On books that are  imported  under the
Millbrook  imprint,  the  Company  has  exclusive  rights for all United  States
markets and the Philippines. The Company's trade names, Millbrook,  Twenty-First
Century and Copper Beech, are used to publish books primarily for the school and
library market and consumer  market  respectively.  The Company  considers these
trade names material to its business.

For the Copper Beech titles, the Company has exclusive rights for all markets in
the United States and Canada.  World rights are retained for books originated by
Aladdin and the Company participates in the profits generated from such sales on
a 25% basis.


EMPLOYEES

As of July 31, 2001, the Company had  approximately  52 employees,  92% of which
were full-time and 8% were part-time.  The Company has never  experienced a work
stoppage and its employees are not covered by a collective bargaining agreement.
The Company believes its relations with its employees are good.


ITEM 2.   DESCRIPTION OF PROPERTIES

The Company owns no real property.  The Company  conducts its operation  through
three facilities.  The Company leases  approximately 7,000 square feet of office
space in  Brookfield,  Connecticut at a current rental of $134,000 per year plus
utilities  and taxes.  This lease  expires in December  2002.  The Company  also
leases  approximately  1,900 square feet in New York City at a rental of $36,400
per year plus utilities and taxes. This lease expires in April 2004. The Company
also leases office space in Southampton, New York at a current rental of $10,800
per year plus utilities and taxes. This lease expires in September 2004.


ITEM 3.   LEGAL PROCEEDINGS

The Company is not currently a party to any material legal proceedings


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                        None


                                       12



PART II



ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

The Common Stock of The Millbrook  Press Inc. is traded under the symbol MILB on
the NASDAQ  SmallCap  Market.  The Company's  Common Stock is also traded on the
Boston Stock Exchange under the symbol MILB. The following  table sets forth the
ranges of the high and low  closing  bid  prices  for the  Common  Stock for the
fiscal  years ended July 31, 2001 and July 31,  2000,  as reported on the NASDAQ
SmallCap  Market,  the  principal  trading  market  for the  Common  Stock.  The
quotations  are  interdealer  prices  without  adjustment  for  retail  markups,
markdowns, or commission and do not necessarily represent actual transactions.

                                  COMMON STOCK

                            YEAR ENDED JULY 31, 2001


                              High                    Low

First Quarter                 2.38                    1.75

Second Quarter                2.38                    1.66

Third Quarter                 2.63                    1.97

Fourth Quarter                3.50                    2.30

                            YEAR ENDED JULY 31, 2000

First Quarter                 2.75                    1.88

Second Quarter                2.75                    1.53

Third Quarter                 2.37                    1.93

Fourth Quarter                2.25                    1.81

As of  July  31,  2001,  the  Company  had  2,849,887  shares  of  Common  Stock
outstanding and 54 holders of record of the Company's  Common Stock. The Company
believes that at such date, there were in excess of 650 beneficial owners of the
Company's Common Stock.

The  Company  has never paid any  dividends  on its Common  Stock.  The  Company
currently intends to retain all earnings, if any, to support the development and
growth of the Company's business.  In addition,  the Company's revolving line of
credit with People's Bank prohibits the Company from the  declaration or payment

                                       13





of cash  dividends.  Accordingly,  the Company does not anticipate that any cash
dividends will be declared on its Common Stock in the foreseeable future.


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion and analysis  should be read in  conjunction  with the
Financial  Statements  of The  Millbrook  Press Inc.  and  related  Notes to the
Financial Statements, which are included elsewhere in this Form 10-KSB.


OVERVIEW

GENERAL

Books    published    under   the   Millbrook    imprint   have   evolved   from
information-intensive  school and  library  books to include  its current mix of
highly graphic,  consumer-oriented  books.  Therefore,  the Company has incurred
significant  expenses relating to the establishment of the  infrastructure  that
can enable the Company to sell books to the consumer market and/or develop books
that can appeal to both the school and public  library  market and the  consumer
market.

The Company has  substantially  increased school and public library sales due to
(i) the acquisition in 1997 of Twenty-First  Century Books from Henry Holt &
Co., Inc. and (ii) greater emphasis on telemarketing and direct sales.

SALES INCENTIVES AND RETURNS

In  connection  with  the  introduction  of new  books,  many  book  publishers,
including the Company,  discount  prices of existing  products,  provide certain
promotional  allowances and give other sales incentives to their customers.  The
Company  intends to continue  such  practices in the future.  In  addition,  the
practice in the publishing industry is to permit customers including wholesalers
and retailers to return merchandise.  Most books not sold may be returned to the
Company,  and the  Company  gives  credit.  The rate of  return  also can have a
significant  impact on quarterly  results since certain  wholesalers have in the
past  returned  large  quantities  of  products  at  one  time  irrespective  of
marketplace  demand for such  products,  rather than  spreading  out the returns
during the course of the year.  The Company  computes net sales by  concurrently
deducting a reserve for returns from its gross sales.  Return allowance may vary
as a percentage  of gross sales based on actual return  experience.  The Company
believes that as gross sales to the consumer  market increase as a proportion of
its overall sales,  returns will  constitute a greater  proportion of net sales.
Although the Company believes its reserves have been adequate to date, there can
be no  assurance  that  returns  by  customers  in the  future  will not  exceed
historically  observed  percentages or that the level of returns will not exceed
the amount of  reserves  in the  future.  In the event that the amount  reserved
proves to be  inadequate,  the  Company's  operating  results  will be adversely
affected.

                                       14





RESULTS OF OPERATIONS

FISCAL 2001 COMPARED TO FISCAL 2000

Fiscal  2001  revenues  increased  1.1%  from  $21,400,000  in  fiscal  2000  to
$21,600,000 in fiscal 2001. Increased sales resulted from a significant increase
in trade sales  offset by a slight  decline in the school and library  business.
The  decline in the school and  library  business  was  concentrated  in (i) the
telemarketing  sales area,  which  experienced  significant  management  changes
during the year and (ii) the low margin special sales area consisting of special
large volume one off printings  based on specific  titles.  Though the sales are
sizable they are infrequent and contribute a very low margin.

Gross profits for the year ended July 31, 2001 were $9,358,000,  or 43.3% of net
sales  compared to  $9,604,000 or 44.9% of net sales for the year ended July 31,
2000. The percentage decrease is due to a sizeable donation of books to charity.

Selling and  marketing  expenses  for fiscal 2001  increased to 31% of net sales
from 27% of net sales for fiscal 2000.  Expenses  increased by $793,000 over the
previous  year.  The major  component of the increase is the Company's  $300,000
investment in a new  unpublished  fiction  imprint,  Roaring Brook Press.  Other
increases were in telemarketing, direct marketing and direct selling materials.

General and  administrative  expenses for fiscal 2001 increased $49,000 to 9% of
net sales,  the same as a year ago. This is a result of the Company's  effort to
control costs and increase productivity.

Net operating profit for the year ended July 31, 2001 was $747,000 compared to a
profit of $1,835,000 for the previous year.

Interest  expense  decreased  from $496,000 in fiscal 2000 to $440,000 in fiscal
2001. The decrease in interest  expense is due to decreased  interest rates over
fiscal 2000 on the Company's line of credit, offset by higher borrowings.

Net income after tax for the year ended July 31, 2001 was $144,000,  compared to
a profit of $1,136,000 in the previous year.


LIQUIDITY AND CAPITAL RESOURCES

As of July 31,  2001,  the Company  had cash and working  capital of $16,000 and
$4,100,000  respectively,  compared  to  cash  and  working  capital  of $0  and
$5,200,000, respectively as of July 31, 2000 (All cash at July 31, 2001 and 2000
was used to reduce the outstanding loan balance).

The Company has  available a $7,500,000  revolving  line of credit with People's
Bank. The line of credit  restricts the ability of the Company to obtain working
capital in the form of indebtedness,  to grant security  interests in the assets
of the Company or to pay dividends on the Company's  securities.  As of July 31,
2001,  the Company has $4,565,000  outstanding  under this line, all of which is

                                       15





classified as a current  liability since it is due on demand.  The $7,500,000 is
the maximum available, however, it may be lower based upon the eligible value of
accounts  receivable  and  inventory.  As of July  31,  2001  the  maximum  loan
available  was  $6,751,000.  On October 23, 2001,  the Company and People's Bank
signed  the  Fourth  Amendment  to  the  Loan  and  Security   Agreement,   (the
"Amendment").  The Amendment  extended the term of the Agreement to December 31,
2004,  waived the  noncompliance  with certain covenants as of July 31, 2001 and
reset  certain  covenants  required to be met by the Company.  In addition,  the
Amendment  called  for an  additional  grant of  security  interest  in  certain
property,  as defined in the Agreement.  For further information relating to the
People's Bank loan agreement, see Note (4) of "Notes to Financial Statements".

Based on its current  operating  plan,  the Company  believes  that its existing
resources  together  with cash  generated  from  operations  and cash  available
through its credit line will be sufficient to satisfy the Company's contemplated
working  capital  requirements  at least  through  July 31,  2002.  Although the
Company believes that its current available resources will be sufficient to meet
its working  capital  requirements  the Company  may seek  additional  funds for
operations from borrowings or through debt or equity financing.


FORWARD-LOOKING STATEMENTS

This Form 10-KSB 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, as amended, which are intended to be covered by
the  safe  harbors   created   hereby.   Investors   are   cautioned   that  all
forward-looking  statements  involve risks and  uncertainty,  including  without
limitation, the Company's future cash resources and liquidity and the ability of
the Company to fully exploit a book's sales  potential in the school and library
and  consumer  markets.  Although  the  Company  believes  that the  assumptions
underlying the forward-looking  statements contained herein are reasonable,  any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the  forward-looking  statements included in this Form 10-KSB will prove to
be  accurate.  In  light  of  the  significant  uncertainties  inherent  in  the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and plans of the Company will be achieved.


                                       16






ITEM 7.   FINANCIAL STATEMENTS




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Shareholders and Board of Directors of
The Millbrook Press Inc.:


We have audited the  accompanying  balance sheets of The Millbrook Press Inc. as
of July 31, 2001 and 2000, and the related  statements of income,  stockholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of The Millbrook Press Inc. as of
July 31, 2001 and 2000 and the results of its  operations and its cash flows for
the years  then  ended,  in  conformity  with  accounting  principles  generally
accepted in the United States.


Arthur Andersen LLP


Stamford, Connecticut
October 24, 2001

                                       17





                            THE MILLBROOK PRESS INC.


                                 BALANCE SHEETS

                             JULY 31, 2001 AND 2000




                                                                       2001               2000
                                                                       ----               ----
                                      ASSETS

Current assets:
    Cash                                                            $   16,000           $    -
    Accounts receivable (less allowance for returns and bad
    debts of $473,000 in 2001 and $660,000 in 2000)                  5,802,000            6,160,000
    Inventories                                                      7,018,000            6,649,000
    Royalty advances, net                                              691,000              725,000
    Prepaid expenses                                                   242,000              202,000
                                                                    ----------           ----------

                      Total current assets                          13,769,000           13,736,000

    Plant costs, net                                                 4,464,000            4,348,000
    Fixed assets, net                                                  257,000              236,000
    Deferred income taxes                                              241,000                  -
    Goodwill, net                                                    2,698,000            2,912,000
    Royalty advances, net                                            1,843,000            1,158,000
                                                                   -----------          -----------
                      Total assets                                 $23,272,000          $22,390,000
                                                                   ===========          ===========


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

                                       18





                            THE MILLBROOK PRESS INC.
                            ------------------------


                                 BALANCE SHEETS
                                 --------------

                             JULY 31, 2001 AND 2000
                             ----------------------

                                   (Continued)


                                                                       2001             2000
                                                                       ----             ----

      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable to bank                                          $  4,565,000    $  3,683,000
    Accounts payable and accrued expenses                             4,409,000       4,089,000
    Royalties payable                                                   368,000         412,000
    Current portion of long term debt                                   364,000         400,000
                                                                   ------------    ------------
                     Total current liabilities                        9,706,000       8,584,000

Long term debt                                                             --           364,000
                                                                   ------------    ------------
                     Total liabilities                                9,706,000       8,948,000
                                                                   ------------    ------------
Commitments

Stockholders' equity:
    Common stock,  par  value  $.01 per  share, 12,000,000
    authorized  shares; 3,455,000 shares issued and
    outstanding                                                          35,000          35,000

    Additional paid-in capital                                       17,556,000      17,556,000
    Accumulated deficit                                              (3,038,000)     (3,182,000)
    Treasury stock (605,113 and 595,113 shares at cost in 2001
       and 2000, respectively)                                         (987,000)       (967,000)
                                                                   ------------    ------------

                      Total stockholders' equity                     13,566,000      13,442,000
                                                                   ------------    ------------
                      Total liabilities and stockholders' equity   $ 23,272,000    $ 22,390,000
                                                                   ============    ============


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

                                       19





                            THE MILLBROOK PRESS INC.
                            ------------------------


                              STATEMENTS OF INCOME
                              --------------------

                   FOR THE YEARS ENDED JULY 31, 2001 AND 2000
                   ------------------------------------------




                                                                                                2001          2000
                                                                                                ----          ----

Net sales                                                                                   $21,626,000   $21,388,000
Cost of sales                                                                                12,268,000    11,784,000
                                                                                            -----------   -----------
                      Gross profit                                                            9,358,000     9,604,000
                                                                                            -----------   -----------
Operating expenses:
    Selling and marketing                                                                     6,626,000     5,833,000
    General and administrative                                                                1,985,000     1,936,000
                                                                                            -----------   -----------
                      Total operating expenses                                                8,611,000     7,769,000
                                                                                            -----------   -----------
Operating income                                                                                747,000     1,835,000

Interest expense                                                                                440,000       496,000
                                                                                            -----------   -----------
Income before income taxes                                                                        307,000     1,339,000

Provision for income taxes                                                                        163,000       203,000
                                                                                            -----------   -----------
Net income                                                                                  $   144,000   $ 1,136,000
                                                                                            ===========   ===========

Earnings per share (basic and diluted)                                                      $       .05   $       .37
                                                                                            ===========   ===========

Weighted average shares outstanding (basic)                                                   2,854,709     3,080,079
                                                                                            ===========   ===========
Weighted average shares outstanding (diluted)                                                 3,041,608     3,080,079
                                                                                            ===========   ===========


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

                                       20





                            THE MILLBROOK PRESS INC.
                            ------------------------


                       STATEMENTS OF STOCKHOLDERS' EQUITY
                       ----------------------------------

                   FOR THE YEARS ENDED JULY 31, 2001 AND 2000
                   ------------------------------------------



                                      Common Stock          Additional
                                      ------------            Paid-In       Treasury      Accumulated
                                  Shares         Amount       Capital          Stock          Deficit       Total
                                  ------         ------       -------          -----          -------       -----

Balance at July 31, 1999        3,455,000   $     35,000   $ 17,556,000   $       --      $ (4,318,000)   $ 13,273,000

Purchase of treasury stock           --             --             --         (967,000)           --          (967,000)

Net income                           --             --             --             --         1,136,000       1,136,000
                             ------------   ------------   ------------   ------------    ------------    ------------

Balance at July 31, 2000        3,455,000         35,000     17,556,000       (967,000)     (3,182,000)     13,442,000

Purchase of treasury stock           --             --             --          (20,000)           --           (20,000)

Net income                           --             --             --             --           144,000         144,000
                             ------------   ------------   ------------   ------------    ------------    ------------
Balance at July 31, 2001        3,455,000   $     35,000   $ 17,556,000   $   (987,000)   $ (3,038,000)   $ 13,566,000
                             ============   ============   ============   ============    ============    ============


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


                                       22





                            THE MILLBROOK PRESS INC.
                            ------------------------


                            STATEMENTS OF CASH FLOWS
                            ------------------------

                   FOR THE YEARS ENDED JULY 31, 2001 AND 2000
                   ------------------------------------------


                                                                      2001            2000
                                                                      ----            ----

Cash flows from operating activities:
    Net income                                                    $   144,000    $ 1,136,000
    Depreciation and amortization                                   2,027,000      1,890,000
    Deferred income taxes                                            (241,000)          --
    Changes in assets and liabilities:
        Decrease (increase) in accounts receivable                    358,000        (56,000)
        (Increase) decrease in inventories                           (369,000)       430,000
        Increase in royalty advances                                 (651,000)      (332,000)
        (Increase) decrease in prepaid expenses                       (40,000)       139,000
        Increase in accounts payable and accrued expenses             320,000        197,000
        (Decrease) increase in royalties payable                      (44,000)       104,000
                                                                  -----------    -----------
            Net cash provided by operating activities               1,504,000      3,508,000
                                                                  -----------    -----------
Cash flows from investing activities:
    Capital expenditures                                             (111,000)       (96,000)
    Plant costs                                                    (1,839,000)    (1,567,000)
                                                                  -----------    -----------
            Net cash used in investing activities                  (1,950,000)    (1,663,000)
                                                                  -----------    -----------
Cash flows from financing activities:
    Proceeds from (repayment of) borrowings under notes payable       882,000     (1,775,000)
    (Repayment of) proceeds from long term debt                      (400,000)       764,000
    Purchase of treasury stock                                        (20,000)      (967,000)
                                                                  -----------    -----------
            Net cash provided by (used in) financing activities       462,000     (1,978,000)
                                                                  -----------    -----------
            Net increase (decrease) in cash                            16,000       (133,000)

Cash at beginning of year                                                --          133,000
                                                                  -----------    -----------
Cash at end of year                                               $    16,000    $      --
                                                                  ===========    ===========
Supplemental disclosures:
    Interest paid                                                 $   452,000    $   496,000
                                                                  -----------    -----------
    Income taxes paid                                             $   445,000    $    57,000
                                                                  -----------    -----------


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

                                       23





                            THE MILLBROOK PRESS INC.
                            ------------------------


                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                             JULY 31, 2001 AND 2000
                             ----------------------




(1)       Description of the Business:
          ----------------------------

          The Millbrook Press Inc.  ("Company") was  incorporated  and commenced
          operations as an independent company on February 23, 1994. The Company
          is a publisher of children's  nonfiction  books, in both hardcover and
          paperbacks, for preschoolers through young adults. The Company's books
          are  distributed  to the  school  and  public  library  market,  trade
          bookstores and other specialty  retail and direct sales markets in the
          United States through wholesalers,  its own telemarketing  efforts and
          commissioned sales representatives.

(2)         Summary of Significant Accounting Policies:
            -------------------------------------------

              Cash and Cash Equivalents-
              -------------------------

              Cash and cash  equivalents  consist  of cash in banks  and  highly
              liquid,  short-term  investments with original maturities of three
              months or less at the date acquired.

              Revenue Recognition-
              ------------------- -

              The Company has adopted Staff Accounting Bulletin ("SAB") No. 101,
              "Revenue  Recognition  in  Financial  Statements".   SAB  No.  101
              expresses  the views of the  Securities  and  Exchange  Commission
              ("SEC") staff in applying accounting principles generally accepted
              in the  United  States  to  certain  revenue  recognition  issues.
              Revenue  from  the  sale  of  books  is  generally  recognized  at
              shipment.  The Company  provides a reserve  for  product  returns.
              Sales  from  telemarketing  activities  are  recognized  when  the
              customer  accepts all or part of a sample  shipment.  Revenue from
              the  licensing  of rights is  recognized  as earned  net of author
              co-payments.

              Inventories-
              -----------

              Inventories of sheets and bound books, which are primarily located
              in a public warehouse or at customers as inventory on preview, are
              stated at the lower of cost or market, with cost determined by the
              average cost method. Allowances are established to reduce recorded
              costs of obsolete and slow moving  inventory to its net realizable
              value.

              Royalty Advances-
              ----------------

              Licensing  agreements  for rights to future  publications  usually
              require a non-refundable partial payment of the royalty in advance
              of the  publication.  The  Company  charges  royalty  advances  to
              expense in the period during which the related sales are recorded.

                                       24





              If it appears that an advance  will exceed  total  royalties to be
              earned  based upon  estimated  sales,  such excess is  immediately
              expensed.  Royalty  advances for  publications  to be published in
              excess of one year from the balance  sheet date are  classified as
              non-current assets.

              Plant Costs-
              -----------

              Plant costs consisting of plates,  photo  engravings,  separations
              and other text costs of unpublished  books are amortized over five
              years from  publication  date or the estimated  remaining life, if
              shorter.  Plant costs at July 31, 2001 and 2000 are  presented net
              of  accumulated   amortization   of  $11,019,000   and  $9,296,000
              respectively.

              Advertising Costs-
              -----------------

              Advertising  costs are  expensed in the periods in which the costs
              are incurred.  Catalog costs  consisting of the costs of producing
              and  distributing  catalogs are expensed  ratably over the year in
              which the costs are  incurred in  relation  to sales.  Advertising
              expense for the years  ended July 31,  2001 and 2000 was  $880,000
              and $750,000, respectively.

              Fixed Assets-
              ------------

              Fixed assets are recorded at cost.  Depreciation  and amortization
              of fixed assets are computed on the straight-line  method based on
              useful  lives  ranging  from 7-10 years for office  furniture  and
              equipment and 5 years for computers.  Leasehold  improvements  are
              amortized  over the  lesser of the  lease  term or the life of the
              asset.

              Goodwill and Other Long Lived Assets-
              ------------------------------------

              Goodwill  represents the excess of the cost over the fair value of
              the net assets acquired.  For financial  reporting  purposes,  the
              excess  of cost  over the fair  value of net  assets  acquired  is
              amortized   over  20  years   using  the   straight-line   method.
              Accumulated  amortization  at July 31, 2001 and 2000 is $1,480,000
              and $1,266,000,  respectively.  Pursuant to Internal  Revenue Code
              Section 197,  for Federal  income tax  purposes  such  goodwill is
              deductible over 15 years.

              The  Company  systematically  reviews  the  recoverability  of its
              long-lived assets by comparing their unamortized carrying value to
              their anticipated  undiscounted  future cash flows. Any impairment
              is charged to expense when such determination is made.

              Income Taxes-
              ------------

              Deferred tax assets and  liabilities are recognized for the future
              tax consequences attributable to differences between the financial
              statement  carrying amounts of existing assets and liabilities and
              their  respective  tax bases  and  operating  loss and tax  credit
              carryforwards.  Deferred tax assets and  liabilities  are measured
              using enacted tax rates expected to apply to taxable income in the
              years in which  those  temporary  differences  are  expected to be
              realized  or  settled.  The  effect on  deferred  tax  assets  and
              liabilities  of a change in tax rates is  recognized  in income in
              the period that includes the enactment date.

                                       25





              Earnings Per Share-
              ------------------

              Basic  Earnings  Per Share  ("EPS") is  computed  as net  earnings
              divided   by  the   weighted-average   number  of  common   shares
              outstanding  for the period.  Diluted EPS reflects  the  potential
              dilution  that could occur from  common  shares  issuable  through
              stock-based compensation plans including stock options, restricted
              stock awards,  warrants and other convertible securities using the
              treasury  stock  method.  Included  in  diluted  EPS for  2001 are
              187,000 stock options exercisable at $2.25.

              Earnings per share is net income  divided by the weighted  average
              number of common stock outstanding for the periods. Per share data
              for 2000 does not assume the exercise of common  stock  options as
              the option  exercise  prices are above the average market price of
              common stock for the year.

              Stock Options-
              -------------

              The Company adopted  Statement of Financial  Accounting  Standards
              ("SFAS") No. 123, "Accounting for Stock-Based Compensation", which
              allows  entities to continue to apply the provisions of Accounting
              Principles  Board ("APB") Opinion No. 25 and provide pro forma net
              income and pro forma earnings per share  disclosures  for employee
              stock option grants as if the  fair-value-based  method defined in
              SFAS No. 123 had been applied.

              Use of Estimates-
              ----------------

              The  preparation  of  financial   statements  in  accordance  with
              accounting  principles  generally  accepted  in the United  States
              requires  management to make estimates and assumptions that affect
              the reported  amounts of assets and  liabilities  and the reported
              amounts of revenue  and  expenses  during  the  reported  periods.
              Actual results could vary from the estimates and assumptions  used
              in the preparation of the accompanying financial statements.

              Recent Accounting Standards-
              ---------------------------

              In July 2001, the Financial Accounting Standards Board issued SFAS
              No. 141,  Business  Combinations  and SFAS No. 142,  "Goodwill and
              Other  Intangible  Assets".  SFAS No. 141  requires  all  business
              combinations  initiated  after June 30, 2001 to be  accounted  for
              using the  purchase  method.  Under  SFAS No.  142,  goodwill  and
              intangible  assets with indefinite  lives are no longer  amortized
              but are  reviewed  annually  (or  more  frequently  if  impairment
              indicators arise) for impairment. Separable intangible assets that
              are not  deemed  to have  indefinite  lives  will  continue  to be
              amortized over their useful lives (but with no maximum life).  The
              amortization  provisions  of SFAS No.  142 apply to  goodwill  and
              intangible  assets  acquired after June 30, 2001.  With respect to
              goodwill and intangible assets acquired prior to July 1, 2001, the
              Company is  required  to adopt SFAS No.  142  effective  August 1,
              2002. The Company is currently evaluating the effect that adoption
              of the  provisions  of SFAS No.  142 will have on its  results  of
              operations and financial position.

                                       26





(3)       Fixed Assets:
          -------------

          Fixed assets at July 31, 2001 and 2000 consist of the following:

                                                            2001          2000
                                                            ----          ----

            Office furniture and equipment             $   198,000    $   185,000
            Computers                                      662,000        578,000
            Telecommunication equipment                     76,000         62,000
            Leasehold improvements                          78,000         78,000
                                                       -----------    -----------
                                                         1,014,000        903,000

            Accumulated depreciation                      (757,000)      (667,000)
                                                       -----------    -----------
                                                       $   257,000    $   236,000
                                                       ===========    ===========

          Depreciation  expense  for the years  ended July 31, 2001 and 2000 was
          $90,000 and $97,000, respectively.

(4)       Notes Payable to Bank:
          ----------------------

          On December  14,  1995,  the Company  entered into a Loan and Security
          Agreement with People's Bank, (the "Agreement").  As of July 31, 2001,
          the Agreement  provided for  borrowings up to $7,500,000  and provided
          for  interest  at the  bank's  prime rate (6.75 % and 9.5% at July 31,
          2001 and 2000, respectively), a certain portion of which may be priced
          at the 90 day LIBOR rate plus 2.0% (4.01% at July 31,  2001).  At July
          31, 2001,  the amount  outstanding  under the Agreement was $4,565,000
          ($3,000,000  which was priced at the LIBOR rate).  Advances  under the
          Agreement are collateralized by substantially all of the assets of the
          Company. The Agreement also prohibits the Company from the declaration
          or  payment  of  dividends  on common  stock.  The  maximum  available
          borrowing  under the Agreement is $7,500,000,  however it may be lower
          based  upon  the  eligible  value  of  the  accounts   receivable  and
          inventory.  As of July 31, 2001,  the eligible  inventory and accounts
          receivable was $6,751,000. The Agreement is payable upon demand by the
          bank  and  contains  various  covenants  which,  as of July  31,  2001
          include,  among other things, a minimum tangible net worth requirement
          and a current ratio requirement.

          On January 31,  2000,  under the  Agreement,  the Company  borrowed an
          additional  $964,000  from  People's  Bank for the purchase of 595,113
          shares of its common stock,  of which  $600,000  represents a 24 month
          unsecured term loan with equal monthly  payments of $25,000 per month,
          with interest on the outstanding  balance at prime plus 2% (as of July
          31, 2001 this loan has been paid down to $0). The  remaining  $364,000
          is  secured by  eligible  accounts  receivable  and  inventory  of the
          Company and is payable on January 1, 2002. Interest on the outstanding
          balance is at the Bank's prime rate.

          On October 23, 2001,  the Company and People's  Bank signed the Fourth
          Amendment to the Loan and Security Agreement,  (the "Amendment").  The
          Amendment  extended  the term of the  Agreement  to December 31, 2004,
          waived the  noncompliance  with certain  covenants as of July 31, 2001
          and reset  certain  covenants  required to be met by the  Company.  In
          addition,  the Amendment  called for an  additional  grant of security
          interest in certain property, as defined in the Agreement.

                                       27



(5)       Income Taxes:
          -------------

         The Company  provided federal income taxes for the years ended July 31,
         2001 and 2000.  The actual  provision for income taxes differs from the
         amount  computed by applying the statutory  federal  income tax rate to
         income before  provision for income taxes.  The sources and tax effects
         of the differences are as follows:


                                                                  2001        2000
                                                                  ----        ----

          Income tax provision at the federal statutory rate   $ 104,000   $ 439,000
          State and local income taxes, net of federal tax
            provision                                             20,000      76,000
          Decrease in valuation allowance                           --      (250,000)
          Nondeductible expenses                                  10,000     (35,000)
          Other                                                   29,000     (27,000)
                                                               ---------   ---------
                                Provision for income taxes     $ 163,000   $ 203,000
                                                               =========   =========

          The  tax  effects  of  temporary  differences  between  the  financial
          statement  carrying  amounts  and tax bases of assets and  liabilities
          that give rise to the deferred tax assets and deferred tax liabilities
          at July 31, 2001 and 2000 are the following:

                                                          2001         2000
                                                          ----         ----
            Deferred tax assets:
                Accounts receivable allowances       $   189,000    $   263,000
                Inventory reserves                       283,000        346,000
                Unicap                                   491,000        418,000
                Plate and revision costs                  17,000        101,000
                Fixed assets                                --           48,000
                Pre-publication costs                    547,000        578,000
                AMT credit                                  --           25,000
                Charitable contribution carryover        132,000           --
                Other accrued expenses and reserves       65,000           --
                                                     -----------   ------------
                          Net deferred tax asset       1,724,000      1,779,000
            Less:  Valuation allowance                  (710,000)      (710,000)
                                                     -----------   ------------
                          Net deferred tax asset       1,014,000      1,069,000
                                                     -----------   ------------
            Deferred tax liabilities:
                Returns allowances                      (220,000)      (289,000)
                Fixed assets                              (8,000)          --
                Goodwill amortization                   (293,000)      (266,000)
                Other                                       --          (11,000)
                Adjustment for change in tax            (252,000)      (503,000)
                  accounting method
                                                     -----------   ------------
                          Net deferred tax liability    (773,000)    (1,069,000)
                                                     -----------   ------------
                          Net deferred income taxes  $   241,000    $      --
                                                     ===========   ============

                                       28



          In assessing  the  realizability  of deferred  tax assets,  management
          considers  whether it is more likely than not that some portion or all
          of the deferred tax asset will be realized.  The ultimate  realization
          of the deferred tax asset is dependent  upon the  generation of future
          taxable  income  during  the  periods in which  temporary  differences
          become  deductible.  The Company has  determined  that $241,000 of net
          deferred tax assets could be realized as of July 31, 2001. A valuation
          allowance  of $710,000 has been  established  at July 31, 2001 for the
          remaining balance.

(6)       Stock Option Plan:
          ------------------

          The  Company has  reserved  675,000  shares of common  stock under its
          non-qualified  1994 Stock Option Plan ("Option  Plan") which  provides
          that a committee, appointed by the Board of Directors, may grant stock
          options to eligible  employees,  officers and directors of the Company
          or its  affiliates.  The number of shares  reserved  for  issuance  is
          adjusted in  accordance  with the  provisions  of the Plan.  All stock
          options  granted by the  Company  expire  seven  years after the grant
          date. Stock options vest over a period from 2-5 years as determined by
          the stock option committee.

          In October 1996,  the Company  amended the Option Plan to decrease the
          exercise  price on  outstanding  options  from  $8.00 per share to the
          initial public offering price of $4.50 per share.  Non-vested  options
          outstanding  on the effective  date (December 23, 1996) of the initial
          public offering,  representing options for 283,500 shares,  vested 50%
          one year  from that date and the  additional  50% two years  from that
          date. As of July 31, 2001 and 2000, there were options outstanding for
          520,900  shares and  603,500  shares,  respectively,  under the Option
          Plan.

          The per share  weighted-average  fair value of stock  options  granted
          during fiscal 2001,  calculated  in accordance  with SFAS No. 123, was
          $1.08 on the date of grant  using  the  Black  Scholes  option-pricing
          model with the following weighted-average  assumptions:  fiscal 2001 -
          expected  volatility  48%,  risk-free  interest  rate of  5.5%  and an
          expected life of 2 years.

          The Company  applies APB Opinion No. 25 in  accounting  for its Option
          Plan. Had the Company  determined  compensation cost based on the fair
          value at the grant date for its stock  options under SFAS No. 123, the
          Company's  net  income  would have  changed  to the pro forma  amounts
          indicated below:

                                                                 2001          2000
                                                                 ----          ----
            Net income
                As reported                                 $   144,000     $  1,136,000
                Pro forma                                       102,000        1,070,000
            Earnings  per share (basic and diluted)
                As reported                                         .05              .37
                Pro forma                                           .04              .35

                                       29





          Stock Option Plan activity during the periods indicated is as follows:

                                                              Weighted-
                                                  Number of    Average
                                                   Shares    Exercise Price
                                                   ------    --------------

            Balance at July 31, 1999               517,500       4.50
                Granted                            147,500       2.25
                Forfeited                          (61,500)      4.50
                                                  --------
            Balance at July 31, 2000               603,500       3.94

                Granted                            166,900       2.25
                Forfeited                         (249,500)      4.41
                                                  --------
            Balance at July 31, 2001               520,900       3.19
                                                  ========

          At July 31, 2001 and 2000,  the range of  exercise  prices was $2.25 -
          $6.075. The weighted-average remaining contractual life of outstanding
          options at July 31, 2001 and 2000 was 4.2 and 4.1 years, respectively.

          At July 31,  2001 and 2000,  the  number of options  exercisable  were
          399,000 and 391,000,  respectively,  and the weighted-average exercise
          price  of  those  options  was  $3.46  and  $4.50  in 2001  and  2000,
          respectively.

          In December 1996 in connection with the initial public  offering,  the
          Company sold to the Underwriter for $100, the  Underwriter's  Purchase
          Option ("Purchase Option"),  consisting of the right to purchase up to
          an aggregate of 170,000 shares of common stock. The Purchase Option is
          exercisable at $6.075 per share for a period of four years  commencing
          on December 17, 1997.

(7)       401(k) Profit Sharing Plan:
          ---------------------------

          The Company  maintains a  Non-standardized  Prototype Cash or Deferred
          Profit Sharing 401(k) Plan (the "Plan").  Participation in the Plan by
          employees  requires  that they  complete six months of service for the
          Company and attain 21 years of age.  Employees on the Plan's effective
          date did not have to satisfy the six-month  service  requirement.  The
          Company  determines each year a discretionary  matching  contribution.
          Such additional contribution,  if any, shall be allocated to employees
          in proportion to each participant's contribution.  The Company did not
          contribute to the Plan during the year ended July 31, 2000.  Beginning
          in January 2001, the Company provided for a 20% match of non-executive
          employees' contributions. This amounted to $11,000 for fiscal 2001.

(8)       Commitments
          -----------

          The Company  leases office  facilities  under  operating  leases which
          expire at various  dates  through  2004.  The  leases  are  subject to
          escalation  clauses as they relate to certain  expenses of the lessor,
          i.e., utilities and real estate taxes.

          Minimum future rental payments under  non-cancelable  operating leases
          having  initial  or  remaining  terms  in  excess  of one  year are as
          follows:

                                       30





            Year ending July 31                 Amount
            -------------------                 ------

                      2002                    $ 177,000
                      2003                      103,000
                      2004                       39,000
                      Thereafter                  2,000
                                              ---------
                                              $ 321,000
                                              =========

          Rent  expense for the years ended July 31, 2001 and 2000 was  $205,000
          and $178,000, respectively.

          In May 1994, the Company entered into an agreement with Aladdin Books,
          a British  publishing  company,  whereby  Aladdin agreed to produce no
          less than 50 titles per year for  Millbrook  through  January 1, 2002.
          The titles are to be wholly owned by Millbrook. Aladdin is responsible
          for production,  printing and binding.  Production costs are shared by
          Aladdin and Millbrook.  Aladdin  retains sales rights for these titles
          to countries other than the United States, Canada and the Philippines.
          Royalties  are paid to Aladdin based on Millbrook  sales.  Development
          recovery  amounts are paid to  Millbrook  based on sales by Aladdin to
          other parts of the world. Net payables to Aladdin at July 31, 2001 and
          2000 are $429,000 and $652,000, respectively.

(9)       Fair Value of Financial Instruments:
          ------------------------------------

              Cash, Accounts Receivable, Accounts Payable and Accrued Expenses-
              ----------------------------------------------------------------

              The  carrying  amount  approximates  fair  value  because  of  the
              short-term maturity of these instruments.

              Notes Payable-
              -------------

              The carrying  amount of these financial  instruments  approximates
              fair  values  based on the fact that the  related  interest  rates
              fluctuate with market rates.

(10)     Concentration of Credit Risk:
         -----------------------------

         The Company extends credit to various  companies in the retail and mass
         merchandising  industry  for the  purchase  of its  merchandise,  which
         results in a concentration of credit risk. This concentration of credit
         risk  may  be  affected  by  changes  in  economic  or  other  industry
         conditions and may,  accordingly,  impact the Company's  overall credit
         risk. Although the Company generally does not require  collateral,  the
         Company  performs  ongoing  credit  evaluations  of its  customers  and
         reserves for potential  losses are maintained.  One customer  accounted
         for 10% and 11% of the Company's net sales for the years ended July 31,
         2001 and 2000, respectively. Two customers accounted for 25% and 29% of
         the  Company's  accounts  receivable as of the year ended July 31, 2001
         and 2000 respectively.

                                       31



(11)     Purchase of Treasury Stock:
         ---------------------------

         On December 16, 1999,  the Company  purchased  595,113 shares of Common
         Stock in a private  transaction  from a related  party for an aggregate
         purchase price of $967,000 or $1.625 per share.  Upon  consummation  of
         the transaction,  the repurchased shares of Common Stock were placed in
         treasury. On January 31, 2000, the Company borrowed additional funds to
         finance the transaction  (see "Notes Payable to Bank").  For the period
         from  December  16, 1999 to January 31,  2000,  the  Company's  working
         capital was used to finance this transaction.

         On January 23, 2001, the Company  purchased an additional 10,000 shares
         of Common  Stock on the open market for a purchase  price of $20,000 or
         $1.978 per share.  The Company  used  working  capital to finance  this
         transaction.


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURES

                                    None


                                       32









PART III


ITEM 9.   DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.

The  information  required  by Item 9 regarding  directors  is  incorporated  by
reference to the information appearing under the caption "Election of Directors"
in the Company's  definitive Proxy Statement relating to its 2001 Annual Meeting
of Stockholders to be filed with the Securities and Exchange  Commission  within
120 days after the close of its fiscal year.


ITEM 10.   EXECUTIVE COMPENSATION.

The  information  required  by  Item  10 is  incorporated  by  reference  to the
information  appearing  under  the  caption  "Executive   Compensation"  in  the
Company's  definitive  Proxy  Statement  relating to its 2001 Annual  Meeting of
Stockholders to be filed with the Securities and Exchange  Commission within 120
days after the close of its fiscal year.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by  Item  11 is  incorporated  by  reference  to the
information  appearing under the caption  "Security  Ownership" in the Company's
definitive  Proxy Statement  relating to its 2001 Annual Meeting of Stockholders
to be filed with the  Securities and Exchange  Commission  within 120 days after
the close of the fiscal year.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by  Item  12 is  incorporated  by  reference  to the
information  appearing  under the  caption  "Certain  Relationships  and Related
Transactions" in the Company's  definitive Proxy Statement  relating to its 2001
Annual  Meeting of  Stockholders  to be filed with the  Securities  and Exchange
Commission within 120 days after the close of the fiscal year.


                                       33





ITEM 13.   EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)         Exhibits


Exhibit
Number                                Description of Exhibit
------                                ----------------------

**3.1                   Restated Certificate of Incorporation of the Company.

**3.2                   By-laws of the Company, as amended.

**4.1                   Form of Common Stock Certificate.

**4.2                   Form of  Underwriter's  Purchase  Option  granted to GKN
                        Securities.

**4.3                   Form of bridge Warrant.

*****10.1               Termination  and  Settlement  Agreement,  dated  June 1,
                        2001, by and between the Company and Jeffrey Conrad.

**10.2                  Employment Agreement,  dated as of December 12, 1996, by
                        and between the Company and Jean E. Reynolds.

**10.3                  Consulting Agreement,  dated as of December 13, 1996, by
                        and between the Company and Farrell Associates, Inc.

**10.4                  Consulting Agreement,  dated as of December 13, 1996, by
                        and  between   the  Company  and  Graham   International
                        Publishing and Research, Inc.

**10.5                  Form of  Indemnification  Agreement  between each of the
                        Officers and Directors of the Company and the Company.

**10.6                  Agreement of Lease,  dated  September  27, 1994,  by and
                        between the Company and Arnold S. Paster.

**10.7                  Agreement of Lease, dated March 26, 1996, by and between
                        the Company and Land First II Group.

**10.8                  Agreement  of Lease and rider  attached  thereto,  dated
                        February  15,  1996,  by and  between  the  Company  and
                        Ninety-Five Madison Company.

**10.9                  1994 Stock Option Plan, as amended.

**10.10                 Loan and  Security  Agreement,  dated as of December 14,
                        1995, between People's Bank and the Company.

*10.11                  Amendment to Loan and Security Agreement, dated June 10,
                        1998, between People's Bank and the Company.

                                       34



**10.12                 Agreement  made  effective  as of  August 1, 1996 by and
                        between Aladdin Books Limited and the Company.

***10.13                Employment  Agreement,  dated as of January 1999, by and
                        between the Company and David Allen.

****10.14               Amendment to loan and security  agreement  dated January
                        31, 2000, between People's Bank and the Company.

******10.15             Fourth  Amendment  loan  and  security  agreement  dated
                        October 23, 2001, between People's Bank and the Company.


******23                Consent of Arthur Andersen, LLP


--------------------------------------------------------------------------------
*                       Filed as an Exhibit to the  Company's  Annual  Report on
                        Form 10-KSB for the year ended July 31, 1998

**                      Filed  as  an  Exhibit  to  the  Company's  Registration
                        Statement on Form SB-2 (No. 33-14631)

***                     Filed as an Exhibit to the  Company's  Annual  Report on
                        Form 10-KSB for the year ended July 31, 1999

****                    Filed as an Exhibit to the Company's Quarterly Report on
                        Form 10-QSB for the quarter ended January 31, 2000

*****                   Filed as an Exhibit to the Company's Quarterly Report on
                        Form 10-QSB for the quarter ended April 30, 2001

******                  Filed herewith

                        (b)  Reports on Form 8-K
                             -------------------
                                    None


                                       35






                                   SIGNATURES

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

                                           THE MILLBROOK PRESS INC.

Dated:  October 29, 2001                   By: /s/ David Allen
                                               ---------------
                                                   David Allen
                                                   Executive Vice President and
                                                   Chief Operating Officer


            In accordance with the Securities  Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dated indicated.

Signatures                          Title                             Date

/s/ David Allen                  Executive Vice President      October 29, 2001
------------------------         Chief Operating Officer
David Allen                      Chief  Financial Officer
                                 (Principal Financial
                                 Officer and Principal
                                 Accounting Officer)

/s/ Howard Graham                Chairman of the Board         October 29, 2001
------------------------
Howard Graham

/s/ Frank J. Farrell             Director                      October 29, 2001
------------------------
Frank Farrell

/s/ Bruno A. Quinson             Director                      October 29, 2001
------------------------
Bruno A. Quinson

/s/ Joseph Kanon                 Director                      October 29, 2001
------------------------
Joseph Kanon

/s/ Hannah Stone                 Director                      October 29, 2001
------------------------
Hannah Stone

                                       36`