MILLBROOK PRESS INC, 424A, 1996-11-08

MILLBROOK PRESS INC
424A, 1996-11-08
BOOKS: PUBLISHING OR PUBLISHING & PRINTING

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 8, 1996

PROSPECTUS

THE MILLBROOK PRESS INC.
[LOGO]

1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

All of the 1,500,000 shares of common stock ("Common Stock") and 1,500,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby
(collectively, "Securities") are being sold by The Millbrook Press Inc.
("Company"). Each Warrant entitles the holder to purchase one share of Common
Stock for $4.50 during the four-year period commencing one year from the date of
this Prospectus. The Company may redeem the Warrants once they become
exercisable at a price of $.01 per Warrant, at any time upon not less than 30
days prior written notice if the last sale price of the Common Stock has been at
least 155% of the then exercise price of the Warrant (initially $6.975) on 20 of
the 25 consecutive trading days ending on the third day prior to the date on
which notice is given. See "Description of Securities."

Prior to this Offering, there has been no public market for the Securities and
there can be no assurance that any such market will develop. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price of the Securities and the exercise price of the Warrants.
The Company has applied for quotation of the Common Stock and the Warrants on
the Nasdaq SmallCap Market under the symbols "MILB," and "MILBW," respectively.
------------------------

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AT PAGE 6 HEREOF AND "DILUTION" AT PAGE 13 HEREOF.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................... $5.00 $.50 $4.50
Per Warrant......................... $.10 $.01 $.09
Total(3)............................ $7,650,000 $765,000 $6,885,000
</TABLE>

(1) Does not include a 3% nonaccountable expense allowance which the Company has
agreed to pay to the Underwriter. The Company has also agreed to sell to the
Underwriter an option ("Underwriter's Purchase Option") to purchase 150,000
shares of Common Stock and/or 150,000 Warrants and to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended ("Securities Act"). See "Underwriting."

(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $229,500 ($263,925 if the
Underwriter's over-allotment option is exercised in full), estimated at
approximately $560,000.

(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 225,000 additional
shares of Common Stock and/or 225,000 Warrants on the same terms set forth
above, solely for the purpose of covering over-allotments, if any. If such
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$8,797,500, $879,750 and $7,917,750, respectively. See "Underwriting."

This Prospectus also relates to the offer and sale by certain persons ("Selling
Securityholders") of Warrants issued to the Selling Securityholders in
connection with the Company's August 1996 bridge financing ("Bridge Financing").
The Warrants offered by the Selling Securityholders are not part of this
underwritten Offering and the Company will not receive any of the proceeds from
the sale of such Warrants. Without the prior consent of the Underwriter, the
Selling Securityholders may not sell such Warrants for a period of one year from
the date of this Prospectus.

The Securities are being offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify this Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities will be made against payment therefor
at the offices of the Underwriter in New York City on or about ,
1996.

GKN SECURITIES

, 1996
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(A display of some of the Company's books)

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

This Prospectus includes references to trademarks of entities other than the
Company, which have reserved all rights with respect to their respective
trademarks.

2
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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT (I) A REVERSE STOCK SPLIT OF THE COMMON STOCK ON THE
BASIS OF .3976 SHARES OF COMMON STOCK FOR EACH SHARE OF COMMON STOCK ("REVERSE
STOCK SPLIT") EFFECTED IN AUGUST 1996 AND (II) THE CONVERSION OF ALL OUTSTANDING
SERIES A REDEEMABLE VOTING PREFERRED STOCK ("PREFERRED STOCK") AND ALL ACCRUED
AND UNPAID DIVIDENDS THEREON INTO 473,692 SHARES OF COMMON STOCK (POST-REVERSE
STOCK SPLIT), IN ACCORDANCE WITH THE COMPANY'S ARTICLES OF INCORPORATION
("PREFERRED STOCK CONVERSION"), UPON THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART. CERTAIN OF THE INFORMATION
CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING
INFORMATION UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND RELATED STRATEGY AND FINANCING, ARE FORWARD
LOOKING STATEMENTS. FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD LOOKING STATEMENTS, SEE
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."

THE COMPANY

The Company is a publisher of children's nonfiction books, in both hardcover
and paperback, for the school and public library market and the consumer market.
Since its inception, the Company has published more than 680 hardcover and 330
paperback books under its Millbrook and Copper Beech 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 have evolved from information-intensive school and library books to
include its current mix of highly graphic, consumer-oriented books. Therefore,
many of its books can be distributed to the school and public library market as
hardcover books while being simultaneously distributed to retail bookstores and
other specialty retail, direct sales and special market outlets as either
hardcover or paperback books. As a result, the Company is better able to fully
exploit a book's sales potential.

The evolution in the Company's products anticipated changes in the
book-publishing industry. In the early 1990's there were only marginal increases
in the funds allocated to book acquisition by schools and public libraries.
Conversely, the consumer market became a steady source of sales growing from
approximately $910 million in 1986 to an expected $2.6 billion in 1996. In
addition, paperbacks have become a significant factor in the classroom
marketplace as a supplemental teaching and learning tool. In 1995, the Company
began selling books in bookstores and other retail outlets with the introduction
of a high-quality line of consumer-oriented children's paperbacks under its
Copper Beech imprint.

In order to establish itself as a leading publisher of children's books for
the consumer market, the Company intends to: (i) enter new product areas, such
as preschool novelty books, books for beginning readers and early readers,
chapter books for young readers and popular reference children's books; (ii)
acquire companies or develop strategic partnerships that broaden its product
line and extend its distribution in consumer market channels; (iii) expand its
marketing capabilities in the consumer market by increasing its in-house sales
force and management; and (iv) develop books that can be exploited through
emerging distribution channels in the consumer market, including special sales
channels such as book clubs, book fairs, direct sales, catalogs, direct mail,
commercial on-line services and the Internet. The Company believes that the high
quality of its books, its emphasis on publishing books for multiple markets and
its expanded distribution capabilities make it well positioned to increase its
books sales to the consumer market while at the same time increasing its
established sales base in the school and public library market.

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THE OFFERING

<TABLE>
<S> <C> <C>
1,500,000 shares of Common Stock and
1,500,000 Warrants. Each Warrant entitles the
registered holder thereof to purchase one
share of Common Stock at a price of $4.50 per
share during the four-year period commencing
one year from the date of this Prospectus.
The Company may redeem the Warrants once they
become exercisable at a price of $.01 per
Warrant, at any time upon not less than 30
days prior written notice if the last sale
price of the Common Stock has been 155% of
the then exercise price of the Warrants
(initially $6.975) on 20 of the 25
consecutive trading days ending on the third
day prior to the day on which notice is
Securities Offered............................ given. See "Description of Securities."

Common Stock Outstanding Prior to the
Offering.................................... 1,500,000 shares

Common Stock to be Outstanding After the
Offering.................................... 3,000,000 shares

Proposed Nasdaq Symbols....................... Common Stock: MILB

Warrants: MILBW
</TABLE>

USE OF PROCEEDS

The Company intends to apply the net proceeds of this Offering approximately
as follows: (i) $2.5 million for product development; (ii) $1.8 million to repay
in full the unsecured promissory notes ("Bridge Notes") of the Company issued in
the Bridge Financing; (iii) $750,000 for the enhancement of marketing
capabilities; (iv) $400,000 for accrued development, manufacturing and royalty
expenses to an affiliate of a principal stockholder; and (v) $800,000 for
working capital and general corporate purposes. See "Use of Proceeds" and
"Certain Transactions."

RISK FACTORS

The Securities offered hereby involve a high degree of risk, including
without limitation: history of losses; need for market acceptance of products;
dependence on key accounts; possible need for additional financing; potential
adverse impact of returns; seasonal business and quarterly fluctuations;
competition; and dependence on government funding. See "Risk Factors."

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SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
financial statements of the Company appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
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<S> <C> <C>
1995 1996
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STATEMENT OF OPERATIONS DATA:
Actual:
Net sales............................................................................ $ 6,866,000 $ 9,940,000
Operating loss....................................................................... (616,000) (218,000)
Net loss............................................................................. (806,000) (463,000)
Preferred dividend accrued........................................................... (589,000) (656,000)
Net loss available to common stockholders............................................ $(1,395,000) $(1,119,000)
Net loss per share after preferred dividend requirements (primary and fully
diluted)........................................................................... $ (1.60) $ (1.09)
Weighted average shares.............................................................. 872,186 1,026,308
Pro forma(1):
Net loss available to common stockholders............................................ $ (806,000) $ (463,000)
Net loss per share (primary and fully diluted)....................................... $ (.60) $ (.31)
Weighted average shares.............................................................. 1,345,878 1,500,000
</TABLE>

<TABLE>
<CAPTION>
JULY 31, 1996
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<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------------ ------------- --------------
BALANCE SHEET DATA:
Total assets....................................................... $ 12,574,000 $13,824,000 $ 17,785,000
Working capital.................................................... 1,318,000 2,354,000 6,929,000
Total liabilities.................................................. 5,533,000 6,760,000 4,633,000
Stockholders' equity............................................... $ 7,041,000 $ 7,064,000 $ 13,152,000
</TABLE>

- ------------------------
(1) Gives effect to the conversion of the Company's Preferred Stock and all
accrued and unpaid dividends thereon which will convert into 473,692 shares
of Common Stock in accordance with the Preferred Stock Conversion after
giving effect to the Reverse Stock Split.
(2) Gives effect to: (i) the issuance of $1,750,000 of Bridge Notes, net of a
discount of $23,000 relating to the valuation of the warrants ("Bridge
Warrants") issued in connection with the Bridge Financing, (ii) the payment
of $214,000 of financing costs in connection with the Bridge Financings and
(iii) the repayment of $500,000 of principal amount unsecured promissory
notes ("Prebridge Notes") issued in connection with a financing consummated
in April 1996 ("Prebridge Financing").
(3) Reflects (i) the receipt of the net proceeds of approximately $6,325,000
from the sale of the Securities offered hereby, (ii) the repayment of the
Bridge Notes of $1,750,000 and the related effect of writing off the
$214,000 in financing costs relating to the Bridge Financing and the
discount on the Bridge Notes of $23,000, and (iii) the repayment of $400,000
in manufacturing, development and royalty expenses under the Company's joint
venture with Aladdin.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO THE EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION OR THE
UNDERWRITER'S PURCHASE OPTION OR TO THE EXERCISE OF THE WARRANTS OFFERED HEREBY,
AND DOES NOT INCLUDE: (I) 475,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UPON EXERCISE OF STOCK OPTIONS WHICH MAY BE GRANTED UNDER THE COMPANY'S 1994
STOCK OPTION PLAN ("STOCK OPTION PLAN"), OF WHICH OPTIONS TO PURCHASE 390,000
SHARES OF COMMON STOCK HAVE BEEN GRANTED TO DATE, AND (II) 875,000 SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE UPON THE EXERCISE OF THE WARRANTS ISSUED IN
EXCHANGE FOR THE BRIDGE WARRANTS ISSUED IN THE BRIDGE FINANCING. SEE
"MANAGEMENT--EXECUTIVE COMPENSATION" AND "--STOCK OPTION PLAN," "PRINCIPAL
STOCKHOLDERS," "CERTAIN TRANSACTIONS" AND "DESCRIPTION OF SECURITIES--WARRANTS."

5
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THE COMPANY

The Company, incorporated in Delaware in February 1994, was founded by
Howard Graham, Frank J. Farrell and Jean E. Reynolds. The Company was the
successor to The Millbrook Press Inc., incorporated in 1989, whose financial
support was provided by Group de la Cite International ("GLC"), a French
publishing conglomerate. From 1989 until February 1994, The Millbrook Press Inc.
was a wholly owned subsidiary of Antia Publishing Company, a Delaware
corporation, which in turn was a wholly owned subsidiary of GLC. In February
1994, the founders effected a management buyout by forming the Company, which
purchased substantially all of the assets of The Millbrook Press Inc. Unless
otherwise indicated, references to the Company also includes its predecessor.
The Company and its executive offices are located at 2 Old New Milford Road,
Brookfield, Connecticut 06804, its telephone number is (203) 740-2220 and its
Worldwide Web site address is www.neca.com/mall/millbrook.

RISK FACTORS

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH THE OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS.

HISTORY OF LOSSES. The Company has incurred significant losses since the
management buyout in February 1994. For the fiscal years ended July 31, 1995 and
July 31, 1996, the Company had net losses of $806,000 and $463,000,
respectively. The ability of the Company to achieve profitability in the future
or, if achieved, to sustain profitability, will depend in part upon the
successful and timely introduction of new products, the successful marketing of
its existing products and the Company's ability to collect trade receivables in
a timely manner. There can be no assurance that the Company will be able to
sustain net sales in the future or achieve profitability irrespective of the
level of net sales. The Company will incur additional marketing and
administrative expenses in 1997 and expenses relating to one-time charges in the
fiscal quarter in which this Offering occurs, for financing costs relating to
the Bridge Financing and the discount on the Bridge Notes, which the Company
anticipates could result in a net loss for the fiscal year ending July 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."

NEED FOR MARKET ACCEPTANCE OF PRODUCTS. The nature of the publishing
industry is that net sales derived from more successful books will be used to
cover the costs of development and production of less successful books. While
the Company experienced an approximately 45% increase in net sales from the
fiscal year ended July 31, 1995, to the fiscal year ended July 31, 1996, there
can be no assurance that this growth will continue. The Company's continued
success depends on the timely introduction of successful new books and sequels
or updates to existing books to replace declining net sales from older books.
Although the Company intends to make substantial investments in product
development each year and is continually seeking new product opportunities,
there can be no assurance that any of the Company's new books will achieve
market acceptance or that, if accepted, such acceptance will be sustained for a
period long enough to recoup costs or realize profits. If market acceptance is
not sustained, the Company may be required to write-down unsold excess inventory
and/or accept substantial product returns to maintain access to its distribution
channels. See "Business--Company Strategy," "--Product Development" and "--
Competition."

DEPENDENCE ON KEY ACCOUNTS. Approximately 66% of the Company's sales in the
school and public library market in the fiscal year ended July 31, 1996 (or 45%
of the Company's net sales) were from wholesale accounts. One such wholesale
account, Baker & Taylor, accounted for approximately 37% of total wholesale
sales attributable to the Company's school and public library business in the
fiscal year ended July 31, 1996 (or 17% of the Company's net sales).
Approximately 31% of the Company's sales in the consumer market in the fiscal
year ended July 31, 1996 (or 9% of the Company's net sales) were from wholesale
accounts. One such wholesale account, Ingram Book Company ("Ingram"), accounted
for

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approximately 56% of total wholesale sales attributable to the Company's
consumer business in the fiscal year ended July 31, 1996 (or 5% of the Company's
net sales). The Company expects to continue to depend on a relatively small
number of wholesalers for a significant percentage of its sales, particularly
since a relatively small number of wholesalers in the publishing industry
account for a significant portion of wholesale sales. The Company has no
contracts with any of such wholesalers and significant reductions in sales to
any one or more of the Company's largest wholesalers would have a material
adverse effect on the Company's results of operations. See "Business--Marketing
and Distribution."

POSSIBLE NEED FOR ADDITIONAL FINANCING. Management believes that the net
proceeds of this Offering, together with the Company's existing resources and
cash generated from its operations, if any, will be adequate for the Company's
cash requirements through approximately July 31, 1998. However, there can be no
assurance that the Company's working capital requirements during this period
will not exceed its available resources or that these funds will be sufficient
to meet the Company's longer-term cash requirements. Accordingly, either before
or after July 31, 1998, the Company may seek additional funds from borrowings or
through debt or equity financings. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, if at all, when
required by the Company. Any inability by the Company to obtain additional
financing, if required, could have a material adverse effect on the financial
condition and results of operations of the Company. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

POTENTIAL ADVERSE IMPACT OF RETURNS. The practice in the publishing
industry is to permit customers, including wholesalers and retailers, to return
merchandise. The Company gives credit for books that are returned and
establishes reserves as a deduction from gross sales for returns. Historically,
returns have been approximately 8% of the Company's gross sales to school and
public library wholesalers. For the fiscal year ended July 31, 1996, consumer
sales returns were approximately 17% of gross consumer sales. The rate of return
can have a significant impact on quarterly results since certain wholesalers
have in the past returned a large quantity of products at one time irrespective
of marketplace demand for such products, rather than spreading out the returns
during the course of the year. In both the school and public library and
consumer markets, the Company now offers a preferential discount for
non-returnability, an option being taken by an increasing number of customers.
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 these
historical levels or that the actual returns will not exceed the amount of
reserves in the future. In the event that the amount of reserves proves to be
inadequate, the Company's results of operation and financial condition will be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SEASONAL BUSINESS; QUARTERLY FLUCTUATIONS. A substantial portion of the
Company's business is highly seasonal, causing significant variations in
operating results from quarter to quarter. In the fiscal year ended July 31,
1996, 69% of total net sales were derived from the school and public library
market. In the school and public library market, net sales typically tend to be
lowest in the second calendar quarter and highest in the third calendar quarter,
as schools purchase heavily in anticipation of opening in September. In the
fiscal year ended July 31, 1996, 29% of total net sales came from the consumer
market. The consumer market also tends to be highly seasonal and, given the
importance of holiday gift sales, a large proportion of net sales can occur in
the third quarter in anticipation of the holiday gift season. The Company can
exercise very little control over the timing of customer orders, particularly
those of wholesalers; thus orders anticipated in the second calendar quarter,
for example, may fall into the third calendar quarter, thereby affecting both
quarters' results. In addition, even when customer orders are placed, such
orders generally are cancelable at any time without penalty. Due to the long
product development cycle of books (nine to 18 months), the Company generally
must enter into product development commitments prior to having firm orders. In
any quarter where sales fall below the Company's expectations, the Company's
financial results will be negatively impacted because expenses based on those
expectations have already been

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incurred in advance of actual receipt of orders. As a result, there can be no
assurance that the Company can maintain sufficient flexibility with respect to
its working capital needs and its ability to manufacture products to be able to
minimize the adverse effects of an unanticipated shortfall in or increase in
demand for its products. Failure to predict accurately and respond to consumer
demand may cause the Company to produce excess inventory which could result in
write-offs. Conversely, if a product achieves greater success than anticipated,
the Company may not have sufficient inventory to meet customer demand, thereby
losing sales. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

COMPETITION. Children's book publishing in the school and public library
market and in the consumer market is fragmented and highly competitive. There
are many publishers in the school and public library market who publish
materials similar to the Company's product offerings. The Company also competes
with a large number of other publishers for retail shelf space in large
bookstore chains. A number of these competitors have considerably greater
financial and marketing resources than the Company. 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. Increased competition may result in the loss
of school and public library accounts, loss of shelf space for the Company's
books at retail stores and significant price competition, any of which could
adversely affect the Company's operating results. See "Business--Industry
Background" and "--Competition."

DEPENDENCE ON GOVERNMENT FUNDING. The majority of the school and public
library funding is dependent on government funding from federal, state and local
authorities. Budget deficits affecting these three levels of government have
limited the availability of funding for school libraries and educational
programs. The school library market is especially affected by budget cutbacks as
library expenditures and needs are typically considered less important than the
expenditures and needs of the classroom. Continued restraints in the future on
federal, state and local support for educational funding could have an adverse
effect on the Company's financial condition and results of operations. See
"Business--Industry Background."

DEPENDENCE ON QUALIFIED PERSONNEL; DEPENDENCE ON MANAGEMENT. The ability to
attract and retain highly competent executives, professionals, sales personnel
and other employees is critical to the ongoing success of the Company. A stable
and skilled work force is essential to establishing and maintaining
relationships with authors, illustrators, vendors and customers, and such
relationships are critical to the Company's long-term growth. The Company has
not experienced any difficulties in attracting and retaining qualified
personnel, although there can be no assurance that it will not encounter such
problems in the future. In particular, the Company's operations are dependent on
the efforts of Jeffrey Conrad (the newly appointed Chief Executive Officer and
President), Jean E. Reynolds (Senior Vice President--Publisher), Frank J.
Farrell (Vice President and Secretary) and Howard Graham (Vice President). The
Company has employment agreements with Mr. Conrad and Ms. Reynolds which expire
in October 1999 and December 1998, respectively. The Company has consulting
agreements with Mr. Farrell and Mr. Graham, both of which expire in December
1998. The Company has obtained a "key person" insurance policy on the life of
Mr. Conrad in the amount of $1,000,000, under which the Company is the
beneficiary. The loss of the services of any one of the above named persons
could have a material adverse effect on the Company. See "Management."

DEPENDENCE ON CO-PUBLISHING RIGHTS/RELATIONSHIPS. The Company sells books
developed by its own editorial staff and authors, books fully developed by other
publishers and purchased by Millbrook, as well as books co-developed by
Millbrook and other publishers as a way of spreading production costs and risks.
Such multiple sourcing utilizes a broad band of creative talent to generate book
concepts through finished books. Approximately 20% of the Company's net sales in
the fiscal year ended July 31, 1996, were derived from products sourced from
outside publishers and packagers. Competition for these arrangements is
substantial and the Company competes directly with larger companies having
greater financial and

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marketing resources. Although the Company has been successful in developing such
relationships in the past, there can be no assurance that it will continue to
enjoy such success in the future. See "Business-- Company Strategy" and
"--Product Development."

DEPENDENCE ON AUTHORS, ILLUSTRATORS. The ability to attract successful and
highly qualified authors and illustrators is critical to the ongoing success of
the Company. Competition for this type of resource is intense and authors and
illustrators have many options in terms of publisher affiliation. The Company
has been successful in developing long-term relationships with a number of
excellent authors and illustrators in the past, but there can be no assurance
that the Company can continue to retain superior-quality authors and
illustrators in the future. See "Business--Company Strategy" and "--Product
Development."

DEPENDENCE ON THIRD PARTY MANUFACTURERS; ABILITY TO OFFSET MANUFACTURING
COSTS. The Company's books are printed and bound by third-party manufacturers
who pass on certain costs, including paper costs, to the Company. The Company
requires substantial amounts of high-quality paper to manufacture its products,
and in periods of short supply, competition for paper can be substantial,
increasing the cost of manufacturing. To cover such costs, the Company has been
successful in raising prices of its books in the past, but there can be no
assurance that the Company will be able to raise prices in the future.
Management believes that current arrangements for the manufacture of the
Company's books are satisfactory for the Company's anticipated requirements.
Nevertheless, there can be no assurance that in the future these third parties'
manufacturing capacities will be sufficient to satisfy the Company's
requirements, that interruptions or delays in manufacturing will not adversely
affect the Company's operations, or that alternative manufacturing sources will
be available to the Company on commercially reasonable terms or at all. In
particular, due to the short-run nature of the Company's manufacturing needs,
the Company, is restricted to a select list of specialty book manufacturers.
During fiscal year 1996, Worzalla Publishing, Inc. ("Worzalla") and Aladdin,
Ltd. ("Aladdin") provided approximately 36% and 31% of the Company's printing
and bindings needs, respectively. The Company has no contract with Worzalla and
while the Company believes that other specialty book manufacturers would be
available, if necessary, the inability of the Company to obtain printing for its
books at favorable prices, or at all, could have a material adverse effect on
the Company's results of operations. See "Business--Manufacturing and Shipping."

SIGNIFICANT PORTION OF PROCEEDS USED TO SATISFY INDEBTEDNESS; BENEFIT TO
AFFILIATES; BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $1.8
million, or 29% of the net proceeds received by the Company from this Offering,
will be used to repay the Bridge Notes and accrued interest, of which
approximately $513,000 will be repaid to entities which are 5% stockholders of
the Company and affiliated with certain directors of the Company, and
approximately $400,000, or 6% of the net proceeds of the Offering, will be used
to satisfy payables and accrued product development expenses in connection with
the Company's joint venture with Aladdin, an affiliate of an entity that is a
principal stockholder of the Company, under the terms of its joint venture with
the Company. In addition, approximately $800,000, or 13% of the net proceeds of
the Offering has been allocated to working capital and general corporate
purposes. The Company will have broad discretion regarding how and when such
proceeds will be applied and will use a portion of such proceeds to pay
salaries, including salaries of its executive officers. See "Use of Proceeds"
and "Certain Transactions."

DEPENDENCE ON CREDIT FACILITY. The Company entered into a Loan and Security
Agreement with People's Bank in December 1995 ("Loan and Security Agreement").
Under the terms of the Loan and Security Agreement, People's Bank has taken a
first-priority security interest in substantially all of the Company's assets.
Although the Company has not been in default under its Loan and Security
Agreement, in anticipation of the Bridge Financing and this Offering and in
order to continue to comply with certain covenants of the Loan and Security
Agreement, the Company obtained from People's Bank a waiver of certain financial
covenants in the Loan and Security Agreement until December 31, 1996. In the
event that the Company is in default under the Loan and Security Agreement in
the future or is unable to repay or

9
<PAGE>
refinance such loan upon maturity, People's Bank could foreclose its lien which
would have a material adverse effect on the Company. As of July 31, 1996, and as
of the date of this Prospectus, the Company had borrowings outstanding of
approximately $2.7 million under the Loan and Security Agreement, which is the
maximum credit line available under the Loan and Security Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

MANAGEMENT OF GROWTH. The Company has experienced significant growth in
recent years, and this growth has placed significant demands on the Company's
management, operational and financial resources. In addition, the Company has
recently hired a new Chief Executive Officer and President, Jeffrey Conrad, and
will be appointing a new Chief Financial Officer. There can be no assurance that
the Company's new management will be successfully integrated into the business
of the Company or if the Company continues to grow, that management will be
effective in attracting and retaining additional qualified personnel, expanding
the Company's physical facilities, integrating acquired businesses or otherwise
managing growth. If the Company is unable to manage growth effectively, the
Company's business, financial condition and operating results could be
materially adversely affected. See "Business" and "Management."

CONTROL BY CURRENT STOCKHOLDERS, DIRECTORS AND OFFICERS. The Company's
current principal stockholders, directors and officers, and certain of their
affiliates, will beneficially own approximately 45% of the outstanding Common
Stock immediately after this Offering and will have significant influence over
the outcome of all matters submitted to the stockholders for approval, including
the election of directors of the Company, thereby enabling such current
principal stockholders, directors and officers, and their affiliates to control
all major decisions of the Company. Furthermore, such concentration of ownership
may have the effect of preventing a change in control of the Company. See
"Principal Stockholders" and "Description of Securities."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Securities offered
hereby will incur an immediate and substantial dilution of approximately 35% of
their investment in the Common Stock because the pro forma net tangible book
value of the Company's Common Stock after this Offering will be approximately
$3.29 per share as compared with the initial public offering price of $5.00 per
share of Common Stock and $.10 per Warrant. See "Dilution."

NO PRIOR MARKET; POTENTIAL LOSS OF ACTIVE TRADING MARKET; ARBITRARY OFFERING
PRICE; POSSIBLE VOLATILITY OF STOCK PRICE. There has been no prior market for
the Company's Common Stock or Warrants, and there can be no assurance that a
public market for the Common Stock or the Warrants will develop or be sustained
after the Offering. The Company's Common Stock and Warrants have been approved
for trading on the Nasdaq SmallCap Market ("Nasdaq") although there can be no
assurance that an active trading market in the Securities will develop or be
maintained. To continue to be listed on Nasdaq after the Offering, the Company
must satisfy certain maintenance criteria. The failure to meet these maintenance
criteria in the future may result in the Common Stock or Warrants being
ineligible for quotations on Nasdaq and trading, if any, of the Common Stock and
the Warrants would thereafter be conducted on the OTC Bulletin Board. As a
result of such ineligibility for quotations, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of the Common Stock or the Warrants. The public offering prices of the
Securities and the exercise price and other terms of the Warrants being offered
hereby were established by negotiation between the Company and the Underwriter
and may not be indicative of prices that will prevail in the trading market. In
the absence of an active trading market, purchasers of the Common Stock or the
Warrants may experience substantial difficulty in selling their securities. The
trading price of the Company's Common Stock and Warrants is expected to be
subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts' earnings estimates, general conditions
in the publishing industry and other factors. In addition, the stock market is

10
<PAGE>
subject to price and volume fluctuations that affect the market prices for
companies and that are often unrelated to operating performance. See
"Description of Securities" and "Underwriting."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Company may redeem
the Warrants once they become exercisable, at a price of $.01 per Warrant, at
any time upon not less than 30 days prior written notice if the last sale price
of Common Stock has been at least 155% of the then-exercise price of the
Warrants (initially $6.975) on 20 of the 25 consecutive trading days ending on
the third day prior to the date on which notice is given. Notice of redemption
of the Warrants could force the holders to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, to
sell the Warrants at the current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price which would be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Warrants."

NO DIVIDENDS. The Company has never paid cash dividends on its Common
Stock. The Company intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from an investment in the Common Stock should not purchase any of the
Securities offered hereby. In addition, the Loan and Security Agreement limits
the Company's ability to pay dividends without the lender's consent. See
"Dividend Policy."

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock, and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
and intends to file and keep current a prospectus which will permit the purchase
and sale of the Common Stock underlying the Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to seek to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur. The Warrants may be deprived of any
value and the market for the Warrants may be limited if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or is exempt from
qualification in the jurisdictions in which the holders of the Warrants reside.
See "Description of Securities--Warrants."

WARRANT EXERCISE PRICE AND EFFECT ON TRADING PRICE OF COMMON STOCK. The
Warrants being offered hereby have an exercise price below the initial offering
price of the Common Stock. This makes it likely that a substantial number of the
Warrants may be exercised in the future. Such exercise would be dilutive to the
net tangible book value of the Common Stock being offered hereby. In addition,
purchasers in the public offering may be willing to sell their Common Stock into
the public market at prices less than the initial offering price because of
gains in the market price of or realized on the sale or exercise of their
Warrants. Such sales could adversely affect the public market price of the
Common Stock.

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Immediately after this
Offering, there will be outstanding stock options pursuant to the Stock Option
Plan to purchase an aggregate of 390,000 shares of Common Stock at a per-share
exercise price equal to the Offering Price of the Common Stock. In addition,
there will be outstanding 2,375,000 Warrants, including 875,000 Warrants issued
in exchange for the Bridge Warrants. The exercise of any of such outstanding
stock options and Warrants, and the Underwriter's Purchase Option (and the
Warrants included therein) will dilute the percentage ownership of the Company's
stockholders, and any sales in the public market of Common Stock underlying such
stock options, Warrants and the Underwriter's Purchase Option (and the Warrants
included therein) may adversely affect prevailing market prices for the Common
Stock. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected, since the holders of such
outstanding securities can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those

11
<PAGE>
provided in such stock options, Warrants and the Underwriter's Purchase Option.
In addition, the Company has granted certain demand and piggy-back registration
rights to the Underwriter with respect to the securities issuable upon exercise
of the Underwriter's Purchase Option. See "Management--Stock Option Plan,"
"Certain Transactions," "Description of Securities" and "Underwriting."

FUTURE SALES OF COMMON STOCK. Sales of the Company's Common Stock in the
public market after this Offering by existing stockholders could adversely
affect the market price of the Common Stock or the Warrants. See "Shares
Eligible for Future Sale."

ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS; Pursuant to its
Certificate of Incorporation, as amended, the Company has an authorized class of
1,000,000 shares of preferred stock which may be issued by the Board of
Directors on such terms and with such rights, preferences and designations as
the Board may determine without any vote of the stockholders. Issuance of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company. Issuance of additional shares of Common Stock could
result in the dilution of the voting power of the Common Stock purchased in this
Offering. In addition, certain "anti-takeover" provisions of the Delaware
General Corporation Law, among other things, may restrict the ability of the
stockholders to expect a merger or business combination or to obtain control of
the Company. See "Description of Securities--Preferred Stock."

RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS. This Prospectus contains
certain forward looking statements within the meaning of Section 27A of the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), which are intended to be covered by the safe harbors
created thereby. Investors are cautioned that all forward looking statements
involve risks and uncertainty, including without limitation, the ability of the
Company to implement its strategy and identify new market and product
opportunities, product development costs, future return rates of the Company's
products, the dependence of the Company on certain customers and manufacturers,
as well as general market conditions, competition and pricing. 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 Prospectus 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.

12
<PAGE>
DILUTION

The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock after
this Offering constitutes the dilution per share of Common Stock to investors in
this Offering. Net tangible book value per share is determined by dividing the
net tangible book value (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock. Pro forma net tangible book value
per share at July 31, 1996, in the following discussion and tables gives effect
to the Bridge Financing as if it occurred as of July 31, 1996. In addition, the
following discussion and tables allocate no value to the exercise of the
Warrants.

As of July 31, 1996, the Company had a pro forma net tangible book value of
$3,558,000, or approximately $2.37 per share of Common Stock (based on 1,500,000
shares of Common Stock outstanding at July 31, 1996). After giving effect to the
sale of the Securities offered hereby (less underwriting discounts and estimated
expenses of this Offering) and the application of the net proceeds therefrom,
the pro forma net tangible book value at that date would have been $9,860,000,
or approximately $3.29 per share. This represents an immediate increase in pro
forma net tangible book value of approximately $.92 per share to existing
stockholders and an immediate dilution of approximately $1.81 per share, or
approximately 35%, to investors in this Offering.

The following table illustrates the per share dilution without giving effect
to results of operations of the Company subsequent to July 31, 1996.

<TABLE>
<S> <C> <C>
Public offering price of the Securities....................... $ 5.10
Pro forma net tangible book value before Offering..... $ 2.37
Increase attributable to new investors................ .92
---------
Pro forma net tangible book value after Offering.............. 3.29
---------
Dilution to new investors..................................... $ 1.81
---------
---------
</TABLE>

The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid and the average price per share paid by existing stockholders and by
investors pursuant to this Offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................... 1,500,000 50% $ 10,191,000 57% $ 6.79
Investors in this Offering.......................... 1,500,000 50 7,650,000 43 $ 5.10
---------- --- ------------- ---
---------- --- ------------- ---
Total....................................... 3,000,000 100% $ 17,841,000 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>

13
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Securities offered
hereby are estimated to be approximately $6.3 million (approximately $7.4
million if the Underwriter's over-allotment option is exercised in full). The
Company intends to apply the net proceeds approximately as follows:

<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ----------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Product Development.................................................... $ 2,550,000 40.5%
Repayment of Bridge Notes.............................................. 1,800,000 28.6
Marketing Enhancements................................................. 750,000 11.9
Payable to an Affiliate................................................ 400,000 6.3
Working Capital and General Corporate Purposes......................... 800,000 12.7
------------ -----
Total.............................................................. $ 6,300,000 100.0%
------------ -----
</TABLE>

Approximately $2,550,000 of the net proceeds of this Offering will be
allocated to product development, consisting of expanding the Company's product
lines in the consumer market through publishing preschool novelty books, books
for beginning readers and early readers, chapter books for young readers and
popular children's reference books. See "Business--Company Strategy."

Approximately $1,800,000 of the net proceeds of this Offering will be used
to repay the Bridge Notes issued in connection with the Bridge Financing
consummated in August 1996. The Bridge Notes consist of 17 1/2 notes in the
aggregate principal amount of $1.75 million, bearing interest at the rate of 10%
per annum through November 30, 1996 and at a rate of 15% per annum thereafter
and payable upon the consummation of this Offering. If the Offering is
consummated in December 1996, the interest to be paid on the Bridge Notes will
be approximately $44,600. Approximately $513,000 of the principal and interest
to be repaid on the Bridge Notes is held by 5% stockholders and entities
affiliated with directors of the Company. The net proceeds from the sale of the
Bridge Notes have been used primarily for working capital purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Approximately $750,000 of the net proceeds of this Offering will be
allocated to marketing enhancements including (i) attracting and hiring
marketing management personnel to direct and focus the Company's marketing
efforts, (ii) increasing the use of direct mail, expanding the circulation of
catalogs and extending advertising programs, (iii) increasing the in-house sales
force in the consumer market and (iv) expanding the Company's telemarketing
programs. See "Business--Company Strategy."

Approximately $400,000 of the net proceeds of this Offering will be used to
repay the accrued development, manufacturing and royalty expenses under its
joint venture with Aladdin, an affiliate of Archon Press, Inc., a principal
stockholder of the Company. See "Certain Transactions."

The balance of the net proceeds of this Offering will be allocated to
working capital and general corporate purposes, including, among other things,
additional inventory and increases in accounts receivable, payment of general
corporate expenses (including the costs of being a public company), salaries of
additional financial and management personnel, salaries of executive officers,
and the costs of possible license or acquisition of fully developed products or
businesses complementary to the Company's operations (although the Company is
not currently negotiating to acquire any business and has no commitments,
understandings or arrangements with respect to any such acquisition). If the
Underwriter exercises the over-allotment option in full, the Company will
realize additional net proceeds of approximately $1,100,000, which will also be
added to the Company's working capital.

Based on its current operating plan, the Company anticipates that the
proceeds of the Offering, together with existing resources and cash generated
from operations, if any, should be sufficient to satisfy

14
<PAGE>
the Company's contemplated working capital requirements through July 31, 1998.
There can be no assurance, however, that the Company's working capital
requirements during this period will not exceed its available resources or that
these funds will be sufficient to meet the Company's longer term cash
requirements for operations. In the event the Company's plans or assumptions
change or prove to be inaccurate, or the proceeds of the Offering together with
cash generated from future revenues, if any, prove to be insufficient to fund
operations (due to unanticipated expenses, problems or other factors), the
Company may find it necessary and/or advisable to reallocate some of the
proceeds within the above-described categories or to use portions thereof for
other purposes and therefore management will have significant discretion
regarding how and when such proceeds will be applied.

Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short-term certificates of
deposit, money market funds or other short-term interest-bearing investments.

DIVIDEND POLICY

The Company has never paid any cash dividends on the Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock for the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. In addition, the Loan and Security Agreement limits the Company's
ability to pay dividends without the lender's consent.

15
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company: (i) at July 31, 1996; (ii) pro forma at July 31, 1996 to give effect to
the Preferred Stock Conversion and the Bridge Financing; and (iii) pro forma, as
adjusted to give effect to the sale of the 1,500,000 shares of Common Stock and
1,500,000 Warrants offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
JULY 31, 1996
-------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------------ ------------- --------------
<S> <C> <C> <C>
Short-term debt...................................................... $ 2,742,000 $ 2,742,000 $ 2,742,000
Long-term obligations................................................ 500,000 1,727,000 --
Stockholders' equity:
12% Series A Voting Cumulative Preferred Stock, par value 0.01 per
share; 10,000 shares authorized, 4,700 shares issued and
outstanding; 1,000,000 shares authorized, no shares issued and
outstanding pro forma and pro forma, as adjusted................. 6,190,000(1) -- --
Common Stock, $.01 par value; 5,000,000 shares authorized;
12,000,000 shares authorized pro forma and pro forma, as
adjusted; 1,026,308 shares issued and outstanding, actual;
1,500,000 shares issued and outstanding on a pro forma basis;
3,000,000 shares issued and outstanding pro forma, as adjusted... 10,000 15,000 30,000
Additional paid-in capital........................................... 3,991,000 10,199,000 16,509,000
Accumulated deficit.................................................. (3,150,000) (3,150,000) (3,387,000)
------------ ------------- --------------
Total stockholders' equity......................................... 7,041,000 7,064,000 13,152,000
------------ ------------- --------------
Total capitalization............................................. $ 7,541,000 $ 8,791,000 $ 13,152,000
------------ ------------- --------------
------------ ------------- --------------
</TABLE>

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

(1) On the effective date of the Registration Statement, of which this
Prospectus is a part, all of the outstanding shares of the Company's
Preferred Stock and all accrued and unpaid dividends thereon will convert
into 473,692 shares of Common Stock in accordance with the Preferred Stock
Conversion after giving effect to the Reverse Stock Split.

(2) Gives effect to the issuance of the Bridge Notes, net of a $23,000 discount
relating to the valuation of the Bridge Warrants issued in connection with
the Bridge Financing, and the repayment of the Prebridge Notes issued in
connection with the Prebridge Financing.

(3) Reflects (i) the receipt of the net proceeds of approximately $6,325,000
from the sale of the Securities offered hereby, (ii) the repayment of the
Bridge Notes of $1,750,000 and the related effect of writing off $214,000 in
financing costs relating to the Bridge Financing and the discount on the
Bridge Notes of $23,000.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE DISCUSSION AND ANALYSIS BELOW SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES TO FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

GENERAL

In February 1994, the Company was incorporated and acquired the assets of
The Millbrook Press Inc., which had commenced operations in 1989. Prior to
January 1991, The Millbrook Press Inc. had no revenues and incurred expenses
related to administrative costs associated with the formation and production of
its first publication list. Subsequent to January 1991, the Company has had
significant net sales to the school and public library market. For the fiscal
year ended July 31, 1996, the Company's net sales increased by 45% to $9.9
million from $6.9 million in the fiscal year ended July 31, 1995. This increase
was primarily attributable to greater sales to the consumer market. To date,
however, the Company has had continuing losses. These losses are primarily
attributable to the costs associated with the investment in expanding the
Company's operations and developing and expanding the Company's product line. In
particular, the Company has incurred significant expenses relating to the
establishment of the infrastructure which 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. These expenses include
establishing distribution channels and marketing the Company's products. The
Company believes that for the fiscal year ending July 31, 1997, net sales will
increase due to its ability to produce books which can appeal to both the school
and public library market and the consumer market. However, the Company
anticipates that additional marketing and administrative expenses, and financing
costs relating to one-time charges in the fiscal quarter in which this Offering
occurs, could result in a net loss for the fiscal year ending July 31, 1997.
Generally, the Company's general and administrative, manufacturing support and
product development costs do not vary directly with net sales. Consequently, if
net sales continue to increase in accordance with the Company's expectations,
the Company believes that it could achieve profitability in periods subsequent
to the fiscal year ending July 31, 1997. However, there can be no assurance that
such net sales will increase in accordance with the Company's expectations or
that the Company will ever achieve profitability.

CONSUMER MARKET COMPARED TO THE SCHOOL AND PUBLIC LIBRARY MARKET

In addition to an increase in net sales, as the Company sells more of its
products in the consumer market, its results of operations and financial
condition could be influenced by certain distinctions between the consumer
market and the school and public library market. It is generally more difficult
to collect receivables in the consumer market than in the school and public
library market. Sales to the consumer market have a higher return rate than
sales to the school and public library market and accordingly the Company will
need to deduct a higher reserve for returns from its gross sales. And sales to
the consumer market have a lower gross profit margin than sales to the school
and public library market because consumer sales have higher sales discounts and
promotional allowances than sales to the school and public library market.

VARIABILITY IN QUARTERLY RESULTS

A substantial portion of the Company's business is highly seasonal, causing
significant variations in operating results from quarter to quarter. In the
school and public library market, net sales tend to be lowest in the second
calendar quarter and highest in the third calendar quarter, as schools purchase
heavily in anticipation of opening in September. The consumer market also tends
to be highly seasonal and, given the importance of holiday gift sales, a large
proportion of net sales can occur in the third calendar quarter

17
<PAGE>
in anticipation of the holiday gift season. The Company expects its future net
sales and operating results will reflect these seasonal factors. In addition,
the Company's quarterly operating results have varied significantly depending on
factors such as the timing of customer orders and are likely to do so in the
future. The Company can exercise very little control over the timing of customer
orders, particularly those of wholesalers, thus orders anticipated in the second
calendar quarter, for example, may fall into the third calendar quarter, thereby
affecting both quarters' results. In addition, even when customer orders are
placed, such orders are generally cancellable at any time. Due to the long
product development cycle of books (nine to 18 months), the Company generally
must invest significantly in product development prior to having firm orders.
The financial results in any quarter where net sales fall below Company
expectations will be negatively impacted as expenses based on those expectations
have already been incurred in advance of actual receipt of orders. In addition,
there can be no assurance that the Company can maintain sufficient flexibility
with respect to its working capital needs and its ability to manufacture
products to be able to minimize the adverse affects of an unanticipated
shortfall in or an increase in demand for its products. Failure to predict
accurately and respond to consumer demand may cause the Company to produce
excess inventory which could result in write-offs. Conversely, if a product
achieves greater success than anticipated, the Company may not have sufficient
inventory to meet customer demand.

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 credits or give other sales incentives to their
customers. The Company intends to continue such practices in the future. In
addition, the practice in the publishing industry is to permit customers
including wholesalers and retailers to return merchandise. Most books not sold
may be returned to the Company, and the Company gives credit for such returned
books. 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 product, 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 allowances may vary as a percentage of gross sales based on
actual return experience. The Company believes that as gross sales to the
consumer market increase as a proportion of its overall sales, returns will
constitute a greater proportion of net sales. Although the Company believes its
reserves have been adequate to date, there can be no assurance that returns by
customers in the future will not exceed historically observed percentages or
that the level of returns will not exceed the amount of reserves in the future.
In the event that the amount reserved proves to be inadequate, the Company's
operating results will be adversely affected.

18
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth certain items from the Company's statement of
operations for the fiscal years ended July 31, 1995 and 1996, and the relative
percentage of net sales represented by certain income and expense items:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
----------------------------------------------
1995 1996
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................................ $ 6,866 100.0% $ 9,940 100.0%
Cost of sales............................................ 3,407 49.6 5,099 51.3
--------- ---------
Gross profit........................................... 3,459 50.4 4,841 48.7
Operating expenses:
Selling and marketing.................................. 3,024 44.0 3,854 38.8
General and administrative............................. 1,051 15.3 1,205 12.1
--------- ---------
Total operating expenses............................. 4,075 59.4 5,059 50.9
Operating loss........................................... (616) (9.0) (218) (2.2)
Interest expense......................................... 190 2.7 245 2.5
--------- ---------
Net loss................................................. $ (806) (11.7)% $ (463) (4.7)%
--------- ---------
--------- ---------
</TABLE>

NET SALES. Net sales increased $3.0 million, or approximately 45%, from
$6.9 million for the fiscal year ended July 31, 1995, to $9.9 million for the
fiscal year ended July 31, 1996. This increase is primarily attributable to
increases in net sales to the consumer market, which increased from $908,000 in
the fiscal year ended July 31, 1995, to $2.8 million in the fiscal year ended
July 31, 1996. In the fiscal year ended July 31, 1996, the Company published 55
books for the consumer market as compared to 28 books for this market in the
prior fiscal year. This increase was primarily attributable to the increase in
books published under the Company's Copper Beech imprint and the crossover of
books published under the Millbrook imprint into the consumer market. Net sales
in the school and public library market increased from $5.5 million in the
fiscal year ended July 31, 1995 to $6.8 million in the fiscal year ended July
31, 1996. This increase is attributable to the introduction and crossover of
books published under the Copper Beech imprint into the Company's traditional
school and public library market and sales from the Company's backlist.

COST OF SALES. Cost of sales increased $1.7 million, or approximately 50%,
from $3.4 million in the fiscal year ended July 31, 1995, to $5.1 million in the
fiscal year ended July 31, 1996. Cost of sales was approximately 49.6% and 51.3%
of net sales in the fiscal years ended July 31, 1995 and 1996, respectively.
Cost of sales increased as a percentage of net sales due primarily to the terms
and conditions of sales in the consumer market as opposed to the school and
public library market (i.e., consumer sales have higher discounts and
promotional allowances than sales to the school and public library market). This
increase was partially offset by the increase in net sales which has the effect
of decreasing amortization and depreciation costs as a percentage of net sales
since amortization and depreciation costs are relatively fixed for any one year.
Management anticipates that, while cost of sales will continue to be
significant, it should constitute a lower percentage of net sales in the future.

SELLING AND MARKETING. Selling and marketing expenses increased $830,000,
or approximately 27%, from $3.0 million in the fiscal year ended July 31, 1995,
to $3.8 million in the fiscal year ended July 31, 1996. This increase is
primarily attributed to increases in commissions and salaries of marketing
personnel and warehousing and distribution costs. However, as a percentage of
net sales, selling and marketing expenses decreased from approximately 44% in
the fiscal year ended July 31, 1995, to 39% in the fiscal year ended July 31,
1996. Management anticipates that while such expenses will be approximately 40%
of

19
<PAGE>
net sales during the fiscal year ended July 31, 1997, they should constitute a
lower percentage of net sales beyond the fiscal year ended July 31, 1997.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$154,000, or approximately 15%, from $1.1 million in the fiscal year ended July
31, 1995 to $1.2 million in the fiscal year ended July 31, 1996, primarily as a
result of costs relating to additional personnel and the Company's debt
financings. However, as a percentage of net sales, general and administrative
expenses decreased from approximately 15% in the fiscal year ended July 31,
1995, to 12% in the fiscal year ended July 31, 1996.

NET INTEREST AND OTHER EXPENSES. Net interest expense increased by $55,000
or 29% from $190,000 in the fiscal year ended July 31, 1995, to $245,000 for the
fiscal year ended July 31, 1996. Such increases are largely due to higher
average borrowings on the Company's line of credit.

INCOME TAXES. The Company has incurred cumulative net operating losses for
federal tax purposes of approximately $970,000. In the absence of an ownership
change as defined in the Internal Revenue Code of 1986, as amended ("Code"),
these federal net operating losses would be available to reduce the federal
income taxes of the Company in the future, although such federal net operating
loss carryforward will expire in the years 2009 through 2011. Upon the
completion of this Offering utilization of the net operating loss carryforwards
may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Code. The annual limitation may result in the
expiration of net operating loss carryforwards before utilization.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company's internally generated cash flow has not been
sufficient to finance neither its working capital needs including trade
receivables, inventory, capital equipment requirements nor its significant
investment in new product development, nor to support operations. Due to the
long product development cycle of books (nine to 18 months), the Company
generally must enter into product development commitments prior to having firm
orders. In addition, the Company has experienced delays in obtaining external
financing. As a result, the Company has experienced working capital shortfalls
in the past, which has restricted the Company's ability to conduct and develop
its business as planned. The Company has not generated positive cash flows from
operations over any twelve-month period since inception.

The Company has met its capital requirements to date in part through
borrowings under the Loan and Security Agreement. At July 31, 1996, and as of
the date of this Prospectus, the balance outstanding under the revolving credit
facility was approximately $2.7 million. The Company's credit line under the
Loan and Security Agreement is (i) fully utilized; (ii) currently secured by
substantially all of the Company's assets with advances based upon 80% of the
Company's eligible accounts receivables and 50% of the Company's inventory, with
this segment capped at $1.5 million of the total line of $2.7 million; and (iii)
partially guaranteed by Jean E. Reynolds, Howard Graham and Frank J. Farrell.
See "Certain Transactions." Although the Company has not been in default under
its Loan and Security Agreement, in anticipation of the Bridge Financing and
this Offering and in order to continue to comply with certain covenants in the
Loan and Security Agreement, People's Bank has modified certain financial
covenants in the Loan and Security Agreement until December 31, 1996. The
Company believes that with the proceeds from this Offering it will be in
compliance with the covenants under the Loan and Security Agreement even after
the modifications to the covenants expire. The Loan and Security Agreement also
restricts the ability of the Company to obtain working capital in the form of
indebtedness other than indebtedness incurred in the ordinary course of the
Company's business, to grant security interests in the assets of the Company or
to pay dividends on the Company's securities.

20
<PAGE>
In addition to bank borrowings, the Company's principal sources of capital
since August 1, 1994, have been as follows:

(i) Between October 1994 and April 1995, the Company issued an aggregate
of 77,656 shares of Common Stock to Archon Press for $500,000. See "Certain
Transactions."

(ii) In June 1995, the Company issued an aggregate of 155,437 shares of
Common Stock to Applewood Associates, L.P. ("Applewood"), 21st Century
Communications T-E Partners, L.P. ("21st T-E"), 21st Century Foreign
Partners ("21st Foreign") and 21st Century Communications Partners, L.P.
("21st Partners" and, collectively with 21st T-E and 21st Foreign, "21st
Century Funds") for an aggregate purchase price of $1,000,000. See "Certain
Transactions."

(iii) In April 1996, the Company consummated the Prebridge Financing by
issuing the Prebridge Notes. Applewood, 21st T-E, 21st Foreign and 21st
Partners purchased $250,000, $57,000, $23,000 and $170,000 principal amounts
of the Prebridge Notes, respectively. See "Use of Proceeds," "Principal
Stockholders" and "Certain Transactions."

(iv) In August 1996, the Company issued an aggregate of 1.75 million
Bridge Notes in connection with the Bridge Financing, in which the Company
issued 17 1/2 Bridge Units ("Bridge Units") at a purchase price of $100,000
per Bridge Unit, each Bridge Unit consisting of a $100,000 principal amount
Bridge Note and 50,000 Bridge Warrants each to purchase one share of Common
Stock at a purchase price of $5.00 per share. Upon the effective date of the
Offering, the Bridge Warrants automatically convert into an aggregate of
875,000 Warrants. As part of such Bridge Financing, the Prebridge Notes were
converted into Bridge Units. The Bridge Notes are in the aggregate principal
amount of $1.75 million, bearing interest at the rate of 10% per annum
through November 30, 1996, and at a rate of 15% per annum thereafter, with
principal and interest payable in full upon the consummation of this
Offering. The Bridge Notes are being repaid out of the proceeds from this
Offering. See "Use of Proceeds," "Certain Transactions," "Principal
Stockholders" and "Selling Securityholders and Plan of Distribution."

As of July 31, 1996, the Company had $1,318,000 in working capital. At such
date, an aggregate of approximately $5.6 million (or 87.6%) of the Company's
total current assets consisted of accounts receivable and inventories and the
Company had accounts payable and accrued expenses of approximately $2.1 million,
of which it was delinquent on approximately $1.3 million. Subsequent to July 31,
1996 and as described above, the Company received an additional $1,036,000 in
net proceeds from the Bridge Financing (net of the $500,000 principal amount of
Prebridge Notes which were converted into Bridge Units). Based on its current
operating plan, the Company anticipates that the proceeds of the Offering,
together with existing resources and cash generated from operations, if any,
will be sufficient to satisfy the Company's contemplated working capital
requirements through approximately July 31, 1998. 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, either before or
after July 31, 1998, the Company may seek additional funds from borrowings or
through debt or equity financings.

FORWARD LOOKING STATEMENTS

This Prospectus contains certain forward looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby.
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 Prospectus will prove to be accurate. Factors that
could cause actual results to differ from the results specifically discussed in
the forward looking statements include, but are not limited to, those discussed
in "Risk Factors." In light of the significant uncertainties inherent in the
forward looking statements included herein, the inclusion of 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.

21
<PAGE>
BUSINESS

OVERVIEW

The Company is a publisher of children's nonfiction books, in both hardcover
and paperback, for the school and public library market and the consumer market.
Since its inception, the Company has published more than 680 hardcover and 330
paperback books under its Millbrook and Copper Beech 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 have evolved from information-intensive school and library books to
include its current mix of highly graphic, consumer-oriented books. Therefore,
many of its books can be distributed to the school and public library market as
hardcover books while being simultaneously distributed to the consumer market as
either hardcover or paperback books. As a result, the Company is better able to
fully exploit a book's sales potential.

The consumer market in children's books consists of books purchased by
consumers through the traditional trade bookstores such as Barnes & Noble and
Waldenbooks and educational chain stores such as Zany Brainy and Learningsmith,
Inc., as well as the non-traditional distribution channels such as direct sales,
catalogs, direct mail, book clubs, book fairs, non-book retail stores, and on a
smaller scale, certain museums, national parks, historical sites, theme parks,
gift shops and toy stores.

In order to establish itself as a leading publisher of children's books for
the consumer market, the Company intends to: (i) begin publishing preschool
novelty books, books for beginning readers and early readers, chapter books for
young readers and children's popular-reference books; (ii) acquire companies or
develop strategic partnerships that broaden its product line and extend its
distribution in consumer market channels; (iii) expand its marketing
capabilities in the consumer market by increasing its in-house sales force and
management; and (iv) develop books that can be exploited through emerging
distribution channels in the consumer market, including special sales channels
such as book clubs, book fairs, direct sales, catalogs, direct mail, commercial
on-line services and the Internet. The Company believes that the high quality of
its books, its emphasis on publishing books for multiple markets and its
expanded distribution capabilities makes it well positioned to increase its
books sales to the expanding consumer market while at the same time increasing
its established sales base in the school and public library market.

INDUSTRY BACKGROUND

The Company operates in two distinct markets: the school and public library
market, and the consumer market. The fastest-growing segment of the children's
book marketplace is paperbacks; their sales increased by 21% in 1995. Hardcover
children's books experienced a 5.2% sales increase in 1995. This trend is
continuing and The Book Industry Study Group anticipates that the demand for
children's hardcover books will increase by a rate of 4.7% and that for
children's paperback books will increase by a rate of 8.3%, each on a compounded
basis from 1995 through the year 2000. As a result of that growth, BOOK INDUSTRY
TRENDS 1996 predicts that public library expenditures on children's books will
reach approximately $190 million in the year 2000, and school library
expenditures will reach approximately $174 million in the year 2000, for a total
of approximately $364 million. Veronis, Suhler & Associates predicts that by the
year 2000, children's hardcover book sales in the consumer market will reach
approximately $1.6 billion and children's paperback book sales in the consumer
market will reach approximately $1.4 billion, for a total of approximately $3.0
billion.

SCHOOL AND PUBLIC 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 1995 to 2006, 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

22
<PAGE>
increase as the student population increases. Purchases are primarily driven by
favorable book reviews. Age-appropriate books on the right topic with favorable
reviews sell along a predictable curve. In addition to the demographic changes,
demand for books has also increased as a result of the school and public library
market becoming increasingly 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," the "whole-language
movement" 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 should also increase in the consumer market due
to the projected increase in the number of school-age children. The Company
believes that, in addition to the larger school age population the most
important factors that will sustain larger sales of children's books include the
increased availability of quality books, particularly paperback books, and the
convenience of being able to purchase inexpensive paperback books as opposed to
traveling to libraries. In addition, the Company believes the growth in the
number of affluent, better-educated parents and the increased emphasis they
place on education as a whole has also contributed to this trend.

Demand for children's books in the consumer market has also increased
because the methods by which hardcover and paperback books are distributed have
changed significantly in the past five years, leading to greater accessibility
and shelf space for books. 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 T.J. Maxx,
educational chain stores such as Learningsmith and Zany Brainy, outlets and
warehouse clubs such as Sam's Warehouse, COSTCO and B.J.'s and on a smaller
scale, certain museums, national parks, historical sites, theme parks, gift
shops and toy stores. Books are also more accessible to children and parents
through the expansion of direct sales channels such as book fairs, school and
consumer book clubs, display sales and catalogs. Book fairs are generally
week-long events conducted on school premises and sponsored by school librarians
and/or parent-teacher organizations and are intended to provide students with
quality books at reasonable prices in order to help them become more interested
in reading. The Company has identified more than 600 catalogs that sell
children's books, including such oddly diverse ones as an anatomical supply
catalog.

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 market and the consumer market.
Traditionally, hardcover library books addressed topics typical for school
reports and research and were created with the purpose of maximizing information
content rather than appealing to consumers. Because books sold in the school and
public library market in the past were sold to librarians/teachers based on
content, the product was often informationally rich, but somewhat aesthetically
unappealing. Conversely, a paperback book sold in the consumer market was not
designed as an information source, but rather to attract a consumer's attention
and thereby sell itself from the shelf, and accordingly 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.

23
<PAGE>
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
the 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 particularly in the consumer
market.

The Company believes that this diversified approach to its product line will
enable it to achieve broad 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 as well as
its reputation for quality gained over the past six years, 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 expand 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 either in house, through packaging arrangements or licensed,
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.
Industry conditions among publishers in recent years has led to ongoing
divestitures and the Company intends to accelerate its growth and increase its
market penetration by selectively acquiring other publishers of children's books
or by formulating strategic alliances to increase the market exposure of its
books. The Company also intends to explore opportunities in electronic media by
selectively participating in publishing and marketing opportunities on
commercial on-line services and on the Internet. Key elements of the Company's
strategy are:

- CROSSOVER OF SALES. The Company believes that significant opportunities
exist to market products typically developed for one market into other
markets. To initiate its strategy of selling books which can crossover
into two or more markets, in 1995 the Company began reformatting many of
its previously published ("back-list") school and public library books
under its Millbrook imprint into paperback books and 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 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.

- TARGET NEW MARKET NICHES/ACQUISITION OPPORTUNITIES. The Company is
continually seeking new market niches which offer opportunities for
significant sales growth. The Company has targeted the preschool novelty
area as a future market and plans to enter that segment with books
containing moveable elements or books bundled with additional
merchandise. The Company will publish books for the beginning reader
(four to six years old) and early reader (five to eight years old) as
well as chapter books for ages seven through 11. The Company will publish
popular reference materials for young readers from seven through 15. In
addition, the Company will seek to expand its penetration of the
supplemental classroom market where its books may also be used as
instructional material. Where possible, the Company will re-format
existing books for distribution into new markets, leveraging its
investments in product development over a broader base.

The Company may also seek acquisition opportunities covering niche
markets in which the Company does not currently compete and product
extensions in its existing markets. The Company's product development
strategy may include joint ventures with strategic partners to minimize
up-front development costs. Currently, however, the Company has no
commitments or agreements with respect to any acquisitions.

24
<PAGE>
- ENHANCE MARKETING AND SALES FORCE. Since inception, the Company has
increased its penetration into the school and public library market. The
Company intends to continue to build on these efforts by increasing its
use of direct mail, expanding circulation of catalogs and extending its
advertising programs to achieve better coverage and increased marketplace
penetration. The Company also intends to enhance its telemarketing
capabilities in order to help strengthen sales of books to retailers. In
the consumer market, the Company intends to rely more heavily on an in-
house sales force rather than a commissioned sales force, with a view to
entirely replacing the commissioned force with in-house personnel in the
future. The Company believes this change will enable it to more
effectively concentrate the Company's selling efforts on mass retail,
major book chains and special sales accounts and to facilitate the
Company's entry into newly targeted markets.

- EXPAND DISTRIBUTION. The Company intends to expand its existing channels
of distribution by increasing its use of in-store promotion, consumer
advertising and telemarketing. The Company believes that decision-making
with respect to purchasing books is becoming more complex due to
expansion in types of outlets selling books and the increasing use of
marketing techniques that put the Millbrook imprint in direct contact
with children, parents and teachers will increase sales. The Company
intends to increase its participation in book fairs, book clubs, catalogs
and to distribute its books to other alternative retail outlets. 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. Currently, however, the Company has no
commitments or agreements with respect to any strategic partnership.

- ADAPT PRODUCT TO NEW TECHNOLOGIES. The Company has begun digitally
storing the text and graphics of its books so as to be well positioned to
take advantage of opportunities in the electronic media industry,
including commercial on-line services and the Internet, if and when such
opportunities become available.

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

PRODUCTS

The Company publishes children's books in hardcover and paperback formats
for the school and public library market and the consumer market. When the
Company began publishing books in 1991, the books created were mainly series
books and were intended to be sold singularly and in sets to the school and
public library market. Since then, the Company's products have evolved into a
diverse set of highly-graphic, consumer-oriented single books. The Company's
Millbrook imprint primarily targets the school and public library market, while
its Copper Beech imprint primarily targets the consumer market. Nevertheless,
the Company designs virtually all of 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 1995, the Company published 111
hardcover books under the Millbrook imprint for the school and public library
market, of which 59 books were suitable for and published simultaneously as
hardcovers or paperbacks to be sold in the consumer market, and 42 hardcover
books under the Copper Beech imprint to be sold in the consumer market, of which
26 books were suitable for and published simultaneously as hardcovers or
paperbacks, to be sold in the school and public library market.

25
<PAGE>
The following list is an example of the hardcover books published by the
Company under its Millbrook imprint from Spring 1995 through the Fall 1996 which
have either paperback or hardcover editions to be sold in the school and public
library or consumer market:

CRAFTS FOR VALENTINES DAY
THE QUILT-BLOCK HISTORY OF PIONEER DAYS WITH PROJECTS KIDS CAN MAKE
NATURE IN YOUR BACKYARD: SIMPLE ACTIVITIES FOR CHILDREN
COMPOST! GROWING GARDENS FROM YOUR GARBAGE
MICHAEL ROSEN'S ABC
EVERY DAY IS EARTH DAY: A CRAFT BOOK
THE CROCODILE AND THE DENTIST
CITYMAZE! A COLLECTION OF AMAZING CITY MAZES
THE CHILDREN'S ATLAS OF THE TWENTIETH CENTURY
BEARS AT THE BEACH: COUNTING FROM 10 TO 20
NOW I KNOW BETTER: KIDS TELL KIDS ABOUT SAFETY
THE ANCIENT EGYPTIANS: LIFE IN THE NILE VALLEY
MALCOLM X: HIS LIFE AND LEGACY
YITZHAK RABIN: ISRAEL'S SOLDIER STATESMAN

The following list is an example of the hardcover books published by the
Company under its Copper Beech imprint from Spring 1995 through Fall 1996 which
have either paperback or hardcover editions to be sold in the school and public
library or consumer market:

PIRATES
PLAYING WITH MAGNETS
THE PLANETS
THE PYRAMIDS
KNIGHTS: FACT OR FICTION
BLOOD
MOST EXCELLENT BOOK OF HOW TO BE A MAGICIAN
MOST EXCELLENT BOOK OF HOW TO BE A PUPPETEER
BRAIN SURGERY FOR BEGINNERS
53 1/2 THINGS THAT SAVED THE WORLD AND SOME THAT DIDN'T
FASCINATING FACTS ABOUT SHARKS

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

Nearly 75% of the books published under the Millbrook imprint are produced
by the Company's editorial staff. A book concept can originate from a number of
sources such as (i) analysis of the Company's sales statistics for 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 current philosophical trends in education (i.e., the whole language
movement) 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 contacts with librarians, teachers
and booksellers. Once conceived, a book proposal is circulated to the sales,
production, marketing, design and financial departments of the Company for their
input and depending on the input, the proposal will go forward or be terminated.
A favorable decision causes the editorial department to contract with an
appropriate author and/or artist

26
<PAGE>
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. Royalties on
hardcover and paperback editions are paid on the net sales and range from 6% to
10% of net sales with an average of 7% of net sales for hardcover and paperback
books. The Company believes its average royalty rates are slightly lower than
overall industry standards. The Company expects its average royalty rates to
increase as the Company increases its emphasis on consumer-oriented books.
Virtually all of Millbrook's contracts call for an advance payment against
future royalties. Advances range from $1,000 for a simple series book to as much
as $13,000 to a well-known artist for a picture book. 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 equally between the Company and the author.

Upon the 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 then prepared which
determines print quantity and retail price of the book. Book printing is done by
an outside supplier, usually in the United States, on a bid contract basis. The
Company's products require varying periods of development time depending upon
the complexity of the graphics and design as well as the editing process. Most
of the Company's books can be developed in a period that ranges from nine to 18
months. Millbrook is often cited in reviews of the Company's 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 allows a tremendous amount of flexibility needed for
the Company to continue to produce a broad product line.

EXTERNAL DEVELOPMENT

Approximately 25% of books published under the Millbrook imprint are
produced by outside sources. Most of these books are produced by outside
packagers that cooperate and consult with Millbrook during the development
process but otherwise provide the full range of services needed to publish
children's books. These arrangements include cooperation with other publishers
in England, such as Templar or Quarto, to which the Company pays a share of the
cost of developing a relatively expensive book such as an atlas, and the Company
retains the rights to sell the book in the United States and Canada while the
publisher retains the right to sell the book in its home country and/or
elsewhere. At present, the Company has six regular suppliers from England and
two United States companies with whom it has ongoing projects. The Company has
entered into an exclusive, long-term joint venture with Aladdin, a major
children's packager for the international market, which expires on January 1,
2002, but can be renewed thereafter, to produce 50 nonfiction titles per year to
be published under the Company's newly-created imprint, Copper Beech. 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 sale to libraries. In May 1994,
the Company entered into an agreement with Aladdin, whereby Aladdin agreed to
produce no less than 50 books per year for the Company through January 1, 2002.
The books are to be wholly owned by the Company. 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 sales.
Development recovery amounts are paid to the Company based on sales by Aladdin
to other parts of the world. See "Certain Transactions."

27
<PAGE>
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 which 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.

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 complementary 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, 1996, approximately 66% of the Company's sales in
the school and public library market were made through wholesalers. While
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. Baker &
Taylor, one of the largest wholesalers in the school and public library market,
accounted for 17% of the Company's net sales in the fiscal year ended July 31,
1996. While the Company believes that there are alternative wholesalers
available if its current relationship with Baker & Taylor were terminated, a
significant reduction in sales to Baker & Taylor would have a material adverse
effect on the Company's results of operations. 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 generates 27% of the Company's sales in the school and public
library market. 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 remaining 7% of
the Company's sales in this area results from direct-selling efforts where
commissioned salespersons conduct face-to-face meeting 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 also
maintains personal contact with reviewers on a regular basis. 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, but there can be no assurance that the Company will continue to receive
favorable reviews in the future. The Company produces three 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 Fall that is mailed to 100,000 current and
perspective accounts. An eight-page insert is produced in January to introduce
the new list for Spring for distribution in the School

28
<PAGE>
Library Journal (the major professional journal from which librarians make
purchase decisions) and at conventions throughout the year. The Company produces
two full-line catalogs per year for the consumer market in May and December. The
Company also advertises in many consumer journals, newsletters and newspapers.
The Company produces promotional materials for individual titles, themes,
authors and illustrators. It also produces standard "leave-behind" sell sheets
that refresh a librarian's recollection of a sales presentation. Finally, the
Company exhibits its books at many national conventions covering both the school
and public library and consumer markets.

The expanding use of children's books in the classroom, especially in
paperback formats, has complicated the traditional distribution networks since
contacting the particular teacher or other individual in charge of curriculum
decisions can be more difficult than contacting the school librarian. The
Company has created marketing programs to extend school sales beyond the library
and into the classroom. For example, the Company's telemarketing division is
currently test-marketing curriculum-related books and materials to teachers,
principals and curriculum coordinators.

CONSUMER

The sales channels in the consumer market are more diverse than the school
and public library market and require a different marketing approach. The
Company has recently attracted experienced and talented sales and marketing
personnel. The new in-house consumer sales group covers the two major areas:
traditional consumer book markets and non-traditional consumer book markets. The
Company's merchandising and marketing programs have increased its traditional
and non-traditional consumer sales from $908,000 in fiscal year 1995 to over
$2.8 million in fiscal 1996 even though its personnel were in place for only
four months in fiscal year 1995. Prior to June 1995, the Company's books were
distributed in the consumer market by an unrelated third party.

As is the case with the school and public library market, a large proportion
of the Company's sales in the consumer market are made through wholesalers.
Ingram, one of the largest wholesalers in the consumer market, accounted for 5%
of the Company's net sales in the fiscal year ended July 31, 1996, and 56% of
its wholesale sales to the consumer market. While the Company believes that
there are alternative wholesalers available if its current relationship with
Ingram were terminated, a significant reduction in sales to Ingram would have a
material adverse effect on the Company's operations.

The Company has three sales groups: the in-house sales group, the
commissioned sales group and the special sales group. The in-house sales group,
consisting of an in-house sales director, a merchandising manager and a
full-time salaried sales person, is responsible for sales, promotion and
merchandising to the major national and large regional accounts. This group is
also responsible for sales to the network of wholesalers supporting these
accounts. The commissioned sales group currently consists of approximately 30
commissioned representatives who are responsible for sales to independent book
stores, small regional chains and certain special sales outlets and regional
jobbers. The special sales group markets to specialized retail outlets such as
museums, national parks, historical sites, theme parks, gift shops and toy
stores and consumer companies such as direct sales catalogs and direct mail. The
Company's sales representatives sell the full range of the Company's products.
The sales groups provide the Company with 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 makes certain that good reviews, which can stimulate sales, are sent
to the news media on a regular basis which can stimulate sales. The Company
participates with various outlets in advertising directly to individuals through
media and catalogs. In-store promotions, such as posters, point 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.

29
<PAGE>
MANUFACTURING AND SHIPPING

All of the Company's books are printed and bound by third-party
manufacturers. During fiscal year 1996, approximately 36% of the Company's
printing and binding needs were provided by Worzalla, an industry leader in
library-bound, short-run printing and binding. Manufacturing is a significant
expense item for the Company, with a total of $3.3 million (or approximately 33%
of net sales) spent in 1996. The Company has used Worzalla's services since the
Company's inception and enjoys a strong working relationship with Worzalla. The
Company believes it has sufficient alternative sources of manufacturing services
to meet its foreseeable needs should Worzalla'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 betters this timetable. The Company processes
customer orders through an in-house order processing department. The Company
leases warehouse space from, and its products are shipped by, Mercedes
Distribution Company of Brooklyn, New York.

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, Dorling Kindersley Publishing Inc.,
Franklin Watts Inc., Gareth Stevens Inc., Lerner Publications Co. and Troll
Communications. The Company's chief and direct competitors in the consumer
market include Barron's Educational Series Inc., Candlewick Press, Dorling
Kindersley Inc., 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, although the Company believes that the depth of experience of
its management and its connections into the hierarchy of the education sector
gives 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 of 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, usually two years after
publication. On books that are imported under the Millbrook imprint, the Company
has exclusive rights for all United States markets and the Philippines. On more
than half of the imported titles, the Company holds Canadian rights as well. The
Company's trade names Millbrook and

30
<PAGE>
Copper Beech are used to publish books primarily for the school and library
market and consumer market, respectively. The Company considers these trade
names material to its business.

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

EMPLOYEES

As of the date of this Prospectus, the Company has approximately 60
employees. Approximately two-thirds are full-time and one-third are 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.

PROPERTIES

The Company owns no real property. The Company conducts its operations
through two facilities. The Company leases approximately 5,500 square feet of
office space in Brookfield, Connecticut at a current rental of $64,340 per year
plus utilities and taxes. This lease expires in December 2002. The Company also
leases approximately 1,900 square feet of space in New York City at a rental of
$33,330 per year plus utilities and taxes. This lease expires in April 2004. The
Company leases warehouse space equal to approximately 24,000 square feet in
Brooklyn, New York at a rental of $84,000 per year, which includes data
processing and order-entry services. This lease expires in September 1997. The
Company also leases office space in Southampton, New York at a current rental of
$13,284 per year plus utilities and taxes. This lease expires in September 1997.

LEGAL PROCEEDINGS

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

31
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Barry Fingerhut...................................... 51 Chairman of the Board
Jeffrey Conrad....................................... 53 President and Chief Executive Officer
Jean E. Reynolds..................................... 54 Senior Vice President-Publisher
Donald A. D'Angelo................................... 57 Vice President and Chief Financial Officer
Frank J. Farrell..................................... 60 Vice President, Secretary and Director
Howard Graham........................................ 66 Vice President and Director
Michael J. Marocco................................... 37 Director
Barry Rubenstein..................................... 52 Director
</TABLE>

BARRY FINGERHUT has served as the Chairman of the Board of the Company since
February 1994. Mr. Fingerhut has served as President since 1994, Senior Vice
President from 1981 to 1994 and a director since 1981 of GeoCapital Corporation,
a registered investment advisory firm. Since February 1995, Mr. Fingerhut has
served as a director and officer of InfoMedia Associates, Ltd. ("InfoMedia"), a
New York corporation, which is a general partner of the 21st Century Funds. In
addition, since 1992, he has served as a general partner of Applewood
Associates, L.P. ("Applewood"), an investment partnership. Mr. Fingerhut also
serves as a director of Glasser Legal Works, Inc., a niche publisher of legal
texts, journals and seminars and Carriage Funeral Services Inc., an operator of
funeral homes.

JEFFREY CONRAD has served as President and Chief Executive Officer of the
Company since October 1996. From March 1992 to October 1996, Mr. Conrad served
in various capacities at Larousse Kingfisher Chambers Inc., a subsidiary of the
British publishing company Larousse PLC, most recently as President and Chief
Executive Officer from January 1993 to October 1996. Prior thereto, Mr. Conrad
was the Executive Vice President of Garland Press, an academic and reference
publisher from 1981 to March 1992.

JEAN E. REYNOLDS, one of the Company's founders, has served as Senior Vice
President-Publisher since October 1996 and as President of the Company from its
inception in 1989 to October 1996. From 1970 to 1981, Ms. Reynolds served in
various management positions at Grolier, Inc. ("Grolier"), including the
editor-in-chief of Young People's Publications and of The New Book of Knowledge.
Ms. Reynolds is a director of the Book Industry Study Group and chairs its
Juvenile Interest Group, which monitors industry statistics. She is a director
of the industry trade organization, The Children's Book Council. She also serves
as a director of Kiper Enterprises, Inc., a private company specializing in
first aid materials and Wellington Leisure Products, Inc., a private company
specializing in the manufacturer of rope, craft and watersports material.

DONALD A. D'ANGELO has served as Chief Financial Officer and Assistant
Secretary of the Company since February 1994, and a Vice President of the
Company since June 1992. From 1989 until 1992, Mr. D'Angelo was an independent
financial consultant in the publishing industry as well as a financial
consultant to individuals.

FRANK J. FARRELL, one of the Company's founders, has served as a Vice
President, Secretary and a director of the Company since its inception in 1989,
and is primarily responsible for overseeing the Company's operations and
finances. From 1978 to 1989, Mr. Farrell served in various senior management
positions with Grolier and its subsidiaries, including President of Grolier
Educational Corporation and President of Grolier Electronic Publishing, Inc. and
Group Vice President of Grolier's domestic reference materials operations. He
also served on Grolier's board of directors from 1988 to 1989.

32
<PAGE>
HOWARD GRAHAM, one of the Company's founders, has served as a Vice President
and director of the Company since its inception in 1989 and is primarily
responsible for the Company's marketing programs. From 1970 to 1988, Mr. Graham
served in various senior management positions at Grolier and its subsidiaries,
including President of Grolier International and executive Vice President of
Grolier. He also served on Grolier's board of directors from 1983 to 1988. Mr.
Graham currently serves as a director of the Save the Children Fund, a nonprofit
corporation.

MICHAEL J. MAROCCO has served as a director of the Company since February
1994. Mr. Marocco is a managing director of Sandler Capital Management which he
joined in 1989. He is a general partner of Sandler Associates and, through
affiliates, a general partner of the Sandler Media Partnerships, Sandler
Mezzanine Partnerships, 21st Partners, 21st T-E and 21st Foreign. He was a Vice
President at Morgan Stanley & Co. Inc., serving in its communications group,
from 1984 to 1989. Mr. Marocco is a director of YES! Entertainment, a public
company manufacturing children's toys and other educational and interactive
products, and of Source Media, Inc., a public company specializing in
interactive television.

BARRY RUBENSTEIN has served as a director of the Company since February
1994. Since February 1995, Mr. Rubenstein has served as a director and officer
of InfoMedia. In addition, since 1992, 1979 and 1976, respectively, Mr.
Rubenstein has served as a general partner of Applewood, Seneca Ventures and
Woodland Venture Fund, each of which is an investment partnership. Mr.
Rubenstein also serves as a director of Infonautics, Inc., a provider of on-line
and internet information.

The Board of Directors has a Stock Option and Compensation Committee which
administers the Stock Option Plan and makes recommendations concerning salaries,
incentive compensation for employees of and consultants to the Company, and an
Audit Committee which reviews the results and scope of the audit and other
services provided by the Company's independent accountants. The Stock Option and
Compensation Committee is composed of Messrs. Fingerhut, Rubenstein and Graham
and the Audit Committee is composed of Messrs. Fingerhut, Marocco and Farrell.

The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. All directors hold office until the next
annual meeting of the Company or until their successors have been duly elected
or qualified. There are no family relationships among any of the executive
officers and directors of the Company.

The Company intends to maintain a "key person" life insurance policy in the
amount of $1.0 million on the life of Mr. Conrad after the Offering.

DIRECTOR COMPENSATION

The Company's directors are not compensated for attendance at meetings. The
Company currently does not plan to compensate its outside directors for services
rendered in their capacity as directors.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation paid
by the Company during the year ended July 31, 1996 to Jean E. Reynolds, the
principal executive officer of the Company, and each of the Company's most
highly compensated executive officers whose salary and bonus exceeded $100,000
with respect to the fiscal year ended July 31, 1996 ("Named Executive
Officers").

33
<PAGE>
<TABLE>
<S> <C> <C>
SUMMARY COMPENSATION TABLE

<CAPTION>
ANNUAL COMPENSATION(1)
<S> <C> <C>
<CAPTION>
NAME AND PRINCIPAL POSITIONS YEAR SALARY
<S> <C> <C>
Jean E. Reynolds......................................... 1996 $125,000(2)
Senior Vice President-
Publisher
Frank J. Farrell......................................... 1996 $100,000(3)
Vice President
Howard Graham............................................ 1996 $100,000(3)
Vice President
</TABLE>

(1) Certain of the officers of the Company routinely receive other benefits from
the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during fiscal 1996, did
not exceed the lesser of $50,000 and 10% of the compensation set forth above
as to any named individual.

(2) Prior to October 1996, Jean E. Reynolds was the President of the Company. As
of October 1996, Jeffrey Conrad became Chief Executive Officer and President
of the Company. Mr. Conrad will be paid a base salary of $200,000 per year
and has received options to purchase 80,000 shares of the Company's Common
Stock.

(3) Amounts paid to Messrs. Farrell and Graham constitute consulting fees paid
to Farrell Associates, Inc. and Graham International Publishing and
Research, Inc., respectively.

STOCK OPTION PLAN

The Company's Stock Option Plan was adopted to attract and retain employees
and provides for the issuance of options to purchase up to an aggregate of
475,000 shares of Common Stock. To date, options to purchase 390,000 shares of
Common Stock have been granted under the Stock Option Plan. All options
currently outstanding under the Stock Option Plan have an exercise price equal
to the Offering Price. Under the Stock Option Plan, options to purchase shares
of Common Stock may be granted to any full-time or part-time employee,
consultant or officer. The Stock Option Plan is currently administered by the
Company's Stock Option and Compensation Committee, which is generally empowered
to interpret the Stock Option Plan, prescribe rules and regulations relating
thereto and determine the individuals to whom options are to be granted.

Under the Stock Option Plan, the per-share exercise price for incentive
stock options ("ISOs") will be the greater of the fair market value of a share
of Common Stock on the date the option is granted or the Offering Price and for
non-qualified stock options ("NQSOs") will be not less than the Offering Price.
Upon exercise of an option, the optionee may pay the purchase price with
previously acquired securities of the Company, provided that with respect to
ISOs applicable holding requirements under the Code are satisfied.

Unless otherwise determined by the Stock Option and Compensation Committee,
ISOs and NQSOs granted under the Stock Option Plan shall be exercisable for a
term not greater than seven years from the date of grant and vest after a
five-year period at a rate of one-fifth upon each successive anniversary of the
date of grant; PROVIDED, HOWEVER, that with respect to all vested options which
are currently outstanding, 50% shall vest one year from the date of this
Prospectus and 50% shall vest two years from the date of this Prospectus;
PROVIDED, HOWEVER, further, that all options shall vest completely upon the
fifth anniversary of the date of grant. In addition, all options granted under
the Stock Option Plan become fully vested if (a) the optionee is employed by the
Company on or within 90 days of (i) the sale of all or substantially all

34
<PAGE>
of the assets of the Company, (ii) the sale or exchange of an amount of the
Company's stock to an unaffiliated third party that results in a change of
control, (b) on the date of the optionee's death or (c) on the date the optionee
becomes disabled. ISOs are not transferable other than by will or the laws of
descent and distribution. NQSOs may be transferred, subject to certain
restrictions. Options may be exercised during the holder's lifetime only by the
holder, his or her guardian or legal representative.

The Stock Option and Compensation Committee may modify, suspend or terminate
the Stock Option Plan; provided, however, that certain material modifications
affecting the Stock Option Plan must be approved by the stockholders, and any
change in the Stock Option Plan that may adversely affect an optionee's rights
under an option previously granted under the Stock Option Plan requires the
consent of the optionee.

STOCK OPTION GRANTS

No stock options were granted to the Named Executive Officers during the
fiscal year ended July 31, 1996.

FISCAL YEAR END OPTION VALUES

No options were exercised by the Named Executive Officers during fiscal
1996. The following table shows the number of shares covered by both exercisable
and unexercisable employee stock options, as of July 31, 1996.

<TABLE>
<CAPTION>
FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT JULY IN-THE-MONEY
31, 1996 OPTIONS AT JULY 31, 1996
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
<S> <C> <C>
Jean E. Reynolds.................... 21,000/31,500 0
Frank J. Farrell.................... 31,500/47,250 0
Howard Graham....................... 31,500/47,250 0
</TABLE>

(1) The exercise price of the options held by the Named Executive Officers was
amended after July 31, 1996, to the Offering Price of the Company's Common
Stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The entire Board of Directors of the Company made all compensation decisions
regarding compensation of executive officers during the Company's 1996 fiscal
year. During such period, Messrs. Farrell and Graham were executive officers and
directors of the Company. For information concerning transactions with the
Directors of the Company and entities affiliated with certain Directors, see
"Certain Transactions."

EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS

The Company has entered into an employment agreement with Jeffrey Conrad
pursuant to which he is employed on a full-time basis as the Company's Chief
Executive Officer and President. The term of the employment agreement expires in
October 1998, and is automatically renewable for a one-year term unless either
party terminates the employment agreement at least thirty (30) days prior to the
expiration of the initial term or any subsequent term. Mr. Conrad's annual base
cash compensation under the employment agreement is $200,000. Mr. Conrad can
also receive a bonus equal to 15% of his salary if the Company meets the budget
agreed upon each fiscal year in advance by the Board of Directors. In addition,
Mr. Conrad received options to purchase 80,000 shares of Common Stock at an
exercise price equal to the

35
<PAGE>
Offering Price pursuant to the Stock Option Plan. Mr. Conrad has agreed not to
compete with the Company during the term of his employment agreement and for a
period of two years thereafter.

The Company has entered into an employment agreement with Jean E. Reynolds
pursuant to which she is employed on a full-time basis as the Company's Senior
Vice President--Publisher. The term of the employment agreement expires in two
years from the date of this Prospectus and is automatically renewable for a
one-year term unless either party terminates the employment agreement at least
thirty (30) days prior to the expiration of the initial term or any subsequent
term. Ms. Reynolds annual base cash compensation under the employment agreement
is $125,000. Ms. Reynolds' base salary will be reviewed annually by the Board of
Directors. Ms. Reynolds has agreed not to compete with the Company during the
term of her employment agreement and for a period of two years thereafter.

The Company has entered into a consulting agreement with Howard Graham
pursuant to which he will be a consultant for a minimum of six months per year
with the time of such service to be determined by the Board of Directors or the
Chief Executive Officer. The term of the consulting agreement expires in
December 1998. Mr. Graham's cash compensation under the consulting agreement is
$60,000 during the first year of the agreement and $50,000 during the second
year of the agreement. Mr. Graham has agreed not to compete with the Company
during the term of his consulting agreement and for a period of two years
thereafter.

The Company has entered into a consulting agreement with Frank J. Farrell
pursuant to which he will be a consultant for a minimum of six months per year
with the time of such service to be determined by the Board of Directors or the
Chief Executive Officer. The term of the consulting agreement expires in
December 1998. Mr. Farrell's annual base cash compensation under the consulting
agreement is $60,000 during the first year of the agreement and $50,000 during
the second year of the agreement. Mr. Farrell has agreed not to compete with the
Company during the term of his consulting agreement and for a period of two
years thereafter.

36
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of the date of this
Prospectus for (i) each person who is known by the Company to beneficially own
more than 5% of the capital stock, (ii) each of the Company's directors, (iii)
each of the Named Officers and (iv) all directors and executive officers as a
group. Unless otherwise indicated, the address for directors, executive officers
and 5% stockholders is 2 Old New Milford Road, Brookfield, Connecticut 06804.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES -------------------------
BENEFICIALLY BEFORE AFTER
DIRECTORS, EXECUTIVE OFFICERS AND 5% SHAREHOLDERS OWNED(1) OFFERING OFFERING(1)
- -------------------------------------------------------------------------- ----------- ---------- -------------
<S> <C> <C> <C>

Barry Fingerhut........................................................... 1,120,748(2) 74.7% 37.4%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Irwin Lieber.............................................................. 1,120,748(3) 74.7% 37.7%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Barry Rubenstein.......................................................... 1,120,748(4) 74.7% 37.4%
68 Wheatley Road
Brookville, NY 11545

Harvey Sandler............................................................ 911,261(5) 60.8% 30.4%
767 Fifth Avenue, 45th Floor
New York, NY 10153

John Kornreich............................................................ 900,917(6) 60.1% 30.0%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Barry Lewis............................................................... 900,917(7) 60.1% 30.0%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Michael J. Marocco........................................................ 900,917(8) 60.1% 30.0%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Andrew Sandler............................................................ 887,988(9) 59.2% 29.6%
767 Fifth Avenue, 45th Floor
New York, NY 10153

21st Century Communications Foreign Partners, L.P......................... 883,678(10) 58.9% 29.5%
c/o Fiduciary Trust (Cayman) Limited
P.O. Box 1062
Grand Cayman, B.W.I

21st Century Communications Partners, L.P................................. 883,678(11) 58.9% 29.5%
767 Fifth Avenue, 45th Floor
New York, NY 10053

21st Century Communications T-E Partners, L.P............................. 883,678(12) 58.9% 29.5%
767 Fifth Avenue, 45th Floor
New York, NY 10053
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES -------------------------
BENEFICIALLY BEFORE AFTER
DIRECTORS, EXECUTIVE OFFICERS AND 5% SHAREHOLDERS OWNED(1) OFFERING OFFERING(1)
- -------------------------------------------------------------------------- ----------- ---------- -------------
<S> <C> <C> <C>
Jonathan Lieber........................................................... 215,523(13) 14.4% 7.2%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Seth Lieber............................................................... 215,523(14) 14.4% 7.2%
767 Fifth Avenue, 45th Floor
New York, NY 10153

Applewood Associates, L.P................................................. 211,213 14.1% 7.0%
68 Wheatley Road
Brookville, NY 11545

Frank J. Farrell.......................................................... 104,277(15) 6.8% 3.4%

Howard Graham............................................................. 104,277(16) 6.8% 3.4%

Archon Press.............................................................. 80,993(17) 5.4% 2.7%
28 Percy Street
Wipold, London
England

Jean E. Reynolds.......................................................... 37,172(18) 2.4% 1.2%

Jeffrey Conrad............................................................ -- -- --

All directors and executive officers as a group (8 persons)............... 1,409,570(19) 86.2% 44.9%
</TABLE>

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

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes
voting or investment power with respect to securities. Shares of Common
Stock upon the exercise of options, warrants currently exercisable, or
exercisable or convertible within 60 days, are deemed outstanding for
computing the percentage ownership of the person holding such options or
warrants but are not deemed outstanding for computing the percentage
ownership of any other person.

(2) Represents (i) 25,857 shares of Common Stock owned by Mr. Fingerhut, (ii) an
aggregate of 883,678 shares of Common Stock owned by 21st Partners, 21st T-E
and 21st Foreign and (iii) 211,213 shares of Common Stock owned by
Applewood. By virtue of being a shareholder, officer and director of
InfoMedia which is a general partner of 21st Partners, 21st T-E and 21st
Foreign, and a general partner of Applewood, Mr. Fingerhut may be deemed to
have shared power to vote and to dispose of 1,094,891 shares of Common Stock
owned by such recordholders, of which Mr. Fingerhut disclaims beneficial
ownership, except to the extent of his equity interest in such
recordholders.

(3) Represents (i) 25,857 shares owned by Mr. Lieber, (ii) 883,678 shares of
Common Stock owned by 21st Partners, 21st T-E and 21st Foreign, and (iii)
211,213 shares of Common Stock owned by Applewood. By virtue of being a
shareholder, officer and director of InfoMedia which is a general partner of
21st Partners, 21st T-E and 21st Foreign, and a general partner of
Applewood, Mr. Lieber may be deemed to have shared power to vote and dispose
of the shares of Common Stock owned by 21st Partners, 21st T-E and 21st
Foreign and Applewood. Mr. Lieber disclaims beneficial ownership of the
securities owned by 21st Partners, 21st T-E and 21st Foreign and Applewood,
except to the extent of his equity interest in such recordholders.

(4) Represents (i) an aggregate of 883,678 shares of Common Stock owned by 21st
Partners, 21st T-E and 21st Foreign, and (ii) an aggregate of 237,070 shares
of Common Stock owned by Applewood and

38
<PAGE>
Woodland Partners ("Woodland"). By virtue of being a shareholder, officer
and director of InfoMedia which is a general partner of 21st Partners, 21st
T-E and 21st Foreign and a general partner of Applewood and Woodland, Mr.
Rubenstein may be deemed to have shared power to vote and dispose of the
shares owned by 21st Partners, 21st T-E and 21st Foreign, Applewood and
Woodland. Mr. Rubenstein disclaims beneficial ownership of all of the above
securities except to the extent of his equity interest in such
recordholders.

(5) Represents (i) 27,583 shares of Common Stock owned by Mr. Sandler and (ii)
883,678 shares of Common Stock owned by 21st Partners, 21st T-E and 21st
Foreign. By virtue of being the majority shareholder and director of an
entity which is a general partner of an entity which is the general partner
of another entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Sandler may be deemed to have shared power to vote and to
dispose of such 883,678 shares of Common Stock, of which Mr. Sandler
disclaims beneficial ownership.

(6) Represents (i) 17,239 shares of Common Stock owned by Mr. Kornreich and (ii)
883,678 shares of Common Stock owned by 21st Partners, 21st T-E and 21st
Foreign. By virtue of being the majority shareholder and director of an
entity which is a general partner of an entity which is the general partner
of another entity which is a general partner of 21st Partners, 21st T-E and
21st Foreign, Mr. Kornreich may be deemed to have shared power to vote and
to dispose of such 883,678 shares of Common Stock, of which Mr. Kornreich
disclaims beneficial ownership.

(7) Represents (i) 17,239 shares of Common Stock owned by Mr. Lewis and (ii) an
aggregate of 883,678 shares of Common Stock owned by 21st Partners, 21st T-E
and 21st Foreign. By virtue of being the majority shareholder and director
of an entity which is a general partner of an entity which is the general
partner of another entity which is a general partner of 21st Partners, 21st
T-E and 21st Foreign, Mr. Lewis may be deemed to have shared power to vote
and to dispose of such 883,678 shares of Common Stock, of which Mr. Lewis
disclaims beneficial ownership.

(8) Represents (i) 17,239 shares of Common Stock owned by Mr. Marocco and (ii)
an aggregate of 883,678 shares of Common Stock owned by 21st Partners, 21st
T-E and 21st Foreign. By virtue of Mr. Marocco being the sole shareholder,
officer and director of an entity which is a general partner of an entity
which is the general partner of another entity which is a general partner of
21st Partners, 21st T-E and 21st Foreign, Mr. Marocco may be deemed to have
shared power to vote and to dispose of such 883,678 shares of Common Stock,
of which Mr. Marocco disclaims beneficial ownership.

(9) Represents (i) 4,310 shares of Common Stock owned by Mr. Sandler and (ii) an
aggregate of 883,678 shares of Common Stock owned by 21st Partners, 21st T-E
and 21st Foreign. By virtue of being the majority shareholder and director
of an entity which is a general partner of an entity which is the general
partner of another entity which is a general partner of 21st Partners, 21st
T-E and 21st Foreign, Mr. Sandler may be deemed to have shared power to vote
and to dispose of such 883,678 shares of Common Stock, of which Mr. Andrew
Sandler disclaims beneficial ownership.

(10) Represents (i) 80,662 shares of Common Stock owned by 21st Foreign and (ii)
599,160 shares of Common Stock and 203,856 shares of Common Stock owned by
21st Partners and 21st T-E, respectively, of which 21st Foreign disclaims
beneficial ownership.

(11) Represents (i) 599,160 shares of Common Stock owned by 21st Partners and
(ii) 203,856 shares of Common Stock and 80,662 shares of Common Stock owned
by 21st T-E and 21st Foreign, respectively, of which 21st Partners disclaims
beneficial ownership.

(12) Represents (i) 203,856 shares of Common Stock owned by 21st T-E and (ii)
599,160 shares of Common Stock and 80,662 shares of Common Stock owned by
21st Partners and 21st Foreign, respectively, of which 21st T-E disclaims
beneficial ownership.

39
<PAGE>
(13) Represents (i) 4,310 shares of Common Stock owned by Mr. Lieber and (ii)
211,213 shares of Common Stock owned by Applewood. By virtue of being an
affiliate of an entity which is a general partner of Applewood, Mr. Lieber
may be deemed to have shared power to vote and dispose of the shares of
Common Stock owned by Applewood, Mr. Lieber disclaims beneficial ownership
with respect to the securities owned by Applewood, except to the extent of
his equity interest in such recordholder. Jonathan Lieber is the son of
Irwin Lieber.

(14) Represents (i) 4,310 shares of Common Stock owned by Mr. Lieber and (ii)
211,213 shares owned by Applewood. By virtue of being an affiliate of an
entity which is a general partner of Applewood, Mr. Lieber may be deemed to
have shared power to vote and dispose of the shares of Common Stock owned by
Applewood. Mr. Lieber disclaims beneficial ownership with respect to the
securities owned by Applewood, except to the extent of his equity interest
in such recordholder. Seth Lieber is the son of Irwin Lieber.

(15) Includes 34,498 shares of Common Stock issuable upon presently exercisable
options.

(16) Represents 34,498 shares of Common Stock issuable upon presently
exercisable options and 69,779 shares of Common Stock which are owned by Mr.
Graham and his wife as joint tenants.

(17) Includes 3,337 shares of Common Stock issuable upon presently exercisable
options held by Charles Nicholas, who is the controlling stockholder and a
director of Archon Press.

(18) Includes 21,666 shares of Common Stock issuable upon presently exercisable
options.

(19) Includes 90,662 shares of Common Stock issuable upon presently exercisable
options and 1,120,748 shares owned by 21st Foreign, 21st Partners, 21st T-E,
Applewood and Woodland.

40
<PAGE>
CERTAIN TRANSACTIONS

SALES OF DEBT AND EQUITY SECURITIES. From time to time, the Company has
raised capital through the sale of debt and equity securities. Most of the
investors in such offerings have been officers, directors and entities
associated with directors, and beneficial owners of 5% or more of the Company's
securities. In each transaction, such persons participated on terms no more
favorable than those offered to all other investors.

In May 1994, the Company entered into an agreement with Aladdin, whereby
Aladdin agreed to produce no less than 50 books per year for the Company through
January 1, 2002. The books are to be wholly-owned by the Company. 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 U.S.A., Canada
and the Philippines. Royalties are paid to Aladdin based on the Company sales.
Development recovery amounts are paid to the Company based on sales by Aladdin
to other parts of the world. Net payables to Aladdin at July 31, 1996 and 1995,
were $556,000 and $355,000, respectively, which includes goods on order,
payables, shared product development costs and net royalty payments. As of
October 17, 1996, net payables to Aladdin were approximately $1.3 million of
which the Company was delinquent on approximately $440,000. Approximately
$400,000 of the net proceeds of this Offering will be used to pay Aladdin.
Concurrent with the agreement with Aladdin, The Archon Press, an
Aladdin-affiliated company, agreed to invest $500,000 in the Company in return
for Common Stock. This investment was received by the Company over a period of
months in the fiscal year ended July 31, 1995, as follows:

- In October 1994, the Company issued 31,063 shares of its Common Stock to
Archon Press for an aggregate purchase price of $200,000.

- In December 1994, the Company issued 15,531 shares of its Common Stock to
Archon Press for an aggregate purchase price of $100,000.

- In February 1995, the Company issued 15,531 shares of its Common Stock to
Archon Press for an aggregate purchase price of $100,000.

- In April 1995, the Company issued 15,531 shares of its Common Stock to
Archon Press for an aggregate purchase price of $100,000.

In June 1995, the Company entered into Subscription Agreements pursuant to
which it sold to Applewood and 21st Century Funds an aggregate of 155,437 shares
of Common Stock, for an aggregate purchase price of 1,000,000.

In December 1995, the Company entered into the Loan and Security Agreement
which provides the Company with a $2.7 million revolving line of credit. Such
line of credit is partially collateralized by the Company's accounts
receivables, which are personally guaranteed by Messrs. Graham and Farrell and
Ms. Reynolds. However, each of such officers has a right of contribution from
all of the current stockholders of the Company in the event the Company fails to
indemnify each of such officers from a claim under the guaranty. Such officers
do not intend to personally guarantee any indebtedness or other obligations of
the Company in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

In April 1996, in connection with the Prebridge Financing, Applewood, 21st
T-E, 21st Foreign and 21st Partners, entities that own more than 5% of the
outstanding Common Stock, purchased $250,000, $57,000, $23,000 and $170,000
principal amounts of the Prebridge Notes, respectively.

In August 1996, the Company consummated the Bridge Financing. As part of
such Bridge Financing, Applewood, 21st T-E, 21st Foreign and 21st Partners
converted their Prebridge Notes into Bridge Units and accordingly received
$250,000 principal amount of Bridge Notes and 125,000 Bridge Warrants, $57,000

41
<PAGE>
principal amount of Bridge Notes and 28,500 Bridge Warrants, $23,000 principal
amount of Bridge Notes and 11,500 Bridge Warrants and $170,000 principal amount
of Bridge Notes and 85,000 Bridge Warrants, respectively. Upon the effective
date of this Offering, the Bridge Warrants will be automatically converted into
Warrants on a one-for-one basis. Messrs. Rubenstein and Fingerhut, directors of
the Company, are general partners of Applewood and are directors and officers of
InfoMedia, which is a general partner of 21st Foreign, 21st T-E and 21st
Partners. Mr. Marocco, a director of the Company, is an officer and director of
an entity which is a general partner of an entity that is a general partner of
21st Foreign, 21st T-E and 21st Partners.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company is 13,000,000 shares, consisting
of 12,000,000 shares of Common Stock, $.01 par value per share and 1,000,000
shares of preferred stock, $.01 par value per share ("Preferred Stock"). As of
October 15, 1996, there were 1,500,000 shares of Common Stock outstanding. Upon
the completion of this Offering there will be 3,000,000 shares of Common Stock
outstanding, after giving effect to the Preferred Stock Conversion. No shares of
Preferred Stock will be outstanding after the date hereof.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no redemption, preemptive or other subscription rights, and there
are no conversion provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued and paid for as set forth in this Prospectus, will be, fully
paid and nonassessable.

PREFERRED STOCK

On the effective date of the Registration Statement, of which this
Prospectus is a part, all of the outstanding shares of the Company's Preferred
Stock and all accrued and unpaid dividends thereon will convert into 473,692
shares of Common Stock (post-Reverse Stock Split) in accordance with the
Company's Certificate of Incorporation, as amended. Subsequent to the Preferred
Stock Conversion, the Company's authorized shares of Preferred Stock may be
issued in one or more series, and the Board of Directors is authorized, without
further action by the stockholders, to designate the rights, preferences,
limitations and restrictions of and upon shares of each series, including
dividend, voting, redemption and conversion rights. The Board of Directors also
may designate par value, preferences in liquidation and the number of shares
constituting any series. The Company believes that the availability of Preferred
Stock issuable in series will provide increased flexibility for structuring
possible future financings and acquisitions, if any, and in meeting other
corporate needs. It is not possible to state the actual effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
terms, rights and preferences of a series of Preferred Stock. However, such
effects might include, among other things, restricting dividends on the Common
Stock, diluting the voting power of the Common Stock, or impairing liquidation
rights of such shares without further action by holders of the Common Stock. In
addition, under various circumstances, the issuance of Preferred Stock may have
the effect of facilitating, as well as impeding or discouraging, a

42
<PAGE>
merger, tender offer, proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent management.
Issuance of Preferred Stock could also adversely effect the market price of the
Common Stock. The Company has no present plan to issue any additional shares of
Preferred Stock.

WARRANTS

Each Warrant, including Warrants converted from Bridge Warrants, are issued
pursuant to a Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company as warrant agent. The following statements are subject
to the detailed provisions of and are qualified in their entirety by reference
to the Warrant Agreement, which is included as an exhibit to the Registration
Statement of which this Prospectus is a part.

During the four-year period commencing one year after the date of this
Prospectus, each Warrant will entitle the registered holder to purchase one
share of the Company's Common Stock at an exercise price of $4.50 per share. The
Warrants may be called by the Company with the Underwriter's prior consent at
any time once they become exercisable, for a redemption price of $.01 per
Warrant if notice of not less than 30 days is given and the last sale price of
the Common Stock has been at least 155% of the then exercise price of the
Warrants on 20 of the 25 trading days ending on the third day prior to the day
on which notice is given. No fractional shares of Common Stock will be issued in
connection with the exercise of Warrants. Upon exercise, the Company will pay
the holder the value of any such fractional shares in cash, based upon the
market value of the Common Stock at such time.

The Company will be able to issue shares of its Common Stock upon exercise
of the Warrants only if there is then a current prospectus relating to such
Common Stock, and only if such Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of the Warrants reside. The Company has undertaken and
intends to file and keep current a prospectus which will permit the purchase and
sale of the Common Stock underlying the Warrants, but there can be no assurance
that the Company will be able to do so. Although the Company intends to seek to
qualify for sale the shares of Common Stock underlying the Warrants in those
states in which the securities are to be offered, no assurance can be given that
such qualification will occur.

The Warrants will expire at 5:00 p.m., New York time, on the fifth
anniversary of the date of this Prospectus. In the event a holder of Warrants
fails to exercise the Warrants prior to their expiration, the Warrants will
expire and the holder thereof will have no further rights with respect to the
Warrants.

A holder of Warrants will not have any rights, privileges or liabilities as
a stockholder of the Company prior to exercise of the Warrants. The Company is
required to keep available a sufficient number of authorized shares of Common
Stock to permit exercise of the Warrants.

The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of a merger, acquisition, recapitalization, or split-up of
the Common Stock, the issuance of a stock dividend or any similar event. No
assurance can be given that the market price of the Company's Common Stock will
exceed the exercise price of the Warrants at any time during the exercise
period.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Certificate of Incorporation, as amended, limits the personal liability of a
director or officer to the Company for monetary damages for breach of fiduciary
duty of care as a director. Liability is not eliminated for (i) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payment of

43
<PAGE>
dividends or stock purchases or redemptions pursuant to Section 174 of the DGCL,
or (iv) any transaction from which the director derived an improper personal
benefit.

The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited circumstances,
including on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.

DELAWARE LAW

The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.

The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.

TRANSFER AGENT, WARRANT AGENT AND REGISTRAR

The transfer agent, warrant agent and registrar for the Common Stock and the
Company's Warrants is Continental Stock Transfer & Trust Company, New York, NY.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering and after giving effect to the Preferred
Stock Conversion, the Company will have outstanding 3,000,000 shares of Common
Stock, not including shares of Common Stock issuable upon exercise of
outstanding options or warrants.

- Of these outstanding shares, the 1,500,000 shares of Common Stock sold to
the public in this Offering may be freely traded without restriction or
further registration under the Securities Act, except that any shares
that may be held by an "affiliate" of the Company (as that term is
defined in the rules and regulations under the Securities Act) may be
sold only pursuant to a registration under the Securities Act or pursuant
to an exemption from registration under the Securities Act, including the
exemption provided by Rule 144 adopted under the Securities Act.

44
<PAGE>
- The 1,500,000 shares of Common Stock outstanding prior to the
consummation of this Offering are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares") and
may not be sold unless such sale is registered under the Securities Act,
or is made pursuant to an exemption from registration under the
Securities Act, including the exemption provided by Rule 144. Of such
shares, 1,313,594 shares are presently available for sale pursuant to
Rule 144, (ii) 15,531 shares will be available for sale pursuant to Rule
144 commencing February 1997 and (iii) 15,531 shares will be available
for sale pursuant to Rule 144 commencing April 1997 and (iv) 155,344
shares will be available for sale pursuant to Rule 144 commencing June
1997. All officers, directors and existing stockholders of the Company
have agreed that for a period of 24 months after the date of this
Prospectus, they will not sell any of their shares (representing all of
the Restricted Shares) without the prior consent of the Underwriter. See
"Description of Securities."

In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
restricted securities for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Securities and Exchange
Commission ("Commission"), provided certain public information, manner of sale
and notice requirements are satisfied. A stockholder who is deemed to be an
affiliate of the Company, including members of the Board of Directors and senior
management of the Company, will still need to comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock that are not restricted securities, unless
such sale is registered under the Securities Act. A stockholder (or stockholders
whose shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned restricted securities for at least three years, will
be entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. The Commission is currently considering a reduction
in the required holding periods under Rule 144.

No predictions can be made of the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect the then-prevailing
market price.

45
<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION

The Company has agreed to register for sale under the Securities Act
concurrently with the Offering the Warrants converted from the Bridge Warrants.
An aggregate of 875,000 Warrants may be offered and sold pursuant to this
Prospectus by the holders thereof. The Warrants offered by the Selling
Securityholders are not part of the underwritten Offering. The Company will not
receive any of the proceeds from the sale of the Warrants.

The Warrants registered for sale on behalf of the Selling Securityholders
under the Registration Statement of which this Prospectus forms a part may be
offered and sold from time to time in regular brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market ("Nasdaq"), in
transactions directly with market makers, in certain privately-negotiated
transactions, or through a combination of such methods of sale, at fixed prices
which may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling their Warrants directly to purchasers or to or through broker-dealers
(including the Underwriter), which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Securityholders and/or the purchasers of the
Warrants for whom such broker-dealers may act as agents or to whom they sell as
principal, or both. The Selling Securityholders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their Warrants. The
Selling Securityholders and any broker-dealers that act in connection with the
sale of the Warrants might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act.

The following table sets forth the name of each Selling Securityholder and
the shares of Common Stock beneficially owned on December 1, 1996 and the number
of Warrants registered for resale. All of such Warrants are being registered for
sale under the Registration Statement of which this Prospectus forms a part, and
the Company believes that all such Warrants will be owned by the respective
holders thereof following the consummation of the Offering and prior to resale.
Notwithstanding that such Warrants are being registered, the Selling
Securityholders have agreed that none of such Warrants may be sold prior to one
year following the consummation of the Offering without the prior written
consent of the Underwriter. The Underwriter may, depending upon market
conditions, release the lock-up prior to one year.

Although none of the Selling Securityholders has ever held any position or
office with the Company or had any other material relationship with the Company,
21st Partners, 21st T-E, 21st Foreign and Applewood are affiliated with certain
directors and current stockholders of the Company. Rebecca Rubenstein is the
daughter of Barry Rubenstein. Jeffrey Rubinstein is the brother of Barry
Rubenstein.

46
<PAGE>
Barry Rubenstein disclaims beneficial ownership of all shares of Common Stock
held by Rebecca Rubenstein and Jeffrey Rubinstein. See "Principal Stockholders."

<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK NUMBER OF
BENEFICIALLY WARRANTS
OWNED(1) REGISTERED
------------------- FOR
NUMBER PERCENT RESALE
---------- ------- ---------
<S> <C> <C> <C>
Applewood Associates L.P.............................................. 211,213 14.1% 125,000
Gordon M. Freeman..................................................... 0 3.3% 100,000
21st Century Communications Partners, L.P............................. 883,678(2) 29.5% 85,000
Steven Etra........................................................... 0 1.0% 31,250
21st Century Communications T-E Partners, L.P......................... 883,678(3) 29.5% 28,500
Damerel Trading S.A................................................... 0 * 25,000
ALSA, Inc............................................................. 0 * 25,000
Rebecca Rubenstein.................................................... 0 * 25,000
Jeffrey Rubinstein.................................................... 0 * 25,000
William Wolfson....................................................... 0 * 25,000
Chana Sasha Foundation................................................ 0 * 16,667
Abraham Wolfson....................................................... 0 * 16,667
Aaron Wolfson......................................................... 0 * 16,666
Leon Abramson and Lorraine Abramson................................... 0 * 12,500
Richard Ackerman...................................................... 0 * 12,500
David Alexander....................................................... 0 * 12,500
Neil Bellett.......................................................... 0 * 12,500
Robert Bender......................................................... 0 * 12,500
Daniel Berger and Carolyn Berger...................................... 0 * 12,500
Kenneth D. Cole....................................................... 0 * 12,500
Drew Effron........................................................... 0 * 12,500
Chris Engel........................................................... 0 * 12,500
Richard Etra and Kenneth Etra......................................... 0 * 12,500
Andrew Feiner......................................................... 0 * 12,500
Ernest Gottdiener..................................................... 0 * 12,500
Paula Graff........................................................... 0 * 12,500
Peter Hunt............................................................ 0 * 12,500
Daniel A. Kaplan...................................................... 0 * 12,500
Richard C. Kaufman and Elaine J. Lenart............................... 0 * 12,500
Norman Kurtz.......................................................... 0 * 12,500
Mariwood Investments.................................................. 0 * 12,500
Anthony Peyser........................................................ 0 * 12,500
RJB Partners, L.P..................................................... 0 * 12,500
Alan J. Rubin......................................................... 0 * 12,500
Curtis Schenker....................................................... 0 * 12,500
Alan and Nancy Shapiro................................................ 0 * 12,500
Carl E. Siegel........................................................ 0 * 12,500
21st Century Communications Foreign Partners, L.P..................... 883,678(4) 29.5% 11,500
Steven Rosen.......................................................... 0 * 6,250
Gregory Trubowitsch................................................... 0 * 6,250
Charles Warshaw....................................................... 0 * 6,250
</TABLE>

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

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock upon the

47
<PAGE>
exercise of options, warrants currently exercisable, or exercisable or
convertible within 60 days, are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants but are
not deemed outstanding for computing the percentage ownership of any other
person. As of the date of this Prospectus, none of the Warrants are
currently exercisable within 60 days and accordingly the shares of Common
Stock underlying such Warrants are not deemed to be outstanding.

(2) Represents (i) 599,160 shares of Common Stock owned by 21st Partners, (ii)
203,856 shares of Common Stock owned by 21st T-E and 80,662 shares of Common
Stock owned by 21st Foreign, of which 21st Partners disclaims beneficial
ownership.

(3) Represents (i) 203,856 shares of Common Stock owned by 21st T-E, (ii)
599,160 shares of Common Stock owned by 21st Partners and (iii) 80,662
shares of Common Stock owned by 21st Foreign, of which 21st T-E disclaims
beneficial ownership.

(4) Represents (i) 80,662 shares of Common Stock owned by 21st Foreign, (ii)
599,160 shares of Common Stock owned by 21st Partners and (iii) 203,856
shares of Common Stock owned by 21st T-E, of which 21st Foreign disclaims
beneficial ownership.

UNDERWRITING

GKN Securities Corp. ("Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,500,000 shares of Common Stock and 1,500,000 Warrants (collectively, the
"Securities"). The obligations of the Underwriter under the Underwriting
Agreement are subject to approval of certain legal matters by counsel and
various other conditions precedent, and the Underwriter is obligated to purchase
all of the Securities offered by this Prospectus (other than the Securities
covered by the over-allotment option described below) if any are purchased.

The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the initial offering price set forth on the cover
page of this Prospectus and to certain dealers at that price less a concession
not in excess of $ per share of Common Stock and $ per Warrant. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share of Common Stock and $ per Warrant to certain other
dealers. After this Offering, the offering price and other selling terms may be
changed by the Underwriter.

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 3% of the gross proceeds derived from the sale of the Securities
offered by this Prospectus (including the sale of any Securities subject to the
Underwriter's over-allotment option), $50,000 of which has been paid to date.
The Company also has agreed to pay all expenses in connection with qualifying
the shares of Common Stock offered hereby for sale under the laws of such states
as the Underwriter may designate and registering this Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriter.

The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company at
the offering price, less underwriting discounts and the nonaccountable expense
allowance, up to an aggregate of 225,000 additional shares of Common Stock
and/or 225,000 additional Warrants for the sole purpose of covering
over-allotments, if any.

The Company has engaged the Underwriter, on a nonexclusive basis, as its
agent for the solicitation of the exercise of the Warrants. Additionally, other
NASD members may be engaged by the Underwriter in its solicitation efforts. To
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed to pay the Underwriter for
bona fide services

48
<PAGE>
rendered a commission equal to 5% of the exercise price for each Warrant
exercised if the exercise was solicited by the Underwriter. In addition to
soliciting, either orally or in writing, the exercise of the Warrants, such
services may also include disseminating information, either orally or in
writing, to warrantholders about the Company or the market for the Company's
securities, and assisting in the processing of the exercise of the Warrants. No
compensation will be paid to the Underwriter in connection with the exercise of
the Warrants if the market price of the underlying shares of Common Stock is
lower than the exercise price, the Warrants are held in a discretionary account,
the Warrants are exercised in an unsolicited transaction, the warrantholder has
not confirmed in writing that the Underwriter solicited such exercise or the
arrangement to pay the commission is not disclosed in the prospectus provided to
warrantholders at the time of exercise. In addition, unless granted an exemption
by the Commission from Rule 10b-6 under the Exchange Act, while it is soliciting
exercise of the Warrants, the Underwriter will be prohibited from engaging in
any market activities or solicited brokerage activities with regard to the
Company's securities unless the Underwriter has waived its right to receive a
fee for the exercise of the Warrants.

In connection with this Offering, the Company has agreed to sell to the
Underwriter for an aggregate of $100, the Underwriter's Purchase Option,
consisting of the right to purchase up to an aggregate of 150,000 shares of
Common Stock and/or an aggregate of 150,000 Warrants. The Underwriter's Purchase
Option is exercisable initially at a price of % of the initial offering price
of the Securities for a period of four years commencing one year from the date
hereof. The Underwriter's Purchase Option may not be transferred, sold, assigned
or hypothecated during the one year period following the date of this Prospectus
except to officers of the Underwriter and the selected dealers and their
officers or partners. The Underwriter's Purchase Option grants to the holders
thereof certain "piggyback" and demand rights for periods of seven and five
years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriter's Purchase Option.

Pursuant to the Underwriting Agreement, all of the officers, directors and
existing stockholders of the Company as of the date of this Prospectus (who hold
in the aggregate 1,500,000 outstanding shares of Common Stock) have agreed not
to sell any of their shares of Common Stock until 24 months from the date of
this Prospectus. In addition, the Underwriting Agreement provides that, for a
period of three years from the date of this Prospectus, the Company will
recommend and use its best efforts to elect a designee of the Underwriter as a
member of the Board of Directors. Alternatively, the Underwriter will have the
right to send a representative to observe each meeting of the Board of
Directors. The Underwriter has not yet selected such designee or representative.
During the three-year period following the date of this Prospectus, the
Underwriter shall have the right to purchase for the Underwriter's account or to
sell for the account of the officers and directors of the Company (and any
family member or affiliate of any of the foregoing persons), any securities sold
by any of such persons in the open market.

Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the Offering Price of the Securities and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriter and do not necessarily bear any relation to established
valuation criteria. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included an assessment of the prospect
for the industry in which the Company will compete, the Company's management and
the Company's capital structure.

In August 1996, the Underwriter acted as placement agent in the Bridge
Financing and was paid commissions of $148,750 (8.5%) and a nonaccountable
expense allowance of $52,500 (3%).

49
<PAGE>
LEGAL MATTERS

Certain legal matters in connection with the securities offered hereby are
being passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New
York, New York. Graubard Mollen & Miller, New York, New York, has served as
counsel to the Underwriter in connection with this Offering.

EXPERTS

The financial statements of Millbrook as of July 31, 1995 and 1996 and for
each of the years in the two year period ended July 31, 1996 have been included
herein and in the Registration Statement of which this Prospectus is a part, in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock and Warrants offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the securities
offered by this Prospectus and such omitted information, reference is made to
the Registration Statement, including any and all exhibits and amendments
thereto. Statements contained in this Prospectus concerning the provisions of
any document filed as an exhibit are of necessity brief descriptions thereof and
are not necessarily complete, and in each instance reference is made to the copy
of the document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by this reference.

Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith the Company files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. Copies of
such material, including the Registration Statement, can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Common Stock and the Warrants are traded on
the Nasdaq SmallCap Market and The Boston Stock Exchange. The foregoing material
should also be available for inspection at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C., 20006 and The
Boston Stock Exchange, One Boston Place, Boston, Massachusetts 02108. The
Commission also maintains a site on the Worldwide Web that contains reports,
proxy and information statements and other information regarding Registrants
that file electronically. The address of such site is http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited and reported on by its
independent public accounting firm, and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.

50
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report..................................................... F-2

Balance Sheets at July 31, 1995 and 1996......................................... F-3

Statements of Operations for the years ended July 31, 1995 and 1996.............. F-4

Statements of Stockholders' Equity for the years ended July 31, 1995 and 1996.... F-5

Statements of Cash Flows for the years ended July 31, 1995 and 1996.............. F-6

Notes to Financial Statements at July 31, 1995 and 1996.......................... F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of The Millbrook Press Inc.
as of July 31, 1995 and 1996, and the related statements of operations,
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Millbrook Press Inc. as
of July 31, 1995 and 1996 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

October 16, 1996
New York, New York

F-2
<PAGE>
THE MILLBROOK PRESS INC.

BALANCE SHEETS

JULY 31, 1995 AND 1996
ASSETS

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash............................................................................. $ 538,000 $ 134,000
Accounts receivable (less allowance for returns and bad debts of $213,000 in 1995
and $329,000 in 1996).......................................................... 1,283,000 2,084,000
Inventories...................................................................... 2,658,000 3,477,000
Royalty advances, net............................................................ 394,000 364,000
Prepaid expenses................................................................. 326,000 292,000
------------- -------------
Total current assets........................................................... 5,199,000 6,351,000
------------- -------------
Plant costs, net................................................................... 2,063,000 2,582,000
Fixed assets, net.................................................................. 235,000 270,000
Goodwill, net...................................................................... 3,431,000 3,245,000
Royalty advances, net.............................................................. 127,000 67,000
Other assets....................................................................... 23,000 59,000
------------- -------------
Total assets................................................................... $ 11,078,000 $ 12,574,000
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable to banks (note 4)............................... $ 2,000,000 $ 2,742,000
Accounts payable and accrued expenses............................................ 1,483,000 2,141,000
Royalties payable................................................................ 91,000 150,000
------------- -------------
Total current liabilities...................................................... 3,574,000 5,033,000
Shareholder notes (note 5)......................................................... -- 500,000
------------- -------------
Total liabilities.............................................................. 3,574,000 5,533,000
------------- -------------
Commitments (note 9)
Stockholders' equity:
12% Series A voting, cumulative Preferred Stock, par value $.01 per share;
authorized 10,000 shares; issued and outstanding 4,700 shares (at aggregate
liquidation preference including dividends in arrears)......................... 5,534,000 6,190,000
Common Stock, par value $.01 per share, authorized 5,000,000 shares; issued and
outstanding 1,026,308 shares in 1995 and 1996.................................. 10,000 10,000
Additional paid-in capital....................................................... 3,991,000 3,991,000
Accumulated deficit.............................................................. (2,031,000) (3,150,000)
------------- -------------
Total stockholders' equity..................................................... 7,504,000 7,041,000
------------- -------------
Total liabilities and stockholders' equity..................................... $ 11,078,000 $ 12,574,000
------------- -------------
------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-3
<PAGE>
THE MILLBROOK PRESS INC.

STATEMENTS OF OPERATIONS

YEARS ENDED JULY 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 6,866,000 $ 9,940,000
Cost of sales....................................................................... 3,407,000 5,099,000
------------- -------------
Gross profit...................................................................... 3,459,000 4,841,000
------------- -------------

Operating expenses:
Selling and marketing............................................................. 3,024,000 3,854,000
General and administrative........................................................ 1,051,000 1,205,000
------------- -------------
Total operating expenses........................................................ 4,075,000 5,059,000
------------- -------------
Operating loss...................................................................... (616,000) (218,000)
Interest expense.................................................................... 190,000 245,000
------------- -------------
Net loss............................................................................ (806,000) (463,000)
Preferred dividend accrued.......................................................... (589,000) (656,000)
------------- -------------
Net loss available to common stockholders........................................... $ (1,395,000) $ (1,119,000)
------------- -------------
------------- -------------
Loss per share after preferred dividend requirements (primary and fully diluted).... $ (1.60) $ (1.09)
------------- -------------
------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-4
<PAGE>
THE MILLBROOK PRESS INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED JULY 31, 1995 AND 1996

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ------------ ---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994........... 4,700 $ 4,945,000 793,215 $ 8,000 $ 2,493,000 $ (636,000) $ 6,810,000
Sale of common stock............... -- -- 233,093 2,000 1,498,000 -- 1,500,000
Preferred stock dividend........... -- 589,000 -- -- -- (589,000) --
Net loss........................... -- -- -- -- -- (806,000) (806,000)
----- ------------ ---------- --------- ------------ ------------- -------------
Balance at July 31, 1995........... 4,700 5,534,000 1,026,308 10,000 3,991,000 (2,031,000) 7,504,000
Preferred stock dividend........... -- 656,000 -- -- -- (656,000) --
Net loss........................... -- -- -- -- -- (463,000) (463,000)
----- ------------ ---------- --------- ------------ ------------- -------------
Balance at July 31, 1996........... 4,700 $ 6,190,000 1,026,308 $ 10,000 $ 3,991,000 $ (3,150,000) $ 7,041,000
----- ------------ ---------- --------- ------------ ------------- -------------
----- ------------ ---------- --------- ------------ ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-5
<PAGE>
THE MILLBROOK PRESS INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (806,000) $ (463,000)
Depreciation and amortization..................................................... 1,102,000 1,047,000
Provision for returns and bad debts............................................... 18,000 116,000
Changes in assets and liabilities:
Increase in accounts receivable................................................. (252,000) (917,000)
Increase in inventories......................................................... (1,034,000) (819,000)
Decrease in royalty advances.................................................... 57,000 90,000
(Increase) decrease in prepaid expenses......................................... (194,000) 34,000
Increase in other assets........................................................ -- (36,000)
Increase in accounts payable and accrued expenses............................... 480,000 658,000
Increase in royalties payable................................................... 26,000 59,000
------------- -------------
Net cash used in operating activities......................................... (603,000) (231,000)
------------- -------------

Cash flows from investing activities:
Capital expenditures.............................................................. (112,000) (102,000)
Plant costs....................................................................... (1,221,000) (1,313,000)
------------- -------------
Net cash used in investing activities......................................... (1,333,000) (1,415,000)
------------- -------------

Cash flows from financing activities:
Repayment of debt................................................................. -- (2,000,000)
Proceeds from borrowings under notes payable...................................... 600,000 3,242,000
Proceeds from sale of capital stock............................................... 1,500,000 --
------------- -------------
Net cash provided by financing activities..................................... 2,100,000 1,242,000
------------- -------------
Net increase (decrease) in cash............................................... 164,000 (404,000)
Cash at beginning of period....................................................... 374,000 538,000
------------- -------------
Cash at end of period............................................................. $ 538,000 $ 134,000
------------- -------------
------------- -------------

Supplemental disclosures:
Interest paid..................................................................... $ 190,000 $ 239,000
------------- -------------
------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-6
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 1995 AND 1996

(1) DESCRIPTION OF THE BUSINESS AND FINANCIAL STATUS AND PLANS

DESCRIPTION OF THE BUSINESS

The Millbrook Press Inc. ("Company") was incorporated and commenced
operations as an independent company on February 23, 1994. The Company is a
publisher of children's nonfiction books, in both hardcover and paperbacks, for
preschoolers through young adults. The Company's books are distributed to the
school and public library market, trade bookstores and other specialty retail
and direct sales markets through wholesalers, its own telemarketing efforts and
commissioned sales representatives. The Company was formed to acquire the net
assets of a wholly owned subsidiary of Antia Publishing Company, which is a
wholly owned subsidiary of Groupe de la Cite International, a French
corporation.

On February 23, 1994 the Company sold 4,700 shares of preferred stock and
715,683 shares of common stock for a total of $6,700,000 and used a portion of
such proceeds to acquire substantially all of the net assets related to the
business of the Company. In conjunction with the acquisition, the purchase price
was allocated as follows:

<TABLE>
<S> <C>
Cash paid, including acquisition costs...................... $ 3,025,000
Fair value of liabilities assumed........................... 6,384,000
-------------
Total purchase price...................................... 9,409,000

Less: Fair value of assets acquired......................... 5,718,000
-------------
Costs in excess of fair value of net assets acquired........ $ 3,691,000
-------------
-------------
</TABLE>

Also on February 23, 1994, the Company repaid acquired debt payable to
Societe Generale in the amount of $4,911,000.

During fiscal 1995 and June 1994, the Company sold 233,093 and 77,532 shares
of common stock for $1,500,000 and $500,000, respectively. Of the 233,093 shares
sold, 77,656 were sold to The Archon Press through the transaction described
below.

Concurrent with the agreement with Aladdin Books, detailed in note 9, The
Archon Press, an Aladdin-affiliated company, agreed to invest $500,000 in The
Millbrook Press. This investment was received over a period of months in fiscal
1995. Archon currently owns 77,656 common shares (7.57%) of the Company.

FINANCIAL STATUS AND PLANS

The Company has incurred losses of $1,660,000 since its inception. The
Company has taken or is planning the following actions to fund its ongoing
operations and to maintain compliance with certain covenants relating to its
notes payable to its bank.

- The Company has obtained a deferral of compliance with certain covenants
under its notes payable to the bank through December 31, 1996.

- In August 1996, the Company received proceeds of $1,036,000, net of
offering costs ($214,000) and the conversion of shareholder loans
($500,000) as described in note 12. These proceeds were used to fund
working capital requirements. The aggregate debt of $1,750,000 becomes due
and payable

F-7
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(1) DESCRIPTION OF THE BUSINESS AND FINANCIAL STATUS AND PLANS (CONTINUED)
upon the earlier of February 28, 1998 or the completion of an initial
public offering by the Company.

- The Company is in the process of offering 1,500,000 shares of common stock
in an initial public offering to raise approximately $6,325,000 which is
scheduled for completion in the second quarter of fiscal 1997. Management
intends to use the proceeds to repay the $1,750,000 bridge loan and
finance its working capital needs and the expansion of its operations.

There can be no assurance that the initial public offering will be
successfully completed and that, absent of the initial public offering, the
Company will be in compliance with its debt covenants once the waiver expires on
December 31, 1996 or that the Company will be able to repay its indebtedness
when due. If the initial public offering is not successfully completed, the
Company anticipates that it will have to refinance existing indebtedness, sell
assets and/or otherwise raise funds in either the private or public markets and
seek further waivers from its lenders. There can be no assurance, however, that
the Company will be able to raise such funds.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISKS

Revenue from the sale of books to wholesalers is 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.

Ongoing credit evaluations of customers' financial condition are performed
and collateral is not required. One customer accounted for 19% and 17% of the
Company's net sales for the years ended July 31, 1995 and 1996, respectively.

INVENTORIES

Inventories of sheets and bound books, which are primarily located in a
public warehouse and in-transit or at customers as inventory on preview, are
stated at the lower of cost or market, with cost determined by the average cost
method.

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 incurred based upon estimated sales, such excess is immediately
expensed. Royalty advances for publications to be published in excess of one
year from the balance sheet date are classified as non-current assets.

PLANT COSTS

Plant costs consisting of plates, photo engraving, separations, and other
text costs of unpublished books are amortized over three to five years from
publication date or the estimated remaining life, if

F-8
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shorter. Plant costs at July 31, 1995 and 1996 are presented net of accumulated
amortization of $1,300,000 and $979,000, respectively.

ADVERTISING COSTS

Advertising costs consisting of the costs of producing and distributing
catalogs are expensed in the periods in which the costs are incurred.
Advertising expense for the years ended July 31, 1995 and 1996 was $349,000 and
$328,000, respectively.

FIXED ASSETS

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

GOODWILL AND OTHER LONG LIVED ASSETS

Goodwill represents the excess of the cost over the fair value of the net
assets of the Company acquired on February 23, 1994. For financial reporting
purposes, the excess of cost over the fair value of net assets acquired is
amortized over 20 years using the straight-line method. Accumulated amortization
at July 31, 1995 and 1996 is $259,000 and $446,000, respectively. Pursuant to
Internal Revenue Code Section 197, for Federal income tax purposes such goodwill
is deductible over 15 years.

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

INCOME TAXES

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

EARNINGS PER SHARE

Earnings (loss) per share are net earnings (loss) less the dividend
requirements on preferred stock, divided by the weighted average number of
common stock outstanding for the periods. Per share data does not assume the
exercise of common stock options issued under the non-qualified 1994 Stock
Option Plan or the exercise of the warrants issued in conjunction with the
Bridge financing (note 12) because the effects of such exercise would have been
antidilutive. Per share data reflects the reverse stock split effected on August
29, 1996 described in note 12.

F-9
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123--Accounting for
Stock-Based Compensation. As allowable by SFAS 123, the Company does not intend
to recognize compensation cost for stock-based employee compensation
arrangements, but rather, starting in fiscal 1997, will disclose the pro-forma
impact on net income (loss) and earnings (loss) per share as if the fair value
stock-based compensation had been recognized starting in fiscal 1996.

Other pronouncements issued by the FASB or other authoritative accounting
standard groups with future effective dates either are not applicable or are not
significant to the financial statements of the Company.

USE OF ESTIMATES

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

(3) FIXED ASSETS

Fixed assets at July 31, 1995 and 1996, consist of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Office furniture and equipment........................................ $ 105,000 $ 125,000
Computers............................................................. 176,000 241,000
Telecommunication equipment........................................... 25,000 33,000
Leasehold improvements................................................ 19,000 28,000
---------- ----------
325,000 427,000
Accumulated depreciation.............................................. (90,000) (157,000)
---------- ----------
$ 235,000 $ 270,000
---------- ----------
---------- ----------
</TABLE>

(4) NOTES PAYABLE TO BANKS

The Company had a revolving line of credit from a bank that expired December
31, 1995. The note payable provided for an interest rate at the bank's base rate
(8.75% at July 31, 1995) plus .5% and was collateralized by substantially all of
the assets of the Company. The maximum available principal amount was
$2,000,000, all of which was outstanding at July 31, 1995.

On December 14, 1995, the Company entered into a revolving line of credit
agreement with a bank that provides for borrowings up to $2,700,000. The
proceeds of the new line of credit were used to pay off the $2,000,000
outstanding principal balance of the previous note. The new line of credit
expires on December 15, 1998 and provides for an interest rate at the bank's
base rate plus .5% (8.75% at July 31, 1996). On July 29, 1996 the bank increased
the available line of credit to $2,875,000. The additional line of

F-10
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(4) NOTES PAYABLE TO BANKS (CONTINUED)
$175,000 expired August 31, 1996. At July 31, 1996, the amount outstanding under
this credit agreement was $2,742,000. The advances under this line of credit are
collateralized by substantially all of the assets of the Company.

The revolving line of credit contains various covenants which include, among
other things, a minimum tangible net worth requirement. Although the Company has
not been in default under its line of credit agreement, in anticipation of the
Bridge Loan (decribed in note 12) and in order to maintain compliance with
certain covenants, the Company has obtained a waiver of certain covenants from
the bank that expires on December 31, 1996. The revolving line of credit
prohibits the Company from the declaration or payment of dividends without the
banks prior consent, however, dividends on preferred stock may continue to
accrue.

(5) SHAREHOLDER NOTES

On April 15, 1996, the Company issued interest-bearing promissory notes to
certain shareholders for an aggregate of $500,000. The notes carried interest at
10% and were converted into units sold by the Company as part of the private
placement bridge offering completed by the Company on August 29, 1996 as
described in note 12.

(6) INCOME TAXES

No Federal or state income taxes have been provided for the years ended July
31, 1995 and 1996, due to the Company's net operating losses. The actual income
tax expense differs from the "expected" income tax benefit computed by applying
the U.S. Federal corporate income tax rate to loss before income taxes for the
years ended July 31, 1995 and 1996 as follows:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Computed "expected" income tax benefit.............................. $ (274,000) $ (158,000)
State and local income taxes, net of Federal benefit................ (32,000) (18,000)
Increase in valuation allowance..................................... 302,000 171,000
Nondeductible expenses.............................................. 4,000 5,000
----------- -----------
Provision for income taxes........................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>

F-11
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give rise to the
deferred tax assets and deferred tax liabilities at July 31, 1995 and 1996 are
the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances...................................... $ 81,000 $ 125,000
Inventory reserves.................................................. 44,000 104,000
Accruals not currently deductible................................... 6,000 17,000
Plate and revision costs amortization............................... 241,000 230,000
Net operating loss carryforwards.................................... 259,000 368,000
---------- ----------
631,000 844,000

Less: Valuation allowance............................................. 608,000 779,000
---------- ----------
Net deferred tax asset............................................ 23,000 65,000

Deferred tax liabilities:
Goodwill amortization............................................... (21,000) (56,000)
Fixed asset depreciation............................................ (2,000) (9,000)
---------- ----------
(23,000) (65,000)
---------- ----------
Net deferred income taxes............................................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carryforwards become
deductible. Based on the Company's net operating losses to date, the Company has
established a valuation allowance of $779,000 at July 31, 1996. The Company's
tax net operating loss carryforward of approximately $970,000 at July 31, 1996,
expires in the years 2009 to 2011. The Tax Reform Act of 1986 included certain
provisions relating to changes in stock ownership which, if triggered, could
result in future annual limitations on the utilization of the net operating loss
carryforwards.

(7) STOCK OPTION PLAN

The Company has reserved 310,000 shares of common stock under its
non-qualified 1994 Stock Option Plan ("Option Plan") which provides that a
Committee, appointed by the Board of Directors, may grant stock options to
eligible employees, officers 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 and are issued at exercise prices which are not less than the
estimated fair value of the stock as determined by the Company on the date of
grant. Stock options vest in 20% increments in each of the five years after the
date of grant. In the event the Company has an initial public offering, all
non-vested options on the effective date of the initial public offering will
vest 50% one year from that date and an additional 50% two years from that date.

F-12
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(7) STOCK OPTION PLAN (CONTINUED)
As of July 31, 1995 and 1996, there were options outstanding for 245,500
shares and 285,000 shares, respectively, at an exercise price of $8.00 per
share. As of July 31, 1996, there were 107,000 options exercisable. During
fiscal 1996, no options were canceled.

In August and October 1996, the Company granted an additional 25,000 and
80,000 shares, respectively, under the Option Plan.

In October 1996, the Company amended the Option Plan to increase the number
of shares of common stock reserved under the Option Plan from 310,000 to
475,000; decrease the exercise price from $8.00 per share to the initial public
offering price; permit the granting of incentive stock options; and allow the
Stock Option and Compensation Committee of the Board of Directors to set vesting
provision at the time of grant for future stock options granted.

(8) 401(K) PROFIT SHARING PLAN

The Company maintains a Non-standardized Prototype Cash or Deferred Profit
Sharing 401(k) Plan ("Plan"). Participation in the Plan by employees requires
that they complete one month of service for the Company and attain 21 years of
age. Employees on the Plan's effective date did not have to satisfy the one-
month service requirement. The Company determines each year a discretionary
matching contribution. Such additional contribution, if any, shall be allocated
to employees in proportion to each participant's contribution. The Company did
not contribute to the Plan during the years ended July 31, 1995 and 1996.

(9) COMMITMENTS

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

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

<TABLE>
<CAPTION>
YEAR ENDING
JULY 31 AMOUNT
------------ -----------
<S> <C>
1997.......................... $ 124,000
1998.......................... 130,000
1999.......................... 131,000
2000.......................... 134,000
2001.......................... 138,000
Thereafter.................... 250,000
-----------
$ 907,000
-----------
-----------
</TABLE>

Rent expense for the years ended July 31, 1995 and 1996 were $138,000 and
$126,000, respectively.

In May 1994, the Company entered into an agreement with Aladdin Books, a
British publishing company, whereby Aladdin agreed to produce no less than 50
titles per year for Millbrook through January 1, 2002. The titles are to be
wholly owned by Millbrook. Aladdin is responsible for production, printing and
binding. Production costs are shared by Aladdin and Millbrook. Aladdin retains
sales rights

F-13
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(9) COMMITMENTS (CONTINUED)
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, 1995 and 1996 are $355,000 and
$556,000, respectively.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

NOTES PAYABLE

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

(11) PREFERRED STOCK

The Company's preferred stock has a preference in liquidation of $1,000 per
share and is redeemable at the option of the Company at the liquidation value
plus accrued and unpaid dividends. The terms of the preferred stock provide for
annual cumulative dividends equal to 12% of the liquidation value, which are
added to the liquidation value each March 31. In the event the Company has an
initial public offering, all preferred shares outstanding, plus accrued and
unpaid dividends will convert to 473,692 shares of common stock. At July 31,
1996 dividends in arrears amounted to $1,490,000 ($317 per share).

(12) SUBSEQUENT EVENTS

RECAPITALIZATION PLAN

In August 1996, the Board of Directors of the Company approved a
recapitalization plan that includes (i) a bridge financing ("Bridge Loan") in
the principal amount $1,750,000 and the issuance of an aggregate amount of
875,000 warrants as outlined below (ii) a planned initial public offering of
1,500,000 shares of common stock and 1,500,000 warrants ("Warrants") to purchase
one share of common stock for $4.50.

In connection with the Bridge Loan, the Company effected a reverse stock
split of common stock on the basis of .3976 shares of common stock for each
share of common stock. Common stock outstanding and earnings (loss) per share
data reflect the reverse stock split for all periods presented.

On October 16, 1996, the Company increased the number of authorized shares
of common stock from 5,000,000 shares to 12,000,000 shares and increased the
number of authorized shares of preferred stock from 10,000 shares to 1,000,000
shares. The preferred stock may be issued by the Board of Directors on such
terms and with such rights, preferences and designations as the Board may
determine without any vote of the stockholders.

BRIDGE LOAN

On August 29, 1996, the Company consummated the closing of a private
placement bridge offering in which it sold 17 1/2 units for an aggregate of
$1,750,000. Each unit consists of a $100,000 interest bearing

F-14
<PAGE>
THE MILLBROOK PRESS INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1995 AND 1996

(12) SUBSEQUENT EVENTS (CONTINUED)
unsecured convertible promissory note ("Note") and a warrant to purchase 50,000
shares of common stock at an initial exercise price of $5.00 per share ("Bridge
Warrant"). On the effective date of an initial public offering the Bridge
Warrants automatically convert into an aggregate 875,000 Warrants. The Note
provides for interest at a rate of 10% per annum through November 30, 1996 and
thereafter a rate of 15% per annum and is payable upon the earlier of February
28, 1998 or the closing of an initial public offering by the Company. The
carrying value of the Note has been reduced by $22,500 to reflect the fair
market value of the Bridge Warrants at issue date and will be accreted up to the
face value of $1,750,000 using the interest method. Fees incurred in connection
with the financing were $214,000.

In the event the Company does not successfully complete an initial public
offering the holders of the Notes can elect to convert the entire principal
amount and interest payable into the number of shares of common stock equal to
the principal amount and interest payable divided by $2.50.

F-15
<PAGE>
AWARDS _________________________________________________________________________

AMERICAN ASSOCIATION FOR THE
ADVANCEMENT OF SCIENCE--BEST CHILDREN'S SCIENCE BOOK LIST
CATS IN THE ZOO (1994)
CHICO MENDES: DEFENDER OF THE RAIN FOREST (1994) THE NEZ PERCES: PEOPLE OF THE
FAR
WEST (1994)
THE OJIBWAS: PEOPLE OF THE
NORTHERN FORESTS (1994)
PERFORMING DOGS: STARS OF STAGE, SCREEN,
AND TELEVISION (1994) RANCH AND FARM DOGS: HERDERS
AND GUARDS (1994) SEARCH AND RESCUE DOGS (1994)

AMERICAN BOOKSELLER--PICK OF THE LISTS
THE CROCODILE AND THE DENTIST (1995)
EVERY DAY IS EARTH DAY (1995)
ONE DAY WE HAD TO RUN! (1995)
SHARKS (1996)
WITCHES (1996)

AMERICAN LIBRARY ASSOCIATION
BEST BOOKS FOR YOUNG ADULTS
SAY IT LOUD! THE STORY OF RAP MUSIC (1995)

AMERICAN LIBRARY ASSOCIATION--PICKS FOR RELUCTANT YOUNG ADULT READERS
JIM ABBOTT: STAR PITCHER (1993)
MARIO LEMIEUX: WIZARD WITH A PUCK (1993)

AMERICAN LIBRARY ASSOCIATION-- OUTSTANDING BOOKS FOR MIDDLE SCHOOL READERS
SAY IT LOUD! THE STORY OF RAP MUSIC (1995)

BOOKLIST TOP BLACK HISTORY PICKS FOR YOUTH
AFRICAN-AMERICAN VOICES (1995)

CHILD STUDY ASSOCIATION--
CHILDREN'S BOOKS OF THE YEAR
AFRICAN-AMERICAN INVENTORS (1995)
AFRICAN-AMERICAN SCIENTISTS (1995)
AL GORE (1995)
CHICO MENDES: DEFENDER OF THE RAIN
FOREST (1995)
CHILDREN OF THE SWASTIKA:
THE HITLER YOUTH (1994)
THE CHILDREN'S ATLAS OF EXPLORATION (1994)
CHURCH AND STATE: GOVERNMENT AND
RELIGION IN THE UNITED STATES (1994) DAVID ROBINSON: NBA SUPER CENTER (1994)
DROUGHT (1994)
ELIE WIESEL: BEARING WITNESS (1995)
FREEDOM OF EXPRESSION: THE RIGHT TO SPEAK
OUT IN AMERICA (1994)
GARDENS FROM GARBAGE (1994)
HENRY DAVID THOREAU: IN STEP WITH
NATURE (1994)
THE IRISH-AMERICAN EXPERIENCE (1994)
THE IROQUOIS: PEOPLE OF THE NORTHEAST (1994)
MOHANDAS GANDHI (1995)

MOTHER JONES AND THE MARCH OF THE MILL
CHILDREN (1995)
THE ORCHESTRA: AN INTRODUCTION TO THE
WORLD OF CLASSICAL MUSIC (1994)
OUR GREAT RIVERS AND WATERWAYS (1995)
OUR SONG, OUR TOIL (1995)
OUR SUPREME COURT (1995)
THE PULLMAN STRIKE OF 1894 (1995)
THE RIGHT TO DIE: PUBLIC CONTROVERSY,
PRIVATE MATTER (1994)
RUTH BADER GINSBURG (1995)
THE SCOPES TRIAL (1995)
SONGS AND STORIES FROM THE AMERICAN
REVOLUTION (1995)
SPACES (1994)
THURGOOD MARSHALL AND EQUAL RIGHTS (1994)
THE WEST INDIAN-AMERICAN
EXPERIENCE (1995)
WOUNDED KNEE: THE DEATH OF
A DREAM (1994)

NATIONAL COUNCIL FOR SOCIAL STUDIES/ CHILDREN'S BOOK COUNCIL--NOTABLE CHILDREN'S
TRADE BOOKS IN THE FIELD OF SOCIAL STUDIES
THE AMERICAN REVOLUTION: HOW WE FOUGHT
THE WAR OF INDEPENDENCE (1996)
GROWING UP IN AMERICA: 1830-1860 (1996)
MOTHER JONES AND THE MARCH OF THE
MILL CHILDREN (1995)
OUR SONG, OUR TOIL: THE STORY OF AMERICAN
SLAVERY AS TOLD BY SLAVES (1995)
STRIKE! THE BITTER STRUGGLE OF AMERICAN WORKERS FROM COLONIAL TIMES TO THE
PRESENT (1996)

NATIONAL SCIENCE TEACHERS
ASSOCIATION/CHILDREN'S BOOK
COUNCIL--OUTSTANDING SCIENCE
TRADE BOOKS FOR CHILDREN
BONES (1996)
THE CHILDREN'S ATLAS OF NATURAL
WONDERS (1996)
LUCKY MOUSE (1996)
NATURE IN YOUR BACKYARD (1996)

SCIENTIFIC AMERICAN YOUNG
READERS BOOK AWARD
THE CROCODILE AND THE DENTIST (1995)

THE CHILDREN'S LITERATURE CHOICE LIST
LAUNCH DAY (1995)

INTERNATIONAL READING
ASSOCIATION/CHILDREN'S BOOK
COUNCIL CHILDREN'S CHOICES
DAVID ROBINSON: NBA SUPER CENTER (1994)
DRACULA (1995)
53 1/2 THINGS THAT CHANGED THE WORLD (1995)
FRANKENSTEIN (1995)
THE LOS ANGELES RIOTS: AMERICA'S CITIES
IN CRISIS (1994)
THE WINTER SOLSTICE (1995)

INTERNATIONAL READING
ASSOCIATION YOUNG ADULTS
CHOICES
VIOLENCE ON AMERICA'S STREETS (1994)

NATIONAL PARENTING CENTER SEAL OF APPROVAL
THE CHILDREN'S ATLAS OF THE HUMAN
BODY (1994)

NEW YORK PUBLIC LIBRARY BOOKS FOR THE TEEN AGE
ADOLF HITLER (1996)
AMERICAN INDIAN VOICES (1996)
ANIMAL RIGHTS: A HANDBOOK
FOR YOUNG ADULTS (1994)
BELLES OF THE BALLPARK (1994)
CAMPAIGN FINANCING (1995)
THE CATHEDRAL BUILDERS (1994)
CHILDREN OF THE SWASTIKA: THE HITLER
YOUTH (1994)
CHINA UNDER COMMUNISM (1996)
CHURCH AND STATE: GOVERNMENT AND RELIGION
IN THE UNITED STATES (1994)
COLLECTING BASEBALL CARDS (1994)
CULTS (1995)
FOOD RISKS AND CONTROVERSIES: MINIMIZING
THE DANGERS IN YOUR DIET (1994)
FREEDOM OF EXPRESSION: THE RIGHT TO SPEAK OUT IN AMERICA (1994)
GAMBLING (1996)
HIT ME WITH MUSIC (1996)
THE HUNT FOR HIDDEN KILLERS (1995)
JAPAN AND THE UNITED STATES: ECONOMIC
COMPETITORS (1994)
KNOW ABOUT GAYS AND LESBIANS (1995)
LATINO VOICES (1995)
LIBYA (1995)
THE MAGIC SHOW (1996)
MALCOLM X: HIS LIFE AND LEGACY (1996)
THE MIND AT WORK: HOW TO MAKE IT WORK
BETTER FOR YOU (1994)
MOHANDAS GANDHI (1995)
PROPHETS OF DOOM (1994)
QUINCEANERA (1995)
RIGHTS AND RESPECT (1996)
SAY IT LOUD! THE STORY OF RAP MUSIC (1995)
SCIENCE ON ICE (1996)
THOSE INCREDIBLE WOMEN OF
WORLD WAR II (1995)
THE WELFARE SYSTEM (1996)
THE WHITE POWER MOVEMENT: AMERICA'S
RACIST HATE GROUPS (1994)

SCHOOL LIBRARY JOURNAL BEST BOOKS
FOR YA'S
SAY IT LOUD! THE STORY OF RAP MUSIC (1995)

SKIPPING STONES 1996 HONOR AWARD
ONE DAY WE HAD TO RUN (1995)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 6
Risk Factors.............................................................. 6
Dilution.................................................................. 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 22
Management................................................................ 32
Principal Stockholders.................................................... 37
Certain Transactions...................................................... 41
Description of Securities................................................. 42
Shares Eligible For Future Sale........................................... 44
Selling Securityholders................................................... 46
Underwriting.............................................................. 48
Legal Matters............................................................. 50
Experts................................................................... 50
Available Information..................................................... 50
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL DECEMBER , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK AND THE WARRANTS, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

THE MILLBROOK PRESS INC.

[LOGO]

1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS

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

PROSPECTUS
--------------

[LOGO]

, 1996

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