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<TITLE>Q1 2001 10Q DOC</TITLE>
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<p align="center"><font size="3"><strong>UNITED STATES</br>
SECURITIES AND EXCHANGE COMMISSION</br>
Washington, D.C. 20549</strong></font></p>


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<br>
<p align="center"><font size="3"><strong>FORM 10-Q</strong></center></font></p>
<HR align=center SIZE=2 width="25%">

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>(Mark One)</i>


<p align="center"><font size="3"><strong>
   [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3" color="FF0000"><strong>
        for the quarterly period ended March 31, 2001
</strong></font></p>

<p align="center"><font size="3"><strong> OR </strong></font></p>

<p align="center"><font size="3"><strong>
[&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3"><strong>
 For the transition period from ________to _________
</strong></font></p>
<p align="center"><font size="3"><strong>
                       <u>Commission file number 0-24617</u>
</strong></font></p>
<p align="center"><font size="3" color="#0000FF"><strong>
                                <u>HUNGRY MINDS, INC.</u>
</strong></font></br>
<font size="3">
               (Exact name of Registrant as specified in its Charter)
</font></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<font size="3"><strong>
<CENTER><u>Delaware</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u>04-3078409</u></CENTER>
</font></strong>
</TD>
</TR>
<TR>
<TD>
<font size="3">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</font>
</TD>
<TD>
<font size="3">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<p align="center"><font size="3"><strong>
                                909 Third Avenue<br>
                              <u>New York, New York &nbsp;&nbsp; 10022
</strong></font></u><br>

<font size="3">
        (Address of Principal Executive Offices including Zip Code)
</font></p>

<p align="center"><font size="3"><strong><u>
                                 (212) 884-5000
</strong></font></u><br>

<font size="3">
                 (Registrant's Telephone Number, Including Area Code)
<br>
<br>
<br>

</font></p>

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<p>&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. &nbsp; YES [X] &nbsp;&nbsp; NO [&nbsp;&nbsp;] </p>

<p> The number of shares outstanding of the issuer's Common Stock as of May 10,
2001 was 14,780,548.<br> </p>
<br></br>
This quarterly report on Form 10-Q contains a total of 17 pages, of which this
page is page 1.




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</strong></p>
<p align="center"><strong>

                       HUNGRY MINDS, INC. AND SUBSIDIARIES<br>
                                    FORM 10-Q<br>
                                     INDEX
</strong></p>

<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=2 WIDTH=650>
  <TR vAlign=bottom>
<TD WIDTH="90%">
<font size="3"><strong>
    PART I.   Financial Information
</font></strong>
</TD>

<TD WIDTH="10%">
<font size="3"><strong>
<u>Page No.</u>
</font></strong>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 1.   Unaudited Condensed Consolidated Financial Statements
</font>
</TD>
<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
     Unaudited Condensed Consolidated Balance Sheets as of<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
           March  31, 2001 and September 30, 2000</A>
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#bs">3</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
           Unaudited Condensed Consolidated Statements of Operations for the<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          Three-Month and Six-Month Periods ended March 31, 2001 and 2000
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#ops">4</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          Unaudited Condensed Consolidated Statements of Cash Flows for the<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          Six Months ended March 31, 2001 and 2000
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#flows">5</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          Notes to Unaudited Condensed Consolidated Financial Statements
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#notes">6</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#mda">10</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

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<TD>
<font size="3">
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#market">14</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><strong>
        PART II.  Other Information
</font></strong>
</TD>

<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

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<TD>
<font size="3">
        Items 1-6
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item6">15</A></CENTER>
</font>
</TD>
</TR>


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<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><strong>
        Signature
</font></strong>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#sign">17</A></CENTER>
</font>
</TD>
</TR>
</TABLE>

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<p align="center"><strong>
PART I -- FINANCIAL INFORMATION
</strong></p>
<p>Item 1.  Financial Statements

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<A NAME="bs"></A>
<p align="center"><strong>
                     HUNGRY MINDS, INC. AND SUBSIDIARIES
<br>
             UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<br>
                     (in thousands, except share amounts)
</strong>

<pre>

                                                     March 31,   September 30,
                                                     2001             2000
                                                     ---------   ---------
                           ASSETS
Current Assets:
   Cash and equivalents............................ $   8,778   $     929
   Accounts receivable - net.......................    50,238      70,696
   Inventory - net.................................    25,298      29,719
   Other current assets............................     8,566       2,465
   Deferred tax assets.............................    22,047      22,102
                                                     ---------   ---------
           Total current assets....................   114,927     125,911
Royalty advances - net.............................    15,720      16,229
Property and equipment - net.......................    13,191      15,969
Intangible assets - net ...........................    71,758      76,901
Other assets ......................................     5,680       5,418
                                                     ---------   ---------
           TOTAL................................... $ 221,276   $ 240,428
                                                     =========   =========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable................................ $  14,195   $  19,420
   Accrued liabilities.............................    37,506      51,110
   Current portion of long-term debt...............    96,500       6,000
                                                     ---------   ---------
           Total current liabilities...............   148,201      76,530

Long-term debt.....................................        --      81,500
Deferred tax liability ............................     4,747       4,747
                                                     ---------   ---------
             Total liabilities.....................   152,948     162,777

Minority interest..................................        83         127

Commitments and contingencies

Stockholders' Equity:
   Preferred stock, $.001 par value; authorized:
     5,000,000 shares; issued and outstanding: 0
     shares........................................        --          --
   Common stock, $.001 par value; authorized:
     25,000,000 Class A shares and 400,000
     Class B shares; issued and outstanding:
     14,780,548 and 14,752,656 Class A shares at
     March 31, 2001 and September 30, 2000, respect
     and 0 Class B shares..........................        15          15
   Additional paid-in-capital......................    50,365      50,182
   Retained earnings...............................    17,848      27,337
   Accumulated other comprehensive income (loss) ..        17         (10)
                                                     ---------   ---------
             Total stockholders' equity............    68,245      77,524
                                                     ---------   ---------
             TOTAL................................. $ 221,276   $ 240,428
                                                     =========   =========
</pre>

<p align="center">
          See notes to unaudited condensed consolidated financial statements.


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<br>
<A NAME="ops"></A>
<p align="center"><strong>
                     HUNGRY MINDS, INC. AND SUBSIDIARIES
<br>
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<br>
                     (in thousands, except per share amounts)
                                (unaudited)
</strong>

<pre>

                                               Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                   2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Revenue:
   Net sales ................................ $  41,212  $  62,022    $  90,062  $  115,795
   Licensing and other revenues .............     2,566      2,510        4,968       6,546
                                               ---------  ---------    ---------  ----------
      Net revenue ...........................    43,778     64,532       95,030     122,341
                                               ---------  ---------    ---------  ----------
Operating costs and expenses:
   Cost of sales ............................    34,482     35,181       67,038      68,601
   Selling, general and administrative ......    12,028     18,461       29,031      34,014
   Restructuring and impairment charges .....     5,054         --        5,054          --
   Depreciation and amortization ............     2,316      1,430        4,738       2,744
                                               ---------  ---------    ---------  ----------
      Total operating costs and expenses ....    53,880     55,072      105,861     105,359
                                               ---------  ---------    ---------  ----------
Operating income (loss) .....................   (10,102)     9,460      (10,831)     16,982
   Interest expense, net ....................     2,966      1,577        4,852       3,266
                                               ---------  ---------    ---------  ----------
Income (loss) before provision (benefit) for
  income taxes ..............................   (13,068)     7,883      (15,683)     13,716
   Provision (benefit) for income taxes .....    (5,056)     3,311       (6,194)      5,761
                                               ---------  ---------    ---------  ----------
Net income (loss) ........................... $  (8,012) $   4,572    $  (9,489) $    7,955
                                               =========  =========    =========  ==========

Net income (loss) per share:
   Basic .................................... $   (0.54) $    0.31    $   (0.64) $     0.55
                                               =========  =========    =========  ==========
   Diluted .................................. $   (0.54) $    0.31    $   (0.64) $     0.54
                                               =========  =========    =========  ==========
Shares used in per share calculations:
   Basic ....................................    14,767     14,675       14,760      14,593
                                               =========  =========    =========  ==========
   Diluted ..................................    14,767     14,739       14,760      14,790
                                               =========  =========    =========  ==========

</pre>

<p align="center">
          See notes to unaudited condensed
          consolidated financial statements.

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<br>
<A NAME="flows"></A>
<p align="center"><strong>
                     HUNGRY MINDS, INC. AND SUBSIDIARIES
<br>
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<br>
                              (in thousands)
</strong>
<pre>

                                                               Six Months Ended
                                                                  March 31,
                                                              ---------- ---------
                                                                 2001       2000
                                                              ---------  ---------
Cash Flows from Operating Activities:
 Net income (loss) ......................................... $  (9,489) $   7,955
 Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
   Depreciation and amortization ...........................     4,738      2,743
   Deferred income taxes....................................        55     (3,411)
   Noncash portion of restructuring and impairment charge.....   3,259         --
   Changes in operating assets and liabilities
    (net of effects of dispositions in 2000):
     Accounts receivable ...................................    20,458    (16,196)
     Inventory .............................................     4,421      5,165
     Other current assets ..................................    (6,101)      (219)
     Royalty advances ......................................       509     (2,290)
     Accounts payable ......................................    (5,225)    (1,110)
     Accrued liabilities ...................................   (13,065)       274
     Accrued restructuring .................................     1,356         --
                                                              ---------  ---------
       Net cash provided by (used in) operating activities .       916     (7,089)
                                                              ---------  ---------
Cash Flows from Investing Activities:
 Capital expenditures ......................................    (1,753)    (4,621)
 Divestitures ..............................................        --     11,819
 Other investments .........................................      (314)       206
                                                              ---------  ---------
       Net cash provided by (used in) investing activities .    (2,067)     7,404
                                                              ---------  ---------
Cash Flows from Financing Activities:
 Advances on the credit facility ...........................    13,000     19,000
 Payments on the credit facility ...........................    (4,000)   (21,000)
 Proceeds from exercises of stock options ..................        --      2,040
                                                              ---------  ---------
       Net cash provided by financing activities ...........     9,000         40
                                                              ---------  ---------
Net change in cash and equivalents .........................     7,849        355
Cash and equivalents, beginning of period ..................       929      2,084
                                                              ---------  ---------
Cash and equivalents, end of period ........................ $   8,778  $   2,439
                                                              =========  =========
Supplemental Cash Flow Information:
 Cash paid for income taxes ................................ $   2,200  $   4,915
                                                              =========  =========
 Cash paid for interest .................................... $   4,880  $   3,176
                                                              =========  =========
Noncash Financing Activity:
 Issuance of Class A common stock under the ESOP plan .......$      --  $     566
                                                              =========  =========
 Payroll withheld to fund ESPP purchase .....................$      55  $     309
                                                              =========  =========


</pre>

<p align="center">
          See notes to unaudited condensed
          consolidated financial statements.

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<A NAME="notes"></A>
<P ALIGN="CENTER"></P>
</FONT><B><FONT SIZE=3><P ALIGN="CENTER">HUNGRY MINDS, INC. AND SUBSIDIARIES</P>
<P ALIGN="CENTER">NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</P>
<P ALIGN="CENTER">Three and Six Months Ended March 31, 2001 and 2000 and as of March 31, 2001 and
September 30, 2000</P></B>
</FONT><FONT SIZE=3><P ALIGN="CENTER">(Dollars in thousands, except per share amounts)</P>
<P ALIGN="CENTER"></P>
<OL>

</FONT><B><FONT SIZE=3><LI>Basis of Presentation </LI></B>

<P ALIGN="JUSTIFY">The accompanying interim consolidated financial statements for the three and six
months ended March 31, 2001 and 2000, and as of March 31, 2001 are unaudited, but have been prepared
in accordance with accounting principles generally accepted in the United States of America
(&quot;GAAP&quot;) for interim consolidated financial statements. Certain information or footnote
disclosures normally included in annual consolidated financial statements prepared in accordance
with GAAP have been condensed or omitted in accordance with guidance for interim financial
statements. In the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included. The results of
operations of any interim period are not necessarily indicative of the results of operations for the
full year. These consolidated financial statements should be read in conjunction with the audited,
consolidated financial statements as of and for the year ended September 30, 2000, and the related
notes thereto, included in the Company's Form 10-K filed with the SEC.</P>
<I><P ALIGN="JUSTIFY">Organization and Description of Business</I>- Hungry Minds, Inc., a Delaware
company, (the &quot;Company") (formerly IDG Books Worldwide, Inc.) was founded in 1990 as an
indirect wholly-owned subsidiary of International Data Group, Inc. ("IDG"). </P>
<P ALIGN="JUSTIFY">The Company is a leading global knowledge company featuring a diverse portfolio
of technology, consumer, and general how-to book brands, computer-based learning tools, internet
sites and internet e-services. The Company publishes and markets under well-known brand names,
including </FONT><I><FONT FACE="CG Times" SIZE=3>For Dummies</FONT><SUP><FONT
SIZE=3>&reg;</SUP></FONT><FONT FACE="CG Times" SIZE=3>,</FONT><FONT SIZE=3> Visual&trade;,
Frommer's<SUP>&reg;</SUP>, Bible, CliffsNotes&trade;, Betty Crocker's<SUP>&reg;</I></SUP>, <I>Howell </I>
<I>Book House&trade;,</I> <I>Webster's New World&trade; </I>and <I>Weight
Watchers<SUP>&reg;</I></SUP>.</FONT><FONT FACE="CG Times" SIZE=3> </P>
</FONT><FONT SIZE=3><I><P ALIGN="JUSTIFY">Principles of Consolidation-</I> The consolidated financial
statements include the accounts of Hungry Minds, Inc. and its majority controlled subsidiaries
(collectively referred to as the Company). All significant intercompany accounts and transactions
have been eliminated.</P>
<I><P ALIGN="JUSTIFY">Reclassifications- </I>Certain amounts in prior periods' financial statements
and related notes have been reclassified to conform to the fiscal year 2001 presentation.</P>
<B><LI>Significant Accounting Policies</LI>
</B><P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Fiscal Year-</I>The Company's fiscal year ends on the last Saturday of each
September. Similarly, the Company's fiscal quarters generally consist of thirteen weeks. For
convenience, the thirteen and twenty-six week periods ended March 31, 2001 and March 25, 2000 are
referred to throughout this document as the three and six months ended March 31, 2001 and 2000,
respectively.</P>
<I><P ALIGN="JUSTIFY">Net Income (Loss) Per Share- </I>Basic net income (loss) per share excludes
dilution and is computed using the weighted average number of common shares outstanding for the
period. Diluted net income (loss) per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock (stock options) were exercised or converted into
common stock. For the three months and six months ended March 31, 2001 the Company recorded net
losses and therefore there is no dilution.  For the three months and six months ended March 31,
2000, respectively, 64,000 and 197,000 shares, reflecting the dilutive effects of stock options,
were included in computing diluted net income per share. </P>
<I><P ALIGN="JUSTIFY">Comprehensive Income (Loss) - </I>Comprehensive income (loss) for the three
months ended March 31, 2001 and 2000 was ($7,987) and $4,563, respectively. Comprehensive income
(loss) for the six months ended March 31, 2001 and 2000 was ($9,462) and $7,944, respectively.</P>
<P ALIGN="JUSTIFY"></P>





<P ALIGN="JUSTIFY">&nbsp;</P>
<I><P ALIGN="JUSTIFY">New Accounting Pronouncements- </I>On October 1, 2000, the Company adopted
SFAS No. 133<I>, Accounting for Derivative Instruments and Hedging Activities</I> (&quot;SFAS
133&quot;). SFAS 133, as amended, requires that an entity recognize all derivatives as either assets
or liabilities on the balance sheet and measure these instruments at fair value. In accordance with
SFAS 133, during the second fiscal quarter of 2001, the Company recognized a $659 liability and
related pretax expense on a hedge instrument related to the Credit Facility (See note 7). The
instrument caps the LIBOR portion of $25,000 of debt on the Credit Facility at 6.29% through October
of 2001. In October 2001, the bank has the ability to change the 6.29% cap into a two-year swap,
which as of March 31, 2001 would result in an additional liability to the Company of approximately
$659. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">On October 1, 2000, the Company adopted Staff Accounting Bulletin No. 101
&quot;Revenue Recognition in Financial Statements&quot; (&quot;SAB 101&quot;). SAB 101, as amended,
provides additional guidance on revenue recognition as well as criteria for when revenue is
generally realized and earned. The impact of the Company's adoption of SAB 101 on its financial
position or results of operations was insignificant.</P>
<P ALIGN="JUSTIFY"></P>
<B><LI>Accounts Receivable</LI>
</B></FONT><FONT SIZE=3><P>  </P>
</FONT><FONT SIZE=3><P>Accounts receivable consisted of the following: </P>
<pre>

                                               March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Accounts receivable ........................ $    83,008   $   105,324
Allowance for doubtful accounts ............      (6,602)       (5,396)
Allowance for sales returns ................     (26,168)      (29,232)
                                              -----------   -----------
    Net accounts receivable ................ $    50,238   $    70,696
                                              ===========   ===========
</pre>

<B><LI>Inventories </LI>
</B><P> </P>
<P>Inventories consisted of the following:</P>
<pre>


                                               March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Books (finished goods) ..................... $    36,757   $    38,374
Paper ......................................       3,408         4,380
                                              -----------   -----------
    Total inventory.........................      40,165        42,754
Reserve for obsolescence ...................     (14,867)      (13,035)
                                              -----------   -----------
    Net inventory .......................... $    25,298   $    29,719
                                              ===========   ===========

</pre>

</FONT><B><FONT SIZE=3><LI>Intangible Assets</LI>
</B></FONT><FONT SIZE=3><P>  </P>
</FONT><FONT SIZE=3><P>Intangible assets consisted of the following:</P>

<pre>


                                               March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Branded trademarks.......................... $    37,837   $    37,837
Goodwill ...................................      31,290        35,147
Publishing rights ..........................       7,220         7,220
Other intangible assets ....................       1,000         1,000
                                              -----------   -----------
    Total intangible assets ................      77,347        81,204
Less: accumulated amortization .............      (5,589)       (4,303)
                                              -----------   -----------
    Net intangible assets .................. $    71,758   $    76,901
                                              ===========   ===========

</pre>


<B><LI>Accrued Liabilities </LI></B>

<P>Accrued liabilities consisted of the following: </P>
<pre>

                                              March 31,     September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Accrued royalties .......................... $    15,332   $    16,707
Accrued promotions .........................       4,947        10,088
Accrued compensation and benefits ..........       4,089         5,350
Accrued inventory and fulfillment ..........       5,789         9,989
Accrued income taxes .......................           --        1,668
Other accrued liabilities ..................       7,349         7,308
                                              -----------   -----------
      Total accrued liabilities ............ $    37,506   $    51,110
                                              ===========   ===========

</pre>



<B><LI>Indebtedness</LI></B>

<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">The Company's debt is funded under a $110,000 syndicated revolving credit
facility dated July 1999 (the &quot;Credit Facility&quot;). The Company's syndicated borrowings
under the Credit Facility at March 31, 2001 and September 30, 2000 totaled $96,500 and $87,500,
respectively. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility. As a result, on May 7, 2001, the
Company and its lenders under the Credit Facility agreed on the terms of a Forbearance and Amendment
Agreement (the &quot;Amendment&quot;). Pursuant to the Amendment, the lenders have agreed to
forbear, subject to the terms and conditions set forth therein, from exercising their right to call
amounts outstanding under the Credit Facility. The Amendment also effected the following changes,
among others, to the terms of the Credit Facility: (i) the Company is no longer permitted to borrow
additional amounts under the Credit Facility; (ii) the Credit Facility maturity date was changed to
November 2, 2001; (iii) the interest rate margins charged on indebtedness have been fixed at 2.25%
for base rate loans and 3.5% for LIBOR loans, each representing increases of approximately 200 basis
points; and (iv) certain financial ratio covenants were modified. In addition, the Company agreed to
various milestones including the continuance of its efforts to complete a sale of the Company by the
maturity date of the loan, November 2, 2001 and to take all steps necessary to enter into a binding
purchase and sale agreement covering the sale of the Company by July 31, 2001. The Company
previously announced that it has retained Morgan Stanley &amp; Co. Incorporated to assist it in this
effort and the process is underway. There is no assurance that any such agreement will be reached or
if reached what the terms of such agreement would be. If no such agreement is reached, the Company
would seek a waiver of this covenant or endeavor to refinance the indebtedness in order to maximize
shareholder value, although there is no assurance that such a waiver or refinancing would occur.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">As a condition to the effectiveness of the Amendment, the Company was required to
enter into a $9,500 subordinated debt facility (the &quot;Subordinated Debt Facility&quot;) with
IDG, its parent corporation, and IDG was required to enter into an agreement (the &quot;IDG
Commitment Agreement&quot;) with the lenders under the Credit Facility in which IDG committed to
lend such amount to the Company pursuant to the Subordinated Debt Facility, and also agreed that it
would pay to the lenders, on behalf of the Company, any scheduled installment of principal, interest
and fees coming due under the Credit Facility on or before November 2, 2001 if not timely paid by
the Company. The Subordinated Debt Facility requires the Company to pay interest on amounts borrowed
at rates which exceed (by 150 basis points) the interest rates paid pursuant to the Credit Facility.
The Subordinated Debt Facility also requires the Company to pay a fee upon maturity which is equal
to the greater of (i) $285 or (ii) 50% of the aggregate principal amount borrowed by the Company or
paid on its behalf under the Subordinated Debt Facility or the IDG Commitment Agreement. If the
Company does not draw on this facility, no fee is payable.</P>
<P ALIGN="JUSTIFY"></P>
<B><LI>Segment Information</LI>
</B>
<P ALIGN="JUSTIFY">The Company has two general publishing groups: Consumer and Technology. The two
segments share the same infrastructure and personnel, and are not managed as separate operating
divisions. Management evaluates the performance of these segments at the revenue and gross profit
level; the Company's reporting systems do not track or allocate expenses or fixed assets by
segment.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Consumer Group includes brands targeted at the general consumer, including
<I>For Dummies,</I> <I>Frommer's, CliffsNotes,</I> <I>Betty Crocker's</I>, <I>Howell Book House,</I>
<I>Webster's New World,</I> <I>Weight Watchers </I>and many others. The Technology Group consists of
brands targeted for computer users, from beginning through advanced level users, including
information technology professionals and software developers. Such brands also include
</FONT><I><FONT FACE="CG Times" SIZE=3>For Dummies</I></FONT><FONT SIZE=3> and<I> CliffsNotes </I>as
well as <I>Visual</I>, <I>Bible</I>, <I>Secrets<FONT FACE="Symbol">&#210;</FONT></I>
and many others. Net revenues and gross profit estimates by segment are as follows:</P>
<pre>

                                               Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                 2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Net Revenues:                                     (unaudited)(unaudited)  (unaudited)(unaudited

  Technology group .......................... $  22,424  $  34,817    $  47,602  $   64,198
  Consumer group ............................    21,354     29,715       47,428      58,143
                                               ---------  ---------    ---------  ----------
      Total ................................. $  43,778  $  64,532    $  95,030  $  122,341
                                               =========  =========    =========  ==========

                                               Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                 2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Gross Profit:                                  (unaudited)(unaudited)  (unaudited)(unaudited

  Technology group .......................... $   6,939  $  17,398    $  17,990  $   31,438
  Consumer group ............................     2,357     11,953       10,002      22,302
                                               ---------  ---------    ---------  ----------
      Total ................................. $   9,296  $  29,351    $  27,992  $   53,740
                                               =========  =========    =========  ==========

</pre>
<B><LI>Restructuring and Impairment Costs</LI></OL>


</B><P ALIGN="JUSTIFY">During the second fiscal quarter of 2001, the Company recorded restructuring
and impairment charges of $5,054 as a result of its restructuring plan, which includes the closing
of three of its offices and a reduction in workforce of approximately 130 employees from a total
workforce of approximately 700 employees. The restructuring is primarily the result of a continued
reduction in sales and the decision to significantly scale back the Company's internet operations to
concentrate on its most heavily trafficked and leading revenue-generating internet brands, such as
Frommers.com. Costs associated with the restructuring and impairment include an impairment of $2,380
to its estimated net realizable value of goodwill associated with the Company's August 2000
acquisition of the e-learning company Hungry Minds, Inc. (the &quot;Hungry Minds Acquisition&quot;),
severance pay, relocation costs, rent or lease termination costs on unused office space and the
write-off of certain equipment and leasehold improvements at closed facilities. The majority of such
costs will be incurred during the remainder of the current fiscal year. As part of the
restructuring, the majority of the operations from the Hungry Minds Acquisition have been shut
down.</P>

<P ALIGN="JUSTIFY">&nbsp;</P>
<B><P ALIGN="JUSTIFY">Item 2.&#9;Management's Discussion and Analysis of Financial Condition and
Results of Operations</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Forward-Looking Statements</P>
</FONT><FONT SIZE=3>
</B></FONT><FONT SIZE=3><P ALIGN="JUSTIFY">The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from those reflected in such
forward-looking statements. Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinion only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any revision to these forward-
looking statements. Potential risks and uncertainties include, among others, those set forth under
"Overview", &quot;Results of Operations&quot; and &quot;Liquidity and Capital Resources&quot;
included in this Management's Discussion and Analysis. Readers should carefully review the risk
factors described in the Company's 2000 Annual Report on Form 10-K. The following discussion should
also be read in conjunction with the Company's unaudited financial statements and related notes
included in this quarterly report on Form 10-Q.</P>
</FONT><B><FONT FACE="CG Times" SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Overview</P>
<P ALIGN="JUSTIFY"></P>
</B></FONT><FONT SIZE=3><P ALIGN="JUSTIFY">Hungry Minds, Inc. is a leading global knowledge company
featuring a diverse portfolio of technology, consumer, and general how-to book brands, computer-
based learning tools, internet sites and internet e-services. The Company publishes and markets
under well-known brand names, including </FONT><I><FONT FACE="CG Times" SIZE=3>For Dummies</I><FONT
FACE="Symbol">&#210;</FONT>
, </FONT><I><FONT SIZE=3>Visual&trade;, Frommer's<FONT FACE="Symbol">&#210;</FONT></I>
, <I>Bible, CliffsNotes&trade;, Betty Crocker's<FONT FACE="Symbol">&#210;</FONT></I>
, <I>Howell Book House&trade;,</I> <I>Webster's New World&trade;</I> and <I>Weight Watchers<FONT
FACE="Symbol">&#210;</FONT></I>
 . These books have created widespread recognition of the Company's brands by consumers, enabling
the Company to successfully publish across a variety of categories in technology, business, and
general how-to. The Company's portfolio of brand names comprises more than 3,000 active titles. The
Company has over 150 million books in print and its books have been translated into 39 languages. The
Company believes that its readers value and trust its products and brands to help obtain computer
proficiency and professional certification, general business know-how, career growth, and personal
enrichment.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's sales are divided into two major categories: the Technology Group
and the Consumer Group. The Consumer Group includes brands targeted at the general consumer,
including <I>For Dummies,</I> <I>Frommer's, CliffsNotes,</I> <I>Betty Crocker's</I>, <I>Howell Book
House,</I> <I>Webster's New World,</I> <I>Weight Watchers </I>and many others. The Technology Group
consists of brands targeted for computer users, from beginner through advanced level users,
including information technology professionals and software developers. Such brands also include
</FONT><I><FONT FACE="CG Times" SIZE=3>For Dummies</FONT><FONT SIZE=3> </I>and<I> CliffsNotes </I>as
well as <I>Visual</I>, <I>Bible</I>, <I>Secrets<FONT FACE="Symbol">&#210;</FONT>
</I>and many others. The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs, and computer/electronic
superstores located primarily in the United States and Canada. Over the last several years, there
has been significant consolidation in the distribution channels for books, including retail outlets,
although alternative distribution channels have emerged. As a result, the Company expects that this
trend will lead to increased concentration within each distribution channel. During the six months
ended March 31, 2001, the Company's top two customers accounted for approximately 36% of the
Company's net revenue as compared to 31% in the same period in 2000. The Company's top ten customers
accounted for approximately 61% of the Company's six-month net revenue in 2001 as compared to 62% in
2000.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Forbearance and Amendment Agreement</FONT><FONT FACE="CG Times" SIZE=3> </P>
</B></FONT><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's debt is funded under a $110.0 million syndicated revolving credit
facility dated July 1999 (the &quot;Credit Facility&quot;). The Company's syndicated borrowings
under the Credit Facility at March 31, 2001 and September 30, 2000 totaled $96.5 million and $87.5
million, respectively.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility. As a result, on May 7, 2001, the
Company and its lenders under the Credit Facility agreed on the terms of a Forbearance and Amendment
Agreement (the &quot;Amendment&quot;). Pursuant to the Amendment, the lenders have agreed to
forbear, subject to the terms and conditions set forth therein, from exercising their right to call
amounts outstanding under the Credit Facility. The Amendment also effected the following changes,
among others, to the terms of the Credit Facility: (i) the Company is no longer permitted to borrow
additional amounts under the Credit Facility; (ii) the Credit Facility maturity date was changed to
November 2, 2001; (iii) the interest rate margins charged on indebtedness have been fixed at 2.25%
for base rate loans and 3.5% for LIBOR loans, each representing increases of approximately 200 basis
points; and (iv) certain financial ratio covenants were modified. In addition, the Company agreed to
various milestones including the continuance of its efforts to complete a sale of the Company by the
maturity date of the loan, November 2, 2001 and to take all steps necessary to enter into a binding
purchase and sale agreement covering the sale of the Company by July 31, 2001. The Company
previously announced that it has retained Morgan Stanley &amp; Co. Incorporated to assist it in this
effort and the process is underway. There is no assurance that any such agreement will be reached or
if reached what the terms of such agreement would be. If no such agreement is reached, the Company
would seek a waiver of this covenant or endeavor to refinance the indebtedness in order to maximize
shareholder value, although there is no assurance that such a waiver or refinancing would occur.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">As a condition to the effectiveness of the Amendment, the Company was required to
enter into a $9.5 million subordinated debt facility (the &quot;Subordinated Debt Facility&quot;)
with International Data Group, Inc. (&quot;IDG&quot;), its parent corporation, and IDG was required
to enter into an agreement (the &quot;IDG Commitment Agreement&quot;) with the lenders under the
Credit Facility in which IDG committed to lend such amount to the Company pursuant to the
Subordinated Debt Facility, and also agreed that it would pay to the lenders, on behalf of the
Company, any scheduled installment of principal, interest and fees coming due under the Credit
Facility on or before November 2, 2001 if not timely paid by the Company. The Subordinated Debt
Facility requires the Company to pay interest on amounts borrowed at rates which exceed (by 150
basis points) the interest rates paid pursuant to the Credit Facility. The Subordinated Debt
Facility also requires the Company to pay a fee upon maturity which is equal to the greater of (i)
$285,000 or (ii) 50% of the aggregate principal amount borrowed by the Company or paid on its behalf
under the Subordinated Debt Facility or the IDG Commitment Agreement. If the Company does not draw
on this facility, no fee is payable.</P>
<B>
</FONT><FONT FACE="CG Times" SIZE=3><P ALIGN="JUSTIFY">Restructuring and Impairment Costs</P>
</FONT><FONT SIZE=3>
</B><P ALIGN="JUSTIFY">During the second fiscal quarter of 2001, the Company recorded restructuring
and impairment charges of $5.1 million as a result of its restructuring plan, which includes the
closing of three of its offices and a reduction in workforce of approximately 130 employees from a
total workforce of approximately 700 employees. The restructuring is primarily the result of a
continued reduction in sales and the decision to significantly scale back the Company's internet
operations to concentrate on its most heavily trafficked and leading revenue-generating internet
brands, such as Frommers.com. If the Company continues to operate independently throughout fiscal
2001, management expects to realize a net savings from these actions of approximately $13 million,
net of estimated restructuring charges. Costs associated with the restructuring and impairment
include an impairment of $2.4 million to its net realizable value of goodwill associated with the
Company's August 2000 acquisition of the e-learning company Hungry Minds, Inc. (the &quot;Hungry
Minds Acquisition&quot;), severance pay, relocation costs, rent or lease termination costs on unused
office space and the write-off of certain equipment and leasehold improvements at closed facilities.
The majority of such costs will be incurred during the remainder of the current fiscal year. As part
of the restructuring, the majority of the operations from the Hungry Minds Acquisition have been
shut down.</P>
<B><P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">&nbsp;</P>
<B><P ALIGN="JUSTIFY">Results of Operations</P>
</B>
<P ALIGN="JUSTIFY">The following table summarizes the results of operations as a percentage of net
revenue for the periods shown:</P>
<P ALIGN="JUSTIFY"></P>
<pre>

                                               Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                   2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
CONDENSED CONSOLIDATED STATEMENTS
   OF OPERATIONS DATA:
Net Revenue:
Technology group ............................      51.2%      54.0%        50.1%       52.5%
Consumer group ..............................      48.8%      46.0%        49.9%       47.5%
                                               ---------  ---------    ---------  ----------
Total Net Revenue ...........................     100.0%     100.0%       100.0%      100.0%
                                               =========  =========    =========  ==========

Cost of sales ...............................      78.8%      54.5%        70.5%       56.1%
Selling, general and administrative .........      27.5%      28.6%        30.5%       27.8%
Restructuring and impairment charges ........      11.5%       0.0%         5.3%        0.0%
Depreciation and amortization ...............       5.3%       2.2%         5.0%        2.2%
                                               ---------  ---------    ---------  ----------
Operating income (loss) .....................     -23.1%      14.7%       -11.4%       13.9%
   Interest expense - net ...................       6.8%       2.4%         5.1%        2.7%
                                               ---------  ---------    ---------  ----------
Income (loss) before provision for income tax     -29.9%      12.2%       -16.5%       11.2%
                                               ---------  ---------    ---------  ----------
Net income (loss) ...........................     -18.3%       7.1%       -10.0%        6.5%
                                               =========  =========    =========  ==========

Other Data:
EBITDA(1) ...................................     -17.8%      16.9%        -6.4%       16.1%
                                               =========  =========    =========  ==========

</pre>


</FONT><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<OL>

<LI>"EBITDA" is defined as income before provision for income taxes, interest, depreciation and
amortization. EBITDA is not intended to represent cash flows from operations and should not be
considered as an alternative to net income (loss) as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company believes EBITDA is a standard
measure commonly reported and widely used by analysts, investors and other interested parties in the
publishing and media industries, however, EBITDA, as presented herein, may not be comparable to
similarly titled measures reported by other companies. EBITDA for the three months ended March 31,
2001 and 2000 was ($7.8) million and $10.9 million, respectively. EBITDA for the six months ended
March 31, 2001 and 2000 was ($6.1) million and $19.7 million, respectively. Both periods in fiscal
2001 included a restructuring and impairment charge of $5.1 million.</LI></OL>


</FONT><B><I><FONT SIZE=3><P ALIGN="JUSTIFY">Three Months Ended March 31, 2001 Compared to Three </B></I>
<I><B>Months Ended March 31, 2000</P></B></I>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Net Revenue. </I>Net revenue decreased $20.8 million, or 32.2%, primarily due
to a $21.1 million decrease in gross domestic sales and a $1.6 million decrease in gross
international sales. Net revenues included decreases of approximately $12.4 million for the Company's
Technology Group and $8.4 million in the Consumer Group. The decrease in the Technology Group revenues
was primarily a result of declines in net sales of </FONT><I><FONT FACE="CG Times" SIZE=3>For
Dummies</I>, <I>Bible</I> and <I>Visual</I> technology titles </FONT><FONT SIZE=3>of approximately
$8.3 million, $2.7 million and $2.4 million, while the Consumer Group decline was spread across most
of the brands with the most significant declines in <I>Frommer's</I> ($2.3 million) and
<I>CliffsNotes</I> ($2.2 million). Of the Company's net revenue for the three months ended March 31,
2001, $10.5 million was attributable to sales of titles (including new editions) first published
during that period, as compared to $13.4 million during the same period for 2000. </P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Operating Costs and Expenses. </I>Operating costs and expenses decreased $1.2
million or 2.2% for the three months ended March 31, 2001 as compared to the same period in 2000.
Operating costs and expenses, as a percentage of net revenues, increased 37.7%, which is primarily
the result of four components: (i) cost of goods sold, as a percentage of net revenues, increased
approximately 14.6%, (ii) wages and benefits increased 8.7%, (iii) the restructuring and impairment
charge, which occurred only in 2001, was 11.5% of net revenues, and (iii) depreciation and
amortization increased 3.1%. The increase in cost of goods sold as a percentage of net revenues is
primarily due to obsolete or damaged inventory (10.1%) and royalties (3.2%). The increase in wages
and benefits is primarily a result of the 2000 Hungry Minds Acquisition. Wages and benefits have
declined approximately $1.6 million from the first fiscal quarter of 2001 to the second fiscal
quarter, primarily as a result of the restructuring plan. The increase in depreciation and
amortization is primarily the result of leasehold improvements made to new office space leased in
fiscal 2000.</P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Interest Expense</I>. Interest expense increased $1.4 million or 88.0% from
the first fiscal quarter of 2001 as compared to that of 2000. This increase includes a $0.7 million
charge to record an interest rate hedge on the Credit Facility at fair value, a $16.5 million
increase in the average outstanding indebtedness in the periods and an increase in the applicable
interest margins on the Credit Facility (see Note 7 to the financial statements).</P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Provision (Benefit) for Income Taxes. </I>The $8.4 million decrease in the
income tax provision to a $5.1 million benefit in the first fiscal quarter of 2001 is primarily the
result of the $21.0 million decrease in income (loss) before taxes. </P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Net Income. </I>The net loss of $8.0 million for the three months ended March
31, 2001 represented a decrease of $12.6 million from net income of $4.6 million for the three
months ended March 31, 2000, primarily for the reasons discussed above.</P>
<B><I><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Six Months Ended March 31, 2001 Compared to Six Months Ended March 31, 2000</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">Net Revenue. </I>Net revenue decreased $27.3 million, or 22.3%, primarily due
to a $23.8 million decrease in gross domestic sales and a $1.8 million decrease in gross
international sales. Net revenues included decreases of approximately $16.6 million for the Company's
Technology Group and $10.7 million in the Consumer Group. The decrease in the Technology Group revenues
was primarily a result of declines in net sales of </FONT><I><FONT FACE="CG Times" SIZE=3>For
Dummies</I>, <I>Bible</I> and <I>Visual</I> technology titles </FONT><FONT SIZE=3>of approximately
$11.1 million, $2.8 million and $1.0 million. The Consumer Group decline was spread across most of
the brands with the most significant declines in <I>Frommer's</I> ($4.1 million), <I>CliffsNotes</I>
($3.6 million) and Arco ($3.3 million), which was sold in June of 2000. Of the Company's net revenue
for the six months ended March 31, 2001, $27.9 million was attributable to sales of titles
(including new editions) first published during that period, as compared to $31.9 million during the
same period for 2000. </P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Operating Costs and Expenses. </I>Operating costs and expenses decreased $0.5
million or 0.5% for the six months ended March 31, 2001 as compared to the same period in 2000.
Operating costs and expenses, as a percentage of net revenues, increased 25.3%, which is primarily
the result of four components: (i) cost of goods sold, as a percentage of net revenues, increased
approximately 9.9%, (ii) wages and benefits increased 7.7% (iii) the restructuring and impairment
charge, which occurred only in 2001 was 5.3% of net revenues, and (iii) depreciation and
amortization increased 2.7%. The increase in cost of goods sold as a percentage of net revenues is
primarily due to obsolete or damaged inventory (5.1%), royalties (2.9%) and increased paper costs
(2.2%). The increase in wages and benefits is primarily a result of the 2000 Hungry Minds
Acquisition. Wages and benefits have declined approximately $1.6 million from the first fiscal
quarter of 2001 to the second fiscal quarter, primarily as a result of the restructuring plan. The
increase in depreciation and amortization is primarily the result of leasehold improvements made to
new office space leased in fiscal 2000.</P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Interest Expense</I>. Interest expense increased $1.6 million or 48.6% during
the six months ended March 31, 2001 as compared to the same period in 2000. This increase includes a
$0.7 million charge to record an interest rate hedge on the Credit Facility at fair value, a $12.4
million increase in the average outstanding indebtedness in the periods and an increase in the
applicable interest margins on the Credit Facility (see Note 7 to the financial statements.)</P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Provision (Benefit) for Income Taxes. </I>The $12.0 million decrease in the
income tax provision to a $6.2 million benefit in 2001 is primarily the result of the $29.4 million
decrease in income (loss) before taxes. </P>
<P ALIGN="JUSTIFY"></P>
<I><P ALIGN="JUSTIFY">Net Income. </I>The net loss of $9.5 million for the six months ended March
31, 2001 represented a decrease of $17.5 million from net income of $8.0 million for the six months
ended March 31, 2000, primarily for the reasons discussed above.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Liquidity and Capital Resources </P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">As of March 31, 2001, the Company's total cash and cash equivalents was $8.8
million. As described under &quot;Forbearance and Amendment Agreement&quot;, the Company is no
longer able to borrow funds against the Credit Facility. In May 2001, the Company signed an
agreement with IDG for IDG to provide a $9.5 million credit facility. Management believes cash from
operations, together with the amounts available under the Subordinated Debt Facility, will provide
it with sufficient resources to meet its needs up to the anticipated sale of the Company.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">From September 30, 2000 to March 31, 2001, the Company's working capital
decreased $82.7 million. This was primarily the result of the new maturity date of the Credit
Facility. Excluding the current portion of long-term debt, working capital increased $7.8 million,
which included an $18.8 million decrease in accounts payable and accrued liabilities, a $7.8 million
increase in cash and cash equivalents and a $6.1 million increase in other current assets, partially
offset by a $4.4 million decrease in net inventory and a $20.5 million decrease in accounts
receivable. The decrease in accounts receivable is the result of a decrease in sales and increased
collection efforts.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's net cash used in investing activities for the six months ended
March 31, 2001 was $2.1 million and included capital expenditures of $1.8 million, partially offset
by other investments of $0.3 million, which was primarily the net investment in the Company's
Canadian affiliate.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's net cash provided by financing activities, during the six months
ended March 31, 2001, consisted of net borrowings of $9.0 million on its Credit Facility.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Item 3.&#9;Quantitative and Qualitative Disclosures about Market Risk</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">The Company is exposed to certain levels of market risk, primarily from
changes in foreign currency exchange rates and interest rates. To hedge against losses from changes
in foreign currency exchange rates on its foreign currency accounts receivable, the Company enters
into foreign currency forward contracts. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes. The Company has not designated these
contracts as hedges under SFAS 133. Accordingly, the contracts are marked to market and realized and
unrealized gains and losses are included in other income. These gains and losses offset the gains
and losses on the related accounts receivable, which is also included in other income. The related
amounts due to or from counterparties are included in other assets or other liabilities. In general,
these foreign currency forward exchange contracts mature in three months or less and therefore their
estimated fair values are typically insignificant. As a result of these activities, the Company
believes that a hypothetical 5% appreciation from March 31, 2001 in the U.S. dollar relative to such
currencies would not have a material effect on net income or cash flows.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At March 31, 2001, substantially all of the Company's cash equivalents were
invested in overnight repurchase agreements. If market rates were to increase immediately by 25
basis points from levels at March 31, 2001, the fair value of this investment portfolio would
decline by an insignificant amount. In addition, as of March 31, 2001, the Company had $71.5 million
of floating rate debt. Based on this level of indebtedness, if market rates were to increase
immediately by 25 basis points, future annual earnings and cash flows would decrease by
approximately $0.2 million. In addition, the Company has a hedge instrument, which caps the LIBOR
portion of $25 million of debt on the Credit Facility (See note 7 to the financial statements) at
6.29% through October of 2001. In October 2001, the bank has the ability to change the 6.29% cap
into a two-year swap, which as of March 31, 2001 would result in an additional liability to the
Company of approximately $659,000. This liability increases approximately $62,500 per year for every
25 basis point decrease in LIBOR.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">PART II-OTHER INFORMATION</P>
</FONT><FONT FACE="CG Times" SIZE=3>
</FONT><FONT SIZE=3><P ALIGN="JUSTIFY">Item 3.&#9;Defaults Upon Senior Securities.</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">&#9;During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility (see note 7 to the financial
statements). Pursuant to the terms of a Forbearance and Amendment Agreement, the lenders have agreed
to forbear, subject to the terms and conditions set forth therein, from exercising their right to
call amounts outstanding under the Credit Facility. </P>
</FONT><FONT FACE="CG Times" SIZE=3><P ALIGN="JUSTIFY"></P>
</FONT><B><FONT SIZE=3><P ALIGN="JUSTIFY">Item 4.&#9;Submission of Matters to a Vote of Security </B>
<B>Holders.</P> </B>

<P ALIGN="JUSTIFY">&#9;The annual meeting of the stockholders of the Company was held on
February 9, 2001. The matters submitted to the stockholders for a vote included (a) the election of
six directors to the Company's Board of Directors and (b) the ratification of the appointment of
Deloitte &amp; Touche LLP as independent accountants for the fiscal year ending September 29,
2001.</P>

<P>   The following tables set forth the results of voting on these matters:</P>
<pre>

                                 Number of  Number of
                                   Votes       Votes      Number of
Matter                              FOR      WITHHELD    ABSTENTIONS
------------------------------  ----------- ----------- --------------
Election of Directors:
   John J. Kilcullen .........  17,513,034      30,790          9,163
  Patrick J. McGovern ........  17,523,856      18,022          9,163
  Kelly P. Conlin ............  17,523,856      21,118          9,163
  Axel J. Leblois ............  17,525,015      19,264          9,163
  Gregoire Sentilhes .........  17,525,015      18,264          9,163
  Julius A. Hoeft ............  17,525,015      18,264          9,163

Ratification of Appointment of
     Deloitte & Touche LLP: ..  17,536,299      11,724          2,918

</pre>

<P>&#9;Effective March 27, 2001, the Company's two independent directors, Mr. Julius Hoeft and Mr.
Gregoire Sentilhes, resigned from its Board of Directors. On April 17, 2001, the Board of Directors
appointed Timothy J. McNeill as a new member of the Board of Directors. One board position remains
vacant.</P>

<B><P ALIGN="JUSTIFY">Item 6.&#9;Exhibits and Reports on Form 8-K</P>
</B></FONT><FONT FACE="CG Times" SIZE=3>
<OL TYPE="a">

<OL TYPE="a">

</FONT><FONT SIZE=3><LI>Exhibits</LI>

<P>Exhibit</P>
<U><P>Number</U>&#9;<U>Exhibit Title</P>
</U>
<P>10.1&#9;Forbearance and Amendment Agreement (Incorporated by reference to Exhibit 10.1 from the
Form 8-K filed by the Company on May 9, 2001.)</P>

<P>10.2&#9;Subordinated Loan Agreement<A NAME="_DV_M3"><A NAME="_DV_M4"></A></A> between Hungry
Minds, Inc. and International Data Group, Inc. (Incorporated by reference to Exhibit 10.2 from the
Form 8-K filed by the Company on May 9, 2001.)</P>

<LI>Reports on Form 8-K</LI></OL>
</OL>

<DIR>
<DIR>

<P ALIGN="JUSTIFY">On March 29, 2001, under Item 5 - Other Events, the Company reported that it had
announced, in the form of a press release, that its revenues were continuing to fall below
expectations and the Company revised its estimates for earnings per share. In addition, the press
release announced the resignations of the Company's two independent directors. A copy of the press
release was included as an exhibit to the 8-K filing.</P>
<P ALIGN="JUSTIFY">On March 30, 2001, under Item 5 - Other Events, the Company reported that it had
announced, in the form of a press release, its intention to engage a financial advisor to assist the
Company in exploring all possible avenues for enhancing stockholder value including, without
limitation, seeking to bring about a possible sale of the Company or of significant assets of the
Company or a business combination involving the Company. A copy of the press release was included as
an exhibit to the 8-K filing.</P>
</DIR>
</DIR>

</FONT><B><FONT FACE="CG Times" SIZE=3><P> Items 1, 2 and 5 are not applicable and have been
omitted.</P></B>

<A NAME="sign"></A>
<p align="center"><strong>

<br>
<br>
                                   SIGNATURE </strong>



<p>Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


<P>
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                               HUNGRY MINDS, INC.
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<p>Dated: May 15, 2001


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    <TD>By:&nbsp;</TD>
    <TD align=left>
                /s/ JOHN M. HARRIS
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        John M. Harris
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    <TD align=left><I>
         Executive Vice President and Chief Financial Officer
</I></TD></TR>
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(Principal Financial Officer and Duly Authorized Officer)
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{"company-data": {"conformed-name": "HUNGRY MINDS INC /DE/", "cik": "0001061763", "assigned-sic": "2731", "irs-number": "043078409", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-24617", "film-number": "1640617"}, "business-address": {"street1": "909 THIRD AVE", "city": "NEW YORK", "state": "NY", "zip": "10022", "phone": "6506537000"}, "mail-address": {"street1": "909 THIRD AVE", "city": "NEW YORK", "state": "NY", "zip": "10022"}, "former-company": {"former-conformed-name": "IDG BOOKS WORLDWIDE INC", "date-changed": "19980513"}}
Q1 2001 10Q DOC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 2001
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-24617
HUNGRY MINDS, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
04-3078409
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
909 Third Avenue
New York, New York    10022
(Address of Principal Executive Offices including Zip Code)
(212) 884-5000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.   YES [X]    NO [  ]
The number of shares outstanding of the issuer's Common Stock as of May 10,
2001 was 14,780,548.
This quarterly report on Form 10-Q contains a total of 17 pages, of which this
page is page 1.
HUNGRY MINDS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I.   Financial Information
Page No.
Item 1.   Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
March  31, 2001 and September 30, 2000
3
Unaudited Condensed Consolidated Statements of Operations for the
Three-Month and Six-Month Periods ended March 31, 2001 and 2000
4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months ended March 31, 2001 and 2000
5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations
10
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
14
PART II.  Other Information
Items 1-6
15
Signature
17
PART I -- FINANCIAL INFORMATION
Item 1.  Financial Statements
HUNGRY MINDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31,   September 30,
                                                     2001             2000
                                                     ---------   ---------
                           ASSETS
Current Assets:
   Cash and equivalents............................ $   8,778   $     929
   Accounts receivable - net.......................    50,238      70,696
   Inventory - net.................................    25,298      29,719
   Other current assets............................     8,566       2,465
   Deferred tax assets.............................    22,047      22,102
                                                     ---------   ---------
           Total current assets....................   114,927     125,911
Royalty advances - net.............................    15,720      16,229
Property and equipment - net.......................    13,191      15,969
Intangible assets - net ...........................    71,758      76,901
Other assets ......................................     5,680       5,418
                                                     ---------   ---------
           TOTAL................................... $ 221,276   $ 240,428
                                                     =========   =========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable................................ $  14,195   $  19,420
   Accrued liabilities.............................    37,506      51,110
   Current portion of long-term debt...............    96,500       6,000
                                                     ---------   ---------
           Total current liabilities...............   148,201      76,530

Long-term debt.....................................        --      81,500
Deferred tax liability ............................     4,747       4,747
                                                     ---------   ---------
             Total liabilities.....................   152,948     162,777

Minority interest..................................        83         127

Commitments and contingencies

Stockholders' Equity:
   Preferred stock, $.001 par value; authorized:
     5,000,000 shares; issued and outstanding: 0
     shares........................................        --          --
   Common stock, $.001 par value; authorized:
     25,000,000 Class A shares and 400,000
     Class B shares; issued and outstanding:
     14,780,548 and 14,752,656 Class A shares at
     March 31, 2001 and September 30, 2000, respect
     and 0 Class B shares..........................        15          15
   Additional paid-in-capital......................    50,365      50,182
   Retained earnings...............................    17,848      27,337
   Accumulated other comprehensive income (loss) ..        17         (10)
                                                     ---------   ---------
             Total stockholders' equity............    68,245      77,524
                                                     ---------   ---------
             TOTAL................................. $ 221,276   $ 240,428
                                                     =========   =========
See notes to unaudited condensed consolidated financial statements.
HUNGRY MINDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
                                (unaudited)
Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                   2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Revenue:
   Net sales ................................ $  41,212  $  62,022    $  90,062  $  115,795
   Licensing and other revenues .............     2,566      2,510        4,968       6,546
                                               ---------  ---------    ---------  ----------
      Net revenue ...........................    43,778     64,532       95,030     122,341
                                               ---------  ---------    ---------  ----------
Operating costs and expenses:
   Cost of sales ............................    34,482     35,181       67,038      68,601
   Selling, general and administrative ......    12,028     18,461       29,031      34,014
   Restructuring and impairment charges .....     5,054         --        5,054          --
   Depreciation and amortization ............     2,316      1,430        4,738       2,744
                                               ---------  ---------    ---------  ----------
      Total operating costs and expenses ....    53,880     55,072      105,861     105,359
                                               ---------  ---------    ---------  ----------
Operating income (loss) .....................   (10,102)     9,460      (10,831)     16,982
   Interest expense, net ....................     2,966      1,577        4,852       3,266
                                               ---------  ---------    ---------  ----------
Income (loss) before provision (benefit) for
  income taxes ..............................   (13,068)     7,883      (15,683)     13,716
   Provision (benefit) for income taxes .....    (5,056)     3,311       (6,194)      5,761
                                               ---------  ---------    ---------  ----------
Net income (loss) ........................... $  (8,012) $   4,572    $  (9,489) $    7,955
                                               =========  =========    =========  ==========

Net income (loss) per share:
   Basic .................................... $   (0.54) $    0.31    $   (0.64) $     0.55
                                               =========  =========    =========  ==========
   Diluted .................................. $   (0.54) $    0.31    $   (0.64) $     0.54
                                               =========  =========    =========  ==========
Shares used in per share calculations:
   Basic ....................................    14,767     14,675       14,760      14,593
                                               =========  =========    =========  ==========
   Diluted ..................................    14,767     14,739       14,760      14,790
                                               =========  =========    =========  ==========
See notes to unaudited condensed
          consolidated financial statements.
HUNGRY MINDS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
                                                                  March 31,
                                                              ---------- ---------
                                                                 2001       2000
                                                              ---------  ---------
Cash Flows from Operating Activities:
 Net income (loss) ......................................... $  (9,489) $   7,955
 Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
   Depreciation and amortization ...........................     4,738      2,743
   Deferred income taxes....................................        55     (3,411)
   Noncash portion of restructuring and impairment charge.....   3,259         --
   Changes in operating assets and liabilities
    (net of effects of dispositions in 2000):
     Accounts receivable ...................................    20,458    (16,196)
     Inventory .............................................     4,421      5,165
     Other current assets ..................................    (6,101)      (219)
     Royalty advances ......................................       509     (2,290)
     Accounts payable ......................................    (5,225)    (1,110)
     Accrued liabilities ...................................   (13,065)       274
     Accrued restructuring .................................     1,356         --
                                                              ---------  ---------
       Net cash provided by (used in) operating activities .       916     (7,089)
                                                              ---------  ---------
Cash Flows from Investing Activities:
 Capital expenditures ......................................    (1,753)    (4,621)
 Divestitures ..............................................        --     11,819
 Other investments .........................................      (314)       206
                                                              ---------  ---------
       Net cash provided by (used in) investing activities .    (2,067)     7,404
                                                              ---------  ---------
Cash Flows from Financing Activities:
 Advances on the credit facility ...........................    13,000     19,000
 Payments on the credit facility ...........................    (4,000)   (21,000)
 Proceeds from exercises of stock options ..................        --      2,040
                                                              ---------  ---------
       Net cash provided by financing activities ...........     9,000         40
                                                              ---------  ---------
Net change in cash and equivalents .........................     7,849        355
Cash and equivalents, beginning of period ..................       929      2,084
                                                              ---------  ---------
Cash and equivalents, end of period ........................ $   8,778  $   2,439
                                                              =========  =========
Supplemental Cash Flow Information:
 Cash paid for income taxes ................................ $   2,200  $   4,915
                                                              =========  =========
 Cash paid for interest .................................... $   4,880  $   3,176
                                                              =========  =========
Noncash Financing Activity:
 Issuance of Class A common stock under the ESOP plan .......$      --  $     566
                                                              =========  =========
 Payroll withheld to fund ESPP purchase .....................$      55  $     309
                                                              =========  =========
See notes to unaudited condensed
          consolidated financial statements.
HUNGRY MINDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended March 31, 2001 and 2000 and as of March 31, 2001 and
September 30, 2000
(Dollars in thousands, except per share amounts)
Basis of Presentation
The accompanying interim consolidated financial statements for the three and six
months ended March 31, 2001 and 2000, and as of March 31, 2001 are unaudited, but have been prepared
in accordance with accounting principles generally accepted in the United States of America
("GAAP") for interim consolidated financial statements. Certain information or footnote
disclosures normally included in annual consolidated financial statements prepared in accordance
with GAAP have been condensed or omitted in accordance with guidance for interim financial
statements. In the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included. The results of
operations of any interim period are not necessarily indicative of the results of operations for the
full year. These consolidated financial statements should be read in conjunction with the audited,
consolidated financial statements as of and for the year ended September 30, 2000, and the related
notes thereto, included in the Company's Form 10-K filed with the SEC.
Organization and Description of Business
- Hungry Minds, Inc., a Delaware
company, (the "Company") (formerly IDG Books Worldwide, Inc.) was founded in 1990 as an
indirect wholly-owned subsidiary of International Data Group, Inc. ("IDG").
The Company is a leading global knowledge company featuring a diverse portfolio
of technology, consumer, and general how-to book brands, computer-based learning tools, internet
sites and internet e-services. The Company publishes and markets under well-known brand names,
including
For Dummies
®
,
Visual™,
Frommer's
®
, Bible, CliffsNotes™, Betty Crocker's
®
,
Howell
Book House™,
Webster's New World™
and
Weight
Watchers
®
.
Principles of Consolidation-
The consolidated financial
statements include the accounts of Hungry Minds, Inc. and its majority controlled subsidiaries
(collectively referred to as the Company). All significant intercompany accounts and transactions
have been eliminated.
Reclassifications-
Certain amounts in prior periods' financial statements
and related notes have been reclassified to conform to the fiscal year 2001 presentation.
Significant Accounting Policies
Fiscal Year-
The Company's fiscal year ends on the last Saturday of each
September. Similarly, the Company's fiscal quarters generally consist of thirteen weeks. For
convenience, the thirteen and twenty-six week periods ended March 31, 2001 and March 25, 2000 are
referred to throughout this document as the three and six months ended March 31, 2001 and 2000,
respectively.
Net Income (Loss) Per Share-
Basic net income (loss) per share excludes
dilution and is computed using the weighted average number of common shares outstanding for the
period. Diluted net income (loss) per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock (stock options) were exercised or converted into
common stock. For the three months and six months ended March 31, 2001 the Company recorded net
losses and therefore there is no dilution.  For the three months and six months ended March 31,
2000, respectively, 64,000 and 197,000 shares, reflecting the dilutive effects of stock options,
were included in computing diluted net income per share.
Comprehensive Income (Loss) -
Comprehensive income (loss) for the three
months ended March 31, 2001 and 2000 was ($7,987) and $4,563, respectively. Comprehensive income
(loss) for the six months ended March 31, 2001 and 2000 was ($9,462) and $7,944, respectively.
New Accounting Pronouncements-
On October 1, 2000, the Company adopted
SFAS No. 133
, Accounting for Derivative Instruments and Hedging Activities
("SFAS
133"). SFAS 133, as amended, requires that an entity recognize all derivatives as either assets
or liabilities on the balance sheet and measure these instruments at fair value. In accordance with
SFAS 133, during the second fiscal quarter of 2001, the Company recognized a $659 liability and
related pretax expense on a hedge instrument related to the Credit Facility (See note 7). The
instrument caps the LIBOR portion of $25,000 of debt on the Credit Facility at 6.29% through October
of 2001. In October 2001, the bank has the ability to change the 6.29% cap into a two-year swap,
which as of March 31, 2001 would result in an additional liability to the Company of approximately
$659.
On October 1, 2000, the Company adopted Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended,
provides additional guidance on revenue recognition as well as criteria for when revenue is
generally realized and earned. The impact of the Company's adoption of SAB 101 on its financial
position or results of operations was insignificant.
Accounts Receivable
Accounts receivable consisted of the following:
March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Accounts receivable ........................ $    83,008   $   105,324
Allowance for doubtful accounts ............      (6,602)       (5,396)
Allowance for sales returns ................     (26,168)      (29,232)
                                              -----------   -----------
    Net accounts receivable ................ $    50,238   $    70,696
                                              ===========   ===========
Inventories
Inventories consisted of the following:
March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Books (finished goods) ..................... $    36,757   $    38,374
Paper ......................................       3,408         4,380
                                              -----------   -----------
    Total inventory.........................      40,165        42,754
Reserve for obsolescence ...................     (14,867)      (13,035)
                                              -----------   -----------
    Net inventory .......................... $    25,298   $    29,719
                                              ===========   ===========
Intangible Assets
Intangible assets consisted of the following:
March 31,    September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Branded trademarks.......................... $    37,837   $    37,837
Goodwill ...................................      31,290        35,147
Publishing rights ..........................       7,220         7,220
Other intangible assets ....................       1,000         1,000
                                              -----------   -----------
    Total intangible assets ................      77,347        81,204
Less: accumulated amortization .............      (5,589)       (4,303)
                                              -----------   -----------
    Net intangible assets .................. $    71,758   $    76,901
                                              ===========   ===========
Accrued Liabilities
Accrued liabilities consisted of the following:
March 31,     September 30,
                                                 2001          2000
                                              -----------   -----------
                                              (unaudited)

Accrued royalties .......................... $    15,332   $    16,707
Accrued promotions .........................       4,947        10,088
Accrued compensation and benefits ..........       4,089         5,350
Accrued inventory and fulfillment ..........       5,789         9,989
Accrued income taxes .......................           --        1,668
Other accrued liabilities ..................       7,349         7,308
                                              -----------   -----------
      Total accrued liabilities ............ $    37,506   $    51,110
                                              ===========   ===========
Indebtedness
The Company's debt is funded under a $110,000 syndicated revolving credit
facility dated July 1999 (the "Credit Facility"). The Company's syndicated borrowings
under the Credit Facility at March 31, 2001 and September 30, 2000 totaled $96,500 and $87,500,
respectively.
During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility. As a result, on May 7, 2001, the
Company and its lenders under the Credit Facility agreed on the terms of a Forbearance and Amendment
Agreement (the "Amendment"). Pursuant to the Amendment, the lenders have agreed to
forbear, subject to the terms and conditions set forth therein, from exercising their right to call
amounts outstanding under the Credit Facility. The Amendment also effected the following changes,
among others, to the terms of the Credit Facility: (i) the Company is no longer permitted to borrow
additional amounts under the Credit Facility; (ii) the Credit Facility maturity date was changed to
November 2, 2001; (iii) the interest rate margins charged on indebtedness have been fixed at 2.25%
for base rate loans and 3.5% for LIBOR loans, each representing increases of approximately 200 basis
points; and (iv) certain financial ratio covenants were modified. In addition, the Company agreed to
various milestones including the continuance of its efforts to complete a sale of the Company by the
maturity date of the loan, November 2, 2001 and to take all steps necessary to enter into a binding
purchase and sale agreement covering the sale of the Company by July 31, 2001. The Company
previously announced that it has retained Morgan Stanley & Co. Incorporated to assist it in this
effort and the process is underway. There is no assurance that any such agreement will be reached or
if reached what the terms of such agreement would be. If no such agreement is reached, the Company
would seek a waiver of this covenant or endeavor to refinance the indebtedness in order to maximize
shareholder value, although there is no assurance that such a waiver or refinancing would occur.
As a condition to the effectiveness of the Amendment, the Company was required to
enter into a $9,500 subordinated debt facility (the "Subordinated Debt Facility") with
IDG, its parent corporation, and IDG was required to enter into an agreement (the "IDG
Commitment Agreement") with the lenders under the Credit Facility in which IDG committed to
lend such amount to the Company pursuant to the Subordinated Debt Facility, and also agreed that it
would pay to the lenders, on behalf of the Company, any scheduled installment of principal, interest
and fees coming due under the Credit Facility on or before November 2, 2001 if not timely paid by
the Company. The Subordinated Debt Facility requires the Company to pay interest on amounts borrowed
at rates which exceed (by 150 basis points) the interest rates paid pursuant to the Credit Facility.
The Subordinated Debt Facility also requires the Company to pay a fee upon maturity which is equal
to the greater of (i) $285 or (ii) 50% of the aggregate principal amount borrowed by the Company or
paid on its behalf under the Subordinated Debt Facility or the IDG Commitment Agreement. If the
Company does not draw on this facility, no fee is payable.
Segment Information
The Company has two general publishing groups: Consumer and Technology. The two
segments share the same infrastructure and personnel, and are not managed as separate operating
divisions. Management evaluates the performance of these segments at the revenue and gross profit
level; the Company's reporting systems do not track or allocate expenses or fixed assets by
segment.
The Consumer Group includes brands targeted at the general consumer, including
For Dummies,
Frommer's, CliffsNotes,
Betty Crocker's
,
Howell Book House,
Webster's New World,
Weight Watchers
and many others. The Technology Group consists of
brands targeted for computer users, from beginning through advanced level users, including
information technology professionals and software developers. Such brands also include
For Dummies
and
CliffsNotes
as
well as
Visual
,
Bible
,
Secrets
Ò
and many others. Net revenues and gross profit estimates by segment are as follows:
Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                 2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Net Revenues:                                     (unaudited)(unaudited)  (unaudited)(unaudited

  Technology group .......................... $  22,424  $  34,817    $  47,602  $   64,198
  Consumer group ............................    21,354     29,715       47,428      58,143
                                               ---------  ---------    ---------  ----------
      Total ................................. $  43,778  $  64,532    $  95,030  $  122,341
                                               =========  =========    =========  ==========

                                               Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                 2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
Gross Profit:                                  (unaudited)(unaudited)  (unaudited)(unaudited

  Technology group .......................... $   6,939  $  17,398    $  17,990  $   31,438
  Consumer group ............................     2,357     11,953       10,002      22,302
                                               ---------  ---------    ---------  ----------
      Total ................................. $   9,296  $  29,351    $  27,992  $   53,740
                                               =========  =========    =========  ==========
Restructuring and Impairment Costs
During the second fiscal quarter of 2001, the Company recorded restructuring
and impairment charges of $5,054 as a result of its restructuring plan, which includes the closing
of three of its offices and a reduction in workforce of approximately 130 employees from a total
workforce of approximately 700 employees. The restructuring is primarily the result of a continued
reduction in sales and the decision to significantly scale back the Company's internet operations to
concentrate on its most heavily trafficked and leading revenue-generating internet brands, such as
Frommers.com. Costs associated with the restructuring and impairment include an impairment of $2,380
to its estimated net realizable value of goodwill associated with the Company's August 2000
acquisition of the e-learning company Hungry Minds, Inc. (the "Hungry Minds Acquisition"),
severance pay, relocation costs, rent or lease termination costs on unused office space and the
write-off of certain equipment and leasehold improvements at closed facilities. The majority of such
costs will be incurred during the remainder of the current fiscal year. As part of the
restructuring, the majority of the operations from the Hungry Minds Acquisition have been shut
down.
Item 2.	Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from those reflected in such
forward-looking statements. Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinion only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any revision to these forward-
looking statements. Potential risks and uncertainties include, among others, those set forth under
"Overview", "Results of Operations" and "Liquidity and Capital Resources"
included in this Management's Discussion and Analysis. Readers should carefully review the risk
factors described in the Company's 2000 Annual Report on Form 10-K. The following discussion should
also be read in conjunction with the Company's unaudited financial statements and related notes
included in this quarterly report on Form 10-Q.
Overview
Hungry Minds, Inc. is a leading global knowledge company
featuring a diverse portfolio of technology, consumer, and general how-to book brands, computer-
based learning tools, internet sites and internet e-services. The Company publishes and markets
under well-known brand names, including
For Dummies
Ò
,
Visual™, Frommer's
Ò
,
Bible, CliffsNotes™, Betty Crocker's
Ò
,
Howell Book House™,
Webster's New World™
and
Weight Watchers
Ò
. These books have created widespread recognition of the Company's brands by consumers, enabling
the Company to successfully publish across a variety of categories in technology, business, and
general how-to. The Company's portfolio of brand names comprises more than 3,000 active titles. The
Company has over 150 million books in print and its books have been translated into 39 languages. The
Company believes that its readers value and trust its products and brands to help obtain computer
proficiency and professional certification, general business know-how, career growth, and personal
enrichment.
The Company's sales are divided into two major categories: the Technology Group
and the Consumer Group. The Consumer Group includes brands targeted at the general consumer,
including
For Dummies,
Frommer's, CliffsNotes,
Betty Crocker's
,
Howell Book
House,
Webster's New World,
Weight Watchers
and many others. The Technology Group
consists of brands targeted for computer users, from beginner through advanced level users,
including information technology professionals and software developers. Such brands also include
For Dummies
and
CliffsNotes
as
well as
Visual
,
Bible
,
Secrets
Ò
and many others. The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs, and computer/electronic
superstores located primarily in the United States and Canada. Over the last several years, there
has been significant consolidation in the distribution channels for books, including retail outlets,
although alternative distribution channels have emerged. As a result, the Company expects that this
trend will lead to increased concentration within each distribution channel. During the six months
ended March 31, 2001, the Company's top two customers accounted for approximately 36% of the
Company's net revenue as compared to 31% in the same period in 2000. The Company's top ten customers
accounted for approximately 61% of the Company's six-month net revenue in 2001 as compared to 62% in
2000.
Forbearance and Amendment Agreement
The Company's debt is funded under a $110.0 million syndicated revolving credit
facility dated July 1999 (the "Credit Facility"). The Company's syndicated borrowings
under the Credit Facility at March 31, 2001 and September 30, 2000 totaled $96.5 million and $87.5
million, respectively.
During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility. As a result, on May 7, 2001, the
Company and its lenders under the Credit Facility agreed on the terms of a Forbearance and Amendment
Agreement (the "Amendment"). Pursuant to the Amendment, the lenders have agreed to
forbear, subject to the terms and conditions set forth therein, from exercising their right to call
amounts outstanding under the Credit Facility. The Amendment also effected the following changes,
among others, to the terms of the Credit Facility: (i) the Company is no longer permitted to borrow
additional amounts under the Credit Facility; (ii) the Credit Facility maturity date was changed to
November 2, 2001; (iii) the interest rate margins charged on indebtedness have been fixed at 2.25%
for base rate loans and 3.5% for LIBOR loans, each representing increases of approximately 200 basis
points; and (iv) certain financial ratio covenants were modified. In addition, the Company agreed to
various milestones including the continuance of its efforts to complete a sale of the Company by the
maturity date of the loan, November 2, 2001 and to take all steps necessary to enter into a binding
purchase and sale agreement covering the sale of the Company by July 31, 2001. The Company
previously announced that it has retained Morgan Stanley & Co. Incorporated to assist it in this
effort and the process is underway. There is no assurance that any such agreement will be reached or
if reached what the terms of such agreement would be. If no such agreement is reached, the Company
would seek a waiver of this covenant or endeavor to refinance the indebtedness in order to maximize
shareholder value, although there is no assurance that such a waiver or refinancing would occur.
As a condition to the effectiveness of the Amendment, the Company was required to
enter into a $9.5 million subordinated debt facility (the "Subordinated Debt Facility")
with International Data Group, Inc. ("IDG"), its parent corporation, and IDG was required
to enter into an agreement (the "IDG Commitment Agreement") with the lenders under the
Credit Facility in which IDG committed to lend such amount to the Company pursuant to the
Subordinated Debt Facility, and also agreed that it would pay to the lenders, on behalf of the
Company, any scheduled installment of principal, interest and fees coming due under the Credit
Facility on or before November 2, 2001 if not timely paid by the Company. The Subordinated Debt
Facility requires the Company to pay interest on amounts borrowed at rates which exceed (by 150
basis points) the interest rates paid pursuant to the Credit Facility. The Subordinated Debt
Facility also requires the Company to pay a fee upon maturity which is equal to the greater of (i)
$285,000 or (ii) 50% of the aggregate principal amount borrowed by the Company or paid on its behalf
under the Subordinated Debt Facility or the IDG Commitment Agreement. If the Company does not draw
on this facility, no fee is payable.
Restructuring and Impairment Costs
During the second fiscal quarter of 2001, the Company recorded restructuring
and impairment charges of $5.1 million as a result of its restructuring plan, which includes the
closing of three of its offices and a reduction in workforce of approximately 130 employees from a
total workforce of approximately 700 employees. The restructuring is primarily the result of a
continued reduction in sales and the decision to significantly scale back the Company's internet
operations to concentrate on its most heavily trafficked and leading revenue-generating internet
brands, such as Frommers.com. If the Company continues to operate independently throughout fiscal
2001, management expects to realize a net savings from these actions of approximately $13 million,
net of estimated restructuring charges. Costs associated with the restructuring and impairment
include an impairment of $2.4 million to its net realizable value of goodwill associated with the
Company's August 2000 acquisition of the e-learning company Hungry Minds, Inc. (the "Hungry
Minds Acquisition"), severance pay, relocation costs, rent or lease termination costs on unused
office space and the write-off of certain equipment and leasehold improvements at closed facilities.
The majority of such costs will be incurred during the remainder of the current fiscal year. As part
of the restructuring, the majority of the operations from the Hungry Minds Acquisition have been
shut down.
Results of Operations
The following table summarizes the results of operations as a percentage of net
revenue for the periods shown:
Three Months Ended       Six Months Ended
                                               March 31,               March 31,
                                               --------------------    ---------------------
                                                   2001       2000         2001        2000
                                               ---------  ---------    ---------  ----------
CONDENSED CONSOLIDATED STATEMENTS
   OF OPERATIONS DATA:
Net Revenue:
Technology group ............................      51.2%      54.0%        50.1%       52.5%
Consumer group ..............................      48.8%      46.0%        49.9%       47.5%
                                               ---------  ---------    ---------  ----------
Total Net Revenue ...........................     100.0%     100.0%       100.0%      100.0%
                                               =========  =========    =========  ==========

Cost of sales ...............................      78.8%      54.5%        70.5%       56.1%
Selling, general and administrative .........      27.5%      28.6%        30.5%       27.8%
Restructuring and impairment charges ........      11.5%       0.0%         5.3%        0.0%
Depreciation and amortization ...............       5.3%       2.2%         5.0%        2.2%
                                               ---------  ---------    ---------  ----------
Operating income (loss) .....................     -23.1%      14.7%       -11.4%       13.9%
   Interest expense - net ...................       6.8%       2.4%         5.1%        2.7%
                                               ---------  ---------    ---------  ----------
Income (loss) before provision for income tax     -29.9%      12.2%       -16.5%       11.2%
                                               ---------  ---------    ---------  ----------
Net income (loss) ...........................     -18.3%       7.1%       -10.0%        6.5%
                                               =========  =========    =========  ==========

Other Data:
EBITDA(1) ...................................     -17.8%      16.9%        -6.4%       16.1%
                                               =========  =========    =========  ==========
"EBITDA" is defined as income before provision for income taxes, interest, depreciation and
amortization. EBITDA is not intended to represent cash flows from operations and should not be
considered as an alternative to net income (loss) as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company believes EBITDA is a standard
measure commonly reported and widely used by analysts, investors and other interested parties in the
publishing and media industries, however, EBITDA, as presented herein, may not be comparable to
similarly titled measures reported by other companies. EBITDA for the three months ended March 31,
2001 and 2000 was ($7.8) million and $10.9 million, respectively. EBITDA for the six months ended
March 31, 2001 and 2000 was ($6.1) million and $19.7 million, respectively. Both periods in fiscal
2001 included a restructuring and impairment charge of $5.1 million.
Three Months Ended March 31, 2001 Compared to Three
Months Ended March 31, 2000
Net Revenue.
Net revenue decreased $20.8 million, or 32.2%, primarily due
to a $21.1 million decrease in gross domestic sales and a $1.6 million decrease in gross
international sales. Net revenues included decreases of approximately $12.4 million for the Company's
Technology Group and $8.4 million in the Consumer Group. The decrease in the Technology Group revenues
was primarily a result of declines in net sales of
For
Dummies
,
Bible
and
Visual
technology titles
of approximately
$8.3 million, $2.7 million and $2.4 million, while the Consumer Group decline was spread across most
of the brands with the most significant declines in
Frommer's
($2.3 million) and
CliffsNotes
($2.2 million). Of the Company's net revenue for the three months ended March 31,
2001, $10.5 million was attributable to sales of titles (including new editions) first published
during that period, as compared to $13.4 million during the same period for 2000.
Operating Costs and Expenses.
Operating costs and expenses decreased $1.2
million or 2.2% for the three months ended March 31, 2001 as compared to the same period in 2000.
Operating costs and expenses, as a percentage of net revenues, increased 37.7%, which is primarily
the result of four components: (i) cost of goods sold, as a percentage of net revenues, increased
approximately 14.6%, (ii) wages and benefits increased 8.7%, (iii) the restructuring and impairment
charge, which occurred only in 2001, was 11.5% of net revenues, and (iii) depreciation and
amortization increased 3.1%. The increase in cost of goods sold as a percentage of net revenues is
primarily due to obsolete or damaged inventory (10.1%) and royalties (3.2%). The increase in wages
and benefits is primarily a result of the 2000 Hungry Minds Acquisition. Wages and benefits have
declined approximately $1.6 million from the first fiscal quarter of 2001 to the second fiscal
quarter, primarily as a result of the restructuring plan. The increase in depreciation and
amortization is primarily the result of leasehold improvements made to new office space leased in
fiscal 2000.
Interest Expense
. Interest expense increased $1.4 million or 88.0% from
the first fiscal quarter of 2001 as compared to that of 2000. This increase includes a $0.7 million
charge to record an interest rate hedge on the Credit Facility at fair value, a $16.5 million
increase in the average outstanding indebtedness in the periods and an increase in the applicable
interest margins on the Credit Facility (see Note 7 to the financial statements).
Provision (Benefit) for Income Taxes.
The $8.4 million decrease in the
income tax provision to a $5.1 million benefit in the first fiscal quarter of 2001 is primarily the
result of the $21.0 million decrease in income (loss) before taxes.
Net Income.
The net loss of $8.0 million for the three months ended March
31, 2001 represented a decrease of $12.6 million from net income of $4.6 million for the three
months ended March 31, 2000, primarily for the reasons discussed above.
Six Months Ended March 31, 2001 Compared to Six Months Ended March 31, 2000
Net Revenue.
Net revenue decreased $27.3 million, or 22.3%, primarily due
to a $23.8 million decrease in gross domestic sales and a $1.8 million decrease in gross
international sales. Net revenues included decreases of approximately $16.6 million for the Company's
Technology Group and $10.7 million in the Consumer Group. The decrease in the Technology Group revenues
was primarily a result of declines in net sales of
For
Dummies
,
Bible
and
Visual
technology titles
of approximately
$11.1 million, $2.8 million and $1.0 million. The Consumer Group decline was spread across most of
the brands with the most significant declines in
Frommer's
($4.1 million),
CliffsNotes
($3.6 million) and Arco ($3.3 million), which was sold in June of 2000. Of the Company's net revenue
for the six months ended March 31, 2001, $27.9 million was attributable to sales of titles
(including new editions) first published during that period, as compared to $31.9 million during the
same period for 2000.
Operating Costs and Expenses.
Operating costs and expenses decreased $0.5
million or 0.5% for the six months ended March 31, 2001 as compared to the same period in 2000.
Operating costs and expenses, as a percentage of net revenues, increased 25.3%, which is primarily
the result of four components: (i) cost of goods sold, as a percentage of net revenues, increased
approximately 9.9%, (ii) wages and benefits increased 7.7% (iii) the restructuring and impairment
charge, which occurred only in 2001 was 5.3% of net revenues, and (iii) depreciation and
amortization increased 2.7%. The increase in cost of goods sold as a percentage of net revenues is
primarily due to obsolete or damaged inventory (5.1%), royalties (2.9%) and increased paper costs
(2.2%). The increase in wages and benefits is primarily a result of the 2000 Hungry Minds
Acquisition. Wages and benefits have declined approximately $1.6 million from the first fiscal
quarter of 2001 to the second fiscal quarter, primarily as a result of the restructuring plan. The
increase in depreciation and amortization is primarily the result of leasehold improvements made to
new office space leased in fiscal 2000.
Interest Expense
. Interest expense increased $1.6 million or 48.6% during
the six months ended March 31, 2001 as compared to the same period in 2000. This increase includes a
$0.7 million charge to record an interest rate hedge on the Credit Facility at fair value, a $12.4
million increase in the average outstanding indebtedness in the periods and an increase in the
applicable interest margins on the Credit Facility (see Note 7 to the financial statements.)
Provision (Benefit) for Income Taxes.
The $12.0 million decrease in the
income tax provision to a $6.2 million benefit in 2001 is primarily the result of the $29.4 million
decrease in income (loss) before taxes.
Net Income.
The net loss of $9.5 million for the six months ended March
31, 2001 represented a decrease of $17.5 million from net income of $8.0 million for the six months
ended March 31, 2000, primarily for the reasons discussed above.
Liquidity and Capital Resources
As of March 31, 2001, the Company's total cash and cash equivalents was $8.8
million. As described under "Forbearance and Amendment Agreement", the Company is no
longer able to borrow funds against the Credit Facility. In May 2001, the Company signed an
agreement with IDG for IDG to provide a $9.5 million credit facility. Management believes cash from
operations, together with the amounts available under the Subordinated Debt Facility, will provide
it with sufficient resources to meet its needs up to the anticipated sale of the Company.
From September 30, 2000 to March 31, 2001, the Company's working capital
decreased $82.7 million. This was primarily the result of the new maturity date of the Credit
Facility. Excluding the current portion of long-term debt, working capital increased $7.8 million,
which included an $18.8 million decrease in accounts payable and accrued liabilities, a $7.8 million
increase in cash and cash equivalents and a $6.1 million increase in other current assets, partially
offset by a $4.4 million decrease in net inventory and a $20.5 million decrease in accounts
receivable. The decrease in accounts receivable is the result of a decrease in sales and increased
collection efforts.
The Company's net cash used in investing activities for the six months ended
March 31, 2001 was $2.1 million and included capital expenditures of $1.8 million, partially offset
by other investments of $0.3 million, which was primarily the net investment in the Company's
Canadian affiliate.
The Company's net cash provided by financing activities, during the six months
ended March 31, 2001, consisted of net borrowings of $9.0 million on its Credit Facility.
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to certain levels of market risk, primarily from
changes in foreign currency exchange rates and interest rates. To hedge against losses from changes
in foreign currency exchange rates on its foreign currency accounts receivable, the Company enters
into foreign currency forward contracts. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes. The Company has not designated these
contracts as hedges under SFAS 133. Accordingly, the contracts are marked to market and realized and
unrealized gains and losses are included in other income. These gains and losses offset the gains
and losses on the related accounts receivable, which is also included in other income. The related
amounts due to or from counterparties are included in other assets or other liabilities. In general,
these foreign currency forward exchange contracts mature in three months or less and therefore their
estimated fair values are typically insignificant. As a result of these activities, the Company
believes that a hypothetical 5% appreciation from March 31, 2001 in the U.S. dollar relative to such
currencies would not have a material effect on net income or cash flows.
At March 31, 2001, substantially all of the Company's cash equivalents were
invested in overnight repurchase agreements. If market rates were to increase immediately by 25
basis points from levels at March 31, 2001, the fair value of this investment portfolio would
decline by an insignificant amount. In addition, as of March 31, 2001, the Company had $71.5 million
of floating rate debt. Based on this level of indebtedness, if market rates were to increase
immediately by 25 basis points, future annual earnings and cash flows would decrease by
approximately $0.2 million. In addition, the Company has a hedge instrument, which caps the LIBOR
portion of $25 million of debt on the Credit Facility (See note 7 to the financial statements) at
6.29% through October of 2001. In October 2001, the bank has the ability to change the 6.29% cap
into a two-year swap, which as of March 31, 2001 would result in an additional liability to the
Company of approximately $659,000. This liability increases approximately $62,500 per year for every
25 basis point decrease in LIBOR.
PART II-OTHER INFORMATION
Item 3.	Defaults Upon Senior Securities.
During the first and second fiscal quarters of 2001, the Company did not meet
certain financial ratio covenants contained in the Credit Facility (see note 7 to the financial
statements). Pursuant to the terms of a Forbearance and Amendment Agreement, the lenders have agreed
to forbear, subject to the terms and conditions set forth therein, from exercising their right to
call amounts outstanding under the Credit Facility.
Item 4.	Submission of Matters to a Vote of Security
Holders.
The annual meeting of the stockholders of the Company was held on
February 9, 2001. The matters submitted to the stockholders for a vote included (a) the election of
six directors to the Company's Board of Directors and (b) the ratification of the appointment of
Deloitte & Touche LLP as independent accountants for the fiscal year ending September 29,
2001.
The following tables set forth the results of voting on these matters:
Number of  Number of
                                   Votes       Votes      Number of
Matter                              FOR      WITHHELD    ABSTENTIONS
------------------------------  ----------- ----------- --------------
Election of Directors:
   John J. Kilcullen .........  17,513,034      30,790          9,163
  Patrick J. McGovern ........  17,523,856      18,022          9,163
  Kelly P. Conlin ............  17,523,856      21,118          9,163
  Axel J. Leblois ............  17,525,015      19,264          9,163
  Gregoire Sentilhes .........  17,525,015      18,264          9,163
  Julius A. Hoeft ............  17,525,015      18,264          9,163

Ratification of Appointment of
     Deloitte & Touche LLP: ..  17,536,299      11,724          2,918
Effective March 27, 2001, the Company's two independent directors, Mr. Julius Hoeft and Mr.
Gregoire Sentilhes, resigned from its Board of Directors. On April 17, 2001, the Board of Directors
appointed Timothy J. McNeill as a new member of the Board of Directors. One board position remains
vacant.
Item 6.	Exhibits and Reports on Form 8-K
Exhibits
Exhibit
Number
Exhibit Title
10.1	Forbearance and Amendment Agreement (Incorporated by reference to Exhibit 10.1 from the
Form 8-K filed by the Company on May 9, 2001.)
10.2	Subordinated Loan Agreement
between Hungry
Minds, Inc. and International Data Group, Inc. (Incorporated by reference to Exhibit 10.2 from the
Form 8-K filed by the Company on May 9, 2001.)
Reports on Form 8-K
On March 29, 2001, under Item 5 - Other Events, the Company reported that it had
announced, in the form of a press release, that its revenues were continuing to fall below
expectations and the Company revised its estimates for earnings per share. In addition, the press
release announced the resignations of the Company's two independent directors. A copy of the press
release was included as an exhibit to the 8-K filing.
On March 30, 2001, under Item 5 - Other Events, the Company reported that it had
announced, in the form of a press release, its intention to engage a financial advisor to assist the
Company in exploring all possible avenues for enhancing stockholder value including, without
limitation, seeking to bring about a possible sale of the Company or of significant assets of the
Company or a business combination involving the Company. A copy of the press release was included as
an exhibit to the 8-K filing.
Items 1, 2 and 5 are not applicable and have been
omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HUNGRY MINDS, INC.
Dated: May 15, 2001
By:
/s/ JOHN M. HARRIS
John M. Harris
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)