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


                                   FORM 10-KSB


                   ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934


                     FOR THE FISCAL YEAR ENDED JULY 31, 2002

                            THE MILLBROOK PRESS INC.
                 (Name of Small Business Issuer 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)

Securities Registered under Section 12 (b) of the Exchange Act:

                                                                    Common Stock

Securities Registered under 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 there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)

Revenues for the Fiscal year ended July 31, 2002 were $18.6 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,  2002,  was
approximately  $2,450,000.  As of July 31, 2002, the Registrant had  outstanding
2,869,887 shares of Common Stock.






                            THE MILLBROOK PRESS INC.
                            FORM 10-KSB ANNUAL REPORT

                                Table of Contents



                                     PART I

                                                                                                      Page
Item 1.        Description of Business...................................................................3

Item 2.        Description of Property..................................................................11

Item 3.        Legal Proceedings........................................................................11

Item 4.        Submission of Matters to a Vote of Security Holders......................................11


                                     PART II

Item 5.        Market for Common Equity and Related Stockholders Matters................................11

Item 6.        Management's Discussion and Analysis or Plan of Operation................................12

Item 7.        Financial Statements.....................................................................19

Item 8.        Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure...................................................36


                                    PART III

Item 9.        Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act........................................37

Item 10.       Executive Compensation...................................................................37

Item 11.       Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholder Matters...............................................37

Item 12.       Certain Relationships and Related Transactions...........................................37

Item 13.       Exhibits and Reports on Form 8-K.........................................................38

Item 14.       Controls and Procedures .................................................................40






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 1,700  hardcover  and 750  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.
Roaring Brook Press,  the Company's new fiction  imprint,  publishes  children's
picture books and young peoples novels for both the school and library and trade
markets.

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 has  embarked 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 will 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  released 20
titles under its new fiction  imprint,  Roaring  Brook  Press,  in 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 2002 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
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


                                       3



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


                                       4



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  Millbrook  acquiring  other  companies or
      segments thereof.

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.

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.


                                       5



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 2002, 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
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


                                       6



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 15% 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  co-publishing  agreement 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
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


                                       7



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, 2002, 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
libraries  on a regular  basis.  Roaring  Brook  press has  received  twenty-one
starred  reviews on the first list of nineteen  books,  which was  published  in
Spring 2002. The Company  produces  seven  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 80,000  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.  In addition,  The Company produces two Roaring Brook catalogs per
year. 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.


                                       8



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  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 two sales groups:  the in-house sales group and the commissioned
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 along with selling to 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  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 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.


MANUFACTURING AND SHIPPING

All of the Company's  books are printed and bound by third-party  manufacturers.
During fiscal year 2002, approximately 35% 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 $7.2 million (or  approximately  39% of net sales)
incurred for fiscal 2002. 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.  In an effort to increase
productivity in this area the Company moved all of its


                                       9



customer service, order entry, warehousing and shipping to Simon & Schuster,
Inc. The Company pays a percentage of sales for these  services as stated in the
three-year contract signed on June 1, 2002.


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.


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,  Copper  Beech  and  Roaring  Brook  Press  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.


                                       10



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, 2002, the Company had  approximately  46 employees,  93% of which
were full-time and 7% 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 PROPERTY

The Company owns no real property.  The Company  conducts its operation  through
three facilities.  The Company leases  approximately 8,500 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 and is expected to be
renewed.  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.



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, 2002 and July 31,  2001,  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.


                                       11



                                  COMMON STOCK

                            YEAR ENDED JULY 31, 2002


                                           High              Low

First Quarter                              3.50              3.23

Second Quarter                             3.45              2.42

Third Quarter                              3.00              2.08

Fourth Quarter                             2.15              1.63

                            YEAR ENDED JULY 31, 2001

First Quarter                              2.38              1.75

Second Quarter                             2.38              1.66

Third Quarter                              2.63              1.97

Fourth Quarter                             3.50              2.30

As of  July  31,  2002,  the  Company  had  2,869,887  shares  of  Common  Stock
outstanding and 47 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
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 as Item 7 of this Form 10-KSB.


OVERVIEW


                                       12



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.

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  grants  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.  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.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

GENERAL

The  Securities  and  Exchange  Commission  recently  issued  Final Rule No. 60,
"Cautionary  Advice  Regarding  Disclosure About Critical  Accounting  Policies"
("FR-60"),  suggesting  companies  provide  disclosure  and  commentary on those
policies  considered most critical.  FR-60 considers an accounting  policy to be
critical if it is important to the  Company's  financial  condition and results,
and requires significant judgment and estimates on the part of management in its
application.  The Company bases its estimates on historical experience,  current
business factors,  and various other assumptions believed to be reasonable under
the  circumstances,  which are  necessary  in order to form a basis  for  making
judgements about the carrying values of assets and  liabilities.  Actual results
may differ from those  estimates  and  assumptions.  On an on-going  basis,  the
Company  evaluates  the adequacy of its reserves and the  estimates  used in its
calculations.  The Company believes the following  represent critical accounting
policies of the Company as  contemplated  by FR-60.  For a summary of all of the
Company's  significant  accounting  policies,  including the critical accounting
policies discussed below, see Note 2 to the financial statements.



                                       13



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

         The Company applies the provisions of 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.  If it appears that
         an  advance  will  exceed  total  royalties  to be  earned  based  upon
         estimated sales, such excess is immediately expensed.  Royalty advances
         to be earned out 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.

         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
         shorter 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 net
         assets  acquired in a business  combination.  For  financial  reporting
         purposes,  goodwill is amortized over 20 years using the  straight-line
         method.  Pursuant to Internal  Revenue  Code  Section  197, for Federal
         income tax purposes such goodwill is deductible over 15 years.


                                       14



         The  Company  systematically  reviews the  recoverability  of its other
         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  temporary   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.

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

         The Company has 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.



RESULTS OF OPERATIONS
---------------------

FISCAL 2002 COMPARED TO FISCAL 2001

Fiscal  2002  revenues  decreased  14.1%  from  $21,626,000  in  fiscal  2001 to
$18,573,000  in fiscal  2002.  Decreased  sales of  $3,053,000  resulted  from a
decline of $1,653,000 in the special trade sales market, a $1,200,000 decline in
the school and library market and a $200,000  decline in the trade sales market.
Although the decline in the specialty trade sales market is sizable, these sales
are infrequent  and contribute a very low margin.  The decline in the school and
library business was mainly  concentrated in (i) sales to large wholesalers down
$375,000 due to market  conditions,  (ii) sales to special  sales  organizations
down  $415,000 due to a change in business  strategy of one customer and (iii) a
decline  in  telemarketing   sales  of  $410,000  due  to  business   disruption
surrounding  September  11, 2001 as the  telemarketing  office is located in New
York City and the operations  were  disrupted  during the peak selling period of
September  and  October.  The  decline  in trade  sales is due to the  Company's
decision to exit the Snappy product line.  This accounted for a loss of sales of
approximately  $700,000 in the fourth quarter. This loss was offset by increased
sales in the newly  launched  imprint,  Roaring Brook Press.  The loss of Snappy
revenue will continue into fiscal 2003,  however the Company  believes that this
packaged  product line was not a complement  to its core business and that sales
from the new Roaring  Brook Press  imprint,  which are at a higher gross margin,
may help to offset this loss of revenue.


                                       15



Gross profits for fiscal 2002 were $8,025,000, or 43.2% of net sales compared to
$9,358,000  or 43.3% of net sales for fiscal 2001.  The decline of $1,333,000 in
gross margin is due to the decline in sales.

Selling and marketing  expenses for fiscal 2002 were  $6,912,000 or 37.2% of net
sales  compared to  $6,626,000  or 30.6% of net sales for fiscal 2001.  Expenses
increased by $286,000 over the prior year due mainly to (i)  increased  costs in
the  telemarketing  area in an effort to recapture lost sales and (ii) increased
costs in the distribution  area as the Company  transferred its customer service
and distribution facilities to Simon & Schuster, Inc. (These costs represent
a one time charge of approximately $225,000). These costs were offset by savings
in the trade marketing category.

General and  administrative  expenses for fiscal 2002 were $1,641,000 or 8.8% of
net sales compared to $1,985,000 or 9.2% of net sales for fiscal 2001. This is a
result of the Company's effort to control costs and increase productivity.

As a result of the above,  the  Company  had an  operating  loss of  $528,000 in
fiscal 2002 compared to an operating profit of $747,000 for fiscal 2001.

Interest  expense  decreased  from $440,000 in fiscal 2001 to $306,000 in fiscal
2002.  The  decrease  is due to  decreased  interest  rates and  slightly  lower
borrowings.

The  Company has  recorded  an income tax  benefit of  $106,000  for fiscal 2002
compared to an income tax expense of $163,000 for fiscal 2001.  Reflected in the
2002 benefit are federal tax recoveries of $136,000 offset by state income taxes
due of $30,000.

The Company  therefore reports a net loss after tax of $728,000 for fiscal 2002,
compared to net income after tax of $144,000 for fiscal 2001.

Although the Company  believes  that the  continued  investment in Roaring Brook
Press, the exit of the Snappy product line and the change of distribution center
to Simon & Schuster, Inc. will be beneficial, there was an immediate cost in
the fourth quarter of fiscal 2002.  Specifically,  the Company endured a loss of
$350,000 of margin on the sale of the Snappy  product  line and moving  costs of
$225,000  associated  with  the  change  in  distributor.  These  costs  greatly
contributed  to the $448,000 loss recorded by the Company in the fourth  quarter
of 2002.  During  that period the Company  also noted the  continued  decline in
spending by local school authorities.


BALANCE SHEET
-------------

Gross  inventories of finished  goods totaled  $7,220,000 and $7,728,000 at July
31, 2002 and 2001  respectively.  The level of gross  inventories  has decreased
$508,000 or 6.6% from the prior year even though net sales decreased  $3,053,000
or 14.1% for the same  period.  The reserve for slow  moving  inventory  totaled
$447,000  and  $710,000 at July 31, 2002 and 2001,  respectively,  a decrease of
$263,000.  During fiscal 2002, $368,000 of slow moving inventory was either sold
at less than cost or donated to  charity.  This  reduction  of older slow moving
inventory is the reason for the decrease in the reserve.  The Company  feels the
inventory reserve fairly states the


                                       16



inventory balance.  Gross accounts  receivable totaled $4,542,000 and $6,275,000
at July 31, 2002 and 2001, respectively,  a decline of $1,733,000. A majority of
this decline is due to lower than expected sales for the same period,  year over
year.  The reserve for return and bad debt has declined  $36,000 to a balance of
$437,000 at July 31, 2002. The Company feels that this reserve is adequate.

In June 2001,  the FASB  issued  Statement  of  Financial  Accounting  Standards
("SFAS") No. 142,  "Goodwill  and Other  Intangible  Assets".  SFAS 142 requires
goodwill  and certain  intangible  assets  with  indefinite  useful  lives to be
subject to an annual  review for  impairment,  and written  down when  impaired,
rather  than  being  amortized  as  previous  standards  required.  SFAS  142 is
effective for fiscal years beginning after December 15, 2001 and will, therefore
be  effective  for the  Company  during the first  quarter of fiscal  2003.  The
Company is in the process of  retaining a third party  valuation  specialist  to
assist with its assessment of the impact of SFAS 142 on the Company's  operating
results and financial  condition.  An impairment to goodwill,  if any,  would be
charged to the Company's accumulated deficit as a change in accounting principle
upon adoption of SFAS 142.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

As of July 31, 2002, the Company had working  capital of $3,399,000  compared to
working  capital of  $4,063,000  as of July 31,  2001.  The  decrease in working
capital is largely  due to the  implementation  of the new  fiction  program and
decreased sales in all markets.  Due to this increased  investment and decreased
sales,  cash flow is and will continue to be a focus of management.  The Company
is taking steps to reduce its overhead and investment spending.

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 additional  indebtedness,  to grant security interests in
the assets of the Company or to pay dividends on the Company's securities. As of
July 31, 2002,  the Company has $4,325,000  outstanding  under this line, all of
which is  classified  as a  current  liability  since it is due on  demand.  The
$7,500,000 is the maximum amount available,  however, it may be lower based upon
the eligible value of accounts receivable and inventory. As of July 31, 2002 the
maximum amount  available was  $5,046,000.  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.  On July 31,  2002,  the  Company  and
People's  Bank signed the Fifth  Amendment to the Loan and  Security  Agreement.
This amendment set forth the terms and provisions  required for operations under
the Simon & Schuster,  Inc. distribution agreement. As of July 31, 2002, the
Company is not in compliance  with certain  covenants of the loan agreement with
People's  Bank,  as amended July 31, 2002.  However,  the Company has obtained a
waiver from People's Bank for its noncompliance with certain covenants as of and
for the year ended July 31, 2002. Based on the Company's  current operating plan
for fiscal 2003 and the further resetting of certain covenants by People's Bank,
the Company  expects to be in compliance  with the bank's  covenants  throughout
fiscal 2003. For further


                                       17



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  forecasted  operations  and cash
available through its line of credit will be sufficient to satisfy the Company's
contemplated  working  capital  requirements  at least  through  July 31,  2003.
However,   there  can  be  no  assurance  that  the  Company's  working  capital
requirements will not exceed its available resources or that these funds will be
sufficient to meet the Company's  longer-term cash  requirements for operations.
Accordingly,  the Company may seek  additional  funds.  The Company is exploring
various avenues to enhance its capital base through additional equity financing.
However,  there are no agreements,  commitments or understandings  regarding any
such 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   therein.   Investors  are   cautioned   that  all
forward-looking  statements  involve risks and  uncertainty,  including  without
limitation,   the  Company's  future  cash  resources  and  liquidity,   further
expenditures  by local  authorities and governments on school and library books,
current year revenue and net income,  future  revenues  from the  Company's  new
fiction  imprint,  improvements in the Company's  Copper Beech and  Twenty-First
Century  imprints,  the ability of the Company to fully  exploit a book's  sales
potential in the school and library and  consumer  markets and the impact of the
Company's  steps to reduce  its  overhead  and cash  commitments.  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.


                                       18



ITEM 7.  FINANCIAL STATEMENTS




                           INDEPENDENT AUDITORS REPORT



To the Stockholders and Board of Directors of
The Millbrook Press Inc.


We have audited the  accompanying  balance sheet of The Millbrook  Press Inc. (a
Delaware  corporation)  as of July  31,  2002,  and the  related  statements  of
operations,  stockholders'  equity and cash flows for the year 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 audit.

We conducted our audit 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  that our audit  provides 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, 2002,  and the results of its operations and its cash flow for the year
then ended in conformity with accounting  principles  generally  accepted in the
United States.


DiSanto Bertoline & Company, P.C.


Glastonbury, Connecticut
October 11, 2002


                                       19



        THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP
        REPORT. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP


                    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


                                       20



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


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

                             JULY 31, 2002 AND 2001
                             ----------------------


                                                                                         2002         2001
                                                                                    -----------   -----------
                                                 ASSETS

Current assets:
    Cash                                                                            $    11,000   $    16,000
    Accounts receivable (less allowance for returns and bad
     debts of $437,000 in 2002 and $473,000 in 2001)                                  4,105,000     5,802,000
    Refundable federal income taxes                                                     136,000          --
    Inventories (less reserve of $447,000 in 2002 and $710,000
     in 2001)                                                                         6,773,000     7,018,000
    Royalty advances, net                                                               730,000       691,000
    Prepaid expenses                                                                    299,000       242,000
                                                                                    -----------   -----------

                      Total current assets                                           12,054,000    13,769,000

    Plant costs, net                                                                  4,389,000     4,464,000
    Fixed assets, net                                                                   228,000       257,000
    Deferred income taxes                                                               241,000       241,000
    Goodwill, net                                                                     2,491,000     2,698,000
    Royalty advances, net                                                             2,126,000     1,843,000
                                                                                    -----------   -----------
                      Total assets                                                  $21,529,000   $23,272,000
                                                                                    ===========   ===========


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


                                       21



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


                                 BALANCE SHEETS
                                 --------------
                                   (continued)

                             JULY 31, 2002 AND 2001
                             ----------------------

                                                                                     2002               2001
                                                                                ------------      ------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
    Borrowings under line of credit                                             $  4,325,000      $  4,565,000
    Accounts payable and accrued expenses                                          3,832,000         4,409,000
    Royalties payable                                                                498,000           368,000
    Current portion of long term debt                                                   --             364,000
                                                                                ------------      ------------

                     Total current liabilities                                     8,655,000         9,706,000

Long term debt                                                                          --                --
                                                                                ------------      ------------

                     Total liabilities                                             8,655,000         9,706,000
                                                                                ------------      ------------

Commitments (Note 8)                                                                    --                --

Stockholders' equity:
    Common stock,  par  value  $.01 per  share, 12,000,000
        authorized  shares; 3,475,000 and 3,455,000  shares issued
        and outstanding in 2002 and 2001, respectively
                                                                                      35,000            35,000
    Additional paid-in capital                                                    17,592,000        17,556,000
    Accumulated deficit                                                           (3,766,000)       (3,038,000)
    Treasury stock (605,113 shares at cost in 2002 and 2001)                        (987,000)         (987,000)
                                                                                ------------      ------------
                      Total stockholders' equity                                  12,874,000        13,566,000
                                                                                ------------      ------------
                      Total liabilities and stockholders' equity                $ 21,529,000      $ 23,272,000
                                                                                ============      ============


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



                                       22



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


                            STATEMENTS OF OPERATIONS
                            ------------------------

                   FOR THE YEARS ENDED JULY 31, 2002 AND 2001
                   ------------------------------------------




                                                                   2002               2001
                                                              ------------        -----------
Net sales                                                     $ 18,573,000        $21,626,000

Cost of sales                                                   10,548,000         12,268,000
                                                              ------------        -----------
                      Gross profit                               8,025,000          9,358,000
                                                              ------------        -----------
Operating expenses:
    Selling and marketing                                        6,912,000          6,626,000
    General and administrative                                   1,641,000          1,985,000
                                                              ------------        -----------
                      Total operating expenses                   8,553,000          8,611,000
                                                              ------------        -----------
Operating (loss) income                                           (528,000)           747,000

Interest expense                                                   306,000            440,000
                                                              ------------        -----------
(Loss) income before income taxes                                 (834,000)           307,000

(Benefit from) provision for income taxes                         (106,000)           163,000
                                                              ------------        -----------
Net (loss) income                                             $   (728,000)       $   144,000
                                                              ============        ===========


(Loss) earnings per share (basic and diluted)                 $       (.25)       $       .05
                                                              ============        ===========

Weighted average shares outstanding (basic)                      2,869,887          2,854,709
                                                              ============        ===========
Weighted average shares outstanding (diluted)                    2,869,887          3,041,608
                                                              ============        ===========



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


                                       23



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


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

                   FOR THE YEARS ENDED JULY 31, 2002 AND 2001
                   ------------------------------------------



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

Issuance of common stock in connection with
exercise of stock options (Note 6)                      20,000      --           45,000         --             --            45,000

Warrant redemption (Note 6)                               --        --           (9,000)        --             --            (9,000)

Net loss                                                  --        --             --           --         (728,000)       (728,000)
                                                     ---------    ------     ----------     --------     ----------      ----------
Balance at July 31, 2002                             3,475,000   $35,000   $ 17,592,000    $(987,000)   $(3,766,000)   $ 12,874,000
                                                     =========   =======   ============    =========    ===========    ============



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



                                       24



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


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

                   FOR THE YEARS ENDED JULY 31, 2002 AND 2001
                   ------------------------------------------


                                                                                        2002                   2001
                                                                                    -----------           -----------

Cash flows from operating activities:
    Net (loss) income                                                               $  (728,000)          $   144,000
    Depreciation and amortization                                                     2,094,000             2,027,000
    Deferred income taxes                                                                  --                (241,000)
    Changes in assets and liabilities:
        Decrease in accounts receivable                                               1,697,000               358,000
        Decrease (increase) in inventories                                              245,000              (369,000)
        Increase in refundable income taxes                                            (136,000)                 --
        Increase in royalty advances                                                   (322,000)             (651,000)
        Increase in prepaid expenses                                                    (57,000)              (40,000)
        (Decrease) increase in accounts payable and accrued
          expenses                                                                     (577,000)              320,000
        Increase (decrease) in royalties payable                                        130,000               (44,000)
                                                                                    -----------           -----------
            Net cash provided by operating activities                                 2,346,000             1,504,000
                                                                                    -----------           -----------
Cash flows from investing activities:
    Purchases of fixed assets                                                           (58,000)             (111,000)
    Plant costs                                                                      (1,725,000)           (1,839,000)
                                                                                    -----------           -----------
            Net cash used in investing activities                                    (1,783,000)           (1,950,000)
                                                                                    -----------           -----------
Cash flows from financing activities:
    Net (payments on) proceeds from line of credit                                     (240,000)              882,000
    Payments on long term debt                                                         (364,000)             (400,000)
    Issuance of common stock                                                             45,000                  --
    Purchase of warrants                                                                 (9,000)                 --
    Purchase of treasury stock                                                             --                 (20,000)

            Net cash (used in) provided by financing activities                        (568,000)              462,000
                                                                                    -----------           -----------
            Net (decrease) increase in cash                                              (5,000)               16,000

Cash at beginning of year                                                                16,000                  --
                                                                                    -----------           -----------
Cash at end of year                                                                 $    11,000           $    16,000
                                                                                    ===========           ===========

Supplemental disclosure of cash flow information:
    Interest paid                                                                   $   303,000           $   452,000
                                                                                    ===========           ===========
    Income taxes paid                                                               $    89,000           $   445,000
                                                                                    ===========           ===========

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


                                       25



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


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

                             JULY 31, 2002 AND 2001
                             ----------------------




(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 fiction and 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 applies the provisions of 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


                                       26



     royalty  advances to expense in the period  during which the related  sales
     are recorded.  If it appears that an advance will exceed total royalties to
     be earned based upon estimated sales, such excess is immediately  expensed.
     Royalty  advances  to be earned out in excess of one year from the  balance
     sheet date are classified as non-current  assets.  Royalty advances at both
     July 31, 2002 and 2001 are presented net of royalty reserves of $150,000.

     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, 2002 and 2001 are presented net of accumulated  amortization of
     $12,819,000 and $11,019,000, respectively.

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

     Advertising  costs  are  expensed  in the  periods  in which  the costs are
     incurred,  except for those costs  related to direct  response  advertising
     through  catalog  mailings.  Catalog  costs  consisting  of  the  costs  of
     producing and distributing  catalogs are amortized over the period in which
     the  benefits  are  expected,  which  is  generally  less  than  one  year.
     Capitalized advertising costs included in prepaid expenses totaled $173,000
     and $97,000 at July 31, 2002 and 2001,  respectively.  Advertising  expense
     for the years  ended  July 31,  2002 and 2001 was  $966,000  and  $880,000,
     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 shorter 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 net
     assets  acquired  in  a  business  combination.   For  financial  reporting
     purposes,  goodwill  is  amortized  over 20 years  using the  straight-line
     method.  Accumulated  amortization  at July 31, 2002 and 2001 is $1,687,000
     and  $1,480,000,  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  other
     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 temporary  differences  between the financial
     statement  carrying  amounts


                                       27



     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.

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

     Basic  Earnings Per Share ("EPS") is computed as net income (loss)  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.  Stock options are  anti-dilutive for 2002
     therefore diluted EPS is the same as basic EPS. Included in diluted EPS for
     2001 are 186,899 stock options exercisable at $2.25.

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

     The  Company  has  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 conformity  with  accounting
     principles  generally accepted in the United States requires  management to
     make  estimates  and  assumptions  that  affect the  reported  amounts  and
     disclosures in the financial  statements.  Actual results could differ from
     those estimates.

    Recent Accounting Pronouncements-
    --------------------------------

     In June 2001, the FASB issued Statement of Financial  Accounting  Standards
     ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS 142 requires
     goodwill and certain  intangible  assets with indefinite useful lives to be
     subject to an annual review for impairment, and written down when impaired,
     rather than being  amortized as previous  standards  required.  SFAS 142 is
     effective  for fiscal  years  beginning  after  December 15, 2001 and will,
     therefore be effective  for the Company  during the first quarter of fiscal
     2003.  The Company is in the process of  retaining a third party  valuation
     specialist  to assist with its  assessment of the impact of SFAS 142 on the
     Company's  operating  results and  financial  condition.  An  impairment to
     goodwill,  if any, would be charged to the Company's accumulated deficit as
     a change in  accounting  principle  upon  adoption of SFAS 142. The Company
     does not believe that other recent  accounting  pronouncements  will have a
     material impact on the Company.


                                       28



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

     Fixed assets at July 31, 2002 and 2001 consist of the following:

                                                                        2002                2001
                                                                   -----------          -----------
       Office furniture and equipment                              $   198,000          $   198,000
       Computers                                                       714,000              662,000
       Telecommunication equipment                                      76,000               76,000
       Leasehold improvements                                           84,000               78,000
                                                                   -----------          -----------
                                                                     1,072,000            1,014,000

       Accumulated depreciation                                       (844,000)            (757,000)
                                                                   -----------          -----------
                                                                   $   228,000          $   257,000
                                                                   ===========          ===========

       Depreciation  expense  for the  years  ended  July 31,  2002 and 2001 was
       $87,000 and $90,000, 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, 2002, the
     Agreement  provided for borrowings up to $7,500,000 based upon the eligible
     value of the accounts receivable and inventory and provided for interest at
     the  bank's  prime  rate  (4.75 % and  6.75%  at July 31,  2002  and  2001,
     respectively). At July 31, 2002, the amount outstanding under the Agreement
     was  $4,325,000  and the eligible  inventory  and accounts  receivable  was
     $5,046,000.   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.

     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.  On July 31, 2002, the Company and
     People's  Bank  signed  the  Fifth  Amendment  to  the  Loan  and  Security
     Agreement.  This amendment set forth the terms and provisions  required for
     operations under the Simon & Schuster,  Inc. distribution agreement. As
     of July 31, 2002, the Company is not in compliance  with certain  covenants
     of the loan  agreement  with  People's  Bank,  as  amended  July 31,  2002.
     However,  the Company  has  obtained a waiver  from  People's  Bank for its
     noncompliance  with  certain  covenants.  Based  on the  Company's  current
     operating  plan  for  fiscal  2003 and the  further  resetting  of  certain
     covenants by People's  Bank, the Company  expects to be in compliance  with
     the bank's covenants throughout fiscal 2003.



                                       29



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

    The (benefit from) provision for income taxes consists of the follows:

                                                                2002                         2001
                                                             ---------                  ---------
     Current
          Federal                                            $(136,000)                 $ 352,000
          State                                                 30,000                     52,000
                                                             ---------                  ---------
                                                              (106,000)                   404,000
     Deferred                                                    --                      (241,000)
                                                             ---------                  ---------
     (Benefit from) provision for income taxes               $(106,000)                 $ 163,000
                                                             =========                  =========


     The Company  accounts for income taxes under SFAS No. 109,  "Accounting for
     Income Taxes." This statement  requires that deferred income tax assets and
     liabilities  reflect  the impact of  "temporary  differences"  between  the
     amount of assets and liabilities for financial  reporting purposes and such
     amounts as measured by tax laws and regulations. The significant components
     of the net deferred tax provision are as follows:

                                                                    2002            2001
                                                                 ---------       ---------
     Accounts receivable allowances                              $  14,000       $  74,000
     Inventory reserves                                            104,000          63,000
     Unicap                                                        (23,000)        (73,000)
     Plate and revision costs                                       17,000          84,000
     Pre-publication costs                                          27,000          31,000
     State income tax NOL                                          (22,000)         25,000
     Charitable contribution carryover                            (146,000)       (132,000)
     Other                                                          13,000         (76,000)
     Returns allowances                                            (22,000)        (69,000)
     Fixed assets                                                   (2,000)         56,000
     Goodwill amortization                                          27,000          27,000
     Adjustment for change in tax accounting method               (252,000)       (251,000)
     Valuation allowance                                           265,000            --
                                                                 ---------       ---------
                      Net deferred tax benefit                   $    --         $(241,000)
                                                                 =========       =========



                                       30



The approximate tax effect of each type of temporary  difference that gives rise
to deferred income tax assets (liabilities) is as follows:

                                                                          2002                2001
                                                                      -----------        -----------
Deferred tax assets:
    Accounts receivable allowances                                    $   175,000        $   189,000
    Inventory reserves                                                    179,000            283,000
    Unicap                                                                514,000            491,000
    Plate and revision costs                                                 --               17,000
    Pre-publication costs                                                 520,000            547,000
    State income tax NOL                                                   22,000               --
    Charitable contribution carryover                                     278,000            132,000
    Other accrued expenses and reserves                                    52,000             65,000
                                                                      -----------        -----------
                                                                        1,740,000          1,724,000
Less:  Valuation allowance                                               (975,000)          (710,000)
                                                                      -----------        -----------

                      Net deferred tax assets                             765,000          1,014,000
                                                                      -----------        -----------
Deferred tax liabilities:
    Returns allowances                                                   (198,000)          (220,000)
    Fixed assets                                                           (6,000)            (8,000)
    Goodwill amortization                                                (320,000)          (293,000)
    Adjustment for change in tax accounting method                           --             (252,000)
                                                                      -----------        -----------
                      Net deferred tax liabilities                       (524,000)          (773,000)
                                                                      -----------        -----------
                      Net deferred income taxes                       $   241,000        $   241,000
                                                                      ===========        ===========


In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some portion or the entire  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,  2002. A
valuation  allowance of $975,000 has been  established  at July 31, 2002 for the
remaining balance.

Reconciliation  between  actual tax expense and the amount  computed by applying
the statutory  United States federal income tax rate to net (loss) income are as
follows:

                                                            2002                 2001
                                                         ---------            --------
(Benefit from) provision for income taxes at the
   federal statutory rate                                $(292,000)           $104,000
                                                         ---------            --------
State and local income taxes, net of federal tax
   provision                                               (50,000)             20,000
Increase in valuation allowance                            265,000                --
Nondeductible expenses                                     (64,000)             10,000
Other                                                       35,000              29,000
                                                         ---------            --------
(Benefit from) provision for income taxes                $(106,000)           $163,000
                                                         =========            ========


                                       31



     At July 31,  2002,  for  state  tax  reporting  purposes  the  Company  had
     approximately  $275,000 of net operating loss carryforwards.  The state tax
     operating loss carryforwards will expire in 2022.

(6)  Stockholders Equity:
     --------------------

     Stock Option Plan-
     -----------------

     The Company has reserved 675,000 shares of common stock under its qualified
     and non-qualified 1994 Stock Option Plan ("Option Plan"), as amended, 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.

     The per share  weighted-average  fair value of stock options granted during
     fiscal 2002,  calculated in accordance  with SFAS No. 123, was $1.09 on the
     date of  grant  using  the  Black  Scholes  option-pricing  model  with the
     following weighted-average  assumptions:  fiscal 2002 - expected volatility
     48%, risk-free interest rate of 4.75% 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
     (loss) income would have changed to the pro forma amounts indicated below:

                                              2002                  2001
                                          -----------            -----------
    Net (loss) income
     As reported                          $  (728,000)           $   144,000
     Pro forma                               (790,000)               102,000
   Earnings  per share (basic)
     As reported                                 (.25)                   .05
     Pro forma                                   (.28)                   .04
  Earnings  per share (diluted)
     As reported                                 (.25)                   .05
     Pro forma                                   (.28)                   .03



                                       32



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

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

    Granted                                    217,000              2.67

    Exercised                                  (20,000)             2.25
    Forfeited                                 (130,000)             4.50
                                             -------------
Balance at July 31, 2002                       587,900              2.74
                                             =============

     At July 31, 2002 and 2001, the range of exercise  prices was $1.80 - $4.50.
     The weighted-average  remaining  contractual life of outstanding options at
     July 31, 2002 and 2001 was 4.7 and 4.2 years, respectively.

     At July 31, 2002 and 2001, the number of options  exercisable  were 334,000
     and 399,000, respectively, and the weighted-average exercise price of those
     options was $2.81 and $3.46, respectively.

     Warrants Redemption-
     -------------------

     The Company called 875,000 warrants with a redemption date of March 1, 2002
     at a  redemption  price  of $.01 per  warrant.  The  exercise  price of the
     warrants was $3.00 per share and no warrants were exercised.  Therefore the
     Company  reported a $9,000 equity  adjustment  in 2002 in  connection  with
     redemption of the warrants.

(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. Existing 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 profit sharing contribution.
     Such contribution, if any, shall be allocated to employees in proportion to
     each participant's contribution.  The Company did not make a profit sharing
     contribution to the Plan during the years ended July 31, 2002 and 2001. The
     Company does provide a 20% match of non-executive employee contributions to
     the Plan. This amounted to $29,000 and $11,000 for the years ended July 31,
     2002 and 2001, respectively.


                                       33



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

     The Company leases office facilities under operating  leases,  which expire
     at various  dates  through  2004.  Minimum  future  rental  payments  under
     non-cancelable operating leases having initial or remaining terms in excess
     of one year are as follows:


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

                    2003                         $ 175,000
                    2004                            84,000
                                                 ----------
                                                 $ 259,000



     Rent  expense for the years ended July 31, 2002 and 2001 was  $211,000  and
     $205,000, 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, 2004. 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, 2002 and 2001 are  $695,000  and  $429,000,
     respectively.

     In June 2002,  the Company  entered  into a  fulfillment  and  distribution
     agreement  with  Simon  &  Schuster,  Inc.  Among  other  things,  this
     agreement  has a term of three  years and  requires  the  Company  to pay a
     monthly  service fee based on net sales plus other direct costs. In return,
     Simon &  Schuster,  Inc.  performs all order entry,  customer  service,
     credit, collection, warehousing and shipping functions for the Company.

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

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

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

     Line of Credit-
     --------------

     The carrying amount of this financial instrument approximates fair value as
     the related interest rate fluctuates with market rates.



                                       34



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

     The Company's  financial  instruments that are exposed to concentrations of
     credit risk consist primarily of cash and accounts receivable.

     Cash-
     ----

     The Company places its cash deposits with high quality credit institutions.
     The Company has cash  balances on deposit with a bank at July 31, 2002 that
     exceeded federal depository insurance limits by $66,000.

     Accounts Receivable-
     -------------------

     The  Company  extends  credit to various  companies  in the retail and mass
     merchandising industry for the purchase of its inventory,  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 which have been within management's  expectations.  One customer
     accounted  for 10% and 11% of the  Company's  net sales for the years ended
     July 31, 2002 and 2001,  respectively.  Two customers accounted for 25% and
     29% of the Company's accounts receivable as of the year ended July 31, 2002
     and  2001  respectively.   The  distribution  agreement  with  Simon  &
     Schuster,  Inc. will serve to minimize this credit risk.  Effective June 1,
     2002,  Simon &  Schuster,  Inc. is responsible for extending credit and
     collecting the Company's accounts receivable.  Simon &  Schuster,  Inc.
     pays the Company the net sales amount less  contract  expenses 90 days from
     end of month of sale. This payment is 100% secured by a letter of credit.

(11) Contingencies:
     --------------

     The  Company is not aware of any  contingent  liabilities  with  respect to
     litigation and claims arising in the ordinary course of its business.

(12) Quarterly Financial Statements:
     -------------------------------

     The Company's former independent auditors, Arthur Andersen LLP, were not in
     a position  to review the  Company's  April 30, 2002  financial  statements
     included in the filing of that Form  10-QSB.  Therefore  the April 30, 2002
     filing was made on June 14, 2002  without  review of outside  auditors.  At
     that time the Audit  Committee of the Board of Directors had instructed the
     Chief  Financial  Officer  to begin a  selection  process  to  appoint  new
     auditors.  On August 5, 2002,  the Company  appointed  its new auditors who
     successfully  completed a review of the Company's  April 30, 2002 financial
     statements  included  in that Form  10-QSB in  accordance  with the  United
     States Securities and Exchange Commission's  Temporary Final Rule and Final
     Rule: "Requirements for Arthur Andersen LLP Auditing Clients."


                                       35



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

On August 2, 2002, the Millbrook  Press Inc. (the  "Company")  received a letter
from the United States Securities  Exchange Commission (the "SEC") which advised
that the SEC had received a letter from Arthur Andersen LLP ("Andersen") whereby
Andersen  had  notified  the SEC that it was  unable  to  perform  future  audit
services  for the Company  and, as a result,  Andersen's  relationship  with the
Company was effectively terminated.

The audit  reports of Andersen on the  financial  statements  of the Company for
each of the  fiscal  years  ended  July 31,  2001 and 2000 did not  contain  any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles.

During the  Company's two most recent  fiscal years and the  subsequent  interim
period  preceding the  resignation of Andersen on August 2, 2002,  there were no
disagreements  between  the Company  and  Andersen  on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements if not resolved to Andersen's satisfaction would
have caused them to make reference to the subject matter of the  disagreement in
connection with their reports.

During the fiscal  years ended July 31, 2001 and 2000 and during the fiscal year
ended July 31, 2002,  there were no  "reportable  events" as defined by Item 304
(a) (1) (v) of Regulation S-K.

The Company  requested that Andersen  furnish it with a letter  addressed to the
United  States  Securities  and Exchange  Commission  stating  whether or not it
agrees  with the  above  statements.  Because  Andersen  no longer  employs  the
engagement partner or manager, the Company is unable to provide this letter.

     The Company engaged DiSanto Bertoline &  Company,  P.C.  ("DiSanto") as
     its new principal independent accountants on August 5, 2002.

Neither the Company nor anyone on its behalf has  consulted  DiSanto  during the
Company's two most recent fiscal years, or any subsequent interim period,  prior
to the engagement of DiSanto.

The decision to engage DiSanto as independent public accountants was made by the
Board of  Directors of the Company  following  the  recommendation  of its Audit
Committee.


                                       36




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 2002 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 2002 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 AND
          RELATED STOCKHOLDERS MATTERS

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 2002 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 2002
Annual  Meeting of  Stockholders  to be filed with the  Securities  and Exchange
Commission within 120 days after the close of the fiscal year.



                                       37



ITEM 13. EXHIBITS 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.

 **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.

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


                                       38



     ***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 to Loan and Security  Agreement dated October
                 23, 2001 between People's Bank and the Company.

 *******10.16    Fifth  Amendment to Loan and Security  Agreement dated July 31,
                 2002 between People's Bank and the Company.

    *******23    Consent of DiSanto Bertoline & Company, P.C.

  *******99.1    Certification   of  the  Chief  Executive   Officer  and  Chief
                 Financial Officer under Section 906 of the Sarbanes-Oxley Act.

------------

   *      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 as an Exhibit to the Company's  Annual Report on Form 10-KSB for
          the year ended July 31, 2001

*******   Filed herewith

          (b)  Reports on Form 8-K
               -------------------

               None

                                       39



ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report,  the Company carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls  and  procedures.  Based  upon that  evaluation,  the Chief
Executive  Officer and Chief  Financial  Officer  concluded  that the  Company's
disclosure  controls and  procedures  are  effective  in timely  alerting him to
material  information  relating  to the  Company  required to be included in the
Company's  periodic  SEC  filings.  There  were no  significant  changes  in the
Company's internal controls or in other factors that could significantly  affect
these controls subsequent to the date of his evaluation.



                                       40



                                   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, 2002                    By: /s/ David Allen
                                               ----------------------------
                                                    David Allen
                                                    President and
                                                    Chief Executive 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                     President                  October 29, 2002
--------------------------
David Allen                         Chief Executive Officer
                                    Chief Financial Officer
                                    (Principal Executive
                                    Officer, Principal
                                    Financial Officer and
                                    Principal Accounting Officer).

/s/ Howard Graham                   Chairman of the Board      October 29, 2002
--------------------------
Howard Graham

/s/ Frank J. Farrell                Director                   October 29, 2002
--------------------------
Frank Farrell

/s/ Bruno A. Quinson                Director                   October 29, 2002
--------------------------
Bruno A. Quinson

/s/ Joseph Kanon                    Director                   October 29, 2002
--------------------------
Joseph Kanon

/s/ Hannah Stone                    Director                   October 29, 2002
--------------------------
Hannah Stone



                                       41





                            THE MILLBROOK PRESS INC.

                             a Delaware corporation

                      CERTIFICATION OF PRINCIPAL EXECUTIVE
                         AND PRINCIPAL FINANCIAL OFFICER


     I, DAVID ALLEN, certify that:

     (1) I have  reviewed  this annual  report on Form  10-KSB of THE  MILLBROOK
     PRESS INC, a Delaware corporation (the "registrant");


     (2) Based on my  knowledge,  this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;


     (3) Based on my knowledge,  the financial  statements,  and other financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;


     (4) The registrant's  other  certifying  officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15-d-14) for registrant and have:

          (a)  designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          (b)  evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and



                                       42



          (c)  presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;




     (5)  The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee of the  registrant's  board of directors  (or persons
          performing the equivalent functions):

          (a)  all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          (b)  any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     (6)  The  registrant's  other  certifying  officers and I have indicated in
          this annual report  whether or not there were  significant  changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

Date:     October 29, 2002


                                      By:  /s/ David Allen
                                           --------------------------------
                                           David Allen
                                           Principal Executive Officer and
                                           Principal Financial Officer`