<PAGE>


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

                                    FORM 10-Q
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<CAPTION>

For the quarterly period ended June 30, 2004                         Commission File No. 333-96119
<S>                                                                  <C>
WRC MEDIA INC.                                                       WEEKLY READER CORPORATION
(Exact name of Registrant as specified in its charter)               (Exact name of Registrant as specified in its charter)

DELAWARE                                                             DELAWARE
(State or other jurisdiction of incorporation or organization)       (State or other jurisdiction of incorporation or organization)

2731                                                                 2721
(Primary Standard Industrial Classification Number)                  (Primary Standard Industrial Classification Number)

13-4066536                                                           13-3603780
(I.R.S. Employer Identification Number)                              (I.R.S. Employer Identification Number)


                                 COMPASSLEARNING, INC.
                                 (Exact name of Registrant as specified in its charter)
                                 2731

                                 DELAWARE
                                 (State or other jurisdiction of incorporation or organization)
                                 7372

                                 (Primary Standard Industrial Classification Number)
                                 7372
                                 13-4066535
                                 (I.R.S. Employer Identification Number)

WRC MEDIA INC.                        WEEKLY READER CORPORATION                  COMPASSLEARNING, INC.
512 7th AVENUE, 22nd FLOOR            512 7th AVENUE, 22nd FLOOR                 512 7th AVENUE, 22nd FLOOR
NEW YORK, NY 10018                    NEW YORK, NY 10018                         NEW YORK, NY 10018
(212) 768-1150                        (212) 768-1150                             (212) 768-1150

</TABLE>

(Address, including zip code, and telephone number, including area code, of each
                   Registrant's principal executive offices)


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

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 such reports), and (2) has been subject to such filing
requirements for the past 90 days.
         |X|  Yes     |_|  No

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act.
         |_|  Yes     |X|  No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------
TITLE OF CLASS                              | NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------------------------------------------------------------------------------
<S>                                           <C>
12 3/4% Senior Subordinated Notes due 2009  | OVER-THE-COUNTER MARKET
-------------------------------------------------------------------------------------------

</TABLE>



                                       2
<PAGE>


PART 1   FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS



                                       3
<PAGE>

                         WRC MEDIA INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands, except share and per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                    December 31,         June 30,
                                                                                       2003                2004
                                                                                     ---------          ----------
<S>                                                                                  <C>                <C>
ASSETS
Current Assets:
     Cash and cash equivalents                                                       $   1,432          $   5,080
     Accounts receivable (net of allowance for doubtful accounts
     and sales returns of $2,519 and $2,583, respectively)                              30,027             38,854
     Inventories                                                                        16,652             14,894
     Prepaid expenses                                                                    3,367              3,174
     Other current assets (including restricted assets of $1,006
      and $842, respectively)                                                            1,889              1,317
                                                                                     ---------          ---------
       Total current assets                                                             53,367             63,319

Property and equipment, net                                                              5,792              4,996
Capitalized software, net                                                                7,293              7,333
Goodwill                                                                               241,324            241,324
Other intangible assets, net                                                            76,860             71,539
Deferred financing costs, net                                                            5,675              9,559
Other assets                                                                            29,896             32,843
                                                                                     ---------          ---------
       Total assets                                                                  $ 420,207          $ 430,913
                                                                                     =========          =========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                                                $  16,963          $  14,430
     Accrued payroll, commissions and benefits                                           9,356              8,800
     Current portion of deferred revenue                                                35,900             35,930
     Other accrued liabilities                                                          17,166             17,857
     Current portion of long-term debt                                                   8,477                  -
                                                                                     ---------          ---------
       Total current liabilities                                                        87,862             77,017

Deferred revenue, net of current portion                                                   959              1,203
Deferred tax liabilities                                                                10,800             12,250
15% senior preferred stock,
including accrued dividends and accretion of warrant value
(5,966,119 shares outstanding), (Liquidation preference of $149,228)                         -            141,771
Long-term debt                                                                         262,925            300,973
                                                                                     ---------          ---------
       Total liabilities                                                               362,546            533,214
                                                                                     ---------          ---------

Commitments and contingencies

15% senior preferred stock,
  including accrued dividends and accretion of warrant value
  (5,508,080 shares outstanding)                                                       130,701                  -

Warrants on common stock of subsidiaries                                                11,751             11,751

Common stock subject to redemption                                                         940                950
                                                                                     ---------          ---------

Stockholders' deficit:
     Common stock, ($.01 par value, 20,000,000 shares authorized;
     7,008,406 shares outstanding in 2003 and 2004)                                         70                 70
     18% convertible preferred stock, ($.01 par value, 750,000 shares
     authorized, 547,980 and 572,639 outstanding, respectively)                         21,919             23,936
     Additional paid-in capital                                                        131,753            131,753
     Accumulated other comprehensive loss                                               (1,899)            (1,899)
     Accumulated deficit                                                              (237,574)          (268,862)
                                                                                     ---------          ---------
       Total stockholders' deficit                                                     (85,731)          (115,002)
                                                                                     ---------          ---------
       Total liabilities and stockholders' deficit                                   $ 420,207          $ 430,913
                                                                                     =========          =========

</TABLE>

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


                                        4
<PAGE>


                         WRC MEDIA INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       FOR THE THREE MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                  2003                2004
                                                                             -------------          --------
                                                                             (As Restated
                                                                              See Note 17)
<S>                                                                             <C>                 <C>
Revenue, net                                                                    $ 44,141            $ 45,849

Cost of goods sold                                                                13,084              13,915
                                                                                --------            --------

Gross profit                                                                      31,057              31,934
                                                                                --------            --------

Costs and expenses:
     Sales and marketing                                                          10,301              11,170
     Research and development                                                        213                 984
     Distribution, circulation and fulfillment                                     2,905               2,769
     Editorial                                                                     2,565               2,474
     General and administrative                                                    5,370               7,328
     Restructuring costs and other non-recurring expenses                          1,001                 632
     Depreciation                                                                    599                 495
     Amortization of intangible assets                                             4,374               4,076
                                                                                --------            --------

     Total operating costs and expenses                                           27,328              29,928
                                                                                --------            --------

Income from operations                                                             3,729               2,006

Interest expense, including amortization
of deferred financing costs                                                       (7,236)            (13,408)
Other expense, net                                                                  (688)               (274)
                                                                                --------            --------

Loss before income tax provision                                                  (4,195)            (11,676)

Income tax provision                                                                 679                 840
                                                                                --------            --------

Net loss                                                                        $ (4,874)           $(12,516)
                                                                                ========            ========
</TABLE>


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




                                       5
<PAGE>


                         WRC MEDIA INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                     2003               2004
                                                                                 ------------        --------
                                                                                 (As Restated
                                                                                 See Note 17)
<S>                                                                                <C>               <C>
Revenue, net                                                                       $ 91,179          $ 88,609

Cost of goods sold                                                                   26,357            26,835
                                                                                   --------          --------

Gross profit                                                                         64,822            61,774
                                                                                   --------          --------

Costs and expenses:
     Sales and marketing                                                             21,782            22,725
     Research and development                                                           924             1,731
     Distribution, circulation and fulfillment                                        6,415             6,321
     Editorial                                                                        5,144             5,347
     General and administrative                                                      11,013            14,449
     Restructuring costs and other non-recurring expenses                             1,481               697
     Depreciation                                                                     1,220               926
     Amortization of intangible assets                                                8,691             8,295
                                                                                   --------          --------

     Total operating costs and expenses                                              56,670            60,491
                                                                                   --------          --------

Income from operations                                                                8,152             1,283

Interest expense, including amortization
of deferred financing costs                                                         (14,368)          (27,910)
Other expense, net                                                                     (919)             (524)
                                                                                   --------          --------

Loss before income tax provision                                                     (7,135)          (27,151)

Income tax provision                                                                  1,492             1,642
                                                                                   --------          --------

Net loss                                                                           $ (8,627)         $(28,793)
                                                                                   ========          ========

</TABLE>

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



                                       6
<PAGE>

                         WRC MEDIA INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                      2003            2004
                                                                                 -------------      ----------
                                                                                 (As Restated
                                                                                  See Note 17)
<S>                                                                                <C>              <C>
Cash flows from operating activities:

Net loss                                                                           $  (8,627)       $ (28,793)

Adjustments to reconcile net loss to net cash used in operating activities:
     Deferred income tax provision                                                     1,450            1,450
     Depreciation and amortization                                                    11,432           10,406
     Management fees forgiven by principal shareholder                                   300                -
     (Loss) gain on disposition of property and equipment                                 (1)               1
     Accrual of manditorily redeemable preferred stock dividends                           -           10,593
     Amortization of debt discount                                                       218              249
     Amortization of deferred financing costs                                            725            2,783
Changes in operating assets and liabilities:
     Accounts receivable                                                                (900)          (8,827)
     Inventories                                                                         744            1,758
     Prepaid expenses and other current assets                                          (308)             763
     Other noncurrent assets                                                          (8,153)          (5,925)
     Accounts payable                                                                 (7,575)          (2,534)
     Deferred revenue                                                                 (1,451)             273
     Accrued liabilities                                                              (1,806)             144
                                                                                   ---------        ---------

Net cash used in operating activities                                                (13,952)         (17,659)
                                                                                   ---------        ---------

Cash flows from investing activities:
     Purchase of property and equipment                                                 (610)            (553)
     Capitalized software                                                             (2,066)          (1,225)
     Landlord reimbursement for leasehold improvements                                     -              421
     Proceeds from the disposition of property and equipment                               4                -
                                                                                   ---------        ---------

Net cash used in investing activities                                                 (2,672)          (1,357)
                                                                                   ---------        ---------

Cash flows from financing activities:
     Proceeds from revolving line of credit                                           27,000           31,000
     Repayments of revolving line of credit                                           (3,000)         (28,000)
     Repayment of senior bank debt                                                    (3,945)        (118,678)
     Deferred financing fees                                                             (20)          (6,668)
     Proceeds from issuance of long-term debt                                              -          145,000
     Purchase and issuance of common stock subject to redemption                         (25)              10
                                                                                   ---------        ---------

Net cash provided by financing activities                                             20,010           22,664
                                                                                   ---------        ---------

Increase in cash and cash equivalents                                                  3,386            3,648

Cash and cash equivalents, beginning of period                                         9,095            1,432
                                                                                   ---------        ---------

Cash and cash equivalents, end of period                                           $  12,481        $   5,080
                                                                                   =========        =========

</TABLE>

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



                                       7
<PAGE>


                         WRC MEDIA INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
           (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1.  DESCRIPTION OF BUSINESS

The accompanying condensed consolidated financial statements include the
accounts of WRC Media Inc. ("WRC Media") and its subsidiaries - Weekly Reader
Corporation ("Weekly Reader"), CompassLearning, Inc. ("CompassLearning") and
ChildU, Inc. ("ChildU"). WRC Media was incorporated on May 14, 1999. The term
"Company" refers to WRC Media and its subsidiaries.

The Company is in the business of developing, publishing and marketing print and
electronic supplemental education materials. Certain of the Company's products
have been sold in the education marketplace for as long as 100 years. The
Company's customers are primarily within the United States.

2.  BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of the Company as
of June 30, 2004 and for the three- and six-month periods ended June 30, 2003
and 2004 have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") for interim financial
information and the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments necessary to
present fairly the financial position, the results of operations and cash flows
for the periods presented, have been made.

These condensed consolidated financial statements should be read in conjunction
with the Company's annual financial statements and related notes thereto as
reported in the Company's Annual Report on Form 10-K dated June 15, 2004. The
operating results for the three- and six-month periods ended June 30, 2003 and
2004 are not necessarily indicative of the results that may be expected for a
full year.

3.  RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variables Interest Entities ("FIN 46").
FIN 46 clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. In
December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46R") to address
certain FIN 46 implementation issues. This interpretation requires that the
assets, liabilities, and results of activities of a Variable Interest Entity
("VIE") be consolidated into the financial statements of the enterprise that is
the primary beneficiary of the VIE. FIN 46R also requires additional disclosures
by primary beneficiaries and other significant variable interest holders. This
interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those VIE's that are
considered to be special purpose entities, for which the effective date is no
later than the end of the first interim or annual reporting period ending after
December 15, 2003. The adoption of FIN 46R, effective March 31, 2004, did not
have any effect on the Company's consolidated financial position or results of
operations.

In April 2003, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"), which amends and clarifies accounting for
derivative instruments, and for hedging activities under SFAS 133. Specifically,
SFAS 149 requires that contracts with comparable characteristics be accounted
for similarly. Additionally, SFAS 149 clarifies the circumstances in which a
contract with an initial net investment meets the characteristics of a
derivative and when a derivative contains a financing component that requires
special reporting in the statement of cash flows. This Statement is generally
effective for contracts entered into or modified after June 30, 2003 and its
adoption did not have any effect on the Company's consolidated financial
position or results of operations.



                                       8
<PAGE>

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement was effective for the
Company beginning January 1, 2004. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of this statement required the Company to
reclassify its 15% Senior Preferred Stock from the mezzanine section of the
balance sheet to long-term liabilities at March 31, 2004. Effective January 1,
2004 dividend payments for the 15% Senior Preferred Stock ("15% Senior
Preferred") are recorded as interest expense in the consolidated statement of
operations. The adoption of this statement did not result in any adjustment to
the book value of its 15% Senior Preferred as of January 1, 2004 as book value
approximated fair value at January 1, 2004. For the three- and six-month periods
ended June 30, 2004 the Company recognized $5,394 and $10,593, respectively, of
accrued dividends on 15% Senior Preferred as interest expense.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106." It requires additional disclosures to those
in the original Statement 132 about the assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
post-retirement plans. The majority of the provisions of this statement apply to
financial statements issued for fiscal years ending after December 15, 2003. The
Company has adopted such disclosure provisions (See Note 15).

On March 17, 2004, the Emerging Issues Task Force of the FASB reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments." ("Issue 03-1") Issue 03-1 provides
guidance for determining when an investment is other-than-temporarily impaired
specifically, whether an investor has the ability and intent to hold an
investment until recovery. In addition, Issue 03-1 contains disclosure
requirements about impairments that have not been recognized as other than
temporary for investments. Issue 03-1 also requires the investor to disclose
investments with unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance for evaluating whether an
investment is other-than-temporarily impaired shall be applied in
other-than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004. The disclosures are effective in annual financial
statements for fiscal years ending after December 15, 2003, for investments
accounted for under Statements 115 and 124. For all other investments within the
scope of this Issue, the disclosures are effective in annual financial
statements for fiscal years ending after June 15, 2004. The additional
disclosures for cost method investments are effective for fiscal years ending
after June 15, 2004. The adoption of this consensus is not expected to have any
impact on the Company's consolidated results of operations or financial
position.

4. SEGMENT INFORMATION

The Company has four reporting segments: Weekly Reader, World Almanac, American
Guidance Service ("AGS"), and CompassLearning and ChildU ("Compass/ChildU").
This classification reflects the nature of the Company's organizational
structure by which the chief operating decision-maker reviews and assesses the
operating performance of the reporting segment and allocates corporate
resources.

     o    Weekly Reader is a publisher of classroom periodicals, grade-specific
          workbooks and custom publisher of instructional materials paid for by
          various sponsors.
     o    World Almanac publishes print reference materials sold into the trade
          channel; publishes nonfiction and fiction children's books under three
          imprints for K-12 students; publishes print and electronic reference
          materials sold into the library channel; and distributes third-party
          books targeted for K-12 students through its catalogs.
     o    AGS is a publisher of testing and assessment products and supplemental
          instructional materials. AGS products are sold into the school
          channel. Testing and assessment products are primarily for K-12
          students and supplemental instructional materials are primarily for
          low-performing students in middle and secondary schools.
     o    Compass/ChildU produce research-based technology learning solutions,
          including web-based e-learning solutions that bring into being
          educational assessment, curriculum and management tools for grades
          Pre-K through 12, all of which are aligned to local, state and
          national standards.

Information regarding the operations of the Company's reporting segments is set
forth below. Parent Company expenses and assets not allocated are included in
Corporate. WRC Media evaluates segment performance based on several factors, of
which the primary financial measure is operating income (loss).



                                       9
<PAGE>

<TABLE>
<CAPTION>

                                                         Weekly     World              Compass /
                                                         Reader    Almanac     AGS       ChildU    Corporate  Eliminations   Total
                                                         ------    -------     ---       ------    ---------  ------------   -----
<S>                                                     <C>       <C>       <C>        <C>        <C>         <C>          <C>
Three months ended June 30, 2004
--------------------------------

Revenue, net                                            $ 4,138   $ 10,506  $ 17,867   $ 13,338    $      -   $       -    $ 45,849
Income (loss) from operations                            (2,073)       969     5,816     (1,735)       (971)          -       2,006
Depreciation and amortization                               119        530     1,809      1,843         942           -       5,243
Restructuring costs and other non-recurring items             -          -         -        603          29           -         632
Assets                                                   55,620     99,146   192,861     52,501     280,348    (249,563)    430,913
Capital expenditures                                        126         25       122        717          10                   1,000

Three months ended June 30, 2003
--------------------------------

Revenue, net                                              5,588     10,666    13,457     14,430           -           -      44,141
Income (loss) from operations                            (1,094)       877     4,094        688        (836)          -       3,729
Depreciation and amortization                               179        543     1,856      2,249         942           -       5,769
Restructuring costs and other non-recurring items             -         21         -        875         105                   1,001
Assets                                                   57,133     91,726   174,009     58,697     275,177    (215,568)    441,174
Capital expenditures                                         37         30         7      1,592           -                   1,666

<CAPTION>

                                                         Weekly     World              Compass /
                                                         Reader    Almanac     AGS       ChildU    Corporate  Eliminations   Total
                                                         ------    -------     ---       ------    ---------  ------------   -----
<S>                                                     <C>       <C>       <C>        <C>         <C>              <C>    <C>
Six-months ended June 30, 2004
------------------------------

Revenue, net                                           $ 14,252   $ 22,387  $ 30,300   $ 21,670    $      -   $       -    $ 88,609
Income (loss) from operations                              (172)     2,339     7,354     (6,325)     (1,913)          -       1,283
Depreciation and amortization                               250      1,016     3,795      3,462       1,883           -      10,406
Restructuring costs and other non-recurring items             -          -         -        667          30           -         697
Capital expenditures                                        160         45       182      1,376          15                   1,778

Six-months ended June 30, 2003
------------------------------

Revenue, net                                             16,085     23,259    25,186     26,649           -           -      91,179
Income (loss) from operations                             1,595      3,173     5,975       (459)     (2,130)          -       8,154
Depreciation and amortization                               364      1,099     3,648      4,437       1,884           -      11,432
Restructuring costs and other non-recurring items             -         21         -        875         585                   1,481
Capital expenditures                                        104         54        23      2,493           2                   2,676

</TABLE>


5.  RESTRUCTURING COSTS AND OTHER NON-RECURRING EXPENSES

During the six-months ended June 30, 2004, the Company reviewed its
restructuring reserve established in 2002 and increased the reserve $697 for
lease terminations primarily resulting from the updating of the sublease
assumptions used in determining the fair value of the remaining lease
obligations associated with facilities vacated during 2002.

Components of the Company's restructuring plan initiated in the fourth quarter
of 2002 are shown in the following table.

<TABLE>
<CAPTION>

                                        Balance at        Additional                        Balance at
                                     December 31, 2003     Charges        Amounts Paid    June 30, 2004
                                     -----------------   ------------     ------------    -------------
<S>                                       <C>            <C>                <C>            <C>
Severance and other benefits              $   32             $    -         $  (32)           $    -
Lease terminations                         3,243                697           (807)            3,133
                                          ------             ------         ------            ------
Total                                     $3,275             $  697         $ (839)           $3,133
                                          ======             ======         ======            ======

</TABLE>

The restructuring reserve totaling approximately $3,133 at June 30, 2004, is
expected to be paid as follows: remaining nine months of 2004 - $796, 2005 and
beyond - $2,337. These charges are included in other accrued liabilities on the
condensed consolidated balance sheets.

6.  STOCK-BASED COMPENSATION

Stock based compensation arrangements with employees are accounted for using the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company applies SFAS No. 123, "Accounting for Stock-Based
Compensation and Related Interpretations" ("SFAS 123") for stock-based
compensation arrangements with non-employees. The Company applies the additional
disclosure requirements of SFAS 123, as amended by SFAS No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure," for employee stock
arrangements.



                                       10
<PAGE>

The following table details the effect on net loss had compensation expense for
stock-based compensation arrangements with employees been recorded based on the
fair value method under SFAS 123, as amended.

<TABLE>
<CAPTION>

                                                     Three-Months Ended June 30,      Six-Months Ended June 30,
                                                        2003           2004            2003             2004
                                                     --------        --------        --------        --------
<S>                                                  <C>             <C>             <C>             <C>
Net loss, as reported                                $ (4,874)       $(12,516)       $ (8,627)       $(28,793)
Deduct:  Total stock-based employee
compensation expense determined under
the fair value based method for all
awards, net of related tax effects                        (46)             (4)            (91)             (8)
                                                     --------        --------        --------        --------
Pro forma net loss                                   $ (4,920)       $(12,520)       $ (8,718)       $(28,801)
                                                     ========        ========        ========        ========

</TABLE>

The Company has outstanding stock options issued to certain of its executives
that are required to be accounted for as variable options. During the three- and
six-month periods ended June 30, 2003 and 2004, no compensation expense was
recognized for these options as the fair market value of the Company's common
stock, as estimated by the Company's Board of Directors, was less than the
exercise price of these options.

7.  DEBT

On March 29, 2004, the Company refinanced all of its term loans under its Senior
Bank Credit Facilities (the "First-Lien Facility") with a $145,000 senior,
second-priority lien secured financing that was provided to the Company pursuant
to a term loan facility (the "Second-Lien Facility"). The proceeds of the
Second-Lien Facility were used (i) to refinance in full all term loans
outstanding under the First-Lien Facility, (ii) to pay fees and expenses related
to the Second-Lien Facility and all transactions contemplated in connection
therewith and (iii) for general corporate purposes of the Company.

All payment obligations under the Second-Lien Facility are secured by a
second-priority lien on the collateral securing the First-Lien Facility;
provided that all obligations under the Second-Lien Facility will rank equally
in right of payment with all payment obligations under the First-Lien Facility
and will not otherwise be subordinated in any respect to the First-Lien
Facility. The final maturity of the Second-Lien Facility is March 29, 2009. At
the Company's option, the loans will bear interest at either the Administrative
Agent's (i) alternate base rate ("base rate loans") or (ii) reserve-adjusted
LIBO rate ("LIBO rate loans") plus, in each case, the "Applicable Margin" (as
defined). "Applicable Margin" means, with respect to (i) Base Rate Loans, a rate
of 4.00% per annum and (ii) LIBO Rate Loans, a rate of 5.00% per annum.

The Second-Lien Facility is subject to mandatory prepayment with:

     o    the proceeds of the incurrence of certain indebtedness

     o    the proceeds of certain asset sales or other dispositions

     o    a change in control

     o    annually, 50% of the Company's excess cash flow (as defined) from the
          prior year.

The Second-Lien Facility provide for certain restrictions, including
restrictions on asset sales, dividend payments, additional indebtedness payments
for restricted investments. In addition, the Second-Lien Facility provides for
the maintenance of a financial covenant, a maximum ratio (the "Senior Leverage
Ratio") of Senior Secured Debt to trailing four quarter EBITDA (as defined
therein) not to exceed 4.25:1.00 for any fiscal quarter, except the fiscal
quarter ended June 30, 2005 for which the Senior Leverage Ratio shall not exceed
4.50:1.00, in each case to be tested on the last day of each fiscal quarter and
computed for the Parent and its consolidated subsidiaries. In connection with
entering into the Second-Lien Facility, the Company entered into an amendment
and restatement of its First-Lien Facility, which now consists solely of a
$30,000 revolving credit facility.



                                       11
<PAGE>

The First-Lien Facility, as amended and restated, has a maturity of December 29,
2008, and has one financial covenant, a Senior Leverage Ratio of senior secured
debt to trailing four quarter EBITDA (as defined therein) not to exceed
4.00:1.00 for any fiscal quarter, except the fiscal quarter ended June 30, 2005
for which the Senior Leverage Ratio may not exceed 4.25:1.00, in each case to be
tested on the last day of the fiscal quarter and computed for the Company and
its consolidated subsidiaries. Interest on revolving loan borrowings under the
First-Lien Facility bear interest at a rate per annum equal to the LIBO rate as
defined in the First-Lien Facility plus 2.0% or the alternate base rate as
defined in the First-Lien Facility plus 1.0%.

As a result of the refinancing of the Company wrote-off the remaining balances
of deferred financing costs associated with the First Lien Facility of
approximately $1,914. These costs are included in interest expense, including
amortization of deferred financing costs, on the condensed consolidated
statement of operations for the six-months ended June 30, 2004.

In connection with the refinancing the Company incurred costs and expenses,
primarily investment banking and legal fees, of approximately $6,668. These
amounts have been recorded as deferred financing fees at June 30, 2004 and are
being amortized over the term of the Second Lien Facility using the effective
interest method.

At June 30, 2004, there were $8,000 in outstanding advances under the Company's
$30,000 revolving credit facility, which bears interest at approximately 3.5%
for Eurodollar rate advances and 5.0% for base rate advances as of June 30,
2004. The Company has stand-by letters of credit, renewable annually, in the
amount of $2,050 of which $2,000 serves as security for a real estate lease
entered into by the Company and $50 serves as security for certain surety bonds
issued on behalf of the Company. While these letters of credit are in effect,
the Company's available borrowing under the revolving credit facility is reduced
by $2,050. At June 30, 2004, the Company had $19,950 of available credit under
the revolving credit facility.

8.  FINANCIAL INSTRUMENTS

Pursuant to the terms of the First and Second-Lien Credit Agreements, the
Company is required to enter into or maintain interest rate protection
agreements (interest rate swaps, caps, collars or similar agreements) in a
notional amount that, when taken together with the aggregate principal amount of
Total Debt, as defined subject to a fixed interest rate, is at least equal to at
least 50% of the aggregate principal amount of all Total Debt. On November 15,
2003, the Company entered into a one year interest rate cap agreement with a
notional principal of $61,000, which caps the LIBOR based rate, as defined, on
those loans at 2.5%. The interest rate protection agreement did not qualify for
hedge accounting treatment and as such the Company marks to market the contract
at the end of each period. The fair value of the interest rate cap at June 30,
2004 is de-minimis.

9.  INVENTORIES

Inventories as of December 31, 2003 and June 30, 2004 are as follows:

                                        December 31,    June 30,
                                            2003         2004
                                         --------     ---------
Finished goods                           $ 16,533     $  14,803
Raw materials                                 119            91
                                         --------     ---------
                                         $ 16,652     $  14,894
                                         ========     =========



                                       12
<PAGE>

10.  GOODWILL AND TRADEMARKS

At December 31, 2003 and June 30, 2004, goodwill and indefinite lived intangible
assets are as follows:

                                                 December 31,      June 30,
                                                    2003             2004
                                                 -----------     ----------
Goodwill                                         $   241,324     $  241,324
Long Lived Assets - Trademarks and
copyrights                                            23,772         23,772
                                                 -----------     ----------
                                                 $   265,096     $  265,096
                                                 ===========     ==========

There were no changes in goodwill and indefinite lived intangible assets during
the three- and six-months ended June 30, 2004.

The Company recorded non-cash deferred income tax expense of $725 and $1,450 for
the three- and six-month periods ended June 30, 2003 and 2004, respectively, for
taxable temporary differences that will not reverse prior to expiration of the
Company's net operating loss carryforward periods. Book amortization of
tax-deductible goodwill and trademarks ceased on January 1, 2002 upon the
Company's adoption of SFAS 142; however, the Company continues to amortize these
assets for tax purposes. As a result, the Company will have deferred tax
liabilities that will arise each quarter as the taxable temporary differences
related to the amortization of these assets will not reverse prior to the
expiration period of the Company's deductible temporary differences unless the
related assets are sold or an impairment of the assets is recorded. The Company
expects that it will record an additional $1,450 to increase deferred tax
liabilities during the remaining six-months of 2004.

11.  OTHER INTANGIBLE ASSETS

The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill and indefinite lived intangible are as
follows:

<TABLE>
<CAPTION>

                                               --------------------------------------  -------------------------------------
                                                           December 31, 2003                        June 30, 2004
                                               --------------------------------------  -------------------------------------
                                                            Accumulated                             Accumulated
                               Useful Lives    Gross       Amortization        Net       Gross     Amortization      Net
                               ------------    ----------  --------------   ---------  ----------  --------------  ---------

<S>                            <C>               <C>         <C>            <C>         <C>            <C>         <C>
Customer Lists                 6-15 yrs          $ 48,600    $ (24,948)     $ 23,652    $ 48,600       $ (27,865)  $ 20,735
Copyrights                     10-20 yrs           30,800       (6,462)       24,338      30,800          (7,248)    23,552
Software                       3-5 yrs             14,789      (10,027)        4,762      14,789         (11,577)     3,212
Trademark                      4-10 yrs               200          (82)          118         200             (92)       108
Distributor relationships      6 yrs                  700         (482)          218         700            (540)       160
                                                 --------    ----------     --------   ---------       ----------  ---------
                        Total:                   $ 95,089    $ (42,001)     $ 53,088    $ 95,089       $ (47,322)  $ 47,767
                                                 ========    ==========     ========   =========       ==========  =========

</TABLE>

Included in other intangible assets, are trademarks and copyrights not subject
to amortization, for which the total carrying amount was $23,772 at December 31,
2003 and June 30, 2004.

Amortization of intangibles for the three-months ended June 30, 2003 and 2004
was $3,081 and $2,501, respectively. Amortization of intangibles for the
six-months ended June 30, 2003 and 2004 was $6,195 and $5,321, respectively.
Amortization of intangibles is included in amortization of intangible assets on
the condensed consolidated statement of operations. The estimated amortization
expense for intangible assets subject to amortization for the next five years is
as follows:

Remaining six months of 2004............................. $  4,610
2005.....................................................    9,197
2006.....................................................    6,843
2007.....................................................    4,600
2008.....................................................    3,461
2009.....................................................    3,253
Thereafter...............................................   15,803



                                       13
<PAGE>

12.  COMMITMENTS AND CONTINGENCIES

The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, as necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on its results of operations and financial
position, if any, for the disposition of these matters, will not be material.

The Securities and Exchange Commission ("SEC") is conducting a preliminary
inquiry concerning the Company and has requested that the Company voluntarily
provide the SEC with various documents and information, and that certain
officers and employees of the Company voluntarily give testimony or be
interviewed. The Company is cooperating fully with the SEC inquiry, and has
continued to provide all documents, information and testimony requested by the
SEC, and has arranged all interviews requested by the SEC with Company
employees. The Company cannot predict the final outcome of this inquiry at this
time.

15% Senior Preferred Stock due 2011

In 1999, the Company issued 3,000,000 shares of 15% Senior Preferred Stock due
in 2011 with a liquidation preference of $25.00 per share. The 15% Senior
Preferred Stock shall accrue dividends at a rate of 15% per annum, subject to
adjustment if the Company fails to redeem all outstanding shares of such 15%
Senior Preferred Stock in connection with a mandatory redemption or change of
control. Such accrued dividends reflect penalty dividends of 0.5% for periods
prior to November 17, 2001. While the Company believes that no penalty dividend
is due for subsequent periods, the preferred shareholders may disagree with that
conclusion.

13. NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

In connection with the recapitalization and purchase of Weekly Reader during
November 1999, the Company, Weekly Reader and CompassLearning as co-issuers,
completed an offering of $152,000 of 12 3/4% Senior Subordinated Notes due 2009
(the "Old Notes"). In June 2000, the Old Notes were exchanged in full for $152.0
million of new 12 3/4% Senior Subordinated Notes due 2009 (the "Notes"), which
have terms that are substantially identical to the Old Notes. Interest on the
Notes is payable semi-annually, on May 15 and November 15 of each year. The
Notes are jointly, severally, fully and unconditionally guaranteed by certain
subsidiaries of the Company, including CompassLearning, a wholly-owned
subsidiary and Weekly Reader, a majority (94.9%) owned subsidiary of the Company
(collectively, the "Subsidiary Guarantors").

The following tables present condensed consolidating financial information for
WRC Media and the subsidiary guarantors as of and for the three- and six-month
periods ended June 30, 2003 and 2004 for: (1) WRC Media, (2) Weekly Reader, a
majority-owned subsidiary, (3) CompassLearning, a wholly-owned subsidiary, (4)
ChildU a wholly-owned subsidiary, and (5) the Company on a consolidated basis.

<TABLE>
<CAPTION>

                                                                          SUBSIDIARY GUARANTORS
                                                                  -----------------------------------
                                                                                COMPASS
                                                                  WEEKLY READER LEARNING                             WRC MEDIA INC.
                                                   WRC MEDIA INC.  CORPORATION     INC.      CHILDU    ELIMINATIONS   CONSOLIDATED
                                                   --------------  -----------  ---------   ---------  ------------   ------------
                                                                               (IN THOUSANDS)
<S>                                                    <C>          <C>         <C>         <C>         <C>           <C>
Balance Sheet as of  June 30, 2004
Assets:
Current assets                                         $   1,761    $  84,995   $  15,648   $   2,563   $ (41,648)    $  63,319
Property and equipment, net                                    -        4,280         584         132           -         4,996
Goodwill and other intangible assets, net                154,572      132,235      22,844       3,212           -       312,863
Other assets                                             109,484       32,658       5,100       2,418     (99,925)       49,735
                                                       ---------    ---------   ---------   ---------   ---------     ---------
Total assets                                           $ 265,817    $ 254,168   $  44,176   $   8,325   $(141,573)    $ 430,913
                                                       =========    =========   =========   =========   =========     =========

Liabilities and stockholders' deficit:
Current liabilities                                    $ 114,022    $  49,725   $  48,649   $   7,404   $(142,783)    $  77,017
Redeemable preferred stock, plus accrued dividends       141,771      149,228           -           -    (149,228)      141,771
Long-term debt                                           147,973      300,973           -           -    (147,973)      300,973
Other liabilities                                          7,100        5,150       1,203           -           -        13,453
Warrants on common stock of subsidiaries                  11,751            -           -           -           -        11,751
Common stock subject to redemption                           950            -           -           -           -           950
Stockholders' deficit                                   (157,750)    (250,908)     (5,676)        921     298,411      (115,002)
                                                       ---------    ---------   ---------   ---------   ---------     ---------
Total liabilities and stockholders' deficit            $ 265,817    $ 254,168   $  44,176   $   8,325   $(141,573)    $ 430,913
                                                       =========    =========   =========   =========   =========     =========

</TABLE>


                                       14
<PAGE>


<TABLE>
<CAPTION>

                                                                         SUBSIDIARY GUARANTORS
                                                                  -----------------------------------
                                                                                COMPASS
                                                                  WEEKLY READER LEARNING                             WRC MEDIA INC.
                                                   WRC MEDIA INC.  CORPORATION     INC.      CHILDU    ELIMINATIONS   CONSOLIDATED
                                                   --------------  -----------  ---------   ---------  ------------   ------------
                                                                               (IN THOUSANDS)
<S>                                                    <C>          <C>         <C>         <C>         <C>           <C>
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2004

Revenue, net                                            $      -      $ 32,511    $  8,271    $  5,067    $      -       $ 45,849
Operating costs and expenses                                 930        27,839      11,726       3,348           -         43,843
Interest expense, net                                     10,885        12,890           -           -     (10,367)        13,408
Other (income) expense                                       274           199           1           -        (200)           274
Provision for income taxes                                   616           198          26           -           -            840
                                                        --------      --------    --------    --------    --------       --------
Net income (loss)                                       $(12,705)     $ (8,615)   $ (3,482)   $  1,719    $ 10,567       $(12,516)
                                                        ========      ========    ========    ========    ========       ========

STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2004

Revenue, net                                            $      -      $ 66,939    $ 14,940    $  6,730    $      -       $ 88,609
Operating costs and expenses                               1,859        57,472      21,927       6,068           -         87,326
Interest expense, net                                     22,803        25,638           -           -     (20,531)        27,910
Other (income) expense                                       527           396           1           -        (400)           524
Provision for income taxes                                 1,225           356          61           -           -          1,642
                                                        --------      --------    --------    --------    --------       --------
Net income (loss)                                       $(26,414)     $(16,923)   $ (7,049)   $    662    $ 20,931       $(28,793)
                                                        ========      ========    ========    ========    ========       ========

CASH FLOW FOR THE SIX MONTHS
ENDED JUNE 30, 2004

Cash flow provided by (used in) operations              $ (9,865)     $ (9,835)   $ (9,831)   $  2,182    $  9,690       $(17,659)
Cash flow used in investing activities                         -          (402)       (668)       (287)          -         (1,357)
Cash flow provided by (used in) financing activities       9,850        13,933      10,499      (1,928)     (9,690)        22,664
Cash and cash equivalents at beginning of period             100         1,267           4          61           -          1,432
                                                        --------      --------    --------    --------    --------       --------
Cash and cash equivalents at end of period              $     85      $  4,963    $      4    $     28         $ -       $  5,080
                                                        ========      ========    ========    ========    ========       ========

<CAPTION>

                                                                        SUBSIDIARY GUARANTORS
                                                                  ----------------------------------
                                                                                COMPASS
                                                                  WEEKLY READER LEARNING                             WRC MEDIA INC.
                                                   WRC MEDIA INC.  CORPORATION     INC.      CHILDU    ELIMINATIONS   CONSOLIDATED
                                                   --------------  -----------  ---------   ---------  ------------   ------------
                                                                               (IN THOUSANDS)
<S>                                                    <C>          <C>         <C>         <C>         <C>           <C>
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2003

Revenue, net                                             $      -     $ 29,711   $ 12,497    $  1,933     $      -     $ 44,141
Operating costs and expenses                                  929       25,740     12,260       1,483            -       40,412
Interest expense, net                                       5,281        6,911          -           -       (4,956)       7,236
Other (income) expense                                        474          114          -           -          100          688
Provision for income taxes                                    592           64         23           -            -          679
                                                         --------     --------   --------    --------     --------     --------
Net loss                                                 $ (7,276)    $ (3,118)  $    214    $    450     $  4,856     $ (4,874)
                                                         ========     ========   ========    ========     ========     ========

STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2003

Revenue, net                                             $      -     $ 64,530   $ 23,743    $  2,906     $      -     $ 91,179
Operating costs and expenses                                2,338       53,579     24,266       2,844            -       83,027
Interest expense, net                                      10,543       13,733          -           -       (9,908)      14,368
Other (income) expense                                        711          308          -           -         (100)         919
Provision for income taxes                                  1,200          254         38           -            -        1,492
                                                         --------     --------   --------    --------     --------     --------
Net income (loss)                                        $(14,792)    $ (3,344)  $   (561)   $     62     $ 10,008     $ (8,627)
                                                         ========     ========   ========    ========     ========     ========

CASH FLOW FOR THE SIX MONTHS
ENDED JUNE 30, 2003

Cash flow provided by (used in) operations               $(11,756)    $(15,082)  $    803    $  1,293     $ 10,790     $(13,952)
Cash flow used in investing activities                          -         (179)    (1,546)       (947)           -       (2,672)
Cash flow provided by (used in) financing activities       10,807       19,483        743        (233)     (10,790)      20,010
Cash and cash equivalents at beginning of period            1,154        7,819          4         118            -        9,095
                                                         --------     --------   --------    --------     --------     --------
Cash and cash equivalents at end of period               $    205     $ 12,041   $      4    $    231          $ -     $ 12,481
                                                         ========     ========   ========    ========     ========     ========
</TABLE>


14.  RELATED PARTY TRANSACTIONS

Management Agreements

In connection with the acquisition of Weekly Reader and CompassLearning, the
Company entered into management agreements with its principal shareholder. In
accordance with the management agreements, the shareholder provides to Weekly
Reader and CompassLearning management consulting and advisory services. As a
result, Weekly Reader and CompassLearning are obligated to pay to the
shareholder annual aggregate management fees for services to both Weekly Reader
and CompassLearning totaling $950, which are payable quarterly.

In addition, the Company will reimburse the principal shareholder for reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its services. During each of the three- and six-month periods ended June 30,
2003 and 2004, the Company recognized general and administrative expense of $238
and $476, respectively, for management fees. In June 2003, the shareholder
waived the payment of $300 in management fees for 2003. The waived amount has
been recorded as a capital contribution. At June 30, 2004, other accrued
liabilities include approximately $1,126 of accrued management fees.

15.  PENSION BENEFITS

The following table provides components of net periodic benefit cost for the
Company's defined benefit pension plan for the three- and six-months ended June
30, 2003 and 2004:




                                       15
<PAGE>

                                         Three-months ended June 30,
                                         ---------------------------
                                          2003               2004
                                         -----              -----
Service cost                             $ 229              $ 225
Interest Cost                              221                238
Expected return on plan assets            (169)              (242)
Amortization of net loss                    74                 42
                                         -----              -----
Net periodic benefit cost                $ 355              $ 263
                                         =====              =====

                                         Six-months ended June 30,
                                         -------------------------
                                          2003               2004
                                          ----               ----
Service cost                             $ 458              $ 450
Interest Cost                              442                476
Expected return on plan assets            (338)              (484)
Amortization of net loss                   148                 84
                                         -----              -----
Net periodic benefit cost                $ 710              $ 526
                                         =====              =====

16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                               Six-Months Ended June 30,
                                               -------------------------
                                                   2003       2004
                                                   ----       ----

Cash paid during the period for interest         $13,558     $13,234
Cash paid during the period for income taxes     $   169     $   228

Non-cash financing activities:
Preferred stock dividends accrued                $10,833      12,610(1)
Accretion of preferred stock                     $   471     $   478

(1)  During the six-months ended June 30, 2004, $10,593 of such preferred stock
     dividends have been recorded as interest expense in the statement of
     operations, resulting from the Company's adoption of SFAS 150 effective
     January 1, 2004.

17.  RESTATEMENT

In connection with the audit of the Company's 2003 consolidated financial
statements (the "Initial Restatement") and the reaudit of its 2001 consolidated
financial statements (the "Further Restatement), the Company has restated its
previously audited consolidated balance sheets as of December 31, 2001, 2002 and
2003 and the related statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 2001, 2002 and 2003.

In connection with the Initial Restatement, management had restated its
financial statements for the three- and six-months ended June 30, 2003 because
it had incorrectly accounted for (i) the revenue recognition of a software and
services sale in December 2002; (ii) the purchase price related to the ChildU
acquisition in 2001 (iii) revenue recognition for distributor sales; (iv) rent
expense; (v) other items including an adjustment relating the amortization
period for certain capitalized prepublication costs .

Described below are the matters for which the Company has restated its condensed
consolidated financial statements for the three- and six-months ended June
30, 2003 in connection with the Initial Restatement.

     o    Software and Services Sale. In December 2002, the Company recorded a
          $1,860 receivable of revenue from the sale of educational software and
          services to a school district. Of this amount, $1,169 was recognized
          as revenue during the fiscal quarter ended December 31, 2002, and $691
          was recorded as a deferred revenue liability as of December 31, 2002.
          Accrued sales commissions of $342 also were recorded. In the first
          quarter of 2003, this $1,169 of revenue previously recognized in
          December 2002 was offset by recording a bad debt reserve of $920 and
          by retaining an excess of $249 in the Company's allowance for doubtful
          accounts, which excess amount would have otherwise been reversed. The
          Company has concluded that the sale did not meet the criteria under
          GAAP for revenue recognition for the year ended December 31, 2002, and
          that it incorrectly recorded the related bad debt reserve and retained
          the excess allowance for doubtful accounts in 2003. The Company has
          corrected these errors by reversing these transactions. The net effect
          for the six-months ended June 30, 2003 was to decrease net loss by
          approximately $920.


                                       16
<PAGE>

     o    ChildU Goodwill Reduction. The Company's subsidiary, ChildU, was
          acquired in 2001. In connection with such acquisition, the Company
          issued shares of its common stock to the holders of notes issued by
          ChildU. The Company has determined that the value assigned to these
          shares when the Company recorded the purchase price for this
          acquisition in its historical financial statements for 2001 exceeded
          the fair market value of these shares. Accordingly, the Company has
          restated its financial statements to record correctly the fair market
          value of these shares, which had the effect of reducing the purchase
          price for ChildU, goodwill and additional paid-in capital, by
          approximately $3,419 as of December 31, 2001. In addition, the Company
          allocated the entire purchase price to goodwill, and had assigned that
          goodwill an estimated life of 40 years. The asset acquired was
          software technology and not goodwill. The Company has restated its
          financial statements to record the software technology and to amortize
          such acquired technology over its estimated useful life of five years,
          which had the effect of increasing net loss by $418 and $837,
          respectively in the three- and six-months ended June 30, 2003.

Following the determination to restate the Company's financial statements for
matters described above, the Company also determined that it would correct for
certain errors made in the application of GAAP that had not previously been
corrected because in each such case it believed that the amount of any such
error was not material to its condensed consolidated financial statements. These
matters are described below.

     o    Distributor Sales. Historically the Company recognized revenue under a
          distribution contract between its subsidiary, World Almanac Education
          Group, and a distributor at the time that the Company shipped its
          products to the distributor rather than at the time those products
          were resold by the distributor. The Company also recorded distribution
          fees under this contract as operating costs and expenses, based on its
          understanding of the distribution contract. The Company has determined
          to recognize revenue only at the time the distributor ships these
          products to its customer. The Company has restated its financial
          statements which decreased its net loss by $89 and $258 respectively
          for the three- and six-months ended June 30, 2003.

     o    Rent. The Company has two leases that have "free rent" incentives at
          the commencement of the leases and also contain rent escalation
          clauses (which clauses provide for rent increases over time) for which
          it was required under GAAP to record the average rent expense ratably
          over the lease term. In its historical 2001 financial statements,
          however, the Company recorded the rent expense from these leases as it
          was paid. In its historical 2002 financial statements, the Company
          began correctly recording the average rent expense for these leases,
          but it calculated the average rent using the remainder of the lease
          term instead of the entire lease term. The Company has restated its
          financial statements to correct these errors, which had the net effect
          of decreasing its net loss by $194 and $352, respectively for the
          three- and six-months ended June 30, 2003.

     o    Other. The Company also made an adjustment relating to the
          amortization period for certain capitalized pre-publication costs
          which had the effect of increasing net loss by $105 and $210
          respectively for the three- and six-months ended June 30, 2003 and it
          reclassified $462 and $927, respectively of software development
          amortization from amortization of intangibles to cost of goods sold in
          the condensed consolidated statement of operations for the three- and
          six-months ended June 30, 2003. An adjustment was also made related to
          the waiver, by the Company's principal shareholder, of certain
          management fees owed to it. The adjustment increased operating
          expenses and additional paid in capital by $300 in the three and
          six-months ended June 30, 2003.


In connection with the re-audit of the Company's 2001 consolidated financial
statements, management determined that it had incorrectly accounted for the
following items, which comprise the Further Restatement: (i) intangible assets
acquired in 1999 in connection with the Company's acquisition of Weekly Reader;
(ii) acquisition reserves for acquisitions in 1999; (iii) its adoption of SFAS
142 and the preparation of its transitional impairment analysis; (iv) deferred
tax liabilities recognized upon the adoption of SFAS 142; (v) 15% Senior
Preferred Stock dividends; and (vi) a number of other items which had been
previously identified and collectively determined to be immaterial but which the
Company has now decided to correct. In addition, the Company corrected certain
errors in its disclosures regarding stock options granted to its employees.


                                       17
<PAGE>

Described below are the matters for which the Company has restated its condensed
consolidated financial statements for the three- and six-months ended June 30,
2003 in connection with the Further Restatement.

     o    WRC Media Goodwill and Intangible Assets. In connection with the
          reaudit of the Company's 2001 consolidated financial statements, the
          Company reconsidered the assumptions used to determine the estimated
          fair value and economic lives of the intangible assets acquired in
          connection with the 1999 acquisition and recapitalization of Weekly
          Reader by WRC Media (the "1999 Intangible Assets"). The Company has
          determined that the original basis for estimating the fair value and
          economic lives of the intangible assets was a valuation report that
          the former owners of Weekly Reader had provided to WRC Media at the
          time of the 1999 acquisition. Accordingly, in 2004, the Company
          engaged a valuation consulting firm to assist management in assessing
          the fair values and economic lives of the 1999 Intangible Assets as of
          the acquisition date. As a result, certain estimated fair values and
          economic lives of the 1999 Intangible Assets have been revised.
          Accordingly, the Company has restated its financial statements to
          correctly state the estimated fair value and economic lives of the
          1999 Intangible Assets acquired as of November 17, 1999. This had the
          effect of increasing goodwill by $36,238 and decreasing other
          intangibles in the aggregate by the same amount. Other intangible
          assets include Copyrights, Customer lists and Trademarks. Copyrights
          increased by $4,733 and their estimated useful life was amended from
          10 years to approximately 20 years, Customer lists decreased by
          $13,680 and their estimated useful life decreased from 10 years to
          approximately 8.5 years and Trademarks decreased by $27,291 and their
          estimated useful life decreased from 40 years to approximately 39
          years. In addition, the Company has restated its financial statements
          to correct amortization expense for other intangible assets, which had
          the effect of reducing amortization expense of intangible assets for
          the three- and six-months ended June 30, 2003 by $376 and $750,
          respectively.

     o    CompassLearning/Weekly Reader Additional Goodwill Reduction. As
          discussed above the Company recorded certain reserves for a planned
          restructuring in connection with the acquisitions of CompassLearning
          and Weekly Reader. In connection with the reaudit of its 2001
          consolidated financial statements the Company determined that it had
          incorrectly recorded reserves of $3,106 related to estimated
          liabilities it believed it had assumed at the date of such
          acquisitions. The Company concluded that the acquisition reserves
          associated with these liabilities should have been reversed in 1999.
          The estimated liabilities associated with the excess reserves included
          $1,522 of debt issuance costs, $1,157 of severance and consulting
          fees, primarily attributable to employees or consultants hired
          subsequent to the acquisition date, $362 of leasehold improvements for
          space to be occupied by employees of World Almanac Group and other
          administrative costs of $65. The Company determined that goodwill and
          the related acquisition reserves should be reduced by $3,106. The
          Company has restated its financial statements to correct for these
          errors. The net effect of such adjustments was to increase net loss
          for the three- and six-months ended June 30, 2003 by $54 and $110,
          respectively.

     o    Goodwill and Long-lived Intangible Asset Impairment. On January 1,
          2002, the Company adopted SFAS 142 for its goodwill and intangible
          assets. Upon adoption, the Company ceased amortization of goodwill and
          other indefinite lived intangible assets, which primarily consist of
          trademarks. As required by SFAS 142, the Company reviewed its
          indefinite lived intangibles (goodwill and trademarks) for impairment
          as of January 1, 2002. The Company has four reporting units with
          goodwill. Goodwill was tested for impairment at the reporting unit
          level. As a result, the Company recorded a transitional goodwill and
          indefinite lived intangible asset impairment charge of $72,022 at
          American Guidance Service, Inc. ("AGS") a subsidiary of Weekly Reader.
          This charge was reported as a cumulative effect of accounting change,
          as of January 1, 2002, in the consolidated statements of operations.
          In connection with the reconsideration of the assumptions used to
          determine the estimated fair value and economic lives of the 1999
          Intangible Assets discussed above, the Company updated its
          transitional impairment analysis and determined that it had
          incorrectly calculated the fair value of its reporting units.
          Accordingly, the impairment charge of $72,022 at AGS was incorrect and
          not required. The Company's measurement of fair value was based on an
          evaluation of future discounted cash flows. This evaluation utilized
          the best information available in the circumstances, including
          reasonable and supportable assumptions and projections. The discounted
          cash flow evaluation considered several earnings scenarios and the
          likelihood of possible outcomes. Collectively, this evaluation was
          management's best estimate of projected future cash flows. The
          Company's discounted cash flow evaluation used a range of discount
          rates that corresponds to the Company's weighted-average cost of
          capital. This discount rate range assumed was consistent with that
          used for investment decisions and takes into account the specific and
          detailed operating plans and strategies of the WRC Media's reporting
          units. Certain other key assumptions utilized, including changes in
          revenue, operating expenses, working capital requirements and capital
          expenditures including pre-publication costs, are based on reasonable
          estimates related to the Company's strategic initiatives and current
          market conditions. Such assumptions also are consistent with those
          utilized in the Company's annual planning process. The Company has
          restated its December 31, 2002 and 2003 balance sheets to correct for
          this error. The net effect of such adjustment was to increase goodwill
          and decrease accumulated deficit by $72,022 as of December 31, 2002
          and 2003.


                                       18
<PAGE>

     o    Deferred Tax Liabilities. The Company recognized non-cash deferred
          income tax expense and a deferred tax liability on January 1, 2002 in
          connection with its adoption of SFAS 142. The deferred tax liability
          relates to the excess of tax over book amortization of tax-deductible
          goodwill and trademarks since the timing of the reversal of this
          liability is indefinite, unless the related assets are sold or an
          impairment of the assets is recorded, and can no longer be offset by
          the Company's net operating loss carryforwards, which expire within a
          statutory period. During 2003, the Company recorded additional
          deferred tax expense. The non-cash income tax expense recorded during
          the three- and six-months ended June 30, 2003 increased by $225, from
          $454 to $679 and by $450, from $1,042 to $1,492, respectively. These
          restatements are principally due to the reversal of the impairment
          charges and the revision of estimated fair value and economic lives of
          the 1999 Intangible Assets discussed above.

     o    15% Senior Preferred Stock due 2011. In 1999, the Company issued
          3,000,000 shares of 15% Senior Preferred Stock due in 2011. The 15%
          Senior Preferred Stock accrued dividends at a rate of 15% per annum.
          The Certificate of Designation provides that the 15% Senior Preferred
          Stock was subject to a default or penalty dividend of 0.5% in the
          event of certain registration defaults. A penalty dividend was
          applicable from mid-August of 2000 through November 17, 2001. While
          the Company believes that no penalty dividend is due for subsequent
          periods, the preferred shareholders may disagree with that conclusion.
          The Company had not previously recorded this penalty dividend. The
          recording of the penalty dividends (and required compounding in
          subsequent periods) resulted in the Company increasing accrued
          dividends on 15% Senior Preferred Stock by $31 and $61 during the
          three- and six-months ended June 30, 2003, respectively.

     o    Segment Information. The Company previously disclosed one reportable
          segment. The Company now discloses four reportable segments.

     o    Other. In connection with the re-audit of the Company's 2001 financial
          statements, the Company has made a number of other corrections to the
          financial statements, which collectively were immaterial.

Summarized below are the significant effects of the Initial Restatement and the
Further Restatement.



                                       19
<PAGE>

<TABLE>
<CAPTION>

                                                                         Three Months Ended June 30, 2003
                                                              ---------------------------------------------------
                                                                As Previously
                                                                 Reported in
                                                               August 13, 2003      Restatement
                                                                  Form 10-Q          Adjustment        As Restated
                                                                -------------       -----------        -----------
<S>                                                                <C>                <C>                <C>
Revenue, net                                                       $ 43,493           $    648           $ 44,141
Cost of goods sold                                                   12,542                542             13,084
                                                                   --------           --------           --------
     Gross profit                                                    30,951                106             31,057
                                                                   --------           --------           --------
Costs and expenses:
     Sales and marketing                                             10,051                250             10,301
     Research and development                                           213                                   213
     Distribution, circulation and fulfillment                        2,905                                 2,905
     Editorial                                                        2,565                                 2,565
     General and administrative                                       5,614               (244)             5,370
     Restructuring costs and other non-recurring expenses             1,001                                 1,001
     Depreciation                                                       591                  8                599
     Amortization of intangible assets                                4,691               (317)             4,374
                                                                   --------           --------           --------
     Total operating costs and expenses                              27,631               (303)            27,328
                                                                   --------           --------           --------
     Income from operations                                           3,320                409              3,729
Interest expense, including amortization
   of deferred financing costs                                       (7,188)               (48)            (7,236)
Other expense, net                                                     (388)              (300)              (688)
                                                                   --------           --------           --------
     Loss before income tax provision                                (4,256)                61             (4,195)
Income tax provision                                                    454                225                679
                                                                   --------           --------           --------
     Net loss                                                      $ (4,710)          $   (164)          $ (4,874)
                                                                   ========           ========           ========

</TABLE>

                                       20



<PAGE>

<TABLE>
<CAPTION>

                                                                          Six Months Ended June 30, 2003
                                                              ----------------------------------------------------
                                                               As Previously
                                                                Reported in
                                                              August 13, 2003       Restatement
                                                                 Form 10-Q           Adjustment        As Restated
                                                               -------------        ------------       -----------
<S>                                                                <C>                <C>                <C>
Revenue, net                                                       $ 90,470           $    709           $ 91,179
Cost of goods sold                                                   25,276              1,081             26,357
                                                                   --------           --------           --------
     Gross profit                                                    65,194               (372)            64,822
                                                                   --------           --------           --------
Costs and expenses:
     Sales and marketing                                             21,532                250             21,782
     Research and development                                           924                                   924
     Distribution, circulation and fulfillment                        6,415                                 6,415
     Editorial                                                        5,144                                 5,144
     General and administrative                                      12,334             (1,321)            11,013
     Restructuring costs and other non-recurring expenses             1,481                                 1,481
     Depreciation                                                     1,207                 13              1,220
     Amortization of intangible assets                                9,324               (633)             8,691
                                                                   --------           --------           --------
     Total operating costs and expenses                              58,361             (1,691)            56,670
                                                                   --------           --------           --------
     Income from operations                                           6,833              1,319              8,152
Interest expense, including amortization
   of deferred financing costs                                      (14,270)               (98)           (14,368)
Other expense, net                                                     (619)              (300)              (919)
                                                                   --------           --------           --------
     Loss before income tax provision                                (8,056)               921             (7,135)
Income tax provision                                                  1,042                450              1,492
                                                                   --------           --------           --------
     Net loss                                                      $ (9,098)          $    471           $ (8,627)
                                                                   ========           ========           ========

</TABLE>


                                       21


<PAGE>


                   WEEKLY READER CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands, except share and per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                         December 31,          June 30,
                                                                              2003               2004
                                                                         ------------          ---------
<S>                                                                        <C>                 <C>
ASSETS
Current Assets:

     Cash and cash equivalents                                             $   1,267           $   4,963
     Accounts receivable (net of allowance for doubtful accounts
     and sales returns of $2,179 and $2,367, respectively.)                   20,880              28,162
     Inventories                                                              15,890              14,232
     Due from related party                                                   11,502              33,864
     Prepaid expenses                                                          2,882               2,457
     Other current assets (including restricted assets of $1,006
      and $842, respectively)                                                  1,889               1,317
                                                                           ---------           ---------
       Total current assets                                                   54,310              84,995

Property and equipment, net                                                    4,665               4,280
Goodwill                                                                     101,978             101,978
Other intangible assets, net                                                  31,580              30,257
Deferred financing costs, net                                                    512                   -
Other assets                                                                  29,711              32,658
                                                                           ---------           ---------
       Total assets                                                        $ 222,756           $ 254,168
                                                                           =========           =========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                                      $  15,446           $  12,917
     Deferred revenue                                                         17,565              21,044
     Accrued expenses and other current liabilities                           15,865              15,764
     Current portion of long-term debt                                         8,477                   -
                                                                           ---------           ---------
       Total current liabilities                                              57,353              49,725

Deferred tax liability                                                         4,800               5,150
15% senior preferred stock,
  including accrued dividends and accretion of warrant value
  (5,966,119 shares outstanding)
(Liquidation preference of $149,228)                                               -             149,228
Long-term debt                                                               262,925             300,973
                                                                           ---------           ---------
       Total liabilities                                                     325,078             505,076
                                                                           ---------           ---------

Commitments and contingencies
15% senior preferred stock,
including accrued dividends and accretion of warrant value
(5,508,000 shares outstanding)                                               138,636                   -

Stockholders' deficit:
     Common stock, ($.01 par value, 20,000,000 shares authorized;
     2,830,000 shares outstanding in 2003 and 2004)                               28                  28
     Additional paid-in capital                                                9,133               9,133
     Due from parent                                                         (56,464)            (49,491)
     Accumulated other comprehensive loss                                     (1,899)             (1,899)
     Accumulated deficit                                                    (191,756)           (208,679)
                                                                           ---------           ---------
       Total stockholders' deficit                                          (240,958)           (250,908)
                                                                           ---------           ---------
       Total liabilities and stockholders' deficit                         $ 222,756           $ 254,168
                                                                           =========           =========


</TABLE>

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


                                       22

<PAGE>


                   WEEKLY READER CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       FOR THE THREE MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                          2003               2004
                                                      -------------        --------
                                                      (As Restated
                                                       See Note 15)

<S>                                                     <C>                <C>
Revenue, net                                            $ 29,711           $ 32,511

Cost of goods sold                                         7,908              8,622
                                                        --------           --------

Gross profit                                              21,803             23,889
                                                        --------           --------
Costs and expenses:
     Sales and marketing                                   5,605              6,246
     Distribution, circulation and fulfillment             2,905              2,769
     Editorial                                             2,565              2,474
     General and administrative                            4,040              5,230
     Restructuring costs                                     126                 29
     Depreciation                                            434                393
     Amortization of intangible assets                     2,157              2,076
                                                        --------           --------

     Total operating costs and expenses                   17,832             19,217
                                                        --------           --------

Income from operations                                     3,971              4,672

Other expense:
Interest expense, including amortization
of deferred financing costs                               (6,911)           (12,890)
Other expense, net                                          (114)              (199)
                                                        --------           --------

Loss before income tax provision                          (3,054)            (8,417)

Income tax provision                                          64                198
                                                        --------           --------

Net loss                                                $ (3,118)          $ (8,615)
                                                        ========           ========

</TABLE>


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

                                       23

<PAGE>

                   WEEKLY READER CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                         2003                2004
                                                     ------------          --------
                                                     (As Restated
                                                      See Note 15)
<S>                                                     <C>                <C>
Revenue, net                                            $ 64,530           $ 66,939

Cost of goods sold                                        16,347             17,123
                                                        --------           --------

Gross profit                                              48,183             49,816
                                                        --------           --------

Costs and expenses:
     Sales and marketing                                  11,932             13,271
     Distribution, circulation and fulfillment             6,415              6,321
     Editorial                                             5,144              5,347
     General and administrative                            8,479             10,295
     Restructuring costs                                     126                 30
     Depreciation                                            879                786
     Amortization of intangible assets                     4,257              4,299
                                                        --------           --------

     Total operating costs and expenses                   37,232             40,349
                                                        --------           --------

Income from operations                                    10,951              9,467

Other expense:
Interest expense, including amortization
of deferred financing costs                              (13,733)           (25,638)
Other expense, net                                          (308)              (396)
                                                        --------           --------

Loss before income tax provision                          (3,090)           (16,567)

Income tax provision                                         254                356
                                                        --------           --------

Net loss                                                $ (3,344)          $(16,923)
                                                        ========           ========

</TABLE>


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


                                       24


<PAGE>

                   WEEKLY READER CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                       2003                 2004
                                                                                   -------------         ---------
                                                                                   (As Restated
                                                                                    See Note 15)
<S>                                                                                  <C>                 <C>
Cash flows from operating activities:

Net loss                                                                             $  (3,344)          $ (16,923)

Adjustments to reconcile net loss to net cash used in operating activities:
     Deferred income tax provision                                                         350                 350
     Depreciation and amortization                                                       5,136               5,085
     Accrual of manditorily redeemable preferred stock dividends                             -              10,593
     Amortization of debt discount                                                         218                 249
     Amortization of deferred financing costs                                               90                 512
Changes in operating assets and liabilities:
     Accounts receivable                                                                (2,854)             (7,282)
     Inventories                                                                           881               1,658
     Prepaid expenses and other current assets                                              (7)                995
     Other non-current assets                                                           (8,153)             (5,925)
     Accounts payable                                                                   (7,172)             (2,530)
     Deferred revenue                                                                    1,500               3,478
     Accrued liabilities                                                                (1,727)                (95)
                                                                                     ---------           ---------

Net cash used in operating activities                                                  (15,082)             (9,835)
                                                                                     ---------           ---------

Cash flows from investing activities:
     Purchases of property and equipment                                                  (183)               (402)
     Proceeds from the disposition of property and equipment                                 4                   -
                                                                                     ---------           ---------

Net cash used in investing activities                                                     (179)               (402)
                                                                                     ---------           ---------

Cash flows from financing activities:
     Proceeds from revolving line of credit                                             27,000              31,000
     Repayments of borrowings under revolving line of credit                            (3,000)            (28,000)
     Repayment of senior bank debt                                                      (3,945)           (118,678)
     Proceeds from issuance of long term debt                                                -             145,000
     Due from parent, net                                                                2,450               6,973
     Due from related party                                                             (3,022)            (22,362)
                                                                                     ---------           ---------

Net cash provided by financing activities                                               19,483              13,933
                                                                                     ---------           ---------

Increase in cash and cash equivalents                                                    4,222               3,696

Cash and cash equivalents, beginning of period                                           7,819               1,267
                                                                                     ---------           ---------

Cash and cash equivalents, end of period                                             $  12,041           $   4,963
                                                                                     =========           =========

</TABLE>

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

                                       25

<PAGE>

                   WEEKLY READER CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
           (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.  DESCRIPTION OF BUSINESS

The condensed consolidated financial statements of Weekly Reader Corporation
("WRC") include the accounts of WRC and its subsidiary, Lifetime Learning
System, Inc. ("Lifetime Learning"), World Almanac Education Group ("WAE") and
its subsidiaries, Funk & Wagnalls Yearbook Corporation and Gareth Stevens, Inc.
("Gareth Stevens"), and American Guidance Service, Inc. and its subsidiaries,
AGS International Sales, Inc. and Lindy Acquisition Co., LLC (all are
collectively referred to as "Weekly Reader" or the "Company"). At December 31,
2003 and June 30, 2004, WRC Media Inc. (the "Parent") owns 94.9% and PRIMEDIA,
Inc. owns 5.1% of the common stock of Weekly Reader.

2.  BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of the Company as
of June 30, 2004 and for the three and six-month periods ended June 30, 2003 and
2004 have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") for interim financial
information and the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements In the opinion of management, all
adjustments, consisting of only normal recurring adjustments necessary to
present fairly the financial position, the results of operations and cash flows
for the periods presented, have been made.

These condensed consolidated financial statements should be read in conjunction
with Weekly Reader Corporation and Subsidiaries annual financial statements and
related notes thereto for the year ended December 31, 2003 included in the
Company's Annual Report on Form 10-K dated June 15, 2004. The operating results
for the three- and six-month periods ended June 30, 2003 and 2004 are not
necessarily indicative of the results that may be expected for a full year.

3.  RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variables Interest Entities ("FIN 46").
FIN 46 clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. In
December 2003, the FASB issued FIN 46 (Revised) ("FIN 46R") to address certain
FIN 46 implementation issues. This interpretation requires that the assets,
liabilities, and results of activities of a Variable Interest Entity ("VIE") be
consolidated into the financial statements of the enterprise that is the primary
beneficiary of the VIE. FIN 46R also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. This
interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those VIE's that are
considered to be special purpose entities, for which the effective date is no
later than the end of the first interim or annual reporting period ending after
December 15, 2003. The adoption of FIN 46R effective March 31, 2004 did not have
a significant impact on the Company's consolidated financial position or results
of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"), which amends and clarifies accounting for
derivative instruments, and for hedging activities under SFAS 133. Specifically,
SFAS 149 requires that contracts with comparable characteristics be accounted
for similarly. Additionally, SFAS 149 clarifies the circumstances in which a
contract with an initial net investment meets the characteristics of a
derivative and when a derivative contains a financing component that requires
special reporting in the statement of cash flows. This statement is generally
effective for contracts entered into or modified after June 30, 2003 and did not
have a significant impact on the Company's consolidated financial position or
results of operations.

                                       26
<PAGE>


In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement was effective for the
Company beginning January 1, 2004. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of this statement required the Company to
reclassify its 15% Senior Preferred Stock ("15% Senior Preferred") from the
mezzanine section of the balance sheet to long-term liabilities at March 31,
2004. Effective January 1, 2004 dividend payments for the 15% Senior Preferred
are recorded as interest expense in the consolidated statement of operations.
The adoption of this statement did not result in any adjustment to the book
value of its 15% Senior Preferred as of January 1, 2004 as book value
approximated fair value at January 1, 2004. For the three- and six-month periods
ended June 30, 2004 the Company recognized $5,394 and $10,593, respectively, of
accrued dividends on 15% Senior Preferred as interest expense.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106". It requires additional disclosures to those
in the original Statement 132 about the assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
post-retirement plans. The majority of the provisions of this statement apply to
financial statements issued for fiscal years ending after December 15, 2003. The
Company has adopted such disclosure provisions (see Note 13).

On March 17, 2004, the Emerging Issues Task Force of the FASB reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments." ("Issue 03-1") Issue 03-1 provides
guidance for determining when an investment is other-than-temporarily impaired
specifically, whether an investor has the ability and intent to hold an
investment until recovery. In addition, Issue 03-1 contains disclosure
requirements about impairments that have not been recognized as other than
temporary for investments. Issue 03-1 also requires the investor to disclose
investments with unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance for evaluating whether an
investment is other-than-temporarily impaired shall be applied in
other-than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004. The disclosures are effective in annual financial
statements for fiscal years ending after December 15, 2003, for investments
accounted for under Statements 115 and 124. For all other investments within the
scope of this Issue, the disclosures are effective in annual financial
statements for fiscal years ending after June 15, 2004. The additional
disclosures for cost method investments are effective for fiscal years ending
after June 15, 2004. The adoption of this consensus is not expected to have any
impact on the Company's consolidated results of operations or financial
position.

4. SEGMENT INFORMATION

The Company has three reporting segments: Weekly Reader, World Almanac, and
American Guidance Service ("AGS"). This classification reflects the nature of
the Company's organizational structure by which the chief operating
decision-maker reviews and assesses the operating performance of the reporting
segment and allocates corporate resources.

     o   Weekly Reader is a publisher of classroom periodicals, grade-specific
         workbooks and custom publisher of instructional materials paid for by
         various sponsors.
     o   World Almanac publishes print reference materials sold into the trade
         channel; publishes nonfiction and fiction children's books under three
         imprints for K-12 students; publishes print and electronic reference
         materials sold into the library channel; and distributes third-party
         books targeted for K-12 students through its catalogs.
     o   AGS is a publisher of testing and assessment products and supplemental
         instructional materials. AGS products are sold into the school channel.
         Testing and assessment products are primarily for K-12 students and
         supplemental instructional materials are primarily for low-performing
         students in middle and secondary schools.

Information regarding the operations of the Company's reporting segments is set
forth below. Parent Company expenses and assets not allocated to reporting
segments are included in Corporate. Weekly Reader evaluates performance based on
several factors, of which the primary financial measure is operating income
(loss).



                                       27
<PAGE>

<TABLE>
<CAPTION>

                                         Weekly        World
                                         Reader       Almanac         AGS        Corporate    Eliminations        Total
                                         ------       -------         ---        ---------    ------------        -----
<S>                                  <C>            <C>           <C>            <C>          <C>             <C>
Three months ended June 30, 2004
--------------------------------

Revenue, net                         $   4,138      $  10,506     $  17,867       $     -      $       -      $  32,511
Income (loss) from operations           (2,073)           969         5,816           (40)             -          4,672
Depreciation and amortization              119            530         1,809            11              -          2,469
Restructuring costs                          -              -             -            29              -             29
Assets                                  55,620         99,146       192,861        14,531       (107,990)       254,168
Capital expenditures                       126             25           122            10              -            283

Three months ended June 30, 2003
--------------------------------

Revenue, net                             5,588         10,666        13,457             -              -         29,711
Income (loss) from operations           (1,094)           877         4,094            94              -          3,971
Depreciation and amortization              179            543         1,856            13              -          2,591
Restructuring costs                          -             21             -           105                           126
Assets                                  57,133         91,726       174,009           525        (84,983)       238,410
Capital expenditures                        37             30             7             -              -             74


<CAPTION>

                                         Weekly        World
                                         Reader       Almanac         AGS        Corporate    Eliminations        Total
                                         ------       -------         ---        ---------    ------------        -----
<S>                                  <C>            <C>           <C>            <C>          <C>             <C>
Six months ended June 30, 2004
------------------------------

Revenue, net                           $ 14,252      $ 22,387     $ 30,300       $    -        $    -         $ 66,939
Income (loss) from operations              (172)        2,339        7,354          (54)            -            9,467
Depreciation and amortization               250         1,016        3,795           24             -            5,085
Restructuring costs                           -             -            -           30             -               30
Capital expenditures                        160            45          182           15             -              402

Six months ended June 30, 2003
------------------------------

Revenue, net                             16,085        23,259       25,186            -             -           64,530
Income (loss) from operations             1,595         3,173        5,975          208             -           10,951
Depreciation and amortization               364         1,099        3,648           25             -            5,136
Restructuring costs                           -            21            -          105                            126
Capital expenditures                        104            54           23            2             -              183

</TABLE>


5.  RESTRUCTURING AND OTHER NON-RECURRING EXPENSES

During the six-months ended June 30, 2004, the Company reviewed its
restructuring reserve established in 2002 and adjusted the reserve by $30 due to
updating the assumptions used in determining the fair value of the remaining
lease obligations associated with facilities vacated during 2002.

Components of the Company's restructuring plan initiated in the fourth quarter
of 2002 are shown in the following table:

<TABLE>
<CAPTION>

                                         Balance at                                       Balance at
                                        December 31,     Additional                         June 30,
                                            2003         Adjustments     Amounts Paid         2004
                                        ------------     -----------     ------------     ----------
<S>                                      <C>              <C>             <C>              <C>
Severance and other benefits             $      20        $   -           $  (20)          $     -
Lease terminations                             988           30              (54)              964
                                         ---------        -----           ------           -------
Total                                    $   1,008        $  30           $  (74)          $   964
                                         =========        =====           ======           =======


</TABLE>

The restructuring reserve totaling approximately $964 at June 30, 2004 is
expected to be paid as follows: remaining nine months of 2004 - $119 and 2005
and beyond - $845 and is included in accrued expenses and other current
liabilities in the condensed consolidated balance sheets.

6.  DEBT

On March 29, 2004, the Company refinanced all of its term loans under its Senior
Bank Credit Facilities (the "First-Lien Facility") with a $145,000 senior,
second-priority lien secured financing that was provided to the Company pursuant
to a term loan facility (the "Second-Lien Facility"). The proceeds of the
Second-Lien Facility were used (i) to refinance in full all term loans
outstanding under the First-Lien Facility, (ii) to pay fees and expenses related
to the Second-Lien Facility and all transactions contemplated in connection
therewith and (iii) for general corporate purposes of the Company.



                                       28
<PAGE>

All payment obligations under the Second-Lien Facility are secured by a
second-priority lien on the collateral securing the First-Lien Facility;
provided that all obligations under the Second-Lien Facility will rank equally
in right of payment with all payment obligations under the First-Lien Facility
and will not otherwise be subordinated in any respect to the First-Lien
Facility. The final maturity of the Second-Lien Facility will be March 29, 2009.
At the Company's option, the loans will bear interest at either the
Administrative Agent's (i) alternate base rate ("base rate loans") or (ii)
reserve-adjusted LIBO rate ("LIBO rate loans") plus, in each case, the
"Applicable Margin" (as defined). "Applicable Margin" means, with respect to (i)
Base Rate Loans, a rate of 4.00% per annum and (ii) LIBO Rate Loans, a rate of
5.00% per annum.

The Second-Lien Facility is subject to mandatory prepayment with:

     o    the proceeds of the incurrence of certain indebtedness

     o    the proceeds of certain asset sales or other dispositions

     o    a change in control

     o    annually, 50% of the Company's excess cash flow (as defined) from the
          prior year.

The Second-Lien Facility provide for certain restrictions, including
restrictions on asset sales, dividend payments, additional indebtedness payments
for restricted investments. In addition, the Second-Lien Facility provides for
the maintenance of a financial covenant, a maximum ratio (the "Senior Leverage
Ratio") of Senior Secured Debt to trailing four quarter EBITDA (as defined
therein) not to exceed 4.25:1.00 for any fiscal quarter, except the fiscal
quarter ended June 30, 2005 for which the Senior Leverage Ratio shall not exceed
4.50:1.00, in each case to be tested on the last day of each fiscal quarter and
computed for WRC Media (as defined within the agreement) and its consolidated
subsidiaries. In connection with entering into the Second-Lien Facility, the
Company entered into an amendment and restatement of its First-Lien Facility,
which now consists solely of a $30,000 revolving credit facility.

The First-Lien Facility, as amended and restated, has a maturity of December 29,
2008, and has one financial covenant, a Senior Leverage Ratio of senior secured
debt to trailing four quarter EBITDA (as defined therein) not to exceed
4.00:1.00 for any fiscal quarter, except the fiscal quarter ended June 30, 2005
for which the Senior Leverage Ratio may not exceed 4.25:1.00, in each case to be
tested on the last day of the fiscal quarter and computed for the Company and
its consolidated subsidiaries. Interest on revolving loan borrowings under the
First-Lien Facility bear interest at a rate per annum equal to the LIBO rate as
defined in the First-Lien Facility plus 2.0% or the alternate base rate as
defined in the First-Lien Facility plus 1.0%.

As a result of the refinancing, the Company wrote-off the remaining balances of
deferred financing costs associated with the First Lien Facility of
approximately $467. These costs are included in interest expense, including
amortization of deferred financing costs on the condensed consolidated statement
of operations for the six-months ended June 30, 2004.

In connection with the refinancing the Company incurred costs and expenses,
primarily investment banking and legal fees, of approximately $6,668. These
amounts have been recorded as deferred financing fees at June 30, 2004 and are
being amortized over the term of the Second Lien Facility using the effective
interest method.

At June 30, 2004, there were $8,000 in outstanding advances under the Company's
$30,000 revolving credit facility, which bears interest approximately 3.5% for
Eurodollar rate advances and 5.0% for base rate advances as of June 30, 2004.
The Company has stand-by letters of credit, renewable annually, in the amount of
$2,050 of which $2,000 serves as security for a real estate lease entered into
by the Company and $50 serves as security for certain surety bonds issued on
behalf of the Company. While these letters of credit are in effect, the
Company's available borrowing under the revolving credit facility is reduced by
$2,050. At June 30, 2004, the Company had $19,950 of available credit under the
revolving credit facility.



                                       29
<PAGE>

7.  FINANCIAL INSTRUMENTS

Pursuant to the terms of the First and Second-Lien Credit Agreements, the
Company is required to enter into or maintain interest rate protection
agreements (interest rate swaps, caps, collars or similar agreements) in a
notional amount that, when taken together with the aggregate principal amount of
the Company's Total Debt subject to a fixed interest rate, is at least equal to
at least 50% of the aggregate principal amount of all Total Debt. On November
15, 2003, the Company entered into a one year interest rate cap agreement with a
notional principal of $61,000, which caps the LIBOR based rate, as defined, on
those loans at 2.5%. The interest rate protection agreement did not qualify for
hedge accounting treatment and as such the Company marks the contract to market
at the end of each period. The fair value of the interest rate cap at June 30,
2004 is de-minimis.

8.  INVENTORIES

At December 31, 2003 and June 30, 2004, inventories are comprised of the
following:

                                      December 31,      June 30,
                                          2003           2004
                                      -------------     ---------
Finished goods                          $ 15,853        $ 14,215
Raw materials                                 37              17
                                        --------        --------
                                        $ 15,890        $ 14,232
                                        ========        ========

9.  GOODWILL AND TRADEMARKS

At December 31, 2003 and June 30, 2004, Goodwill and indefinite lived intangible
assets are as follows:

                                                December 31,         June 30,
                                                    2003               2004
                                                ------------         --------

Goodwill                                         $   101,978      $   101,978
Long Lived Assets - Trademarks and
copyrights
                                                      15,675           15,675
                                                 -----------      -----------
                                                 $   117,653      $   117,653
                                                 ===========      ===========

There were no changes to goodwill and indefinite lived intangible assets during
the three- and six-months ended June 30, 2004.

WRC recorded non-cash deferred income tax expense of $175 and $350 during the
three- and six-month periods ended June 30, 2003 and 2004, respectively, for
taxable temporary differences that will not reverse prior to expiration of the
Company's net operating loss carryforward periods. Book amortization of
tax-deductible goodwill and trademarks ceased on January 1, 2002 upon the
Company's adoption of SFAS 142; however, WRC will continue to amortize these
assets for tax purposes. As a result, WRC will have deferred tax liabilities
that will arise each quarter because the taxable temporary differences related
to the amortization of these assets will not reverse prior to the expiration
period of WRC's deductible temporary differences unless the related assets are
sold or an impairment of the assets is recorded. The Company expects that it
will record an additional $350 to increase deferred tax liabilities during the
remaining six months of 2004.

10.  OTHER INTANGIBLE ASSETS

The gross carrying amount and accumulated amortization of the WRC's intangible
assets other than goodwill and indefinite lived intangible assets are as
follows:


                                       30
<PAGE>

<TABLE>
<CAPTION>

                                                     ----------------------------------------------------------------------------
                                                                 December 31, 2003                     June 30, 2004
                                                     ----------------------------------------------------------------------------
                                                                   Accumulated                           Accumulated
                                     Useful Lives     Gross       Amortization      Net         Gross   Amortization       Net
                                     ------------    --------     -------------    ---------  --------  --------------  ---------
<S>                                  <C>             <C>              <C>           <C>       <C>           <C>         <C>
Customer Lists                       6-15 yrs        $    318         $    (161)    $    157  $    318      $    (183)  $    135
Copyrights                           10-20 yrs         19,936            (4,901)      15,035    19,936         (5,489)    14,447
Software                             3 yrs              6,420            (5,707)         713     6,420         (6,420)         -
                                                     --------         ---------    ---------  --------      ----------  ---------
                          Total:                     $ 26,674         $ (10,769)    $ 15,905  $ 26,674      $ (12,092)  $ 14,582
                                                     ========         =========    =========  ========      ==========  =========

</TABLE>

Included in other intangible assets, are trademarks and copyrights not subject
to amortization, for which the total carrying amount was $15,675 as of December
31, 2003 and June 30, 2004.

Amortization of intangibles for the three-months ended June 30, 2003 and 2004
was $864 and $499, respectively. Amortization of intangibles for the six-months
ended June 30, 2003 and 2004 was $1,761 and $1,323, respectively. Amortization
is included in amortization of intangible assets on the condensed consolidated
statement of operations. The estimated amortization expense for intangible
assets still subject to amortization for the next five years is as follows:

Remaining six months ended of 2004..............................    $   620
2005............................................................      1,225
2006............................................................      1,184
2007............................................................      1,181
2008............................................................      1,144
2009............................................................      1,123
Thereafter......................................................      8,105

11.  COMMITMENTS AND CONTINGENCIES

The Company is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, as necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on its results of operations and financial
position, if any, for the disposition of these matters, will not be material.

The Securities and Exchange Commission ("SEC") is conducting a preliminary
inquiry concerning the Company and has requested that the Company voluntarily
provide the SEC with various documents and information, and that certain
officers and employees of the Company voluntarily give testimony or be
interviewed. The Company is cooperating fully with the SEC inquiry, and has
continued to provide all documents, information and testimony requested by the
SEC, and has arranged all interviews requested by the SEC with Company
employees. The Company cannot predict the final outcome of this inquiry at this
time.

15% Senior Preferred Stock due 2011

In 1999, the Company issued 3,000,000 shares of 15% Senior Preferred Stock due
in 2011 with a liquidation preference of $25.00 per share. The 15% Senior
Preferred Stock shall accrue dividends at a rate of 15% per annum, subject to
adjustment if the Company fails to redeem all outstanding shares of such 15%
Senior Preferred Stock in connection with a mandatory redemption or change of
control. Such accrued dividends reflect penalty dividends of 0.5% for periods
prior to November 17, 2001. While the Company believes that no penalty dividend
is due for subsequent periods, the preferred shareholders may disagree with that
conclusion.

12.  RELATED PARTY TRANSACTIONS

In connection with the acquisition of Weekly Reader, the Company entered into a
management agreement with the principal shareholder of WRC Media Inc. In
accordance with the management agreement, the shareholder provides Weekly Reader
management consulting and financial advisory services. As a result, the Company
is obligated to pay to the shareholder annual aggregate management fees for
services totaling $800, which are payable quarterly. At June 30, 2004, other
accrued liabilities include approximately $900 of accrued management fees.



                                       31
<PAGE>

In addition, the Company will reimburse the principal shareholder for reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its services. During each of the three- and six-month periods ended June 30,
2003 and 2004, the Company recognized general and administrative expense of $200
and $400, respectively, for management fees.

13.  PENSION BENEFITS

The following table provides components of net periodic benefit cost for the
Company's defined benefit pension plan for the three- and six-months ended June
30, 2003 and 2004:

                                                  Three-months ended June 30,
                                                  ---------------------------
                                                   2003                2004
                                                   ----                ----
Service cost                                      $ 229               $ 225
Interest Cost                                       221                 238
Expected return on plan assets                     (169)               (242)
Amortization of net loss                             74                  42
                                                  -----               -----
Net periodic benefit cost                         $ 355               $ 263
                                                  =====               =====


                                                   Six-months ended June 30,
                                                   -------------------------
                                                   2003               2004
                                                   ----               ----
Service cost                                      $ 458               $ 450
Interest Cost                                       442                 476
Expected return on plan assets                     (338)               (484)
Amortization of net loss                            148                  84
                                                  -----               -----
Net periodic benefit cost                         $ 710               $ 526
                                                  =====               =====


14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                      Six-Months Ended June 30,
                                                   -----------------------------
                                                       2003           2004
                                                       ----           ----

Cash paid during the period for interest            $ 13,558       $ 13,234
Cash paid during the period for income taxes        $     31       $     42

Non-cash financing activity:
Preferred stock dividends accrued                   $  9,142       $ 10,593 (1)

(1)  During the six-months ended June 30, 2004, $10,593 of such preferred stock
     dividends have been recorded as interest expense in the statement of
     operations, resulting from the Company's adoption of SFAS 150 effective
     January 1, 2004.

15.  RESTATEMENT

In connection with the audit of the Company's 2003 consolidated financial
statements (the "Initial Restatement") and the reaudit of its 2001 consolidated
financial statements (the "Further Restatement"), the Company has restated its
previously audited consolidated balance sheets as of December 31, 2001, 2002 and
2003 and the related statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 2001, 2002 and 2003.



                                       32
<PAGE>

In connection with the Initial Restatement, management had restated its
financial statements for the three- and six-months ended June 30, 2003 because
it had incorrectly accounted for (i) revenue recognition for distributor sales;
(ii) rent expense; and (iii) other items including an adjustment relating the
amortization period for certain capitalized prepublication costs.

Described below are the matters for which the Company had restated its condensed
consolidated financial statements for the three- and six-months ended June 30,
2003 in connection with the Initial Restatement.

     o    Distributor Sales. Historically the Company recognized revenue under a
          distribution contract between its subsidiary, World Almanac Education
          Group, and a distributor at the time that the Company shipped its
          products to the distributor rather than at the time those products
          were resold by the distributor. The Company also recorded distribution
          fees under this contract as operating costs and expenses, based on its
          understanding of the distribution contract. The Company has determined
          to recognize revenue only at the time the distributor ships these
          products to its customer. The Company has restated its financial
          statements which decreased its net loss by $89 and $258, respectively
          for the three- and six-months ended June 30, 2003.

     o    Rent. The Company has two leases that have "free rent" incentives at
          the commencement of the leases and also contain rent escalation
          clauses (which clauses provide for rent increases over time) for which
          it was required under GAAP to record the average rent expense ratably
          over the lease term. In its historical 2001 financial statements,
          however, the Company recorded the rent expense from these leases as it
          was paid. In its historical 2002 financial statements, the Company
          began correctly recording the average rent expense for these leases,
          but it calculated the average rent using the remainder of the lease
          term instead of the entire lease term. The Company has restated its
          financial statements to correct these errors, which had the net effect
          of decreasing its net loss by $194 and $352, respectively for the
          three- and six-months ended June 30, 2003.

     o    Other. The Company also made an adjustment relating to the
          amortization period for certain capitalized pre-publication costs
          which had the effect of increasing net loss by $105 and $210 for the
          three- and six-months ended June 30, 2003.

In connection with the reaudit of the Company's 2001 consolidated financial
statements, management determined that it had incorrectly accounted for the
following items, which comprise the Further Restatement: (i) intangible assets
acquired in 1999 in connection with the Parent's acquisition of Weekly Reader;
(ii) acquisition reserves for acquisitions in 1999; (iii) its adoption of SFAS
142 and the preparation of its transitional impairment analysis; (iv) deferred
tax liabilities recognized upon adoption of SFAS 142; (v) 15% Senior Preferred
Stock dividends; and (vi) a number of other items which had been previously
identified and collectively determined to be immaterial.

Described below are the matters for which the Company has restated its condensed
consolidated financial statements for the three- and six-months ended June 30,
2003 in connection with the Further Restatement.

     o    Weekly Reader Intangible Assets. In connection with the reaudit of the
          Company's 2001 consolidated financial statements, the Company
          reconsidered the assumptions used to determine the estimated fair
          value and economic lives of the intangible assets acquired in
          connection with the 1999 acquisition and recapitalization of Weekly
          Reader by its Parent (the "1999 Intangible Assets"). The Company has
          determined that the original basis for estimating the fair value and
          economic lives of the intangible assets was a valuation report that
          the former owners of Weekly Reader had provided to the Parent at the
          time of the 1999 acquisition. Accordingly, in 2004, the Parent engaged
          a valuation consulting firm to assist management in assessing the fair
          values and economic lives of the 1999 Intangible Assets as of the
          acquisition date. As a result, certain economic lives of the 1999
          Intangible Assets have been revised. Accordingly, the Company has
          restated its financial statements to correctly state the estimated
          economic lives of the 1999 Intangible Assets acquired as of November
          17, 1999. Other intangible assets include copyrights, customer lists
          and trademarks. Copyrights estimated useful life was amended from 10
          years to approximately 20 years; Customer lists estimated useful life
          decreased from 10 years to approximately 8.5 years and Trademarks
          estimated useful life decreased from 40 years to approximately 39
          years. The Company has restated its financial statements to correct
          the amortization expense for these intangible assets which had the
          effect of decreasing amortization expense of intangible assets for the
          three- and six-months ended June 30, 2003 by $260 and $519,
          respectively.


                                       33
<PAGE>

     o    Goodwill and Long-lived Intangible Asset Impairment. On January 1,
          2002, the Company adopted SFAS 142 for its goodwill and intangible
          assets. Upon adoption, the Company ceased amortization of goodwill and
          indefinite lived intangible assets, which consist primarily of
          trademarks. As required by SFAS 142, the Company reviewed its
          indefinite lived intangibles (goodwill and trademarks) for impairment
          as of January 1, 2002. The Company has three reporting units with
          goodwill. Goodwill was tested for impairment at the reporting unit
          level. As a result, the Company recorded a transitional goodwill and
          indefinite lived intangible asset impairment charge of $72,022 at AGS.
          This charge was reported as a cumulative effect of accounting change,
          as of January 1, 2002, in the consolidated statements of operations.
          In connection with the reconsideration of the assumptions used to
          determine the estimated fair value and economic lives of 1999
          Intangible Assets discussed above, the Company updated its
          transitional impairment analysis and determined that it incorrectly
          calculated the fair value of its reporting units. Accordingly, the
          impairment charge of $72,022 at AGS was incorrect and not required.
          The Company's measurement of fair value was based on an evaluation of
          future discounted cash flows. This evaluation utilized the best
          information available in the circumstances, including reasonable and
          supportable assumptions and projections. The discounted cash flow
          evaluation considered several earnings scenarios and the likelihood of
          possible outcomes. Collectively, this evaluation was management's best
          estimate of projected future cash flows. The Company's discounted cash
          flow evaluation used a range of discount rates that corresponds to the
          Company's weighted-average cost of capital. This discount rate range
          assumed was consistent with that used for investment decisions and
          takes into account the specific and detailed operating plans and
          strategies of the WRC's reporting units. Certain other key assumptions
          utilized, including changes in revenue, operating expenses, working
          capital requirements and capital expenditures including
          pre-publication costs, are based on reasonable estimates related to
          the Company's strategic initiatives and current market conditions.
          Such assumptions also are consistent with those utilized in the
          Company's annual planning process. The Company has restated its
          December 31, 2002 and 2003 balance sheets to correct for this error.
          The net effect of such adjustment was to increase goodwill and
          decrease accumulated deficit by $72,022 at December 31, 2002 and 2003.

     o    Weekly Reader Goodwill Reduction. The Company recorded certain
          reserves for a planned restructuring in connection with its
          acquisition by WRC Media in 1999. In connection with the reaudit of
          its 2001 consolidated financial statements the Company determined that
          it had incorrectly recorded reserves of $602 related to estimated
          liabilities it believed it had assumed at the date of such
          acquisition. The Company concluded that the acquisition reserves
          associated with these liabilities should have been reversed in 1999.
          The estimated liabilities were associated with the excess reserves for
          severance, primarily attributable to employees hired subsequent to the
          acquisition date. The Company has restated its financial statements to
          correct for these errors. The net effect of such adjustments was to
          increase net loss for the three- and six-month period ended June, 2003
          by $6 and $12, respectively.

     o    Deferred Tax Liabilities. The Company recognized non-cash deferred
          income tax expense and a deferred tax liability on January 1, 2002 in
          connection with its adoption of SFAS 142. The deferred tax liability
          relates to the excess of tax over book amortization of tax-deductible
          goodwill and trademarks since the timing of the reversal of this
          liability is indefinite, unless the related assets are sold or an
          impairment of the assets is recorded, and can no longer be offset by
          the Company's net operating loss carryforwards, which expire within a
          statutory period. The non-cash income tax expense recorded during
          the three- and six-months ended June 30, 2003 increased by $15 from
          $49 to $64 and by $30 from $224 to $254, respectively. These
          restatements are principally due to the reversal of the impairment
          charges and the revision of the economic lives of the 1999 Intangible
          Assets discussed above.

     o    15% Senior Preferred Stock due 2011. In 1999, the Company issued
          3,000,000 shares of 15% Senior Preferred Stock due in 2011. The 15%
          Senior Preferred Stock accrues dividends at a rate of 15% per annum.
          The Certificate of Designation provides that the 15% Senior Preferred
          Stock was subject to a default or penalty dividend of 0.5% in the
          event of certain registration defaults. A penalty dividend was
          applicable from mid-August of 2000 through November 17, 2001. While
          the Company believes that no penalty dividend is due for subsequent
          periods, the preferred shareholders may disagree with that conclusion.
          The Company had not previously recorded this penalty dividend. The
          recording of the penalty dividends (and required compounding in
          subsequent periods) resulted in the Company increasing accrued
          dividends on 15% Senior Preferred Stock by $31 and $61 during the
          three- and six-months ended June 30, 2003, respectively.



                                       34
<PAGE>

     o    Segment Information. The Company previously disclosed one reportable
          segment. The Company now discloses three reportable segments.

     o    Other. In connection with the re-audit of the Company's 2001 financial
          statements, the Company has made a number of other corrections to the
          financial statements, which collectively were immaterial.

Summarized below are the significant effects of the Initial Restatement and the
further Restatement.

<TABLE>
<CAPTION>

                                                              Three Months Ended June 30, 2003
                                                    ---------------------------------------------------
                                                     As Previously
                                                      Reported in
                                                    August 13, 2003      Restatement
                                                       Form 10-Q         Adjustments        As Restated
                                                    ---------------      -----------        ------------
<S>                                                     <C>                <C>                <C>
Revenue, net                                            $ 29,296           $    415           $ 29,711
Cost of goods sold                                         7,828                 80              7,908
                                                        --------           --------           --------
     Gross profit                                         21,468                335             21,803
                                                        --------           --------           --------
Costs and expenses:
     Sales and marketing                                   5,605                                 5,605
     Distribution, circulation and fulfillment             2,905                                 2,905
     Editorial                                             2,565                                 2,565
     General and administrative                            4,284               (244)             4,040
     Restructuring costs                                     126                                   126
     Depreciation                                            428                  6                434
     Amortization of intangible assets                     2,312               (155)             2,157
                                                        --------           --------           --------
     Total operating costs and expenses                   18,225               (393)            17,832
                                                        --------           --------           --------
     Income from operations                                3,243                728              3,971
Interest expense, including amortization
   of deferred financing costs                            (6,911)                               (6,911)
Other expense, net                                          (214)               100               (114)
                                                        --------           --------           --------
     Loss before income tax provision                     (3,882)               828             (3,054)
Income tax provision                                          49                 15                 64
                                                        --------           --------           --------
     Net loss                                           $ (3,931)          $    813           $ (3,118)
                                                        ========           ========           ========
</TABLE>


                                       35
<PAGE>

<TABLE>
<CAPTION>

                                                                 Six Months Ended June 30, 2003
                                                      -------------------------------------------------
                                                       As Previously
                                                        Reported in
                                                      August 13, 2003     Restatement
                                                         Form 10-Q        Adjustments       As Restated
                                                      ---------------     ------------      -----------
<S>                                                     <C>                <C>                <C>
Revenue, net                                            $ 64,054           $    476           $ 64,530
Cost of goods sold                                        16,193                154             16,347
                                                        --------           --------           --------
     Gross profit                                         47,861                322             48,183
                                                        --------           --------           --------
Costs and expenses:
     Sales and marketing                                  11,932                                11,932
     Distribution, circulation and fulfillment             6,415                                 6,415
     Editorial                                             5,144                                 5,144
     General and administrative                            8,881               (402)             8,479
     Restructuring costs                                     126                                   126
     Depreciation                                            867                 12                879
     Amortization of intangible assets                     4,566               (309)             4,257
                                                        --------           --------           --------
     Total operating costs and expenses                   37,931               (699)            37,232
                                                        --------           --------           --------
     Income from operations                                9,930              1,021             10,951
Interest expense, including amortization
   of deferred financing costs                           (13,733)                              (13,733)
Other expense, net                                          (208)              (100)              (308)
                                                        --------           --------           --------
     Loss before income tax provision                     (4,011)               921             (3,090)
Income tax provision                                         224                 30                254
                                                        --------           --------           --------
     Net loss                                           $ (4,235)          $    891           $ (3,344)
                                                        ========           ========           ========


</TABLE>


                                       36
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results of
Operation set forth in this Item 2 has been revised to reflect the restatement
of the Company's condensed consolidated financial statements for the three- and
six-months ended June 30, 2003. For a discussion of the restatement adjustments,
see "Item 1. Consolidated Financial Statements -WRC Media Inc. and
Subsidiaries--Note 17. Restatement" and "Item 1. Consolidated Financial
Statements - Weekly Reader Corporation and Subsidiaries - Note 15. Restatement."

The following discussion is intended to assist in understanding the financial
condition as of June 30, 2004 of WRC Media Inc. ("WRC Media") and its
subsidiaries, and Weekly Reader Corporation and its subsidiaries, and their
results of operations for the three- and six-months ended June 30, 2003 and
2004. You should read the following discussion in conjunction with the Condensed
Consolidated Financial Statements of WRC Media and its subsidiaries and Weekly
Reader Corporation and its subsidiaries ("Weekly Reader") attached to this
discussion and analysis. Unless the context otherwise requires, the terms "we,"
"our," and "us" refer to WRC Media and its subsidiaries and their predecessor
companies. This discussion and analysis contains forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties,
including the Company's ability to continue to produce successful supplemental
education material and software products; reductions in state and local funding
for educational spending materials resulting, among other things, from
increasing state budget deficits; uncertainty in the current operating
environment which makes it difficult to forecast future results; and other risks
and factors identified in this report and in the Company's Annual Report on Form
10-K for the year ended December 31, 2003. Although we believe that our plans,
intentions and expectations reflected in or suggested by these forward-looking
statements are reasonable, we cannot assure you that these plans, intentions or
expectations will be achieved. These forward-looking statements are subject to
risks, uncertainties and assumptions about us.

OVERVIEW

We are a leading publisher of supplemental education materials for the Pre K-12
education market. Our portfolio of products includes a broad range of both print
and electronic supplemental instructional materials, testing and assessment
products and library materials, several of which have been published for over
100 years. Weekly Reader is a leading publisher of classroom periodicals based
on the 2002-2003 school year circulation of 7.0 million subscribers. In addition
to our well-recognized classroom periodicals, such as Weekly Reader and Current
Events, we publish distinct, grade-specific basic and life skills workbooks.
American Guidance Service, Inc. ("AGS") has been a leading publisher of
individually administered and group testing and assessment products, and
supplemental instructional materials for over 45 years. AGS's testing and
assessment products are primarily for K-12 students and its supplemental
instructional materials are primarily for low-performing students in middle and
secondary schools. CompassLearning is a research-based technology learning
solutions company that produces educational assessment, curriculum and
management tools for grades Pre-K through 12, all of which are aligned to local,
state and national standards. Offering more than 8,000 hours of interactive
standards-based managed curriculum that inspires educators and students to
explore and achieve success, CompassLearning has been serving the Pre-K to 12
market for over 30 years. World Almanac has been a leading publisher of
reference and informational materials targeted to K-12 students, as well as
other well-known general reference and informational materials, for over 130
years. World Almanac publishes well-known print reference materials, such as The
World Almanac and Book of Facts and nonfiction and fiction books for K-12
students under three Gareth Stevens imprints. In addition, World Almanac
publishes electronic reference materials such as the Funk & Wagnalls
Encyclopedia database and an Internet-based version of Facts On File World News
Digest, which in its print version is World Almanac's leading subscription-based
product. World Almanac also distributes third-party products that are targeted
for K-12 students through its World Almanac Education Library Services ("WAELS")
catalogs.


                                       37
<PAGE>

During 2003, the education market was impacted by the sluggish U.S. economy. The
economy which has been slow moving since early 2002 has significantly impacted
state budgets in fiscal 2002 and 2003. Education budgets, which typically
represent over 20% of state budgets, have suffered as a result with forty of the
fifty states under pressure to make cuts in the elementary and secondary
programs in the 2003-2004 school year (Source: MCH Education Data, August 2003).
All K-12 supplemental educational publishers were confronted in 2002 and 2003
with this lack of funding availability and delayed purchasing decisions. We
expect this funding environment to continue at least through to the end of 2004.

The No Child Left Behind Act ("NCLB") which was passed in 2002 has resulted in
an increase in federal funding; but most of this increased funding has been
offset by reduced state and local education funding. In addition, the new
guidelines to qualify for federal funding under NCLB have contributed to delayed
purchase decisions. Under these new guidelines:

     o    More federal funds will now flow through states;

     o    There is a change in the mix for formula-based grants and competitive
          grants which will require school districts to change the way they seek
          and receive funding from states;

     o    The federal government has given state guidelines for distributing
          funds and each of the states is defining the rules to satisfy these
          guidelines;

     o    The federal government's new requirements, like the need for
          professionals with a minimum two-year degree and the emphasis on
          scientifically based programs, caused some confusion at the school
          level in 2002 and 2003; and

     o    All these changes have caused delays in the movement of funds from the
          federal and state sources to the school district level

As a result, 2002 and 2003 have been extremely challenging for the education
marketplace in terms of both funding and spending. According to our market
research (Veronis Suhler Stevenson's Communications Industry Forecast & Report
2003-2007), the Elementary and High School (ELHI) instructional spending will
increase 1.5% in 2004 and according to Quality Education Data report published
in the fall of 2003; an increase in instructional technology spending is
projected at 1% for 2004.



                                       38
<PAGE>


Our revenues consist primarily of: subscription revenues from our periodicals;
revenues from sales of printed products including nonfiction and fiction books,
workbooks, worktexts, reference materials and test preparation materials;
computer courseware and hardware; professional development services; and
technical support services.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2004 --
WRC MEDIA INC. AND SUBSIDIARIES

The results of operations of WRC Media and its subsidiaries encompass the
operations of Weekly Reader and its subsidiaries, including AGS and World
Almanac, CompassLearning, and ChildU, Inc. ("ChildU"). The results of operations
of WRC Media and its subsidiaries should be read together with the separate
discussion of the results of operations of Weekly Reader.

In analyzing WRC Media's results for the three-months ended June 30, 2003 and
2004, the seasonal nature of WRC Media's business should be considered. As a
result of seasonality, approximately 20% of WRC Media's publication and related
service revenues usually occur in its first quarter, 20% in its second quarter,
and 60% in the third and fourth quarters combined. However, unlike this revenue
stream, many of WRC Media's expenses are incurred evenly throughout the year.

WRC Media analyzes its revenues, expenses and operating results on a percentage
of net revenue basis. The following table sets forth, for the periods indicated,
consolidated statements of operations data for WRC Media and its subsidiaries,
expressed in millions of dollars and as a percentage of net revenue.

<TABLE>
<CAPTION>

                                                                                    Three months ended June 30,
                                                                               2003                              2004
                                                                   ------------------------------     -----------------------------
                                                                      Amount     % of Net Revenue       Amount     % of Net Revenue
                                                                   ------------  ----------------     ----------  -----------------
                                                                                      (Dollars in millions)
<S>                                                                 <C>                  <C>             <C>              <C>
Revenue, net                                                        $  44.1              100.0%          $  45.8          100.0%
Cost of goods sold                                                     13.1               29.7%             13.9           30.3%
                                                                    -------              -----           -------          -----
Gross profit                                                           31.0               70.3%             31.9           69.7%
Costs and expenses:
       Sales and marketing                                             10.3               23.4%             11.2           24.5%
       Research and development                                         0.2                0.5%              1.0            2.2%
       Distribution, circulation and fulfillment                        2.9                6.6%              2.7            5.9%
       Editorial                                                        2.5                5.7%              2.5            5.5%
       General and administrative                                       5.4               12.2%              7.3           15.9%
       Restructuring costs and other non-recurring expenses             1.0                2.3%              0.6            1.3%
       Depreciation                                                     0.6                1.4%              0.5            1.1%
       Amortization of intangible assets                                4.4               10.0%              4.1            9.0%
                                                                    -------              -----           -------          -----
       Total costs and expenses                                        27.3               61.9%             29.9           65.3%
                                                                    -------              -----           -------          -----

Income from operations                                                  3.7                8.4%              2.0            4.4%
                                                                    -------              -----           -------          -----
Interest expense, including amortization
   of deferred financing costs                                         (7.2)             (16.3%)           (13.4)         (29.3%)
Other expense, net                                                     (0.7)              (1.6%)            (0.3)          (0.7%)
                                                                    -------              -----           -------          -----
Loss before income tax provision                                       (4.2)              (9.5%)           (11.7)         (25.5%)
Income tax provision                                                    0.7                1.6%              0.8            1.7%
                                                                    -------              -----           -------          -----

Net loss                                                            $  (4.9)             (11.1%)         $ (12.5)         (27.3%)
                                                                    =======              =====           =======          =====

       Adjusted EBITDA (a)                                          $   9.8               22.2%          $   7.6           16.6%
                                                                    =======              =====           =======          =====

</TABLE>


                                       39
<PAGE>


(a)  Adjusted EBITDA represents (loss) before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $1.0 million for the three-months ended June 30,
     2003 and restructuring costs of $0.6 million for the three-months ended
     June 30, 2004. Adjusted EBITDA data is a non-GAAP measure and is included
     in our discussion because we believe that this information may be
     considered by investors as an additional basis on which to evaluate WRC
     Media's performance. Because all companies do not calculate Adjusted EBITDA
     identically, the presentation of Adjusted EBITDA in this report is not
     necessarily comparable to similarly titled measures of other companies.
     Adjusted EBITDA is not intended to represent cash flow from operating
     activities and should not be considered an alternative to net income or
     loss (as determined in conformity with GAAP) as an indicator of our
     operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance. We also use Adjusted EBITDA
     to evaluate management performance. Adjusted EBITDA may not be available
     for our discretionary use as there are requirements to repay debt, among
     other payments.

Three-Months Ended June 30, 2004 Compared to Three-Months Ended June 30, 2003

Revenue, net. For the three-months ended June 30, 2004, net revenue increased
$1.7 million, or 3.9%, to $45.8 million from $44.1 million for the same period
in 2003. This increase was primarily due to a increase in net revenue at Weekly
Reader of $2.8 million, or 9.4% to $32.5 million from $29.7 million for the same
period in 2003 partially offset by a decrease in net revenue at
CompassLearning/Child U of $1.1 million, or 7.6% to $13.3 million from $14.4
million for the same period in 2003.

The increase in net revenue at Weekly Reader was due to (1) an increase in net
revenue at AGS of $4.4 million or 32.6% to $17.9 million from $13.5 million for
the same period in 2003. The increase at AGS was partially offset by (2) a
decrease in net revenue at World Almanac of $0.1 million or 0.9% to $10.5
million from $10.6 million for the same period in 2003.; (3) a decrease in net
revenue at Weekly Reader, excluding World Almanac and AGS, of $1.5 million, or
26.8%, to $4.1 million from $5.6 million for the same period in 2003.

The revenue decrease at CompassLearning/ChildU was primarily due to a decrease
in educational software revenue of $1.7 million from the same period in 2003
primarily attributable to delayed purchasing decisions resulting from the weak
education funding environment. The K-12 funding environment continues to be
impacted by state budget deficits, which have been causing reductions in state
and local educational spending, including spending for teachers, training and
supplemental educational materials. While we believe WRC Media will benefit from
the provisions in the Federal NCLB Act, most of the increase in Federal
educational funding for the 2003-2004 school year was offset by lower state and
local education funding for the same period. These cuts and delayed purchases
have negatively affected our top-line net revenue and may continue to affect our
top-line performance at least through the remainder of fiscal year 2004. The
uncertainty in the current operating environment also makes it difficult to
forecast future results.

Gross profit. For the three-months ended June 30, 2004, gross profit increased
by $0.9 million or 2.9%, to $31.9 million from $31.0 million from the same
period in 2003. This increase was due to the revenue increase discussed above.
Gross profit at Weekly Reader increased $2.1 million or 9.6% to $23.9 million
from $21.8 million from the same period in 2003 primarily as a result of (1) an
increase in gross profit at AGS of $3.2 million from the same period in 2003
driven by the AGS volume increase described above. The increase at AGS was
partially offset by (2) a decrease in gross profit at Weekly Reader, excluding
AGS and World Almanac of $0.9 million from the same period in 2003 driven by the
volume decrease described above. (3) a decrease in gross profit at World Almanac
of $0.2 million from the same period in 2003 due to the volume decrease
described above. At CompassLearning/ChildU gross profit decreased $1.2 million
from the same period in 2003 driven by fixed costs of sales components applied
to a lower revenue base and a low margin services sale to the Los Angeles
Unified School District. WRC Media gross profit as a percent of revenue
decreased to 69.7% from 70.3% from the same period in 2003 due to the factors
discussed above.


                                       40
<PAGE>

Costs and expenses. For the three-months ended June 30, 2004, operating costs
and expenses increased by $2.6 million, or 9.5%, to $29.9 million from $27.3
million from the same period in 2003. Costs and expenses as a percentage of net
revenue increased to 65.3% from 61.9% from the same period in 2003. This
increase was primarily the result of: (i) $1.9 million or 35.2% increase in
general and administrative expenses due to increases in legal, audit, tax and
consulting professional fees of $1.1 million primarily related to the previously
disclosed SEC inquiry, higher employee separation costs of $0.2 million and a
reversal of accruals for an excess property tax assessment and building repairs
in the second quarter of 2003 of $0.2 million; (ii) higher sales and marketing
expenses of $0.9 million or 8.7% primarily at AGS resulting from initiatives
relating to the reorganization of its sales department and new product launches;
(iii) higher research and development expenses of $0.8 million or 400.0%
incurred at CompassLearning/ChildU as a result of more time and resources being
spent on product maintenance and research. These higher expenses were partially
offset by (iv) lower restructuring and non-recurring costs of $0.4 or 40.0%; and
(v) lower amortization of intangible assets of $0.3 million.

Interest expense, including amortization of deferred financing costs. For the
three-months ended June 30, 2004, interest expense, including amortization of
deferred financing costs, increased by $6.2 million, or 86.1%, to $13.4 million
from $7.2 million for the same period in 2003 as the adoption of SFAS 150
requires dividends on the 15% Senior Preferred Stock to be recorded as interest
expense in the condensed consolidated statement of operations for all periods
starting January 1, 2004. The dividends on the 15% Senior Preferred Stock for
the three-months ended June 30, 2004 increased interest expense by $5.4 million.
Interest expense on long term-debt increased by $0.6 million primarily due to
higher interest rates in 2004 as opposed to 2003. Interest expense as a
percentage of net revenue increased to 33.9% from 15.1% for the same period in
2003.

Adjusted EBITDA. For the three-months ended June 30, 2004, Adjusted EBITDA
decreased $2.2 million, or 22.4%, to $7.6 million from $9.8 million for the same
period in 2003. This decrease was primarily attributable to the factors
described above. Adjusted EBITDA represents (loss) before interest expense,
taxes, depreciation, amortization and other (income) charges including
restructuring costs of $1.0 million for the three-months ended June 30, 2003 and
restructuring costs of $0.6 million for the three-months ended June 30, 2004.
Adjusted EBITDA is a non-GAAP measure and is included in our discussion because
we believe that this information may be considered by investors as an additional
basis on which to evaluate WRC Media's performance. Because all companies do not
calculate Adjusted EBITDA identically, the presentation of Adjusted EBITDA in
this report is not necessarily comparable to similarly titled measures of other
companies. Adjusted EBITDA is not intended to represent cash flow from operating
activities and should not be considered an alternative to net income or loss (as
determined in conformity with GAAP) as an indicator of our operating performance
or to cash flow as a measure of liquidity. It is presented herein as we use it,
in addition to operating income, to evaluate and measure each business unit's
performance. We also use Adjusted EBITDA to evaluate management performance.
Adjusted EBITDA may not be available for our discretionary use as there are
requirements to repay debt, among other payments. The reconciliation of Adjusted
EBITDA to net loss is as follows:



                                       41
<PAGE>

<TABLE>
<CAPTION>

                                                              For the three-months ended June 30,
Adjusted EBITDA reconciliation to Net Loss                      2003                        2004
                                                             --------                     --------
                                                                     (Dollars in thousands)
<S>                                                          <C>                          <C>
      Net Loss                                               $ (4,874)                    $(12,516)
      Depreciation and amortization of intangibles**            5,770                        5,243
      Income taxes                                                679                          840
      Interest expense                                          7,236                       13,408
      Restructuring costs                                       1,001                          632
      Non-recurring expenses                                        -                            -
                                                             --------                     --------
Adjusted EBITDA                                              $  9,812                     $  7,607
                                                             ========                     ========

</TABLE>

**   Amount includes amortization of capitalized software costs of $797 and
     $672 for 2003 and 2004, respectively which are included in cost of goods
     sold in the condensed consolidated statements of operations.



RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2004 -- WRC MEDIA INC.
AND SUBSIDIARIES - SEGMENTS

WEEKLY READER

                                      For the three months ended June 30,
                                           2003                 2004
                                      ----------------    -----------------
                                            (Dollars in millions)

Revenue, net                               $  5.6               $  4.1
Loss from operations                         (1.1)                (2.1)
Percentage of Net Revenue                  -19.6%               -51.2%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the Weekly
Reader segment decreased by $1.5 million, or 26.8%, to $4.1 million from $5.6
million for the same period in 2003 as a result of lower licensing revenue of
$1.0 million due to the absence of a spring book club offering on the QVC
Shopping Network and a decrease in revenue of $0.4 million at Lifetime Learning
Systems, Inc., a subsidiary of Weekly Reader as a result of fewer shipments of
custom publishing projects.

Loss from Operations. For the three months-ended June 30, 2004, the segment loss
from operations increased by $1.0 million or 90.9% to $2.1 million from $1.1
million as gross profit decreased by $0.8 million as a result of the volume
decrease described above. General and administrative expense increased by $0.3
million from the same period in 2003 primarily due to greater employee
separation costs and sales and marketing costs increased by $0.2 million from
the same period in 2003 due to an increase in new customer acquisition costs.
These increases were partially offset by a decrease in distribution, circulation
and fulfillment expenses of $0.2 million from the same period in 2003 as a
result of the absence of a spring book club offering on the QVC Shopping
Network.



                                       42
<PAGE>

WORLD ALMANAC

                                       For the three months ended June 30,
                                            2003                 2004
                                       ----------------    -----------------
                                                (Dollars in millions)

Revenue, net                                    $ 10.6               $ 10.5
Income from operations                             0.9                  1.0
Percentage of Net Revenue                          8.5%                 9.5%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the World
Almanac segment decreased by $0.1 million or 0.9% to $10.5 million from $10.6
million for the same period in 2003. This decrease was due to lower net revenue
of $0.2 million at World Almanac Books ("WA Books") that resulted from an
increase in expected sales returns recognized in 2004 and lower net revenue of
$0.3 million at World Almanac Education Library Services ("WAE Library
Services") as a result of the elimination of their Prospect catalog partially
offset by higher sales of $0.5 million at Gareth Stevens from its Wholesale and
Field Rep channels.

Income from Operations. For the three months-ended June 30, 2004 segment income
from operations increased by $0.1 million or 11.1% to $1.0 million from $0.9
million primarily due to a reduction in sales and marketing expense of $0.2
million from the same period in 2003 on the promotion of The World Almanac and
Books of Facts.

AGS

                                       For the three months ended June 30,
                                            2003                 2004
                                       ----------------    -----------------
                                              (Dollars in millions)

Revenue, net                                    $ 13.5               $ 17.9
Income from operations                             4.1                  5.8
Percentage of Net Revenue                         30.4%                32.4%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the AGS
segment increased by $4.4 million or 32.6% to $17.9 million from $13.5 million
for the same period in 2003. AGS net assessment revenue increased by $3.3
million from the same period in 2003 as a result of the continued acceptance of
new product releases and net curriculum revenue increased by $1.1 million over
the same period last year driven by its new product releases and revisions of
textbooks.

Income from Operations. For the three-months ended June 30, 2004 segment income
from operations increased by $1.7 million or 41.5% to $5.8 million from $4.1
million for the same period in 2003 as gross profit increased by $3.2 million as
a result of the volume increase described above. The increase in gross profit
was partially offset by increases in sales and marketing expense of $0.7 million
and general and administrative expense of $0.5 million over the same period in
2003. The increase in sales and marketing expense resulted from an increase in
expenditures related to the reorganization of the sales department and marketing
initiatives related to new product launches. The increase in general and
administrative expense was due to increases in other compensation driven by the
performance of the segment and medical benefits of $0.3 million and a reversal
of accruals for an excess property tax assessment and building repairs in the
second quarter of 2003 of $0.2 million.



                                       43
<PAGE>

COMPASSLEARNING/CHILDU

                                     For the three months ended June 30,
                                          2003                 2004
                                     ----------------    -----------------
                                              (Dollars in millions)

Revenue, net                               $ 14.4               $ 13.3
Income (loss) from operations                 0.7                 (1.7)
Percentage of Net Revenue                    4.9%               -12.8%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the
CompassLearning/ChildU segment decreased by $1.1 million or 7.6% to $13.3
million from $14.4 million for the same period in 2003. This decrease was
primarily due to a decrease in software revenue of $1.7 million and a decrease
in technical support revenue of $0.4 million from the same period in 2003
partially offset by an increase in service revenue from professional development
of $0.9 million from the same period in 2003. The software decline was primarily
attributable to delayed purchasing decisions resulting from the weak education
funding environment. The K-12 funding environment continues to be impacted by
state budget deficits, which have been causing reductions in state and local
educational spending, including spending for teachers, training and supplemental
educational materials.

Income (loss) from Operations. For the three-months ended June 30, 2004 segment
income (loss) from operations decreased by $2.4 million or 342.9% to a loss of
$1.7 million from income of $0.7 million for the same period in 2003 as gross
profit decreased by $1.2 million as a result of the volume decrease described
above as fixed costs of sales components were applied to a lower software
revenue base and also as a result of a low margin services sale to the Los
Angeles Unified School District in the second quarter of 2004. In addition,
research and development expense increased by $0.8 million and general and
administrative expense increased by $ 0.6 million from the same period in 2003.
The increase in research and development expense was a result of more time and
resources being spent on product maintenance and research. The increase in
general and administrative expense was due to professional fees incurred as a
result of the previously disclosed SEC inquiry. These increases were partially
offset by a decrease in amortization of intangible assets of $0.2 million from
the same period in 2003 due to certain intangible assets becoming fully
amortized at the end of 2003.


                                       44
<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 2004 --
WRC MEDIA INC. AND SUBSIDIARIES

WRC Media analyzes its revenues, expenses and operating results on a percentage
of net revenue basis. The following table sets forth, for the periods indicated,
consolidated statements of operations data for WRC Media and its subsidiaries,
expressed in millions of dollars and as a percentage of net revenue.

<TABLE>
<CAPTION>

                                                                                     Six-months ended June 30,
                                                                               2003                            2004
                                                                   ---------------------------------  -----------------------------
                                                                     Amount      % of Net Revenue       Amount     % of Net Revenue
                                                                   ----------   -------------------   ----------  -----------------
                                                                                         (Dollars in millions)
<S>                                                                 <C>                <C>              <C>               <C>
Revenue, net                                                        $  91.2            100.0%           $  88.6           100.0%
Cost of goods sold                                                     26.4             28.9%              26.8            30.2%
                                                                    -------            -----            -------           -----
Gross profit                                                           64.8             71.1%              61.8            69.8%
Costs and expenses:
       Sales and marketing                                             21.8             23.9%              22.7            25.6%
       Research and development                                         0.9              1.0%               1.7             1.9%
       Distribution, circulation and fulfillment                        6.4              7.0%               6.3             7.1%
       Editorial                                                        5.1              5.6%               5.4             6.1%
       General and administrative                                      11.0             12.1%              14.5            16.4%
       Restructuring costs and other non-recurring expenses             1.5              1.6%               0.7             0.8%
       Depreciation                                                     1.2              1.3%               0.9             1.0%
       Amortization of intangible assets                                8.7              9.5%               8.3             9.4%
                                                                    -------            -----            -------           -----
       Total costs and expenses                                        56.6             62.1%              60.5            68.3%
                                                                    -------            -----            -------           -----

Income from operations                                                  8.2              9.0%               1.3             1.5%
                                                                    -------            -----            -------           -----
Interest expense, including amortization
   of deferred financing costs                                        (14.4)           (15.8%)            (28.0)          (31.6%)
Other expense, net                                                     (0.9)            (1.0%)             (0.5)           (0.6%)
                                                                    -------            -----            -------           -----
Loss before income tax provision                                       (7.1)            (7.8%)            (27.2)          (30.7%)
Income tax provision                                                    1.5              1.6%               1.6             1.8%
                                                                    -------            -----            -------           -----

Net loss                                                            $  (8.6)            (9.4%)          $ (28.8)          (32.5%)
                                                                    =======             ====            =======           =====


       Adjusted EBITDA (a)                                          $  20.1             22.0%           $  11.9            13.4%
                                                                    =======             ====            =======           =====

</TABLE>

(a)  Adjusted EBITDA represents (loss) before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $1.3 million and non-recurring costs of $0.2 million
     for the six-months ended June 30, 2003 and restructuring costs of $0.7
     million for the six-months ended June 30, 2004. Adjusted EBITDA data is a
     non-GAAP measure and is included in our discussion because we believe that
     this information may be considered by investors as an additional basis on
     which to evaluate WRC Media's performance. Because all companies do not
     calculate Adjusted EBITDA identically, the presentation of Adjusted EBITDA
     in this report is not necessarily comparable to similarly titled measures
     of other companies. Adjusted EBITDA is not intended to represent cash flow
     from operating activities and should not be considered an alternative to
     net income or loss (as determined in conformity with GAAP) as an indicator
     of our operating performance or to cash flow as a measure of liquidity. It
     is presented herein as we use it, in addition to operating income, to
     evaluate and measure each business unit's performance. We also use Adjusted
     EBITDA to evaluate management performance. Adjusted EBITDA may not be
     available for our discretionary use as there are requirements to repay
     debt, among other payments.

Six-Months Ended June 30, 2004 Compared to Six-Months Ended June 30, 2003

Revenue, net. For the six-months ended June 30, 2004, net revenue decreased $2.6
million, or 2.9%, to $88.6 million from $91.2 million for the same period in
2003. This decrease was primarily due to a decrease in net revenue at
CompassLearning/ChildU of $5.0 million, or 18.7% to $21.7 million from $26.7
million for the same period in 2003. This decrease was partially offset by an
increase in net revenue at Weekly Reader of $2.4 million or 3.7%, to $66.9
million from $64.5 million for the same period in 2003.



                                       45
<PAGE>

The revenue decrease at CompassLearning/ChildU was primarily due to a decrease
in educational software revenue of $5.5 million from the same period in 2003
primarily attributable to delayed purchasing decisions resulting from the weak
education funding environment. The K-12 funding environment continues to be
impacted by state budget deficits, which have been causing reductions in state
and local educational spending, including spending for teachers, training and
supplemental educational materials. While we believe WRC Media will benefit from
the provisions in the Federal No Child Left Behind Act (the "NCLB Act"), most of
the increase in Federal educational funding for the 2003-2004 school year was
offset by lower state and local education funding for the same period. These
cuts and delayed purchases have negatively affected our top-line net revenue and
may continue to affect our top-line performance at least through the remainder
of 2004. The uncertainty in the current operating environment makes it difficult
to forecast future results.

The increase in net revenue at Weekly Reader was primarily due to (1) an
increase in net revenue at AGS of $5.1 million or 20.2% to $30.3 million from
$25.2 million from the same period in 2003. The increase at AGS was partially
offset by (2) a decrease in net revenue at World Almanac of $0.8 million or 3.4%
to $22.4 million from $23.2 million from the same period in 2003; (3) a decrease
in net revenue at Weekly Reader, excluding World Almanac and AGS, of $1.9
million, or 11.8%, to $14.2 million from $16.1 million from the same period in
2003.

Gross profit. For the six-months ended June 30, 2004, gross profit decreased by
$3.0 million or 4.6%, to $61.8 million from $64.8 million from the same period
in 2003. This decrease was due to the revenue decrease discussed above. At
CompassLearning/ChildU gross profit decreased by $4.6 million, from the same
period in 2003 driven by fixed costs of sales components applied to a lower
revenue base and a low margin services sale to the Los Angeles Unified School
District. Gross profit at Weekly Reader increased $1.6 million or 3.3% to $49.8
million from $48.2 million from the same period in 2003 primarily as a result of
(1) an increase in gross profit at AGS of $3.6 million from the same period in
2003 driven by the volume increase described above. The increase at AGS was
partially offset by (2) a decrease in gross profit at Weekly Reader, excluding
AGS and World Almanac of $1.1 million, from the same period in 2003 driven by
the volume decrease described above; (3) a decrease in gross profit at World
Almanac of $0.9 million from the same period in 2003 due to the volume decrease
described above, a write off of inventory at WA Books in the first quarter of
2004 and the impact of a discount offer at WAE Library Services that was not in
effect during the same period in 2003. WRC Media gross profit as a percentage of
revenue decreased to 69.8% from 71.1% from the same period in 2003 due to the
factors discussed above.

Costs and expenses. For the six-months ended June 30, 2004, operating costs and
expenses increased by $3.9 million, or 6.9%, to $60.5 million from $56.6 million
from the same period in 2003. Costs and expenses as a percentage of net revenue
increased to 68.3% from 62.1% from the same period in 2003. This increase was
primarily the result of: (i) $3.5 million or 31.8% increase in general and
administrative expenses due to increases in legal, audit, tax and consulting
professional fees of $2.6 million primarily related to the previously disclosed
SEC inquiry, higher employee separation costs of $0.2 million and a reversal of
accruals for an excess property tax assessment and building repairs in the
second quarter of 2003 of $0.2 million; (ii) higher sales and marketing expenses
of $0.9 million or 4.1% primarily at AGS resulting from initiatives relating to
the reorganization of its sales department and product launches; (iii) higher
research and development expenses of $0.8 million or 88.9% incurred at
CompassLearning/ChildU as a result of more time and resources being spent on
product maintenance and research. These higher expenses were partially offset by
(iv) lower restructuring and non-recurring costs of $0.8 or 53.3%; and (v) lower
amortization of intangible assets of $0.4 million.



                                       46
<PAGE>

Interest expense, including amortization of deferred financing costs. For the
six-months ended June 30, 2004, interest expense, including amortization of
deferred financing costs, increased by $13.6 million, or 94.4%, to $28.0 million
from $14.4 million for the same period in 2003 as the adoption of SFAS 150
requires dividends on the 15% Senior Preferred Stock to be recorded as interest
expense in the statement of operations for all periods starting January 1, 2004.
The dividends on the 15% Senior Preferred Stock for the three-months ended June
30, 2004 increased interest expense by $10.6 million. In addition, deferred
financing fees of $1.9 million attributable to the First-Lien Credit Facility
that was refinanced in part by the Second-Lien Credit Facility, which closed on
March 29, 2004 were written off in the first quarter of 2004. Interest expense
on long term-debt increased by $0.9 million primarily due to higher interest
rates in 2004 as opposed to 2003. Interest expense as a percentage of net
revenue increased to 31.6% from 15.8% for the same period in 2003.

Adjusted EBITDA. For the six-months ended June 30, 2004, Adjusted EBITDA
decreased $8.2 million, or 40.8%, to $11.9 million from $20.1 million for the
same period in 2003. This decrease was primarily attributable to the factors
described above. Adjusted EBITDA represents (loss) before interest expense,
taxes, depreciation, amortization and other (income) charges including
restructuring costs and other non-recurring expenses of $1.5 million for the
six-months ended June 30, 2003 and restructuring costs of $0.7 million for the
six-months ended June 30, 2004. Adjusted EBITDA is a non-GAAP measure and is
included in our discussion because we believe that this information may be
considered by investors as an additional basis on which to evaluate WRC Media's
performance. Because all companies do not calculate Adjusted EBITDA identically,
the presentation of Adjusted EBITDA in this report is not necessarily comparable
to similarly titled measures of other companies. Adjusted EBITDA is not intended
to represent cash flow from operating activities and should not be considered an
alternative to net income or loss (as determined in conformity with GAAP) as an
indicator of our operating performance or to cash flow as a measure of
liquidity. It is presented herein as we use it, in addition to operating income,
to evaluate and measure each business unit's performance. We also use Adjusted
EBITDA to evaluate management performance. Adjusted EBITDA may not be available
for our discretionary use as there are requirements to repay debt, among other
payments. The reconciliation of Adjusted EBITDA to net loss is as follows:



                                       47
<PAGE>

<TABLE>
<CAPTION>

                                                            For the six-months ended June 30,
Adjusted EBITDA reconciliation to Net Loss                      2003                 2004
                                                           ---------------         ----------
                                                                (Dollars in thousands)
<S>                                                              <C>                <C>
      Net Loss                                                   $ (8,627)          $ (28,793)
      Depreciation and amortization of intangibles**               11,432              10,406
      Income taxes                                                  1,492               1,642
      Interest expense                                             14,368              27,910
      Restructuring costs                                           1,481                 697
                                                           ---------------      --------------
Adjusted EBITDA                                                  $ 20,146            $ 11,862
                                                           ===============      ==============

</TABLE>

**   Amount includes amortization of capitalized software costs of $1,521 and
     $1,185 for 2003 and 2004, respectively which are included in costs of goods
     sold in the condensed consolidated statement of operations.



RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 2004-- WRC MEDIA INC.
AND SUBSIDIARIES - SEGMENTS

WEEKLY READER

                                       For the six months ended June 30,
                                           2003                 2004
                                       ---------------    -----------------
                                               (Dollars in millions)

Revenue, net                                   $ 16.1               $ 14.2
Income (loss) from operations                     1.6                 (0.2)
Percentage of Net Revenue                         9.9%                -1.4%


Revenue, net. For the six-months ended June 30, 2004 net revenue at the Weekly
Reader segment decreased by $1.9 million, or 11.8%, to $14.2 million from $16.1
million for the same period in 2003 as a result of lower licensing revenue of
$0.8 million due to the absence of a spring book club offering on the QVC
Shopping Network, lower periodical net revenue of $0.6 million as a result of a
weak educational funding environment and competitive pressures in the school
magazine market and a decrease in revenue of $0.3 million at Lifetime Learning
Systems, Inc., a subsidiary of Weekly Reader as a result of fewer shipments of
custom publishing projects.

Income (loss) from Operations. For the six months-ended June 30, 2004 segment
loss from operations increased by $1.8 million or 112.5% to a loss of $0.2
million from income of $1.6 million as gross profit decreased by $1.1 million as
a result of the volume decrease described above. General and administrative
expense increased by $0.4 million from the same period in 2003 primarily due to
higher employee separation costs and higher salary and fringes. Sales and
marketing costs increased by $0.5 million from the same period in 2003 due to an
increase in new customer acquisition costs. These increases were partially
offset by a decrease in distribution, circulation and fulfillment expenses of
$0.3 million from the same period in 2003 as a result of the absence of a spring
book club offering on the QVC Shopping Network.



                                       48
<PAGE>

WORLD ALMANAC

                                         For the six months ended June 30,
                                             2003                 2004
                                         ---------------    -----------------
                                                 (Dollars in millions)

Revenue, net                                     $ 23.2               $ 22.4
Income from operations                              3.2                  2.3
Percentage of Net Revenue                          13.8%                10.3%


Revenue, net. For the six-months ended June 30, 2004 net revenue at the World
Almanac segment decreased by $0.8 million or 3.4% to $22.4 million from $23.2
million for the same period in 2003. This decrease was due to lower net revenue
of $0.4 million at World Almanac Books that resulted from a timing difference
related to consignment sales in the first quarter of 2004 and an increase in
expected sales returns recognized in the second quarter of 2004, lower net
revenue of $0.5 million at WAE Library Services as a result of the elimination
of their Prospect catalog and lower net revenue at Funk and Wagnalls of $0.3
million due to the attrition in its customer base. These decreases at World
Almanac were partially offset by higher sales of $0.4 million at Gareth Stevens
from its Wholesale and Field Rep channels,

Income from Operations. For the six-months-ended June 30, 2004 segment income
from operations decreased by $0.9 million or 28.1% to $2.3 million from $3.2
million primarily due to a reduction in gross profit of $1.0 million as a result
of the volume decrease described above, a write off of inventory at WA Books in
the first quarter of 2004 and the impact of a discount offer at WAE Library
Services that was not in affect during the same period in 2003. This decrease in
gross margin was partially offset by a reduction in sales and marketing expense
of $0.1 million from the same period in 2003 primarily due to a decrease in
expenses on the promotion of The World Almanac and Books of Facts.

AGS

                                       For the six months ended June 30,
                                           2003                 2004
                                       ---------------    -----------------
                                              (Dollars in millions)

Revenue, net                                   $ 25.2               $ 30.3
Income from operations                            6.0                  7.4
Percentage of Net Revenue                        23.8%                24.4%


Revenue, net. For the six-months ended June 30, 2004 net revenue at the AGS
segment increased by $5.1 million or 20.2% to $30.3 million from $25.2 million
for the same period in 2003. AGS Assessment net revenue increased by $4.3
million from the same period in 2003 as a result of the continued acceptance of
new product releases and net curriculum revenue increased $0.8 million over the
same period last year driven by its new product releases and revisions of
textbooks.

Income from Operations. For the six-months ended June 30, 2004 segment income
from operations increased by $1.4 million or 23.3% to $7.4 million from $6.0
million for the same period in 2003 as gross profit increased by $3.8 million as
a result of the volume increase described above. The increase in gross profit
was partially offset by increases in sales and marketing expense of $1.0
million, general and administrative expense of $0.7 million and editorial
expense of $0.2 million over the same period in 2003. The increase in sales and
marketing expense resulted from an increase in expenditures related to the
reorganization of the sales department and marketing initiatives related to new
product launches. The increase in general and administrative expense was due to
increases in other compensation driven by the performance of the segment and
medical benefits of $0.5 million and a reversal of accruals for an excess
property tax assessment and building repairs in the second quarter of 2003 of
$0.2 million. The increase in editorial expense was due to testing expenditures
associated with a high stakes test developed for the NY City Department of
Education in the first quarter of 2004.



                                       49
<PAGE>

COMPASSLEARNING/CHILDU

                                   For the six months ended June 30,
                                       2003                 2004
                                   ---------------    -----------------
                                           (Dollars in millions)

Revenue, net                               $ 26.7               $ 21.7
Loss from operations                         (0.5)                (6.3)
Percentage of Net Revenue                    -1.9%               -29.0%

Revenue, net. For the six-months ended June 30, 2004 net revenue at the
CompassLearning/ChildU segment decreased by $5.0 million or 18.7% to $21.7
million from $26.7 million for the same period in 2003. This decrease was
primarily due to a decrease in software revenue of $5.5 million and a decrease
in technical support revenue of $0.5 million from the same period in 2003
partially offset by an increase in service revenue from professional development
of $1.0 million from the same period in 2003. The software decline was primarily
attributable to delayed purchasing decisions resulting from the weak education
funding environment. The K-12 funding environment continues to be impacted by
state budget deficits, which have been causing reductions in state and local
educational spending, including spending for teachers, training and supplemental
educational materials.

Loss from Operations. For the six-months ended June 30, 2004 segment loss from
operations increased by $5.8 million or 1,160.0% to $6.3 million from $0.5
million for the same period in 2003 as gross profit decreased by $4.6 million as
a result of the volume decrease described above as fixed costs of sales
components were applied to a lower software revenue base and also as a result of
a low margin services sale to the Los Angeles Unified School District in the
second quarter of 2004. In addition, research and development expense increased
by $0.8 million and general and administrative expense increased by $ 1.3
million from the same period in 2003. The increase in research and development
expense was a result of more time and resources being spent on product
maintenance and research. The increase in general and administrative expense was
due to professional fees incurred as a result of the previously disclosed SEC
inquiry. These increases were partially offset by decreases in sales and
marketing expense of $0.3 million and amortization of intangible assets of $0.5
million from the same period in 2003. The decrease in sales and marketing
expense was due to a decrease in compensation expense, including commissions,
partially offset by higher advertising and outside services expenses. The
decrease in amortization of intangible assets was due to certain intangible
assets becoming fully amortized at the end of 2003.


                                       50
<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2004 --
WEEKLY READER CORPORATION AND SUBSIDIARIES

Weekly Reader analyzes its revenues, expenses and operating results on a
percentage of net revenue basis. The following table sets forth, for the periods
indicated, consolidated statements of operations data for Weekly Reader and its
subsidiaries expressed in millions of dollars and as a percentage of net
revenue.

<TABLE>
<CAPTION>

                                                                   Three months ended June 30,
                                                                2003                          2004
                                                     ----------------------------   ------------------------------
                                                      Amount    % of Net Revenue     Amount       % of Net Revenue
                                                     --------   -----------------   --------      ----------------
                                                                                     (Dollars in millions)
<S>                                                  <C>               <C>            <C>               <C>
Revenue, net                                         $  29.7           100.0%         $  32.5           100.0%
Cost of goods sold                                       7.9            26.6%             8.6            26.5%
                                                     -------           -----          -------           -----
Gross profit                                            21.8            73.4%            23.9            73.5%
Costs and expenses:
       Sales and marketing                               5.6            18.9%             6.2            19.2%
       Distribution, circulation and fulfillment         2.9             9.8%             2.8             8.6%
       Editorial                                         2.6             8.8%             2.5             7.7%
       General and administrative                        4.0            13.5%             5.2            16.0%
       Restructuring costs                               0.1             0.3%             -               0.0%
       Depreciation                                      0.4             1.3%             0.4             1.2%
       Amortization of intangible assets                 2.2             7.4%             2.1             6.5%
                                                     -------           -----          -------           -----
       Total costs and expenses                         17.8            59.9%            19.2            59.1%
                                                     -------           -----          -------           -----

Income from operations                                   4.0            13.5%             4.7            14.5%

Interest expense                                        (6.9)          (23.2%)          (12.9)          (39.7%)
Other expense, net                                      (0.1)           (0.3%)           (0.2)           (0.6%)
                                                     -------           -----          -------           -----
Loss before income tax provision                        (3.0)          (10.1%)           (8.4)          (25.8%)
Income tax provision                                     0.1             0.3%             0.2             0.6%
                                                     -------           -----          -------           -----

Net loss                                             $  (3.1)          (10.4%)        $  (8.6)          (26.5%)
                                                     =======           =====          =======           =====

       Adjusted EBITDA(a)                            $   6.6            22.2%         $   7.0            21.5%
                                                     =======           =====          =======           =====

</TABLE>

(a)  Adjusted EBITDA represents loss before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $0.1 million for the three-months ended June 30,
     2003. Adjusted EBITDA data is a non-GAAP measure and is included in our
     discussion because we believe that this information may be considered by
     investors as an additional basis on which to evaluate Weekly Reader's
     performance. Because all companies do not calculate Adjusted EBITDA
     identically, the presentation of Adjusted EBITDA in this report is not
     necessarily comparable to similarly titled measures of other companies.
     Adjusted EBITDA is not intended to represent cash flow from operating
     activities and should not be considered an alternative to net income or
     loss (as determined in conformity with GAAP) as an indicator of our
     operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance. We also use Adjusted EBITDA
     to evaluate management performance. Adjusted EBITDA may not be available
     for our discretionary use as there are requirements to repay debt, among
     other payments.



                                       51
<PAGE>

Three-Months Ended June 30, 2004 Compared to Three-Months Ended June 30, 2003

Revenue, net. For the three-months ended June 30, 2004, net revenue increased
$2.8 million, or 9.4%, to $32.5 million from $29.7 million for the same period
in 2003. The increase in net revenue at Weekly Reader was primarily due to (1)
an increase in net revenue at AGS of $4.4 million or 32.6% to $17.9 million from
$13.5 million from the same period in 2003. The increase at AGS was partially
offset by (2) a decrease in net revenue at World Almanac of $0.1 million or 0.9%
to $10.5 million from $10.6 million from the same period in 2003.; (3) a
decrease in net revenue at Weekly Reader, excluding World Almanac and AGS, of
$1.5 million, or 26.8%, to $4.1 million from $5.6 million from the same period
in 2003.

Gross profit. Gross profit at Weekly Reader increased $2.1 million or 9.6% to
$23.9 million from $21.8 million from the same period in 2003 primarily as a
result of (1) an increase in gross profit at AGS of $3.2 million from the same
period in 2003 driven by the AGS volume increase described above. The increase
at AGS was partially offset by (2) a decrease in gross profit at Weekly Reader,
excluding AGS and World Almanac of $0.9 million from the same period in 2003
driven by the volume decrease described above. (3) a decrease in gross profit at
World Almanac of $0.2 million from the same period in 2003 due to the volume
decrease described above. Weekly Reader gross profit as a percentage of revenue
increased slightly to 73.5% from 73.4% from the same period in 2003.

Costs and expenses. For the three-months ended June 30, 2004, operating costs
and expenses increased by $1.4 million, or 7.9%, to $19.2 million from $17.8
million from the same period in 2003. Costs and expenses as a percentage of net
revenue increased to 59.9% from 59.1% from the same period in 2003. This
increase was primarily the result of: (i) $1.2 million or 30.0% increase in
general and administrative expenses due to increases in legal, audit, tax and
consulting professional fees of $0.5 million primarily related to the previously
disclosed SEC inquiry, the reaudit of our 2001 financial statements and higher
employee separation costs of $0.2 million and a reversal of accruals for an
excess property tax assessment and building repairs in the second quarter of
2003 of $0.2 million; (ii) higher sales and marketing expenses of $0.6 million
or 10.7% primarily at AGS resulting from initiatives relating to the
reorganization of its sales department and new product launches. These higher
expenses were partially offset by (iii) lower restructuring and non-recurring
costs of $0.1 million or 100.0%; and (iv) lower amortization of intangible
assets of $0.1 million.

Interest expense. For the three-months ended June 30, 2004, interest expense,
including amortization of deferred financing costs, increased by $6.0 million,
or 87.0%, to $12.9 million from $6.9 million from the same period in 2003 as the
adoption of SFAS 150 requires dividends on the 15% Senior Preferred Stock to be
recorded as interest expense in the condensed consolidated statement of
operations for all periods starting January 1, 2004. The dividends on the 15%
Senior Preferred Stock for the three-months ended June 30, 2004 increased
interest expense by $5.4 million. Interest expense on long term-debt increased
by $0.6 million primarily due to higher interest rates in 2004 as opposed to
2003. Interest expense as a percentage of net revenue increased to 39.7% from
23.2% for the same period in 2003.


                                       52
<PAGE>

Adjusted EBITDA. For the three-months ended June 30, 2004, Adjusted EBITDA
increased $0.4 million, or 6.1%, to $7.0 million from $6.6 million for the same
period in 2003. This decrease is primarily attributable to the factors described
above. Adjusted EBITDA represents (loss) before interest expense, taxes,
depreciation, amortization and other (income) charges including restructuring
costs $0.1 million for the three-months ended June 30, 2003. Adjusted EBITDA is
a non-GAAP measure and is included in our discussion because we believe that
this information may be considered by investors as an additional basis on which
to evaluate Weekly Reader's performance. Because all companies do not calculate
Adjusted EBITDA identically, the presentation of Adjusted EBITDA in this report
is not necessarily comparable to similarly titled measures of other companies.
Adjusted EBITDA is not intended to represent cash flow from operating activities
and should not be considered an alternative to net income or loss (as determined
in conformity with GAAP) as an indicator of our operating performance or to cash
flow as a measure of liquidity. It is presented herein as we use it, in addition
to operating income, to evaluate and measure each business unit's performance.
We also use Adjusted EBITDA to evaluate management performance. Adjusted EBITDA
may not be available for our discretionary use as there are requirements to
repay debt, among other payments. The reconciliation of Adjusted EBITDA to net
loss is as follows:

<TABLE>
<CAPTION>

                                                         For the three-months ended June 30,
Adjusted EBITDA reconciliation to Net Loss                  2003                    2004
                                                         ----------------    --------------------
                                                               (Dollars in thousands)
<S>                                                             <C>                     <C>
      Net loss                                                  $ (3,118)               $ (8,615)
      Depreciation and amortization of intangibles                 2,591                   2,469
      Income taxes                                                    64                     198
      Interest expense                                             6,911                  12,890
      Restructuring costs                                            126                      29
                                                         ----------------    --------------------
Adjusted EBITDA                                                  $ 6,574                 $ 6,971
                                                         ================    ====================

</TABLE>

RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2004 -- WEEKLY READER
CORPORATION AND SUBSIDIARIES - SEGMENTS

WEEKLY READER


                                        For the three months ended June 30,
                                             2003                 2004
                                        ----------------    -----------------
                                                   (Dollars in millions)

Revenue, net                                 $   5.6              $   4.1
Loss from operations                            (1.1)                (2.1)
Percentage of Net Revenue                      -19.6%               -51.2%

Revenue, net. For the three-months ended June 30, 2004 net revenue at the Weekly
Reader segment decreased by $1.5 million, or 26.8%, to $4.1 million from $5.6
million for the same period in 2003 as a result of lower licensing revenue of
$1.0 million due to the absence of a spring book club offering on the QVC
Shopping Network and a decrease in revenue of $0.4 million at Lifetime Learning
Systems, Inc., a subsidiary of Weekly Reader as a result of fewer shipments of
custom publishing projects.



                                       53
<PAGE>

Loss from Operations. For the three months-ended June 30, 2004 segment loss from
operations increased by $1.0 million or 90.9% to $2.1 million from $1.1 million
as gross profit decreased by $0.8 million as a result of the volume decrease
described above. General and administrative expense increased by $0.3 million
from the same period in 2003 primarily due to greater employee separation costs
and sales and marketing costs increased by $0.2 million from the same period in
2003 due to an increase in new customer acquisition costs. These increases were
partially offset by a decrease in distribution, circulation and fulfillment
expenses of $0.2 million from the same period in 2003 as a result of the absence
of a spring book club offering on the QVC Shopping Network.

WORLD ALMANAC

                                       For the three months ended June 30,
                                            2003                 2004
                                       ----------------    -----------------
                                                (Dollars in millions)

Revenue, net                                    $ 10.6               $ 10.5
Income from operations                             0.9                  1.0
Percentage of Net Revenue                          8.5%                 9.5%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the World
Almanac segment decreased by $0.1 million or 0.9% to $10.5 million from $10.6
million for the same period in 2003. This decrease was due to lower net revenue
of $0.2 million at World Almanac Books ("WA Books") that resulted from an
increase in expected sales returns recognized in 2004 and lower net revenue of
$0.3 million at World Almanac Education Library Services ("WAE Library
Services") as a result of the elimination of their Prospect catalog partially
offset by higher sales of $0.5 million at Gareth Stevens from its Wholesale and
Field Rep channels.

Income from Operations. For the three months-ended June 30, 2004 segment income
from operations increased by $0.1 million or 11.1% to $1.0 million from $0.9
million primarily due to a reduction in sales and marketing expense of $0.2
million from the same period in 2003 on the promotion of The World Almanac and
Books of Facts.

AGS

                                       For the three months ended June 30,
                                            2003                 2004
                                       ----------------    -----------------
                                              (Dollars in millions)

Revenue, net                                    $ 13.5               $ 17.9
Income from operations                             4.1                  5.8
Percentage of Net Revenue                         30.4%                32.4%


Revenue, net. For the three-months ended June 30, 2004 net revenue at the AGS
segment increased by $4.4 million or 32.6% to $17.9 million from $13.5 million
for the same period in 2003. AGS Assessment net revenue increased by $3.3
million from the same period in 2003 as a result of the continued acceptance of
new product releases and net curriculum revenue increased by $1.1 million over
the same period last year driven by its new product releases and revisions of
textbooks.



                                       54
<PAGE>

Income from Operations. For the three-months ended June 30, 2004 segment income
from operations increased by $1.7 million or 41.5% to $5.8 million from $4.1
million for the same period in 2003 as gross profit increased by $3.2 million as
a result of the volume increase described above. The increase in gross profit
was partially offset by increases in sales and marketing expense of $0.7 million
and general and administrative expense of $0.5 million over the same period in
2003. The increase in sales and marketing expense resulted from an increase in
expenditures related to the reorganization of the sales department and marketing
initiatives related to new product launches. The increase in general and
administrative expense was due to increases in other compensation driven by the
performance of the segment and medical benefits of $0.3 million and a reversal
of accruals for an excess property tax assessment and building repairs in the
second quarter of 2003 of $0.2 million.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 2004 --
WEEKLY READER CORPORATION AND SUBSIDIARIES

The following table sets forth, for the periods indicated, consolidated
statements of operations data for Weekly Reader and its subsidiaries expressed
in millions of dollars and as a percentage of net revenue.

<TABLE>
<CAPTION>

                                                                                Six-months ended June 30,
                                                                        2003                                2004
                                                          ----------------------------------  ----------------------------------
                                                            Amount       % of Net Revenue       Amount       % of Net Revenue
                                                          ------------  --------------------  ------------  --------------------
                                                                                  (Dollars in millions)
<S>                                                          <C>               <C>            <C>                  <C>
Revenue, net                                                 $  64.5           100.0%         $  66.9              100.0%
Cost of goods sold                                              16.3            25.3%            17.1               25.6%
                                                             -------           -----          -------              -----
Gross profit                                                    48.2            74.7%            49.8               74.4%
Costs and expenses:
       Sales and marketing                                      11.9            18.4%            13.3               20.0%
       Distribution, circulation and fulfillment                 6.4             9.9%             6.3                9.4%
       Editorial                                                 5.1             7.9%             5.3                7.9%
       General and administrative                                8.5            13.2%            10.3               15.4%
       Restructuring costs                                       0.1             0.2%             -                  0.0%
       Depreciation                                              0.9             1.4%             0.8                1.2%
       Amortization of intangible assets                         4.3             6.7%             4.3                6.4%
                                                             -------           -----          -------              -----
       Total costs and expenses                                 37.2            57.7%            40.3               60.2%
                                                             -------           -----          -------              -----

Income from operations                                          11.0            17.1%             9.5               14.2%

Interest expense                                               (13.7)          (21.2%)          (25.6)             (38.3%)
Other expense, net                                              (0.3)           (0.5%)           (0.4)              (0.6%)
                                                             -------           -----          -------              -----
Loss before income tax provision                                (3.0)           (4.7%)          (16.5)             (24.7%)
Income tax provision                                             0.3             0.5%             0.4                0.6%
                                                             -------           -----          -------              -----

Net loss                                                     $  (3.3)           (5.1%)        $ (16.9)             (25.3%)
                                                             =======           =====          =======              =====

       Adjusted EBITDA(a)                                    $  15.9            24.7%         $  14.2               21.2%
                                                             =======           =====          =======              =====

</TABLE>


                                       55
<PAGE>


(a)  Adjusted EBITDA represents loss before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $0.1 million for the six-months ended June 30, 2003.
     Adjusted EBITDA data is a non-GAAP measure and is included in our
     discussion because we believe that this information may be considered by
     investors as an additional basis on which to evaluate Weekly Reader's
     performance. Because all companies do not calculate Adjusted EBITDA
     identically, the presentation of Adjusted EBITDA in this report is not
     necessarily comparable to similarly titled measures of other companies.
     Adjusted EBITDA is not intended to represent cash flow from operating
     activities and should not be considered an alternative to net income or
     loss (as determined in conformity with GAAP) as an indicator of our
     operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance. We also use Adjusted EBITDA
     to evaluate management performance. Adjusted EBITDA may not be available
     for our discretionary use as there are requirements to repay debt, among
     other payments.

Six-Months Ended June 30, 2004 Compared to Six-Months Ended June 30, 2003

Revenue, net. For the six-months ended June 30, 2004, net revenue increased $2.4
million, or 3.7%, to $66.9 million from $64.5 million for the same period in
2003. The increase in net revenue at Weekly Reader was primarily due to (1) an
increase in net revenue at AGS of $5.1 million or 20.2% to $30.3 million from
$25.2 million from the same period in 2003. The increase at AGS was partially
offset by (2) a decrease in net revenue at World Almanac of $0.8 million or 3.4%
to $22.4 million from $23.2 million from the same period in 2003.; (3) a
decrease in net revenue at Weekly Reader, excluding World Almanac and AGS, of
$1.9 million, or 11.8%, to $14.2 million from $16.1 million from the same period
in 2003.

Gross profit. Gross profit at Weekly Reader increased $1.6 million or 3.3% to
$49.8 million from $48.2 million from the same period in 2003 primarily as a
result of (1) an increase in gross profit at AGS of $3.6 million from the same
period in 2003 driven by the volume increase described above. The increase at
AGS was partially offset by (2) a decrease in gross profit at Weekly Reader,
excluding AGS and World Almanac of $1.1 million from the same period in 2003
driven by the volume decrease described above; (3) a decrease in gross profit at
World Almanac of $0.9 million from the same period in 2003 due to the volume
decrease described above, write off of inventory at WA Books in the first
quarter of 2004 and the impact of a discount offer at WAE Library Services that
was not in effect during the same period in 2003. Weekly Reader gross profit as
a percent of revenue decreased slightly to 74.4% from 74.7% from the same period
in 2003 mainly due to the factors discussed above.

Costs and expenses. For the six-months ended June 30, 2004, operating costs and
expenses increased by $3.1 million, or 8.3%, to $40.3 million from $37.2 million
from the same period in 2003. Costs and expenses as a percentage of net revenue
increased to 60.2% from 57.7% from the same period in 2003. This increase was
primarily the result of: (i) $1.8 million or 21.2% increase in general and
administrative expenses due to increases in legal, audit, tax and consulting
professional fees of $0.9 million primarily related to the previously disclosed
SEC inquiry and the reaudit of our 2001 financial statements, higher employee
separation costs of $0.2 million and a reversal of accruals for an excess
property tax assessment and building repairs in the second quarter of 2003 of
$0.2 million and (ii) an increase in sales and marketing expenses of $1.4
million or 11.8% due to initiatives at AGS relating to the reorganization of its
sales department and new product launches, to an increase in new customer
acquisition costs at Weekly Reader, excluding AGS and World Almanac. These
higher expenses were partially offset by (iii) lower restructuring and
non-recurring costs of $0.1 million or 100.0%.


                                       56
<PAGE>

Interest expense, including amortization of deferred financing costs. For the
six-months ended June 30, 2004, interest expense, including amortization of
deferred financing costs, increased by $11.9 million, or 87.1, to $25.6 million
from $13.7 million for the same period in 2003 as the adoption of SFAS 150
requires dividends on the 15% Senior Preferred Stock to be recorded as interest
expense in the statement of operations for all periods starting January 1, 2004.
The dividends on the 15% Senior Preferred Stock for the three-months ended June
30, 2004 increased interest expense by $10.6 million. In addition, deferred
financing fees of $0.4 million attributable to the First-Lien Credit Facility
that was refinanced in part by the Second-Lien Credit Facility, which closed on
March 29, 2004 were written off in the first quarter of 2004. Interest expense
on long term-debt increased by $0.9 million primarily due to higher interest
rates in 2004 as opposed to 2003. Interest expense as a percentage of net
revenue increased to 38.3% from 21.2% for the same period in 2003.

Adjusted EBITDA. For the six-months ended June 30, 2004, Adjusted EBITDA
decreased $1.7 million, or 10.7%, to $14.2 million from $15.9 million for the
same period in 2003. This decrease was primarily attributable to the factors
described above. Adjusted EBITDA represents (loss) before interest expense,
taxes, depreciation, amortization and other (income) charges including
restructuring costs $0.1 million for the six-months ended June 30, 2003.
Adjusted EBITDA is a non-GAAP measure and is included in our discussion because
we believe that this information may be considered by investors as an additional
basis on which to evaluate Weekly Reader's performance. Because all companies do
not calculate Adjusted EBITDA identically, the presentation of Adjusted EBITDA
in this report is not necessarily comparable to similarly titled measures of
other companies. Adjusted EBITDA is not intended to represent cash flow from
operating activities and should not be considered an alternative to net income
or loss (as determined in conformity with GAAP) as an indicator of our operating
performance or to cash flow as a measure of liquidity. It is presented herein as
we use it, in addition to operating income, to evaluate and measure each
business unit's performance. We also use Adjusted EBITDA to evaluate management
performance. Adjusted EBITDA may not be available for our discretionary use as
there are requirements to repay debt, among other payments. The reconciliation
of Adjusted EBITDA to net loss is as follows:

<TABLE>
<CAPTION>

                                                                                 For the six-months ended June 30,
Adjusted EBITDA reconciliation to Net Loss                                        2003                    2004
                                                                           --------------------    --------------------
                                                                                     (Dollars in thousands)

<S>                                                                                   <C>                    <C>
      Net Loss                                                                        $ (3,344)              $ (16,923)
      Depreciation and amortization of intangibles                                       5,136                   5,085
      Income taxes                                                                         254                     356
      Interest expense                                                                  13,733                  25,638
      Restructuring costs                                                                  126                      30
                                                                           --------------------    --------------------
Adjusted EBITDA                                                                       $ 15,905                $ 14,186
                                                                           ====================    ====================

</TABLE>



                                       57
<PAGE>

RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 2004 -- WEEKLY READER
CORPORATION AND SUBSIDIARIES - SEGMENT

WEEKLY READER

                                           For the six months ended June 30,
                                               2003                 2004
                                           ---------------    -----------------
                                                  (Dollars in millions)

Revenue, net                                    $ 16.1               $ 14.2
Income (loss) from operations                      1.6                 (0.2)
Percentage of Net Revenue                         9.9%                -1.4%


Revenue, net. For the six-months ended June 30, 2004 net revenue at the Weekly
Reader segment decreased by $1.9 million, or 11.8%, to $14.2 million from $16.1
million for the same period in 2003 as a result of lower licensing revenue of
$0.8 million due to the absence of a spring book club offering on the QVC
Shopping Network, lower periodical net revenue of $0.6 million as a result of a
weak educational funding environment and competitive pressures in the school
magazine market and a decrease in revenue of $0.3 million at Lifetime Learning
Systems, Inc., a subsidiary of Weekly Reader as a result of fewer shipments of
custom publishing projects.

Income (loss) from Operations. For the six months-ended June 30, 2004 segment
loss from operations increased by $1.8 million or 112.5% to a loss of $0.2
million from income of $1.6 million as gross profit decreased by $1.1 million as
a result of the volume decrease described above. General and administrative
expense increased by $0.4 million from the same period in 2003 primarily due to
greater employee separation costs and greater salary and fringes. Sales and
marketing costs increased by $0.5 million from the same period in 2003 due to an
increase of new customer acquisition costs. These increases were partially
offset by a decrease in distribution, circulation and fulfillment expenses of
$0.3 million from the same period in 2003 as a result of the absence of a spring
book club offering on the QVC Shopping Network.

WORLD ALMANAC

                                           For the six months ended June 30,
                                               2003                 2004
                                           ---------------    -----------------
                                                 (Dollars in millions)

Revenue, net                                    $ 23.2               $ 22.4
Income from operations                             3.2                  2.3
Percentage of Net Revenue                         13.8%                10.3%

Revenue, net. For the six-months ended June 30, 2004 net revenue at the World
Almanac segment decreased by $0.8 million or 3.4% to $22.4 million from $23.2
million for the same period in 2003. This decrease was due to lower net revenue
of $0.4 million at World Almanac Books that resulted from a timing difference
related to consignment sales in the first quarter of 2004 and an increase in
expected sales returns recognized in the second quarter of 2004, lower net
revenue of $0.5 million at WAE Library Services as a result of the elimination
of their Prospect catalog and lower net revenue at Funk and Wagnalls of $0.3
million due to the attrition in their customer base. These decreases at World
Almanac were partially offset by higher sales of $0.4 million at Gareth Stevens
from its Wholesale and Field Rep channels,



                                       58
<PAGE>

Income from Operations. For the six-months-ended June 30, 2004 segment income
from operations decreased by $0.9 million or 28.1% to $2.3 million from $3.2
million primarily due to a reduction in gross profit of $1.0 million as a result
of the volume decrease described above, a write off of inventory at WA Books in
the first quarter of 2004 and the impact of a discount offer at WAE Library
Services that was not in effect during the same period in 2003. This decrease in
gross margin was partially offset by a reduction in sales and marketing expense
of $0.1 million from the same period in 2003 primarily due to a decrease in
expenses on the promotion of The World Almanac and Books of Facts.

AGS

                                      For the six months ended June 30,
                                          2003                 2004
                                      ---------------    -----------------
                                            (Dollars in millions)

Revenue, net                              $ 25.2               $ 30.3
Income from operations                       6.0                  7.4
Percentage of Net Revenue                   23.8%                24.4%


Revenue, net. For the six-months ended June 30, 2004 net revenue at the AGS
segment increased by $5.1 million or 20.2% to $30.3 million from $25.2 million
for the same period in 2003. AGS Assessment net revenue increased by $4.3
million from the same period in 2003 as a result of the continued acceptance of
new product releases and net curriculum revenue increased $0.8 million over the
same period last year driven by its new product releases and revisions of
textbooks.

Income from Operations. For the six-months ended June 30, 2004 segment income
from operations increased by $1.4 million or 23.3% to $7.4 million from $6.0
million for the same period in 2003 as gross profit increased by $3.8 million as
a result of the volume increase described above. The increase in gross profit
was partially offset by increases in sales and marketing expense of $1.0
million, general and administrative expense of $0.7 million and editorial
expense of $0.2 million over the same period in 2003. The increase in sales and
marketing expense resulted from an increase in expenditures related to the
reorganization of the sales department and marketing initiatives related to new
product launches. The increase in general and administrative expense was due to
increases in other compensation driven by the performance of the segment and
medical benefits of $0.5 million and a reversal of accruals for an excess
property tax assessment and building repairs in the second quarter of 2003 of
$0.2 million. The increase in editorial expense was due to testing expenditures
associated with a high stakes test developed for the NY City Department of
Education in the first quarter of 2004.



                                       59
<PAGE>

<TABLE>
<CAPTION>

                                                             For the six-months ended June 30,
Adjusted EBITDA reconciliation to Net Loss (000's)                  2003         2004
                                                                  --------     ---------
                                                                   (Dollars in thousands)
<S>                                                               <C>          <C>
      Net Loss                                                    $ (3,344)    $ (16,923)
      Depreciation and amortization of intangibles                   5,136         5,085
      Income taxes                                                     254           356
      Interest expense                                              13,733        25,638
      Restructuring costs                                              126            30
                                                                ----------    ----------
Adjusted EBITDA                                                   $ 15,905      $ 14,186
                                                                ==========    ==========

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

General

At June 30, 2004, WRC Media's sources of cash were its (1) operating
subsidiaries, Weekly Reader, CompassLearning, and ChildU and (2) a $30.0 million
revolving credit facility. As of June 30, 2004, $8.0 million of the revolving
credit facility has been drawn down which bears interest that approximated
3.45%. Additionally, the Company has stand-by letters of credit, renewable
annually, in the amount of $2.1 million, which serve as security for a real
estate lease entered into by the Company and certain surety bonds issued on
behalf of the Company. While these letters of credit are in effect, it reduces
available borrowing capacity under the revolving credit facility by $2.1
million. At June 30, 2004, the Company had $19.9 million of available credit
under the revolving credit facility.

For the January through June time period, WRC Media and its subsidiaries usually
experience negative cash flow due to the seasonality of its business. As a
result of this business cycle, borrowings usually increase during the period
January through June time period, and borrowings generally will be at its lowest
point in the fourth quarter.

On March 29, 2004, we refinanced all of our term loans under our Senior Bank
Credit Facilities (the "First-Lien Credit Facility") with a $145.0 million
senior, second-priority lien secured financing that was provided to the Company
pursuant to a term loan facility (the "Second-Lien Facility"). The proceeds of
the Second-Lien Facility were used (i) to refinance in full all term loans
outstanding under the First-Lien Facility, (ii) to pay fees and expenses related
to the Second-Lien Facility and all transactions contemplated in connection
therewith and (iii) for general corporate purposes of the Company.

All payment obligations under the Second-Lien Facility are secured by a
second-priority lien on the collateral securing the First-Lien Facility;
provided that all obligations under the Second-Lien Facility will rank equally
in right of payment with all payment obligations under the First-Lien Facility
and will not be subordinated in any respect to the First-Lien Facility. The
final maturity of the Second-Lien Facility is March 29, 2009. At the Company's
option, the loans will bear interest at either the Administrative Agent's (i)
alternate base rate ("base rate loans") or (ii) reserve-adjusted LIBO rate
("LIBO rate loans") plus, in each case, the "Applicable Margin" (as defined).
"Applicable Margin" means, with respect to (i) Base Rate Loans, a rate of 4.00%
per annum and (ii) LIBO Rate Loans, a rate of 5.00% per annum.



                                       60
<PAGE>

The Second-Lien Facility has one financial covenant, a maximum ratio (the
"Senior Leverage Ratio") of Senior Secured Debt to trailing four quarter EBITDA
not to exceed 4.25:1.00 for any fiscal quarter, except the fiscal quarter ended
June 30, 2005 for which the Senior Leverage Ratio not exceed 4.50:1.00, in each
case to be tested on the last day of each fiscal quarter and computed for the
Company and its consolidated subsidiaries. We were in compliance with this
financial covenant for the period ended June 30, 2004. The Company's senior
leverage ratio was 3.56:1:00 for the period ended June 30, 2004.

In connection with entering into the Second-Lien Credit Facility, we entered
into an amendment and restatement of our First-Lien Credit Facility, which now
consists solely of a $30.0 million revolving credit facility. The cash available
under our First-Lien Credit Facility, together with the cash from our operating
subsidiaries, Weekly Reader, CompassLearning and ChildU, is considered adequate
for the Company's needs for the foreseeable future.

The First-Lien Credit Facility, as amended and restated, has a maturity of
December 29, 2008, and has one financial covenant, a Senior Leverage Ratio of
senior secured debt to trailing four quarter EBITDA not to exceed 4.00:1.00 for
any fiscal quarter, except the fiscal quarter ended June 30, 2005 for which the
Senior Leverage Ratio may not exceed 4.25:1.00, in each case to be tested on the
last day of the fiscal quarter and computed for the Company and its consolidated
subsidiaries. We were in compliance with this financial covenant for the period
ended June 30, 2004. As discussed above, the Company's senior leverage ratio was
3.56:1:0 for the period ended June 30, 2004. Interest on revolving loan
borrowings under the First-Lien Credit Facility will bear interest at a rate per
annum equal to the LIBO rate as defined in the First-Lien Credit Facility plus
2.00% or the alternate base rate as defined in the First-Lien Credit Facility
plus 1.00%.

The credit agreement for our First-Lien Credit Facility is secured by liens on
substantially all of our assets, and the credit agreement for our Second-Lien
Credit Facility is secured by second-priority liens on all the assets securing
the First-Lien Facility.

Liquidity, Working Capital and Capital Resources

As of June 30, 2004, WRC Media and its subsidiaries had negative working capital
of $ 13.7 million. WRC Media's cash and cash equivalents were approximately $5.1
million at June 30, 2004. WRC Media and its subsidiaries' operations used
approximately $17.7 million in cash for the six-months ended June 30, 2004. WRC
Media and its subsidiaries' principal uses of cash are for debt service and
working capital.

As of June 30, 2004, Weekly Reader and its subsidiaries had positive working
capital of $ 35.3 million. Weekly Reader's cash and cash equivalents were
approximately $5.0 million at June 30, 2004. Weekly Reader and its subsidiaries'
operations used approximately $9.8 million in cash for the six-months ended June
30, 2004. Weekly Reader and its subsidiaries' principal uses of cash are for
debt service and working capital.


                                       61
<PAGE>


WRC Media and its subsidiaries' investing activities for the six-months ended
June 30, 2004, included investments in software development of approximately
$1.2 million and capital expenditures of approximately $0.6 million.

Weekly Reader and its subsidiaries' investing activities for the six-months
ended June 30, 2004, included investments in capital expenditures of
approximately $0.4 million.

WRC Media and its subsidiaries' financing activities consist of making drawings
from, and repayments to, our revolving credit facility and retiring amounts due
under our senior secured term loans. For the six-months ended June 30, 2004,
financing activities provided net cash of $22.7 million. The Second Lien Credit
Facility does not amortize and we do not expect our financing activities going
forward to include regular periodic retirement of term loans prior to maturity.
The Second Lien Credit Facility matures on March 29, 2009.

Weekly Reader and its subsidiaries' financing activities consist of making
drawings from, and repayments to, our revolving credit facility and retiring
amounts due under our senior secured term loans. For the six-months ended June
30, 2004, financing activities provided net cash of $13.9 million. The Second
Lien Credit Facility does not amortize and we do not expect our financing
activities going forward to include regular periodic retirement of term loans
prior to maturity. The Second Lien Credit Facility matures on March 29, 2009.

Derivative Financial Instruments

The Company uses derivative financial instruments to reduce its exposure to
interest rate volatility. At June 30, 2004, Weekly Reader had one outstanding
derivative financial instrument in place, an interest rate cap on 50% of its
senior secured term loans as required by the First-Lien Facility as then in
effect. Our amended and restated First-Lien Facility and our Second-Lien
Facility require us to obtain interest rate protection that, when taken together
with the aggregate principal amount of our indebtedness subject to a fixed
interest rate, will result in at least 50% of our total indebtedness being
either fixed, hedged or capped for the duration of the applicable facility. On
November 15, 2003, we entered into financial instruments with a notional value
of $61.0 million, which terminates on November 15, 2004 and requires us to pay a
floating rate of interest based on the three-month LIBO rate as defined in that
arrangement with a cap rate of 2.5%. The fair value of this interest rate cap as
of June 30, 2004 was de-minimis.

Accounting Policies and Estimates

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations
is based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements require
us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to allowances for doubtful accounts, reserves for sales returns
and allowances and the recoverability of long-lived assets. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. These form the basis of our
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from
these estimates, which would affect our reported results from operations. The
following is a description of what we believe to be the critical accounting
policies and estimates used in the preparation of our condensed consolidated
financial statements.



                                       62
<PAGE>

Revenue Recognition

The Company's revenue recognition policies for its principal businesses are as
follows:

     o    Periodicals - Revenue is deferred and recognized ratably over the
          subscription period, as the periodicals are delivered.

     o    Educational Publishing - For shipments to schools, revenue is
          recognized on passage of title, which occurs upon shipment. Shipments
          to depositories are on consignment. Revenue is recognized based on
          reported shipments from the depositories to the schools. Likewise,
          shipments to the distributor of the World Almanac and Book Of Facts
          and the World Almanac For Kids books are treated similar to a
          consignment sale. Revenue is recognized based on reported shipments
          from the distributor to its customers (primarily retail book stores).
          For certain software-based product, the Company offers new customers
          installation and training. In such cases, revenue is recognized when
          installation and training are complete.

     o    Reference and Trade - Revenue from the sale of children's books
          through the wholesale channel are recognized when books are shipped to
          wholesalers. Sales to school and public libraries made through the
          telemarketing preview channel are recorded upon notification from the
          customer of their intention to retain the previewed product. The sale
          of children's books to bookstores and mass merchandisers primarily are
          recognized by the Company at the time the distributor ships these
          products to its customers. Concurrent with the recording of this
          revenue, the Company records distribution fees as a reduction of
          revenue.

     o    Educational Software And Related Products And Services - Software
          revenues are recognized in accordance with the provisions of Statement
          of Position (SOP) 97-2, Software Revenue Recognition, as amended by
          SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
          Respect to Certain Transactions. Under SOP 97-2, we recognize revenue
          for hardware and software sales upon shipment of the product, provided
          collection of the receivable is probable, payment is due within one
          year and the fee is fixed or determinable. If an acceptance period is
          required, revenues are recognized upon the earlier of customer
          acceptance or the expiration of the acceptance period. If significant
          post-delivery obligations exist, revenues are deferred until no
          significant obligations remain. Revenue from service contracts,
          instruction and user training is recognized as the services are
          performed and post-contract support is recognized ratably



                                       63
<PAGE>


          over the related contract. Deferred revenue represents the Company's
          obligation to perform under signed contracts. For contracts with
          multiple elements (e.g., deliverable and undeliverable products,
          maintenance and other post-contract support), the Company allocates
          revenue to each undelivered element of the contract based on vendor
          specific objective evidence of its fair value, which is specific to
          the Company. The Company recognizes revenue allocated to delivered
          products on the residual method when the criteria for product revenue
          set forth above are met. Certain of the Company's customers are
          subject to fiscal funding requirements. If the funding requirements
          are subject to governmental approval, the likelihood of cancellation
          is assessed. If the likelihood of cancellation is assessed as remote,
          revenue is recognized. If the likelihood of cancellation is assessed
          as other than remote, revenue is deferred. If the funding requirements
          are subject to non-governmental approval, revenue is deferred and
          recognized in accordance with the remaining provisions of SOP 97-2.
          The Company also enters into lease financing arrangements for its
          software products and services. These leases are immediately assigned
          to a third-party with no recourse to the Company. The Company retains
          no risk in these arrangements and has no history of granting
          concessions related to the arrangements. Accordingly, the Company
          recognizes revenue upon delivery of its products and services under
          these lease arrangements.

     o    Licensing - Licensing revenue is recorded in accordance with royalty
          agreements at the time licensed materials are available to the
          licensee and collections are reasonably assured.

     o    Advertising - Revenue is recognized when the periodicals are shipped
          and available to the subscribers.

     o    Pre-Publication Costs - Marketing, selling, distribution, editorial,
          and other general and administrative expenses are generally expensed
          as incurred. Certain editorial costs relating to the American Guidance
          product lines are deferred and amortized using both straight-line and
          accelerated methods over periods ranging from three to ten years. The
          amortization is based on the expected life of the publication which is
          determined based on the Company's historical experience with similar
          publications.

     o    Direct-Response Advertising Costs - Advertising and subscription
          acquisition costs are expensed the first time the advertising takes
          place, except for direct-response advertising, the primary purpose of
          which is to elicit sales from customers who can be shown to have
          responded specifically to the advertising and that result in probable
          future economic benefits. Direct-response advertising consists of
          product promotional mailings, catalogs and subscription promotions.
          These direct-response advertising costs are capitalized and amortized
          over the estimated period of future benefit using a ratio of current
          period revenues to total current and estimated future period revenues.
          The amortization periods range from ten months to thirty months
          subsequent to the promotional event. Amortization of direct-response
          advertising costs is included in marketing and selling expenses in the
          Company's consolidated statement of operations.



                                       64
<PAGE>

Allowance for Doubtful Accounts

Allowances for doubtful accounts are estimated losses resulting from our
customers' failure to make required payments. The Company continually monitors
collections from customers and provides a provision for estimated credit losses
based upon historical experience. The Company aggressively pursues collection
efforts on these overdue accounts and upon collection reverses the write-off in
future periods. If future payments by our customers were to differ from our
estimates, we may need to increase or decrease our allowances for doubtful
accounts.

Reserve for Sales Returns

Reserves for sales returns and allowances are primarily related to our printed
publications. The Company estimates and maintains these reserves based primarily
on its distributors' historical return practices and our actual return
experience. If actual sales returns and allowances differ from the estimated
return and allowance rates used, we may need to increase or decrease our reserve
for sales returns and allowances.

Impairment of Long-Lived Assets

The Company periodically evaluates the recoverability of our long-lived assets,
including property and equipment, and finite lived intangible assets, whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable or in connection with its annual financial review process. Our
evaluations include analyses based on the undiscounted cash flows generated by
the underlying assets, profitability information, including estimated future
operating results and/or trends. If the value of the asset determined by these
evaluations is less than its carrying amount, impairment is recognized for the
difference between the fair value and the carrying value of the asset. Future
adverse changes in market conditions or poor operating results of the related
business may indicate an inability to recover the carrying value of the assets,
thereby possibly requiring an impairment charge to the carrying value of the
asset, in the future.

Goodwill and Other Identified Intangible Assets

We test goodwill for impairment annually and whenever events or circumstances
make it more likely than not that impairment may have occurred, such as a
significant adverse change in the business climate or a decision to sell or
dispose of a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which we estimate using a
discounted cash flow methodology. In applying this methodology, we rely on a
number of factors, including actual operating results, future business plans,
economic projections and market data.

If this analysis indicates goodwill is impaired, measuring its impairment
requires a fair value estimate of each identified tangible and intangible asset.



                                       65
<PAGE>

We test other identified intangible assets with defined useful lives and that
are subject to amortization by comparing the carrying amount to the sum of
undiscounted cash flows expected to be generated by the asset. We test
intangible assets with indefinite lives annually for impairment using a fair
value methodology such as discounted cash flows.

Valuation of Equity Instruments

The Company has granted stock options to certain of its employees. Certain of
these options contain a cashless exercise provision which require the Company to
account for such options using variable plan accounting. The Company recognizes
compensation expense related to those options with the cashless exercise
provision if fair market value of the Company's common stock, as estimated by
the Company's Board of Directors, exceeds the exercise price of the options.

The fair market value of the Company's common stock is determined by its Board
of Directors based on information available to the Board of Directors at the
time of determination. The Board considers factors such as the Company's current
and expected future results of operations, current market conditions and the
values of other similar companies.

Software Development Costs

The Company capitalizes software development costs under the provisions of
either Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") or Statement of
Financial Accounting Standards ("SFAS") 86, "Computer Software to be Sold,
Leased, or Otherwise Marketed" ("SFAS 86"), based on the intended use of the
software.

Research and development costs are charged to expense when incurred.
Additionally, the Company capitalizes acquired and developed technologies that
meet the provisions of SFAS 86. The establishment of technological feasibility
and the ongoing assessment of the recoverability of these costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, anticipated future gross product revenues,
estimated economic product lives and changes in software and hardware
technology. Software development costs are amortized on a straight-line basis
over four years or the expected life of the product, whichever is less. The
Company periodically evaluates the net realizable value of capitalized software
development costs based on factors such as budgeted sales, product development
cycles and management's market emphasis.

The Company capitalizes the costs of acquiring, developing and testing software
to meet the Company's internal needs. Under the provisions of SOP 98-1, the
Company capitalizes costs associated with software developed or obtained for
internal use when both the preliminary project stage is completed and management
has authorized further funding for the project which it deems probable will be
completed and used to perform the function intended. Capitalized costs include
only (1) external direct costs of materials and services consumed in developing
or obtaining internal-use software, (2) payroll and payroll-related costs for
employees who are directly associated with and devote time to the internal-use
software project and (3) interest costs incurred while developing internal-use
software. Capitalization of such costs ceases no later than the point at which
the project is substantially complete and ready for its intended use. Internal
use software development costs are amortized using the straight-line method over
a five-year period.



                                       66
<PAGE>

Valuation of Deferred Tax Assets

The Company is not currently recognizing income and due to its lack of
historical earnings has determined it is not likely to realize the benefit of
its net deferred tax assets, and accordingly, records a 100% valuation reserve
against its net deferred tax assets, exclusive of deferred tax liabilities that
cannot be offset as the result of the adoption of SFAS 142. To the extent the
Company recognizes income in future years, the tax provision will reflect the
realization of such benefits, with the exception of benefits attributable to
acquired deferred tax assets. The recognition of such amount in future years
will be allocated to reduce the excess of the purchase price over the net assets
acquired and other non-current intangible assets.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variables Interest Entities ("FIN 46").
FIN 46 clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. In
December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46R") to address
certain FIN 46 implementation issues. This interpretation requires that the
assets, liabilities, and results of activities of a Variable Interest Entity
("VIE") be consolidated into the financial statements of the enterprise that is
the primary beneficiary of the VIE. FIN 46R also requires additional disclosures
by primary beneficiaries and other significant variable interest holders. This
interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those VIE's that are
considered to be special purpose entities, for which the effective date is no
later than the end of the first interim or annual reporting period ending after
December 15, 2003. The adoption of FIN 46R, effective March 31, 2004, did not
have any effect on the Company's consolidated financial position or results of
operations.

In April 2003, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"), which amends and clarifies accounting for
derivative instruments, and for hedging activities under SFAS 133. Specifically,
SFAS 149 requires that contracts with comparable characteristics be accounted
for similarly. Additionally, SFAS 149 clarifies the circumstances in which a
contract with an initial net investment meets the characteristics of a
derivative and when a derivative contains a financing component that requires
special reporting in the statement of cash flows. This Statement is generally
effective for contracts entered into or modified after June 30, 2003 and its
adoption did not have any effect on the Company's consolidated financial
position or results of operations.



                                       67
<PAGE>

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement was effective for the
Company beginning January 1, 2004. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of this statement required the Company to
reclassify its 15% Series B Redeemable Preferred Stock from the mezzanine
section of the balance sheet to long-term liabilities. Effective January 1, 2004
dividend payments for the 15% Senior Preferred Stock ("15% Senior Preferred")
are recorded as interest expense in the consolidated statement of operations.
The adoption of this statement did not result in any adjustment to the book
value of its 15% Senior Preferred as of January 1, 2004 as book value
approximated fair value at January 1, 2004. For the three-month and six-month
periods ended June 30, 2004 the Company recognized $5,394 and $10,593,
respectively, of accrued dividends on 15% Senior Preferred as interest expense.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106." It requires additional disclosures to those
in the original Statement 132 about the assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
post-retirement plans. The majority of the provisions of this statement apply to
financial statements issued for fiscal years ending after December 15, 2003. The
Company has adopted such disclosure provisions.

On March 17, 2004, the Emerging Issues Task Force of the FASB reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments." ("Issue 03-1") Issue 03-1 provides
guidance for determining when an investment is other-than-temporarily impaired
specifically, whether an investor has the ability and intent to hold an
investment until recovery. In addition, Issue 03-1 contains disclosure
requirements about impairments that have not been recognized as other than
temporary for investments. Issue 03-1 also requires the investor to disclose
investments with unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance for evaluating whether an
investment is other-than-temporarily impaired shall be applied in
other-than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004. The disclosures are effective in annual financial
statements for fiscal years ending after December 15, 2003, for investments
accounted for under Statements 115 and 124. For all other investments within the
scope of this Issue, the disclosures are effective in annual financial
statements for fiscal years ending after June 15, 2004. The additional
disclosures for cost method investments are effective for fiscal years ending
after June 15, 2004. The adoption of this consensus is not expected to have any
impact on the Company's consolidated results of operations or financial
position.

Seasonality

Operating results have varied and are expected to continue to vary from quarter
to quarter as a result of seasonal patterns. Weekly Reader and CompassLearning's
net revenue are significantly affected by the school year. Weekly Reader's net
revenue in the third, and to a lesser extent the fourth, quarters are generally
the strongest as products are shipped for delivery during the school year.
CompassLearning/ChildU's net revenues were historically strongest in the second
quarter, and to a lesser extent the fourth quarter. However, due to tight
funding environment in the last couple of year, the trend is shifting towards
the fourth quarter being the strongest, followed by the second quarter. The
strength in the second quarter is generally attributed to the end of the school
fiscal year (June 30th) and the need for the schools to spend uncommitted budget
resources prior to year end. In addition, by purchasing in the second quarter,
schools are able to have the software products purchased and installed over the
summer and ready to train teachers when they return from summer vacation.
CompassLearning's fourth quarter revenue is generally strong as a result of
sales patterns driven by new school year money being appropriated and funded,
CompassLearning's commissioned sales force seeking to meet year-end sales goals
as well as schools purchasing software to be installed in time to take advantage
of it during the second half of the school year.



                                       68
<PAGE>

Inflation

We do not believe that inflation has had a material impact on our financial
position or results of operations for the periods discussed above. Although
inflationary increases in paper, postage, labor or operating costs could
adversely affect operations, we have generally been able to offset increases in
costs through price increases, labor scheduling and other management actions.

Factors That May Affect The Future Results And Financial Condition

This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in SEC filings and otherwise. The Company cautions
readers that results predicted by forward-looking statements, including, without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, interest costs and income, are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements, due to
factors including the following and other risks and factors identified from time
to time in the Company's filings with the SEC:

The Company's ability to continue to produce successful supplemental education
material and software products;

Reductions in state and local funding for educational spending materials
resulting, among other things, from increasing state budget deficits;

Uncertainty in the current operating environment which makes it difficult to
forecast future results;

The ability of the Company's print and electronic supplemental instructional
materials to continue to successfully meet market needs;

The Company's ability to maintain relationships with its creative talent;

Changes in purchasing patterns in and the strength of educational, trade and
software markets;

Competition from other supplemental education materials companies;

Significant changes in the publishing industry, especially relating to the
distribution and sale of supplemental educational materials;

The effect on the Company of volatility in the price of paper and periodic
increases in postage rates;

The Company's ability to effectively use the Internet to support its existing
businesses and to launch successful new Internet initiatives;



                                       69
<PAGE>

The general risks inherent in the market and the impact of rising interest rates
with regard to its variable debt facilities; and

The terms of our First-Lien Facility and Second-Lien Facility require us on an
ongoing basis to meet certain maximum secured leverage ratio covenants. A
default under either credit agreement could result in acceleration of payment
obligations thereunder and would have a material adverse effect on our financial
condition and liquidity.

The preliminary SEC inquiry is ongoing, and we cannot predict the final outcome
of the inquiry at this time.

The foregoing list of factors should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to the
date hereof. The Company disclaims any intention or obligation to update or
revise forward-looking statements, whether as a result of new information,
future events or otherwise.




                                       70
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk. Market risk, with respect to our business, is the
potential loss arising from adverse changes in interest rates. We manage our
exposure to this market risk through daily operating and financing activities
and, when deemed appropriate, through the use of derivatives. We use derivatives
as risk management tools and not for trading purposes.

We were subject to market risk exposure related to changes in interest rates on
our $145.0 million senior secured term loans under our Second Lien Credit
Facility. Interest on revolving loan borrowings under our First Lien Credit
Facility maturing in December 2008 will bear interest at a rate per annum equal
to the LIBO rate as defined in the First Lien Credit Facility plus 3.5% or the
alternate base rate as defined in the First Lien Credit Facility plus 2.5%.
Interest on the term loans under our Second Lien Credit Facility maturing in
March 2009 will bear interest at a rate per annum equal to the LIBO rate as
defined in the Second Lien Credit Facility plus 5.0% or the alternate base rate
as defined in the Second Lien Credit Facility plus 4.0%. A 1% increase in
interest rates would result in an increase in our annual interest costs of
approximately $1.45 million.

The First Lien Credit Facility and the Second Lien Credit Facility require us to
obtain interest rate protection that, when taken together with the aggregate
principal amount of the Company's indebtedness subject to a fixed interest rate,
will result in at least 50% of our total indebtedness being either fixed, hedged
or capped for the duration of the applicable facility. On November 15, 2003, we
entered into an arrangement with a notional value of $61.0 million, which
terminates on November 15, 2004 and requires us to pay a floating rate of
interest based on the three-month LIBO rate as defined in that arrangement with
a cap rate of 2.5%. The fair value of the interest rate cap as of June 30, 2004
was de-minimis.

The following table sets forth information about the Company's debt instruments
as of June 30, 2004:

<TABLE>
<CAPTION>

               Debt                                           Less than                                               After
            Obligations                     Total              1 year         2-3 years            4-5 years         5 years
------------------------------------    --------------      --------------   --------------      ---------------   -------------

<S>                                           <C>              <C>           <C>                  <C>               <C>
Revolving Credit                              $ 8,000                 $ -          $     -            $   8,000        $      -
Average Interest Rate

Second Lien Credit Facility                   145,000                   -                -              145,000               -
Average Interest Rate                           6.76%  (A)

Senior Subordinated Notes                     152,000                   -                -                    -         152,000
Average Interest Rate                          12.75%

</TABLE>

(A) Interest rate through April 29, 2005.



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<PAGE>


ITEM 4. CONTROLS AND PROCEDURES

WRC Media management, including the Chief Executive Officer and Principal
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Principal Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information to be filed in this quarterly report has been made
known to them in a timely fashion. There have been no significant changes in the
Company's internal controls, or in other factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and
Principal Financial Officer completed their evaluation. In making this
evaluation, WRC Media management considered the "material weaknesses" (as
defined under standards established by the American Institute of Certified
Public Accountants) that were identified and communicated to us by our
independent auditors in connection with the audit of our consolidated financial
statements for the year ended December 31, 2003. Our independent auditors
identified the following two such "material weaknesses": (1) numerous adjusting
entries proposed as a result of our 2003 audit were recorded by the Company to
correct the underlying books and records, including previously reported results
for 2002 and 2001, and (2) there were an insufficient number of qualified
accounting personnel appropriate for their positions, specifically within the
external financial reporting area. Prior to the identification of these
"material weaknesses" by our independent auditors, the Company began
implementing various policies and procedures in connection with its own review
of its accounting and external reporting functions.

In mid-2003, in connection with our review of the matter which led to the
restatement of revenue relating to a software and services sale, we reviewed our
revenue recognition policy for potential control weaknesses. At that time, our
software revenue recognition policy permitted deviations from our approved forms
of sales documentation with the approval of the operating unit's general
manager. We have changed our software revenue recognition policy to provide that
deviations from approved forms of sales documentation require both the approval
of a financial officer (Principal Financial Officer or Chief Accounting Officer)
of WRC Media, and the approval of legal counsel. We have taken a number of other
steps that will impact the effectiveness of our internal controls, including the
following:

     o    We have centralized our finance and accounting organization. The
          operating unit controllers, who formerly reported to the operating
          unit general managers, now report directly to the parent company
          Principal Financial Officer;

     o    We restructured our finance group in a manner that places greater
          emphasis on control and accountability issues;

     o    We have amended our Code of Conduct and Compliance Policies to require
          all employees to sign a personal Code of Conduct Statement that states
          that they have read the WRC Code of Conduct and represent that they
          are in compliance, and that they are not aware of any violations of
          the Company's Code of Conduct by others at the Company or its
          affiliates. If they are aware of, or become aware of a violation they
          are obligated to document and report the incident to the Chief
          Executive or Principal Financial Officer of the Company.



                                       72
<PAGE>

     o    We have established new policies and procedures for such matters as
          complex transactions, and contract management procedures.

     o    We established a Disclosure Committee, consisting of senior personnel
          from the business units and the finance group, as well as legal
          counsel, and we now follow an extensive review and certification
          process in connection with our filings with the SEC; and

     o    We hired an Assistant Treasurer/Controller in February 2004 to
          increase resources in the external reporting area.

In addition, the Company is currently conducting a recruitment search for a
Chief Financial Officer.

We believe that these efforts address the "material weaknesses" identified by
our independent auditors. The Company continues to improve and refine its
internal controls. This process is ongoing, and the Company seeks to foster an
exemplary internal controls environment. Our management, including our Chief
Executive Officer and Principal Financial Officer, has concluded that, taking
into account the Company's efforts to address the matters described above, as of
the evaluation date, our disclosure controls and procedures are designed, and
are effective, to give reasonable assurance that information we must disclose in
reports filed with the SEC is properly recorded, processed, and summarized, and
then reported within the time periods specified in the rules and forms of the
SEC.



                                       73
<PAGE>


PART II.                        OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Pre-approval of Non-Audit Services

In accordance with Section 10A(i) of the Exchange Act, the Audit Committee of
the Board of Directors of the Company will pre-approve the provision of all
non-audit services to be provided to the Company by its independent auditors,
Deloitte & Touche LLP, as permitted by Section 10A.

Investor Relations

The Company posts on its Web site, www.wrcmedia.com, the date of its upcoming
financial press releases and telephone investor calls at least five days prior
to the event. The Company's investor calls are open to the public and remain
available to the public through the Company's Web site for at least five days
thereafter.





                                       74
<PAGE>



PART II

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS
------------

31.1     Certification of Martin E. Kenney, Jr., Chief Executive Officer of WRC
         Media Inc., CompassLearning, Inc. and Weekly Reader Corporation,
         pursuant to Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange
         Act of 1934, as amended, dated August 13, 2004.

31.2     Certification of Richard Nota, Senior Vice President of Finance and
         Principal Financial Officer of WRC Media Inc., and Weekly Reader
         Corporation dated August 13, 2004.

32       Certification of Chief Executive Officer and Principal Financial
         Officer of WRC Media Inc. and Subsidiaries and Weekly Reader
         Corporation pursuant to 18 U.S.C. ss. 1350, dated August 13, 2004.

(B) REPORTS ON FORM 8-K
-----------------------

1.       Form 8-K, filed July 26, 2004, reporting date and time of investor call
         discussing second quarter results for the period ended June 30, 2004.

2.       Form 8-K, filed May 6, 2004, reporting date and time of investor call
         discussing first quarter results for the period ended March 31, 2004.

3.       Form 8-K, filed April 14, 2004, reporting investor conference call,
         Martin E. Kenney, Jr., WRC Media Inc.'s Chief Executive Officer.

4.       Form 8-K, filed April 5, 2004, reporting WRC Media Inc. announced the
         date and time of its year-end investor conference call which is set
         forth in the press release in an Exhibit hereto.

5.       Form 8-K, filed April 1, 2004, reporting WRC Media Inc., A Leading
         Supplemental Education Publisher, Secures Financial Liquidity By
         Closing $145 Million Senior Second-Lien Credit Facility.




                                       75
<PAGE>


SIGNATURES

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.


<TABLE>

<S>                                                                   <C>
/s/ Martin E. Kenney, Jr.                                             Date:   August 13, 2004
-----------------------------------------------------                      ---------------------
Martin E. Kenney, Jr.
Director: WRC Media Inc., Weekly Reader Corporation
and CompassLearning, Inc.; Chief Executive Officer:
WRC Media Inc. and CompassLearning, Inc.;
Principal Executive Officer and Executive Vice President:
Weekly Reader Corporation




/s/ Richard Nota                                                      Date:   August 13, 2004
-----------------------------------------------------                      ---------------------
Richard Nota
Senior Vice President-Finance and Principal Financial Officer
WRC Media Inc. and Weekly Reader Corporation

</TABLE>





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