##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                                               
|---------- |  | --------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                               
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934                      
|          
|           |  | For the fiscal year ended December 31, 2004                                                                   
|          
|Or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
|          
|           |  | For the transition period
    from           to                                                               

Commission File Number: 333-109381


Haights Cross Communications, Inc.


(Exact Name of Registrant as Specified in its Charter)


|                                                   |  |                       
|-------------------------------------------------- |  | ----------------------
|Delaware                                           |  | 13-4087398            
|(State or Other Jurisdiction of                    |  | (I.R.S. Employer      
|Incorporation)                                     |  | Identification Number)
|                                                  
|10 New King Street, Suite 102
    White Plains, NY |  | 10604(Zip Code)       
|(Address of Principal Executive Offices)           |  |                       

Registrants telephone number, including area code:


(914) 289-9400


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


þ


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|                                                                           |  |                                                                                                                      |  |  |    | 
|-------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Description                                                                |  |                                                                                                                     
|                                                                           |  |                                                                                                                     
|                                                                           |  | Page                                                                                                                 | 
|                                                                           |  | No.                                                                                                                  | 
|                                                                           |  |                                                                                                                      | 
|Part I                                                                    
|Item 1.                                                                    |  | Business                                                                                                             |  |  | 1  | 
|Item 2.                                                                    |  | Properties                                                                                                           |  |  | 14 | 
|Item 3.                                                                    |  | Legal Proceedings                                                                                                    |  |  | 14 | 
|Item 4.                                                                    |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 15 | 
|Part II                                                                   
|Item 5.                                                                    |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 15 | 
|Item 6.                                                                    |  | Selected Financial Data                                                                                              |  |  | 15 | 
|Item 7.                                                                    |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 18 | 
|Item 7A.                                                                   |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |  | 39 | 
|Item 8.                                                                    |  | Financial Statements and Supplementary Data                                                                          |  |  | 39 | 
|Item 9.                                                                    |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 76 | 
|Item 9A.                                                                   |  | Controls and Procedures                                                                                              |  |  | 76 | 
|Item 9B.                                                                   |  | Other Information                                                                                                    |  |  | 76 | 
|Part III                                                                  
|Item 10.                                                                   |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 76 | 
|Item 11.                                                                   |  | Executive Compensation                                                                                               |  |  | 80 | 
|Item 12.                                                                   |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 83 | 
|Item 13.                                                                   |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 84 | 
|Item 14.                                                                   |  | Principal Accountant Fees and Services                                                                               |  |  | 85 | 
|Part IV                                                                   
|Item 15.                                                                   |  | Exhibits and Financial Statement Schedules                                                                           |  |  | 86 | 
|EX-10.2: FORM OF DIRECTOR INDEMNIFICATION AGREEMENT                       
|EX-10.17:  AMENDMENT NO. 3 AND CONSENT NO. 3 TO REVOLVING CREDIT AGREEMENT
|EX-12.1 SCHEDULE OF RATIO OF EARNINGS TO FIXED CHARGES                    
|EX-23.1: CONSENT OF ERNST & YOUNG LLP                                     
|EX-31.1: CERTIFICATION                                                    
|EX-31.2: CERTIFICATION                                                    
|EX-32.1: CERTIFICATION                                                    
|EX-32.2: CERTIFICATION                                                    



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PART I







|        |          
|------- | ---------
|Item 1. | Business.

General










Operating Groups




Education Publishing Group.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sundance/ Newbridge Educational Publishing.
    Sundance, established in 1970 and acquired by us in 1998,
    publishes educational materials for shared reading, guided
    reading, independent reading, phonics and comprehension skills
    for students in kindergarten through 9th grade, and markets
    non-proprietary, supplemental literature products for students
    in grades K-12. Newbridge, established in 1981 and acquired by
    us in 1997, publishes nonfiction, guided reading materials and
    teachers guides in the content areas of standards-based
    science, social studies and math for students in
    pre-kindergarten through 5th grade. While acquired as separate
    businesses, we have combined all functions of Sundance

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and Newbridge, with the exception of the editorial departments
    responsible for creating the unique products under each brand.
    The Sundance/ Newbridge segment includes the business of Options
    Publishing, which was established in 1992 and acquired by us in
    December 2004 and which publishes K-8 reading, math and
    literature supplemental education materials and intervention
    programs. This business is operated separately from Sundance/
    Newbridge.                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Triumph Learning. Triumph Learning, established in 1963
    and acquired by us in 1999, publishes state-specific test and
    nationally normed test preparation books and software for
    students in grades K-12. Under its Coachbrand, Triumph
    Learning publishes over 650 state-specific and nationally
    normed test preparation titles and over 40 software titles
    focused on building reading, math, social studies, science and
    other basic skills. Overall, Triumph Learning publishes over 775
    test preparation and 75 Skills Development titles, which it
    sells directly to educators, schools and school systems in
    24 states. The Triumph Learning segment includes the
    business of Buckle Down Publishing, which we acquired in April
    2004 and which publishes over 550 test preparation titles for
    high stakes state tests.
|
| |  | Oakstone Publishing. Oakstone Publishing, established in
    1975 and acquired by us in 1997, publishes continuing medical
    education materials for doctors. Oakstone offers monthly,
    subscription-based programs comprised of summaries and critical
    reviews of medical journal articles, covering 34 medical, dental
    and allied health specialties. Oakstone produces over 350 titles
    in audio, print, electronic and Web formats that enable its
    customers, which consist predominantly of doctors, to maintain
    current knowledge and/or obtain continuing medical education
    credits for licensing and hospital affiliation purposes.                                                                                                                                                                                                          



Library Publishing Group.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recorded Books. Recorded Books, established in 1979 and
    acquired by us in 1999, publishes and markets unabridged, spoken
    word audiobooks, across multiple genres, including mysteries,
    histories, classics, inspirational, westerns, romance, sports
    and other topics, in the United States and the United Kingdom.
    Recorded Books supplements its proprietary title list by
    distributing non-proprietary titles, including certain titles in
    abridged form. Recorded Books sells its products to school and
    public libraries, retail book stores and directly to consumers.
|
| |  | Chelsea House. Chelsea House Publishers, established in
    1966 and acquired by us in 1999, creates and publishes
    hardcover, non-fiction books for the children and young adult
    library market. Chelsea Houses titles are typically
    published in series of eight to 100 titles, providing a
    mechanism for recurring sales as new editions are released.                                                                                                                                                                                                                                   



2



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Education Products




| |                           
| | --------------------------
| | Education Publishing Group

Sundance/ Newbridge Educational Publishing.


|                                |  |           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------- |  | --------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product Line                    |  | Grades    |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                |  |           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Little Readers                  |  | Pre-K-3rd |  | Collections of eight to 16 page books, each targeting pre-
    kindergarten to third grade students as they take their first
    steps in learning how to read. Little Red Readers cover fiction
    and non-fiction, Little Blue Readers cover topics in technology
    and Little Green Readers cover life and environmental science
    topics.                                                                                                                                                                       
|Alpha Kids
     Alpha Kids Plus |  | K-2nd     |  | A collection of books that introduces a letter of the alphabet
    and then proceeds through leveled guided readers in graduated
    sequence of difficulty to support small group instruction. These
    books feature gradually increasing challenges in length,
    language, text format and story structure, and provide support
    for young readers through print placement, repetition of
    sentence patterns, picture-text correlation and oral language
    structures.                                     
|Popcorns & Just Kids            |  | 1st-3rd   |  | Collections consisting of books of graduated difficulty that are
    designed to help students advance from simple picture books to
    books that demand a longer attention span and that are organized
    into chapters.                                                                                                                                                                                                                                                                                              
|Second Chance Readers           |  | 2nd-9th   |  | A collection of high-interest literature titles designed to give
    elementary, middle school and high school reluctant readers the
    support and enjoyment they need to build basic reading, writing
    and speaking skills. The collection includes CD-ROM based tests
    organized in four highly structured levels for titles in the
    program.                                                                                                                                                               
|Sundance Phonics                |  | K-2nd     |  | Books that provide phonics instruction through a clear phonics
    progression. Letters and Sounds focuses on the alphabet, vowels,
    and digraphs and blends basic building blocks for successful
    reading. PhonicsReaders focus on phonics in a story context.
    Benchmark Phonics Workbooks focus on assessment, practice and
    mastery of key phonics skills.                                                                                                                                               
|Reading PowerWorks              |  | 1st-2nd   |  | A series of balanced literacy-theme units that offer teachers in
    grades 1 and 2 opportunities to teach shared, guided and
    independent reading with fiction and nonfiction. The themes are
    built around standards-based, content area reading in science,
    social studies, and mathematics. Each theme is developed on
    three different reading levels, so that students of differing
    abilities in the same classroom can access the materials and
    share meaningfully in the reading experience.

LEAP (Literature Enrichment Activities
Program), Chapter-by-Chapter, LIFT (Literature is For Thinking) Novel Ideas.


3



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Early Science Ranger Rick Early Math




|                                                                                                                                                |  |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product Line                                                                                                                                    |  | Grades  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                |  |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Early Science
     Early Math
     Early Social Studies                                                                                         |  | K-2nd   |  | These series focus on shared reading, a collaborative learning
    process whereby teachers direct group reading activities with
    big books (16 inches x 20 inches) and students engage
    in follow-up reading in student book versions of the big books.
    These series teach reading through the content areas of science,
    math and social studies and are often used as the core textbooks
    for these content areas.
|GoFacts
     Guided Reading                                                                                                                     |  | K-5th   |  | A unique guided writing program designed to help students learn
    to work with informational texts and build effective nonfiction
    reading and writing skills. The series also prepares students
    for the writing samples required on standardized tests.                                                                                                                                                                    
|Newbridge Discovery Links
     Science
     Newbridge Discovery Links
     Social Studies
     Newbridge Discovery Links
     Intermediate Plus |  | K-5th   |  | Guided reading programs and teaching resources that contain
    real-life photographs and non-fiction support text designed to
    engage children in all aspects of reading and exploring key
    science and social studies concepts as part of leveled reading
    instruction.                                                                                                                                                   
|Ranger Rick Science
     Spectacular                                                                                                            |  | 2nd-5th |  | A series of photo-illustrated titles that explore key earth,
    life, physical science and geography concepts. With big books
    and student books, the series can be taught as a shared reading
    experience.                                                                                                                                                                                                                   
|Thinking Like a Scientist                                                                                                                       |  | 1st-3rd |  | Programs of photo-illustrated titles that teach inquiry-based
    science and build science process skills such as observing,
    estimating, measuring, collecting and interpreting data and
    making graphs.                                                                                                                                                                                                                     
|Read to Learn:
     Social Studies                                                                                                              |  | 3rd-5th |  | This series of 48 student titles provides core social studies
    content to meet curriculum standards. The series addresses
    history, culture geography, economics, citizenship, and
    government. Three resource Big Books are designed to teach,
    reinforce, and extend critical skills for building social
    studies literacy. Teachers Guides provide reading, writing
    and social studies lesson plans.          



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|                                                   |  |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------------------------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Summer Counts                                      |  | K-8th   |  | Provides a summer refresher of skills presented at each grade
    level with high-interest, thematic content. Students practice
    critical reading skills, comprehension, language arts, and math
    skills while preparing for advancement to the next grade in the
    fall. Each book contains a letter to the parent and perforated
    answer key to assist parents in helping their children retain
    critical skills over the summer.     
|Best Practices in Reading                          |  | 1st-8th |  | Pairs fiction with nonfiction to teach comprehension with
    high-interest topics and scientifically research-based
    strategies. Each book uses exciting selections, research-based
    strategies, modeling in early lessons, and skills development as
    students learn to become independent readers and thinkers.                                                                                                                           
|Best Practices in Reading
     Classroom Libraries |  | 1st-5th |  | Extends comprehension practice into guided reading on the same
    themes found in Best Practices in Reading. Embedded Think-Along
    questions guide students to apply strategies. End-of-book
    questions focus on genres, inferencing, and making connections
    and home activity in each book supports parent involvement. Oak
    bookcases are included with classroom libraries.                                                          
|Comprehensive Reading
     Assessment              |  | 2nd-8th |  | Each book includes two complete full-length assessments with a
    minimum of two pages of instruction for every question to help
    identify where students need help and how to improve their
    performance. Diagnoses students performance, provides a visual
    matrix for each student that summarizes results, and includes
    instructional lessons to improve performance in one book.                                                   
|Comprehensive Math
     Assessment                 |  | 2nd-8th |  | This book includes three sets of warm-ups (pretests) with
    instruction for each question, three half-length tests, and
    additional instruction-based on assessment results. Each
    assessment identifies which math concepts students have
    difficulty with and which question types they need to practice.
    Additional instruction and practice organized by math concept
    and question type. Follows research-based NCTM Standards.
|Intervention Packages                              |  | K-8th   |  | Available in either math or reading packages for after school,
    summer school and special programs. Well structured, easy to
    implement curriculum with the ability to diagnose students
    current functioning levels, instruction for critical skills and
    strategies, offers additional practice and assesses
    students performance. Portable, durable wheeled cart
    included.                                                   

No Child Left Behind


Triumph Learning. Coach Focus on State Standards Jumpstart Quick Review Test Practice


5



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Jumpstart Quick
Review Test Practice Coach


Skills Coach


Buckle Down Buckle Down Ketchup on Reading th th Buckle Down




6



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Oakstone Publishing.




|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product Line          |  | Description                                                                                                                                                                                                                                                                                                                                                                                                          
|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|Practical Reviews     |  | Audio summaries of important medical journal articles, sold on a
    subscription basis. Each one-hour issue typically contains 15
    to 20 three-to-five minute reviews of important journal
    articles, along with authoritative commentary.                                                                                                                                                                    
|QuickScan Reviews     |  | Monthly electronic summaries of important medical journal
    articles that are delivered via CD-ROM. The QuickScan Reviews
    include our KeyINFO Manager software for instant retrieval of
    current and past information by simple keyword searching. Each
    issue typically contains 20 to 30 reviews, take-anywhere
    QuickFlash Review cards and a continuing education quiz.                           
|MKSAP Audio Companion |  | Programs based on content taken from the Medical Knowledge
    Self-Assessment Program syllabus, a program created and
    sponsored by the American College of Physicians. Each two-hour
    issue, which is available on cassette or compact disc, features
    dialogues between a general internist and a subspecialty expert,
    and includes visual learning aids and a continuing medical
    education quiz.
|Journalbytes.com      |  | Online summaries that provide doctors with valuable information
    and practical commentary closer to the point of care. Each issue
    includes up to 30 journal article reviews, critical discussion
    and commentary regarding key developments, in-depth coverage of
    a vital topic, online audio that can be downloaded to MP3
    players, access to full-text articles and an online quiz.              
|Osler on Audio        |  | Specialty board certification courses on audio, created by
    partnering with the Osler Institute. Each course includes more
    than 40 hours of audio lectures delivered on compact disc.                                                                                                                                                                                                                         



| |                         
| | ------------------------
| | Library Publishing Group

Recorded Books.




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Chelsea House Publishers. Literary Criticism Great American Presidents




Product and Content Development






| |                           
| | --------------------------
| | Education Publishing Group



8



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| |                         
| | ------------------------
| | Library Publishing Group





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| |                    
| | -------------------
| | Sales and Marketing





| |                           
| | --------------------------
| | Education Publishing Group









10



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| |                         
| | ------------------------
| | Library Publishing Group









Customers






| |                           
| | --------------------------
| | Education Publishing Group



11



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| |                         
| | ------------------------
| | Library Publishing Group



Seasonality




Competition






| |                           
| | --------------------------
| | Education Publishing Group

Practical Reviews




| |                         
| | ------------------------
| | Library Publishing Group



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Production and Fulfillment








Intellectual Property






Environmental Regulation




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Employees









|        |            
|------- | -----------
|Item 2. | Properties.



|                                           |  |     |                   |  |         |  |         |                  |  |  |                    | 
|------------------------------------------ |  | --- | ----------------- |  | ------- |  | ------- | ---------------- |  |  | ------------------ | 
|Location                                   |  | Use |                   |  | Sq. Ft. |  |         | Termination Date | 
|                                           |  |     |                   |  |         |  |         |                  | 
|140 Bugeye Square, Prince Frederick, MD(2) |  |     | Warehouse         |  |         |  | 19,400  |                  |  |  | November 6, 2005   | 
|200 Skipjack Road, Prince Frederick, MD(2) |  |     | Warehouse         |  |         |  | 23,000  |                  |  |  | November 30, 2005  | 
|140 W. 22nd Street, New York, NY(2)        |  |     | Recording Studios |  |         |  | 5,894   |                  |  |  | May 31, 2006       | 
|2565 Bluffwood Lane, Iowa City, IA(1)      |  |     | Warehouse/Office  |  |         |  | 45,000  |                  |  |  | September 30, 2006 | 
|500 Corporate Parkway, Birmingham, AL(1)   |  |     | Office            |  |         |  | 27,052  |                  |  |  | November 30, 2007  | 
|11-13 E. 26th Street, New York, NY(1)      |  |     | Office            |  |         |  | 5,500   |                  |  |  | December 31, 2007  | 
|Units 6 and 7 Victoria Mills, UK(2)        |  |     | Warehouse/Office  |  |         |  | 5,591   |                  |  |  | February 25, 2008  | 
|2080 Cabot Blvd. West, Langhorne, PA(2)    |  |     | Office            |  |         |  | 9,950   |                  |  |  | March 31, 2009     | 
|One Beeman Road, Northborough, MA(1)       |  |     | Warehouse/Office  |  |         |  | 150,000 |                  |  |  | July 31, 2009      | 
|136 Madison Avenue, New York, NY(1)        |  |     | Office            |  |         |  | 16,500  |                  |  |  | March 30, 2010     | 






|    |                                                                       
|--- | ----------------------------------------------------------------------
|(1) | This property is primarily used by our Education Publishing
    Group.
|   
|(2) | This property is primarily used by our Library Publishing Group.      








|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.



14



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|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.






PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.








|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |         |  
|---------------------------------------------- | ---------------------------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------- | -
|                                               |                                                      | Year Ended December 31, |        
|                                               |                                                      |                         |        
|                                               |                                                      | 2000                    |         |        | 2001 |   |         | 2002    |   |   | 2003    |         |   | 2004 |        
|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |        
|                                               |                                                      | (in thousands)          |        
|Consolidated Statements of Operations Data(1): |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |         |        |   |   |         |        
|Revenue                                        |                                                      | $                       | 130,700 |        |      | $ | 148,545 |         |   | $ | 163,142 |         |   | $    | 162,043 |        |   | $ | 182,238 |        
|                                               | Cost of goods sold(2)                                |                         |         | 41,102 |      |   |         | 43,540  |   |   |         | 50,326  |   |      |         | 49,200 |   |   |         | 58,020  |  
|                                               | Selling, general and administrative expense(3)       |                         |         | 55,339 |      |   |         | 67,075  |   |   |         | 65,405  |   |      |         | 68,390 |   |   |         | 79,873  |  
|                                               | Amortization of pre-publication costs(4)             |                         |         | 4,879  |      |   |         | 6,671   |   |   |         | 7,006   |   |      |         | 9,137  |   |   |         | 11,804  |  
|                                               | Depreciation expense and amortization of intangibles |                         |         | 13,596 |      |   |         | 14,593  |   |   |         | 2,017   |   |      |         | 2,224  |   |   |         | 3,083   |  
|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |        
|                                               | Income from operations                               |                         |         | 15,784 |      |   |         | 16,666  |   |   |         | 38,388  |   |      |         | 33,092 |   |   |         | 29,458  |  
|                                               | Interest expense and other(5)(6)                     |                         |         | 24,014 |      |   |         | 21,984  |   |   |         | 19,296  |   |      |         | 34,242 |   |   |         | 50,327  |  
|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |        
|                                               | (Loss)/ Income from continuing operations            |                         | $       | (8,230 | )    |   | $       | (5,318  | ) |   | $       | 19,092  |   |      | $       | (1,150 | ) |   | $       | (20,869 | )
|                                               | (Loss)/ Income from discontinued operations          |                         |         | (1,022 | )    |   |         | (31,774 | ) |   |         | 1,766   |   |      |         | (716   | ) |   |         | (1,712  | )
|                                               | Cumulative effect of accounting change(7)            |                         |         |       |      |   |         |        |   |   |         | (48,610 | ) |      |         |       |   |   |         |        |  
|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |        
|                                               | Net loss                                             |                         | $       | (9,252 | )    |   | $       | (37,092 | ) |   | $       | (27,752 | ) |      | $       | (1,866 | ) |   | $       | (22,581 | )
|                                               |                                                      |                         |         |        |      |   |         |         |   |   |         |         |   |      |        

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|                                 |  |                        |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|-------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                 |  | As of December 31,     |        
|                                 |  |                        |        
|                                 |  | 2000                   |         |   | 2001 |   |         | 2002 |  |   | 2003     |   |  | 2004 |         
|                                 |  |                        |         |   |      |   |         |      |  |   |          |   |  |      |         
|                                 |  | (Dollars in thousands) |        
|Consolidated Balance Sheet Data: |  |                        |         |   |      |   |         |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash and cash equivalents        |  | $                      |        |   |      | $ | 7,484   |      |  | $ | 2,701    |   |  | $    | 32,389   |   |  | $ | 78,581   |  
|Working capital                  |  |                        | 31,017  |   |      |   | 22,372  |      |  |   | 9,957    |   |  |      | 42,216   |   |  |   | 87,627   |  
|Total assets                     |  |                        | 283,531 |   |      |   | 280,947 |      |  |   | 231,236  |   |  |      | 265,522  |   |  |   | 399,703  |  
|Total debt(6)                    |  |                        | 189,031 |   |      |   | 214,951 |      |  |   | 200,596  |   |  |      | 239,750  |   |  |   | 492,848  |  
|Redeemable preferred stock(6)    |  |                        | 95,021  |   |      |   | 109,410 |      |  |   | 126,191  |   |  |      | 143,663  |   |  |   | 36,882   |  
|Total stockholders deficit      |  |                        | (39,473 | ) |      |   | (90,954 | )    |  |   | (135,435 | ) |  |      | (156,354 | ) |  |   | (181,443 | )

|                                      |                      |                         |        |         |      |   |        |         |   |   |        |         |   |      |        |        |   |   |        |         |  
|------------------------------------- | -------------------- | ----------------------- | ------ | ------- | ---- | - | ------ | ------- | - | - | ------ | ------- | - | ---- | ------ | ------ | - | - | ------ | ------- | -
|                                      |                      | Year Ended December 31, |       
|                                      |                      |                         |       
|                                      |                      | 2000                    |        |         | 2001 |   |        | 2002    |   |   | 2003   |         |   | 2004 |       
|                                      |                      |                         |        |         |      |   |        |         |   |   |        |         |   |      |       
|                                      |                      | (Dollars in thousands)  |       
|Other Financial Data:                 |                      |                         |        |         |      |   |        |         |   |   |        |         |   |      |        |        |   |   |        |        
|EBITDA(8)                             |                      | $                       | 34,259 |         |      | $ | 37,930 |         |   | $ | 47,411 |         |   | $    | 44,453 |        |   | $ | 44,345 |        
|Additions to pre-publication costs(4) |                      |                         | 11,858 |         |      |   | 13,599 |         |   |   | 12,418 |         |   |      | 14,051 |        |   |   | 14,489 |        
|Additions to property and equipment   |                      |                         | 4,195  |         |      |   | 3,632  |         |   |   | 2,044  |         |   |      | 2,977  |        |   |   | 3,398  |        
|Interest expense(6)                   |                      |                         | 22,273 |         |      |   | 20,024 |         |   |   | 17,993 |         |   |      | 19,928 |        |   |   | 48,194 |        
|Net cash provided by (used in):       |                      |                         |        |         |      |   |        |         |   |   |        |         |   |      |        |        |   |   |        |        
|                                      | Operating activities |                         |        | 14,983  |      |   |        | 20,438  |   |   |        | 32,893  |   |      |        | 32,146 |   |   |        | 25,174  |  
|                                      | Investing activities |                         |        | (21,002 | )    |   |        | (31,473 | ) |   |        | (14,462 | ) |      |        | (9,457 | ) |   |        | (95,778 | )
|                                      | Financing activities |                         |        | (256    | )    |   |        | 18,519  |   |   |        | (23,214 | ) |      |        | 6,798  |   |   |        | 116,569 |  
|Ratio of earnings to fixed charges(9) |                      |                         |       |         |      |   |       |         |   |   | 1.5    |         |   |      |       |        |   |   |       |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our consolidated statements of operations data includes the
    results of operations of our acquired businesses beginning on
    the date of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | For the year ended December 31, 2004, our cost of goods
    sold includes a $2.1 million non-cash inventory
    obsolescence charge at our Chelsea House business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(3) | Selling, general and administrative expense is a summary of the
    following captions from our consolidated statements of
    operations: marketing and sales, fulfillment and distribution,
    general and administrative, and restructuring. For the years
    ended December 31, 2001 and December 31, 2002, our
    selling, general and administrative expense includes
    restructuring and related charges of $3.1 million and
    $(0.1) million, respectively, related to severance accruals
    and warehouse and information technology expenses. For the year
    ended December 31, 2003, our selling, general and
    administrative expense includes restructuring and related
    charges of $3.1 million, relating to the consolidation of
    the warehousing, customer service and order fulfillment
    functions of our Sundance/ Newbridge, Triumph Learning and
    Chelsea House businesses. For the year ended December 31,
    2004, our selling, general and administrative expense includes
    restructuring and related charges of $1.3 million relating
    to the consolidation of Chelsea House management and finance and
    accounting into Sundance/ Newbridge, and our systems
    implementation at our Recorded Books business.
|   
|(4) | We capitalize and amortize the costs associated with the
    development of our new products. These costs primarily include
    author fees under work-for-hire agreements (excluding
    royalties), the costs associated with artwork, photography and
    master tapes, other external creative costs, internal editorial
    staff costs and pre-press costs that are directly attributable
    to the product. Also included is the intangible value assigned
    to the backlist of acquired companies consisting of Buckle Down
    Publishing and Options Publishing. These capitalized
    pre-publication and intangible costs are amortized over the
    anticipated life of the product, for a period not exceeding five
    years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

16



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | For the year ended December 31, 2003, our interest expense
    and other expense includes a redemption premium of approximately
    $9.2 million incurred in connection with our redemption of
    subordinated debt with proceeds from our August 20, 2003
    refinancing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(6) | On May 15, 2003, the FASB issued Statement of Financial
    Accounting Standards No. 150, Accounting for Certain
    Financial Instruments with Characteristics of both Liabilities
    and Equity (SFAS No. 150).
    SFAS No. 150 establishes standards for classifying and
    measuring as liabilities certain financial instruments that
    embody obligations of the issuer and have characteristics of
    both liabilities and equity. We adopted SFAS No. 150
    as of January 1, 2004. The adoption of
    SFAS No. 150 requires that our Series B senior
    preferred stock be classified as debt on our consolidated
    balance sheet because it is mandatorily redeemable at a fixed
    and determinable date. Dividends and accretion related to the
    Series B senior preferred stock of $16.1 million,
    which previously had been recorded below net income (loss) as a
    charge in determining net income (loss) available to common
    stockholders, has been charged to interest expense since the
    January 1, 2004 adoption of this standard. Our
    Series A preferred stock and Series C preferred stock,
    which are redeemable beginning in the year 2019 and 2012,
    respectively, are redeemable at the option of the holders and
    are not mandatorily redeemable. Accordingly,
    SFAS No. 150 is not applicable to our Series A
    preferred stock or Series C preferred stock.
|   
|(7) | On January 1, 2002 we adopted SFAS No. 142,
    Goodwill and Other Intangible Assets. Under
    SFAS No. 142, amortization of intangible assets
    considered to have indefinite lives, such as goodwill, is no
    longer required. Accordingly, we ceased amortization of goodwill
    on that date. Under SFAS No. 142, goodwill is subject
    to impairment tests, both at the date of initial adoption of
    SFAS No. 142 and annually thereafter. In addition,
    goodwill is required to be tested at interim times if there is
    indication of impairment. We performed the initial impairment
    test as of January 1, 2002 and recorded a goodwill
    writedown of $48.6 million, which is presented in our
    consolidated statements of operations as a cumulative effect of
    accounting change. We performed the annual impairment test on
    September 30, 2004, and determined that the carrying value
    of our goodwill at that date was not impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(8) | EBITDA is defined as income before interest, taxes,
    depreciation, amortization, discontinued operations and
    cumulative effect of a change in accounting for goodwill. EBITDA
    is not a measurement of operating performance calculated in
    accordance with generally accepted accounting principles and
    should not be considered a substitute for operating income, net
    income (loss), cash flows, consolidated statements of operations
    or consolidated balance sheets prepared in accordance with GAAP.
    In addition, because EBITDA is not defined consistently by all
    companies, this presentation of EBITDA may not be comparable to
    similarly titled measures of other companies. However, we
    believe EBITDA is relevant and useful to investors because
    (a) it provides an alternative measurement to operating
    income that takes into account certain relevant adjustments that
    are specific to publishing companies and (b) it is used by
    our management to evaluate our ability to service our debt and,
    along with other data, as an internal measure for setting
    budgets and awarding incentive compensation. The following table
    reconciles net loss to EBITDA.                                                                                                                                                                                      

|                                                     |  |                         |        |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |         |  
|---------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------- | -
|                                                     |  | Year Ended December 31, |       
|                                                     |  |                         |       
|                                                     |  | 2000                    |        |   | 2001 |   |         | 2002 |  |   | 2003    |   |  | 2004 |       
|                                                     |  |                         |        |   |      |   |         |      |  |   |         |   |  |      |       
|                                                     |  | (In thousands)          |       
|Net loss                                             |  | $                       | (9,252 | ) |      | $ | (37,092 | )    |  | $ | (27,752 | ) |  | $    | (1,866 | ) |  | $ | (22,581 | )
|Cumulative effect of accounting change               |  |                         |       |   |      |   |        |      |  |   | 48,610  |   |  |      |       |   |  |   |        |  
|Net loss (income) from discontinued operations       |  |                         | 1,022  |   |      |   | 31,774  |      |  |   | (1,766  | ) |  |      | 716    |   |  |   | 1,712   |  
|Interest expense and other                           |  |                         | 24,014 |   |      |   | 21,984  |      |  |   | 19,296  |   |  |      | 34,242 |   |  |   | 50,327  |  
|                                                     |  |                         |        |   |      |   |         |      |  |   |         |   |  |      |       
|Income from operations                               |  | $                       | 15,784 |   |      | $ | 16,666  |      |  | $ | 38,388  |   |  | $    | 33,092 |   |  | $ | 29,458  |  
|Amortization of pre-publication costs                |  |                         | 4,879  |   |      |   | 6,671   |      |  |   | 7,006   |   |  |      | 9,137  |   |  |   | 11,804  |  
|Depreciation expense and amortization of intangibles |  |                         | 13,596 |   |      |   | 14,593  |      |  |   | 2,017   |   |  |      | 2,224  |   |  |   | 3,083   |  
|                                                     |  |                         |        |   |      |   |         |      |  |   |         |   |  |      |       
|EBITDA                                               |  | $                       | 34,259 |   |      | $ | 37,930  |      |  | $ | 47,411  |   |  | $    | 44,453 |   |  | $ | 44,345  |  
|                                                     |  |                         |        |   |      |   |         |      |  |   |         |   |  |      |       

17



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | The ratio of earnings to fixed charges is an
    analytical tool used to assist investors in evaluating a
    companys ability to meet the interest requirements of debt
    securities or the dividend requirements of preferred stock.
    Earnings for the purpose of this calculation are defined as
    pretax income before the effects of discontinued operations,
    extraordinary items and the cumulative effect of accounting
    change. Fixed charges are defined as the sum of interest
    expense, amortization of deferred financing costs, and the
    interest portion of rental expense. For the years ended
    December 31, 2000, 2001, 2003, and 2004 earnings were
    inadequate to cover fixed charges by $8.2 million,
    $5.3 million, $1.2 million and $20.8 million,
    respectively.






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

Safe Harbor Statement under Private Securities
Litigation Reform Act of 1995






Introduction




18



---



##### Table of Contents







Recent Developments




th


3 4


Operating Groups




19



---



##### Table of Contents



Education Publishing Group.


Library Publishing Group.




|                       |                                  |                         |         |        |      |   |         |        |  |   |         |         | 
|---------------------- | -------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------- | 
|                       |                                  | Year Ended December 31, |        
|                       |                                  |                         |        
|                       |                                  | (in thousands)          |        
|                       |                                  | 2002                    |         |        | 2003 |   |         | 2004   | 
|                       |                                  |                         |         |        |      |   |         |        | 
|Sundance/ Newbridge(1) |                                  | $                       | 42,656  |        |      | $ | 44,763  |        |  | $ | 49,170  |        
|Triumph Learning(1)    |                                  |                         | 21,682  |        |      |   | 25,171  |        |  |   | 33,701  |        
|Oakstone               |                                  |                         | 18,297  |        |      |   | 18,188  |        |  |   | 19,144  |        
|                       |                                  |                         |         |        |      |   |         |        | 
|                       | Total Education Publishing Group |                         |         | 82,635 |      |   |         | 88,122 |  |   |         | 102,015 | 
|Recorded Books         |                                  |                         | 65,451  |        |      |   | 61,137  |        |  |   | 68,878  |        
|Chelsea House          |                                  |                         | 15,056  |        |      |   | 12,784  |        |  |   | 11,345  |        
|                       |                                  |                         |         |        |      |   |         |        | 
|                       | Total Library Publishing Group   |                         |         | 80,507 |      |   |         | 73,921 |  |   |         | 80,223  | 
|                       |                                  |                         |         |        |      |   |         |        | 
|Total                  |                                  | $                       | 163,142 |        |      | $ | 162,043 |        |  | $ | 182,238 |        
|                       |                                  |                         |         |        |      |   |         |        | 






|    |                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The revenue of Triumph Learning includes the revenue of Buckle
    Down Publishing from its acquisition date of April 15,
    2004, and the revenue of Sundance/ Newbridge includes the
    revenue of Options Publishing from its acquisition date of
    December 3, 2004.

Critical Accounting Policies


3 4 1 2






20



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##### Table of Contents





| |                                
| | -------------------------------
| | Revenue and Expense Recognition







| |                      
| | ---------------------
| | Pre-Publication Costs





| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets







| |                                  
| | ---------------------------------
| | Direct Response Advertising Costs



21



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| |                                   
| | ----------------------------------
| | Inventory and Related Obsolescence





| |                         
| | ------------------------
| | Stock-Based Compensation







| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Redeemable Capital Stock



22



---



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Results of Operations




|                                            |                               |                         |         |        |      |  |       |      |   |  |         |        |  |  |       |      |   |  |         |         |  |  |       |      |  
|------------------------------------------- | ----------------------------- | ----------------------- | ------- | ------ | ---- |  | ----- | ---- | - |  | ------- | ------ |  |  | ----- | ---- | - |  | ------- | ------- |  |  | ----- | ---- | -
|                                            |                               | Year Ended December 31, |        
|                                            |                               |                         |        
|                                            |                               | 2002                    |         |        | 2003 |  |       | 2004 |  
|                                            |                               |                         |         |        |      |  |       |      |  
|                                            |                               | (in thousands)          |        
|Revenue                                     |                               |                         |         |        |      |  |       |      |   |  |         |        |  |  |       |      |   |  |         |         |  |  |       |     
|                                            | Education Publishing Group(2) |                         | $       | 82,635 |      |  |       | 50.7 | % |  | $       | 88,122 |  |  |       | 54.4 | % |  | $       | 102,015 |  |  |       | 56.0 | %
|                                            | Library Publishing Group      |                         |         | 80,507 |      |  |       | 49.3 | % |  |         | 73,921 |  |  |       | 45.6 | % |  |         | 80,223  |  |  |       | 44.0 | %
|                                            |                               |                         |         |        |      |  |       |      |   |  |         |        |  |  |       |      |   | 
|Total revenue                               |                               |                         | 163,142 |        |      |  | 100.0 | %    |   |  | 162,043 |        |  |  | 100.0 | %    |   |  | 182,238 |         |  |  | 100.0 | %   
|Cost of goods sold                          |                               |                         | 50,326  |        |      |  | 30.8  | %    |   |  | 49,200  |        |  |  | 30.4  | %    |   |  | 58,020  |         |  |  | 31.8  | %   
|Selling, general and administrative expense |                               |                         | 65,405  |        |      |  | 40.1  | %    |   |  | 68,390  |        |  |  | 42.2  | %    |   |  | 79,873  |         |  |  | 43.8  | %   
|Amortization of pre-publication costs       |                               |                         | 7,006   |        |      |  | 4.3   | %    |   |  | 9,137   |        |  |  | 5.6   | %    |   |  | 11,804  |         |  |  | 6.5   | %   
|Depreciation/ Amortization of intangibles   |                               |                         | 2,017   |        |      |  | 1.2   | %    |   |  | 2,224   |        |  |  | 1.4   | %    |   |  | 3,083   |         |  |  | 1.7   | %   
|                                            |                               |                         |         |        |      |  |       |      |   |  |         |        |  |  |       |      |   | 
|                                            | Income from operations        |                         | $       | 38,388 |      |  |       | 23.6 | % |  | $       | 33,092 |  |  |       | 20.4 | % |  | $       | 29,458  |  |  |       | 16.2 | %
|                                            |                               |                         |         |        |      |  |       |      |   |  |         |        |  |  |       |      |   | 






|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes revenue and expenses from discontinued operations.                                                                                                                                                                                                                                                                          
|   
|(2) | The results of operations of Triumph Learning include the
    results of operations of Buckle Down Publishing from its
    acquisition date of April 15, 2004 and the results of
    operations of Sundance/ Newbridge include the results of
    operations of Options Publishing from its acquisition date of
    December 2, 2004.

Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003




| |        
| | -------
| | Revenue



Education Publishing Group.


23



---



##### Table of Contents





Library Publishing Group.




| |                   
| | ------------------
| | Cost of Goods Sold



Education Publishing Group.


Library Publishing Group.




| |                                          
| | -----------------------------------------
| | Selling, General & Administrative Expense



Education Publishing Group.


24



---



##### Table of Contents





Library Publishing Group.


Corporate.




| |                                      
| | -------------------------------------
| | Amortization of Pre-Publication Costs



Education Publishing Group.


Library Publishing Group.




| |                                                     
| | ----------------------------------------------------
| | Depreciation Expense and Amortization of Intangibles



Education Publishing Group.


25



---



##### Table of Contents





Library Publishing Group.




| |                 
| | ----------------
| | Interest Expense

1 2 3 4 1 2 3 4


3 4




|                     |                                              |                            |        |        |      |   |        |        |   | 
|-------------------- | -------------------------------------------- | -------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | 
|                     |                                              | Year Ended                 |       
|                     |                                              | December 31,               |       
|                     |                                              |                            |       
|                     |                                              | 2004                       |        |        | 2003 |  
|                     |                                              |                            |        |        |      |  
|                     |                                              | (In thousands)             |       
|Interest expense:    |                                              |                            |        |        |      |   |        |       
|                     | Senior secured term loans                    |                            | $      | 6,596  |      |   | $      | 2,362  |  
|                     | 113/4% Senior
    notes                      |                            |        | 16,600 |      |   |        | 5,986  |  
|                     | 121/2% Senior
    discount notes  non-cash  |                            |        | 8,617  |      |   |        |       |  
|                     | Series B senior preferred stock  non-cash   |                            |        | 16,115 |      |   |        |       |  
|                     | Old senior secured revolving credit facility |                            |        |       |      |   |        | 5,799  |  
|                     | Old senior subordinated notes  non-cash     |                            |        |       |      |   |        | 5,670  |  
|                     | Other                                        |                            |        | 305    |      |   |        | 111    |  
|                     |                                              |                            |        |        |      |  
|                     | Total interest expense                       |                            |        | 48,233 |      |   |        | 19,928 |  
|                     |                                              | Less: capitalized interest |        |        | 39   |   |        |        |  | 
|                     |                                              |                            |        |        |      |  
|Net Interest expense |                                              | $                          | 48,194 |        |      | $ | 19,928 |       
|                     |                                              |                            |        |        |      |  



| |                   
| | ------------------
| | Redemption Premium



26



---



##### Table of Contents





| |                        
| | -----------------------
| | Discontinued Operations





| |         
| | --------
| | Net Loss



Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002




| |        
| | -------
| | Revenue



Education Publishing Group.


Library Publishing Group.


27



---



##### Table of Contents







| |                   
| | ------------------
| | Cost of Goods Sold



Education Publishing Group.


Library Publishing Group.




| |                                          
| | -----------------------------------------
| | Selling, General & Administrative Expense



Education Publishing Group.


Library Publishing Group.


28



---



##### Table of Contents



Corporate.




| |                                               
| | ----------------------------------------------
| | Interest Expense and Deferred Financing Charge









| |                    
| | -------------------
| | Redemption Premiums





| |                    
| | -------------------
| | Goodwill Impairment





| |                        
| | -----------------------
| | Discontinued Operations





29



---



##### Table of Contents











| |                  
| | -----------------
| | Net Income (Loss)



Liquidity and Capital Resources


3 4 1 2 3 4


1 2 3 4


30



---



##### Table of Contents



Cash Flows






1 2 3 4 1 2


Capital Expenditures


Capital expenditures  pre-publication costs


Capital expenditures  property and equipment


Liquidity




31



---



##### Table of Contents









Contractual Obligations and Commitments




|                             |  |                        |        |                |       |   |        |       |  |   |         |  |  |       |         |  |  |   |         | 
|---------------------------- |  | ---------------------- | ------ | -------------- | ----- | - | ------ | ----- |  | - | ------- |  |  | ----- | ------- |  |  | - | ------- | 
|                             |  | Payments Due by Period |       
|                             |  |                        |       
|                             |  | Less Than              |        |                | 1-2   |   |        | 3-5   |  |   | After   |  |  |      
|Contractual Obligations      |  | 1 Year                 |        |                | Years |   |        | Years |  |   | 5 Years |  |  | Total |        
|                             |  |                        |        |                |       |   |        |       |  |   |         |  |  |       |        
|                             |  |                        |        | (In thousands) |       |   |       
|Operating leases             |  | $                      | 2,788  |                |       | $ | 2,246  |       |  | $ | 4,076   |  |  | $     |        |  |  | $ | 9,110   | 
|Senior secured term loans(1) |  |                        | 9,338  |                |       |   | 9,256  |       |  |   | 139,879 |  |  |       |        |  |  |   | 158,473 | 
|Senior notes                 |  |                        | 19,975 |                |       |   | 19,975 |       |  |   | 59,925  |  |  |       | 209,950 |  |  |   | 309,825 | 
|Senior discount notes        |  |                        |       |                |       |   |       |       |  |   | 8,438   |  |  |       | 169,406 |  |  |   | 177,844 | 
|Series B senior preferred(2) |  |                        |       |                |       |   |       |       |  |   |        |  |  |       | 192,858 |  |  |   | 192,858 | 
|                             |  |                        |        |                |       |   |        |       |  |   |         |  |  |       |        
|Total                        |  | $                      | 32,101 |                |       | $ | 31,477 |       |  | $ | 212,318 |  |  | $     | 572,214 |  |  | $ | 848,110 | 
|                             |  |                        |        |                |       |   |        |       |  |   |         |  |  |       |        






|    |                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The senior secured term loans are floating rate instruments. The
    interest for this schedule was calculated using year end rates.
    A one percent increase in interest rates would result in
    payments of $10,621, $10,526, $142,069 in less than 1 year, 1-2
    year, and 3-5 year respectively, for the senior secured term
    loans.
|   
|(2) | Series B senior preferred is presented at the
    December 31, 2004 liquidation value.                                                                                                                                                                                                                                                           

Seasonality and Quarterly Results of Operations






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|                       |  |                              |        |  |                |   |        |               |  |   |                |   |  |   |        | 
|---------------------- |  | ---------------------------- | ------ |  | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | 
|                       |  | Year Ended December 31, 2003 |       
|                       |  |                              |       
|                       |  | First Quarter                |        |  | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|                       |  |                              |        |  |                |   |        |               |  |   |                |  
|                       |  | (Dollars in thousands)       |       
|Revenue                |  | $                            | 38,127 |  |                | $ | 44,109 |               |  | $ | 42,082         |   |  | $ | 37,725 | 
|Income from operations |  |                              | 7,244  |  |                |   | 9,598  |               |  |   | 9,322          |   |  |   | 6,928  | 
|Net (loss) income      |  |                              | 2,275  |  |                |   | 3,560  |               |  |   | (8,643         | ) |  |   | 942    | 

|                       |  |                              |        |   |                |   |        |               |  |   |                   |   |  |  |         |  
|---------------------- |  | ---------------------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | ----------------- | - |  |  | ------- | -
|                       |  | Year Ended December 31, 2004 |       
|                       |  |                              |       
|                       |  | First Quarter                |        |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter(1) |  
|                       |  |                              |        |   |                |   |        |               |  |   |                   |  
|                       |  | (Dollars in thousands)       |       
|Revenue                |  | $                            | 39,563 |   |                | $ | 50,892 |               |  | $ | 48,713            |   |  |  | $43,070 |  
|Income from operations |  |                              | 6,764  |   |                |   | 9,080  |               |  |   | 10,766            |   |  |  | 2,848   |  
|Net (loss)             |  |                              | (5,314 | ) |                |   | (3,210 | )             |  |   | (1,954            | ) |  |  | (12,103 | )






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The fourth quarter of 2004 income from operations was impacted
    by seasonally lower revenues, investments in marketing and sales
    initiatives, an increase in our inventory obsolescence reserves,
    additional cost of public company filings and our Sarbanes Oxley
    implementation. The fourth quarter Net loss was impacted by the
    lower income from operations and higher amortization of
    pre-publication costs due to increased investment and increased
    amortization of intangibles impacted by our Buckle Down
    Publishing and Options Publishing acquisitions.

Inflation




Recent Accounting Pronouncements


Share-Based
Payment Accounting for Stock Issued to
Employees


Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity Accounting for Derivative Financial Instruments Indexed to or
Potentially Settled in, a Companys Own Stock, Redeemable Preferred
Stocks


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Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research
Bulletin No. 51




Risks Factors


This form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995 and Section 21E of the Securities Exchange Act
of 1934. We caution investors that any forward-looking
statements presented in this report and presented elsewhere by
management from time to time are based on managements
beliefs and assumptions made by, and information currently
available to, management. When used herein, the words
anticipate, believe, expect,
intend, may, might,
plan, estimate, project,
should, will be, will result
and similar expressions which do not relate solely to historical
matters are intended to identify forward-looking statements.
Such statements are subject to risks, uncertainties and
assumptions and are not guarantees of future performance, which
may be affected by known and unknown risks, trends,
uncertainties and factors that are beyond our control. Should
one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or
projected. We expressly disclaim any responsibility to update
forward-looking statements. Accordingly, past results and trends
should not be used by investors to anticipate future results or
trends.


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| |                                             
| | --------------------------------------------
| | Our net losses from operations may continue.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | A decrease in funding of schools and libraries by federal,
    state and local governments could reduce our sales and
    profits.







| |                                                                      
| | ---------------------------------------------------------------------
| | Our business is seasonal and our operating results may
    fluctuate.





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Possible infringement of our intellectual property rights
    could cause us to lose revenue and could damage our
    trademarks.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may have to defend against intellectual property
    infringement claims and other claims which may cause us to incur
    substantial costs and may divert management attention.



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| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our management has broad discretion over the application
    of cash and cash equivalents on hand, and investors will not
    have the opportunity to evaluate information concerning the
    application of such amounts.





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Our business results could be adversely affected if we
    lose our key personnel.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Growth of multimedia products may compete with and reduce
    our publishing activities.





| |                                                                        
| | -----------------------------------------------------------------------
| | Technological changes may reduce our sale of products and
    services.



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| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may be unable to compete successfully in our highly
    competitive industry.





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Our business may be adversely affected by an increase in
    paper and postage costs.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to successfully complete acquisitions and
    our acquisitions may divert management attention from operating
    our business.







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Our controlling equity holder may have interests that
    conflict with your interests.







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| |                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our substantial leverage may adversely affect our ability
    to operate our business, place us at a competitive disadvantage
    in our industry and prevent us from meeting our obligations with
    respect to the notes.





| |   |                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we are required to use a substantial portion of our cash flow
    from operations to pay interest on our debt, thereby reducing
    the availability of our cash flow to fund working capital,
    capital expenditures, product development efforts, strategic
    acquisitions, investments and alliances and other general
    corporate requirements;
|
| |  | our substantial leverage increases our vulnerability to economic
    downturns and adverse competitive and industry conditions and
    could place us at a competitive disadvantage compared to those
    of our competitors that are less leveraged;                                                                                                    
|
| |  | our debt service obligations could limit our flexibility in
    planning for, or reacting to, changes in our business and our
    industry and could limit our ability to pursue other business
    opportunities, borrow more money for operations or capital in
    the future and implement our business strategies;                                  
|
| |  | our level of debt may restrict us from raising additional
    financing on satisfactory terms to fund working capital, capital
    expenditures, product development efforts, strategic
    acquisitions, investments and alliances and other general
    corporate requirements; and                                                                    
|
| |  | our substantial leverage may make it more difficult for us to
    satisfy our obligations with respect to the notes.                                                                                                                                                                                                                                     



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | The terms of our indebtedness impose operational and
    financial restrictions on us.





| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | incur additional debt;                                              
|
| |  | pay dividends and make other distributions;                         
|
| |  | make investments and other restricted payments;                     
|
| |  | enter into a sale and leaseback transactions;                       
|
| |  | incur liens;                                                        
|
| |  | engage in mergers, acquisitions and asset sales;                    
|
| |  | enter into transactions with affiliates;                            
|
| |  | make capital expenditures;                                          
|
| |  | amend or otherwise alter debt and other material
    agreements; and
|
| |  | alter the business we conduct.                                      



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|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.
















|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                   
| | ------------------
| | Ernst & Young, LLP





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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |          |          |  
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                       |                                                                                                                                                                                                                              | December 31,                                |        
|                                       |                                                                                                                                                                                                                              |                                             |        
|                                       |                                                                                                                                                                                                                              | 2004                                        |         |          | 2003     |  
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | (In thousands, except                       |        
|                                       |                                                                                                                                                                                                                              | per share data)                             |        
|ASSETS                                
|Current assets:                        |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|                                       | Cash and cash equivalents                                                                                                                                                                                                    |                                             | $       | 78,581   |          |   | $       | 32,389   |         
|                                       | Accounts receivable, net                                                                                                                                                                                                     |                                             |         | 21,299   |          |   |         | 16,459   |         
|                                       | Inventory, net                                                                                                                                                                                                               |                                             |         | 24,227   |          |   |         | 22,150   |         
|                                       | Direct response advertising costs  current portion,
    net                                                                                                                                                                 |                                             |         | 2,797    |          |   |         | 2,431    |         
|                                       | Prepaid royalties                                                                                                                                                                                                            |                                             |         | 5,302    |          |   |         | 5,342    |         
|                                       | Prepaid expenses and other current assets                                                                                                                                                                                    |                                             |         | 3,500    |          |   |         | 2,908    |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total current assets                        |         |          | 135,706  |   |         |          | 81,679   |  
|Pre-publication costs, net             |                                                                                                                                                                                                                              |                                             | 41,746  |          |          |   | 28,197  |         
|Direct response advertising costs, net |                                                                                                                                                                                                                              |                                             | 6,620   |          |          |   | 6,504   |         
|Property and equipment, net            |                                                                                                                                                                                                                              |                                             | 10,138  |          |          |   | 7,098   |         
|Goodwill                               |                                                                                                                                                                                                                              |                                             | 166,179 |          |          |   | 125,005 |         
|Intangible assets, net                 |                                                                                                                                                                                                                              |                                             | 20,988  |          |          |   |        |         
|Deferred financing costs, net          |                                                                                                                                                                                                                              |                                             | 16,589  |          |          |   | 13,944  |         
|Other assets                           |                                                                                                                                                                                                                              |                                             | 1,737   |          |          |   | 3,095   |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|Total assets                           |                                                                                                                                                                                                                              | $                                           | 399,703 |          |          | $ | 265,522 |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                      
|LIABILITIES AND STOCKHOLDERS DEFICIT 
|Current liabilities:                   |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|                                       | Accounts payable and accrued liabilities                                                                                                                                                                                     |                                             | $       | 26,051   |          |   | $       | 18,449   |         
|                                       | Accrued interest                                                                                                                                                                                                             |                                             |         | 8,387    |          |   |         | 6,742    |         
|                                       | Deferred subscription revenue                                                                                                                                                                                                |                                             |         | 12,341   |          |   |         | 13,272   |         
|                                       | Current portion of long term debt                                                                                                                                                                                            |                                             |         | 1,300    |          |   |         | 1,000    |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total current liabilities                   |         |          | 48,079   |   |         |          | 39,463   |  
|Long term liabilities:                 |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|                                       | Senior secured term loan                                                                                                                                                                                                     |                                             |         | 127,450  |          |   |         | 98,750   |         
|                                       | 113/4% senior
    notes                                                                                                                                                                                                      |                                             |         | 173,122  |          |   |         | 140,000  |         
|                                       | 121/2% senior
    discount notes                                                                                                                                                                                             |                                             |         | 82,270   |          |   |         |         |         
|                                       | Series B senior preferred stock, redeemable, $.001 par
    value, 6,000,000 shares authorized, 2,000,230 shares
    issued and outstanding (approximate aggregate liquidation value
    as of December 31, 2004 of $110,670) |                                             |         | 108,706  |          |   |         |         |         
|                                       | Deferred gain on Series B cancellation and other long term
    liabilities                                                                                                                                                   |                                             |         | 4,637    |          |   |         |         |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total long term liabilities                 |         |          | 496,185  |   |         |          | 238,750  |  
|Commitments(Note 14)                   |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|Redeemable preferred stock:            |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|                                       | Series A preferred stock, redeemable, $.001 par value,
    30,000 shares authorized, 22,476 shares issued and
    outstanding (approximate aggregate liquidation value as of
    December 31, 2004 of $33,566)               |                                             |         | 35,627   |          |   |         | 34,299   |         
|                                       | Series B senior preferred stock, redeemable, $.001 par
    value, 6,000,000 shares authorized, 2,400,000 shares
    issued and outstanding (approximate aggregate liquidation value
    as of December 31, 2003 of $113,428) |                                             |         |         |          |   |         | 109,364  |         
|                                       | Series C preferred stock, redeemable, $.001 par value,
    3,500 shares authorized, issued and outstanding
    (approximate aggregate liquidation value as of December 31,
    2004 of $3,625)                               |                                             |         | 1,255    |          |   |         |         |         
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total redeemable preferred stock            |         |          | 36,882   |   |         |          | 143,663  |  
|Stockholders deficit:                 |                                                                                                                                                                                                                              |                                             |         |          |          |   |         |         
|                                       | Common stock, $.001 par value, 30,000,000 shares
    authorized, 20,000,000 shares issued and outstanding                                                                                                                    |                                             |         | 20       |          |   |         | 20       |         
|                                       | Accumulated other comprehensive income                                                                                                                                                                                       |                                             |         | 526      |          |   |         | 299      |         
|                                       | Accumulated deficit                                                                                                                                                                                                          |                                             |         | (181,989 | )        |   |         | (156,673 | )       
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total stockholders deficit                 |         |          | (181,443 | ) |         |          | (156,354 | )
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  
|                                       |                                                                                                                                                                                                                              | Total liabilities and stockholders deficit |         | $        | 399,703  |   |         | $        | 265,522  |  
|                                       |                                                                                                                                                                                                                              |                                             |         |          |          |  



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                                        |                                                       | Year Ended December 31, |        
|                                                                                                                        |                                                       |                         |        
|                                                                                                                        |                                                       | 2004                    |         |        | 2003 |   |         | 2002   |  
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|                                                                                                                        |                                                       | (In thousands)          |        
|Revenue                                                                                                                 |                                                       | $                       | 182,238 |        |      | $ | 162,043 |        |   | $ | 163,142 |       
|Costs and expenses:                                                                                                     |                                                       |                         |         |        |      |   |         |        |   |   |         |       
|                                                                                                                        | Cost of goods sold                                    |                         |         | 58,020 |      |   |         | 49,200 |   |   |         | 50,326 |  
|                                                                                                                        | Marketing and sales                                   |                         |         | 41,035 |      |   |         | 35,463 |   |   |         | 33,016 |  
|                                                                                                                        | Fulfillment and distribution                          |                         |         | 14,270 |      |   |         | 11,695 |   |   |         | 10,408 |  
|                                                                                                                        | General and administrative                            |                         |         | 23,760 |      |   |         | 19,092 |   |   |         | 22,106 |  
|                                                                                                                        | Restructuring charges                                 |                         |         | 808    |      |   |         | 2,140  |   |   |         | (125   | )
|                                                                                                                        | Amortization of pre-publication costs                 |                         |         | 11,804 |      |   |         | 9,137  |   |   |         | 7,006  |  
|                                                                                                                        | Depreciation expense and amortization of intangibles  |                         |         | 3,083  |      |   |         | 2,224  |   |   |         | 2,017  |  
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Total costs and expenses                                                                                                |                                                       |                         | 152,780 |        |      |   | 128,951 |        |   |   | 124,754 |       
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Income from operations                                                                                                  |                                                       |                         | 29,458  |        |      |   | 33,092  |        |   |   | 38,388  |       
|Other (income) expense:                                                                                                 |                                                       |                         |         |        |      |   |         |        |   |   |         |       
|                                                                                                                        | Interest expense                                      |                         |         | 48,194 |      |   |         | 19,928 |   |   |         | 17,993 |  
|                                                                                                                        | Interest income                                       |                         |         | (777   | )    |   |         | (250   | ) |   |         | (79    | )
|                                                                                                                        | Amortization and writeoff of deferred financing costs |                         |         | 2,937  |      |   |         | 5,215  |   |   |         | 1,560  |  
|                                                                                                                        | Redemption premiums                                   |                         |         |       |      |   |         | 9,236  |   |   |         |       |  
|                                                                                                                        | Other (income) expense                                |                         |         | (74    | )    |   |         | 113    |   |   |         | (178   | )
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Total other expenses                                                                                                    |                                                       |                         | 50,280  |        |      |   | 34,242  |        |   |   | 19,296  |       
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Income (loss) before provision for income taxes, discontinued
    operations and cumulative effect of accounting change |                                                       |                         | (20,822 | )      |      |   | (1,150  | )      |   |   | 19,092  |       
|Provision for income taxes                                                                                              |                                                       |                         | 47      |        |      |   |        |        |   |   |        |       
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Income (loss) before discontinued operations and cumulative
    effect of accounting change                             |                                                       |                         | (20,869 | )      |      |   | (1,150  | )      |   |   | 19,092  |       
|Discontinued operations:                                                                                                |                                                       |                         |         |        |      |   |         |        |   |   |         |       
|                                                                                                                        | Income from operations of discontinued operations     |                         |         |       |      |   |         | 195    |   |   |         | 3,444  |  
|                                                                                                                        | Loss on disposal of discontinued operations           |                         |         | (1,712 | )    |   |         | (911   | ) |   |         | (1,678 | )
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Income (loss) before cumulative effect of accounting change                                                             |                                                       |                         | (22,581 | )      |      |   | (1,866  | )      |   |   | 20,858  |       
|Cumulative effect of accounting change                                                                                  |                                                       |                         |        |        |      |   |        |        |   |   | (48,610 | )     
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Net loss                                                                                                                |                                                       | $                       | (22,581 | )      |      | $ | (1,866  | )      |   | $ | (27,752 | )     
|Preferred stock dividends and accretion                                                                                 |                                                       |                         | (2,735  | )      |      |   | (17,472 | )      |   |   | (16,781 | )     
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  
|Net loss available to common stockholders                                                                               |                                                       | $                       | (25,316 | )      |      | $ | (19,338 | )      |   | $ | (44,533 | )     
|                                                                                                                        |                                                       |                         |         |        |      |   |         |        |  



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIT


|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |          |         |   |   |          |         |     |         |  
|------------------------------- | ------------------------------------------------- | --------------------------------------- | ------------------------ | ----------- | ------------- | - | -- | ----------- | - | ----- | ------------- | - | --- | ------- | -------- | ------- | - | - | -------- | ------- | --- | ------- | -
|                                |                                                   |                                         |                          | Accumulated |               |   |    |             |  
|                                |                                                   | Common Stock                            |                          |             | Other         |   |    |             |   | Total |              
|                                |                                                   |                                         |                          |             | Comprehensive |   |    | Accumulated |   |       | Stockholders |  
|                                |                                                   | Shares                                  |                          |             | Amount        |   |    | Income      |   |       | Deficit       |   |     | Deficit |         
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|                                |                                                   | (In thousands)                          |                         
|Balance as of January 1, 2002   |                                                   |                                         | 20,000                   |             |               | $ | 20 |             |   | $     |              |   |     | $       | (90,974  | )       |   | $ | (90,954  | )      
|                                | Net loss                                          |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (27,752 | ) |   |          | (27,752 | )  
|                                | Preferred stock dividends and accretion           |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (16,781 | ) |   |          | (16,781 | )  
|                                | Stock option compensation                         |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | 52      |   |   |          | 52      |    
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|Balance as of December 31, 2002 |                                                   |                                         | 20,000                   |             |               |   | 20 |             |   |       |              |   |     |         | (135,455 | )       |   |   | (135,435 | )      
|                                | Comprehensive loss: Net loss                      |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (1,866  | ) |   |          | (1,866  | )  
|                                |                                                   | Foreign currency translation adjustment |                          |             |              |   |    |             |  |       |               |   | 299 |         |          |         |  |   |          |         | 299 |        
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|                                |                                                   |                                         | Total comprehensive loss |             |               |   |    |             |   |       |               |   |     |         |          |         |   |   |          |         |     | (1,567  | )
|                                | Cancellation of Series A preferred stock warrants |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (1,880  | ) |   |          | (1,880  | )  
|                                | Preferred stock dividends and accretion           |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (17,472 | ) |   |          | (17,472 | )  
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|Balance as of December 31, 2003 |                                                   |                                         | 20,000                   |             |               |   | 20 |             |   |       | 299           |   |     |         | (156,673 | )       |   |   | (156,354 | )      
|                                | Comprehensive loss: Net loss                      |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (22,581 | ) |   |          | (22,581 | )  
|                                |                                                   | Foreign currency translation adjustment |                          |             |              |   |    |             |  |       |               |   | 227 |         |          |         |  |   |          |         | 227 |        
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|                                |                                                   |                                         | Total comprehensive loss |             |               |   |    |             |   |       |               |   |     |         |          |         |   |   |          |         |     | (22,354 | )
|                                | Preferred stock dividends and accretion           |                                         |                          |            |               |   |    |            |   |       |               |  |     |         |          | (2,735  | ) |   |          | (2,735  | )  
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         
|Balance as of December 31, 2004 |                                                   |                                         | 20,000                   |             |               | $ | 20 |             |   | $     | 526           |   |     | $       | (181,989 | )       |   | $ | (181,443 | )      
|                                |                                                   |                                         |                          |             |               |   |    |             |   |       |               |   |     |         |         



43



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |        |        |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------- | ------ | ------ | - | -------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                      |                                                                                                    | Year Ended December 31,                                     |        
|                                                                                      |                                                                                                    |                                                             |        
|                                                                                      |                                                                                                    | 2004                                                        |         |        | 2003   |   |          | 2002   |       
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|                                                                                      |                                                                                                    | (In thousands)                                              |        
|Operating activities                                                                  |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|Net loss                                                                              |                                                                                                    | $                                                           | (22,581 | )      |        | $ | (1,866   | )      |        | $ | (27,752 | )     
|Adjustments to reconcile net (loss) to net cash provided by
    operating activities: |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|                                                                                      | Goodwill impairment charges                                                                        |                                                             |         |       |        |   |          |       |        |   |         | 48,610 |       
|                                                                                      | Loss on sale of business                                                                           |                                                             |         |       |        |   |          | 911    |        |   |         | 1,678  |       
|                                                                                      | Redemption premiums                                                                                |                                                             |         |       |        |   |          | 9,236  |        |   |         |       |       
|                                                                                      | (Income) loss from discontinued operations  non-cash                                              |                                                             |         | 1,712  |        |   |          |       |        |   |         | (4,600 | )     
|                                                                                      | Non-cash interest expense                                                                          |                                                             |         | 24,704 |        |   |          | 5,670  |        |   |         | 7,945  |       
|                                                                                      | Allowance for doubtful accounts and obsolescence                                                   |                                                             |         | 7,065  |        |   |          | 4,536  |        |   |         | 2,592  |       
|                                                                                      | Depreciation and amortization of property and equipment,
    pre-publication costs and intangibles |                                                             |         | 14,888 |        |   |          | 11,361 |        |   |         | 9,023  |       
|                                                                                      | Amortization of deferred financing costs                                                           |                                                             |         | 2,937  |        |   |          | 2,027  |        |   |         | 1,560  |       
|                                                                                      | Write-off of deferred financing costs                                                              |                                                             |         |       |        |   |          | 3,188  |        |   |         |       |       
|                                                                                      | Other non-operating income  non-cash                                                              |                                                             |         | (136   | )      |   |          | 113    |        |   |         | (126   | )     
|                                                                                      | Changes in operating assets and liabilities:                                                       |                                                             |         |        |        |   |          |        |        |   |         |        |       
|                                                                                      |                                                                                                    | Accounts receivable                                         |         |        | (6,184 | ) |          |        | 110    |   |         |        | (3,165 | )
|                                                                                      |                                                                                                    | Inventory                                                   |         |        | (2,296 | ) |          |        | (1,318 | ) |         |        | (2,405 | )
|                                                                                      |                                                                                                    | Prepaid expenses, royalty advances and other current assets |         |        | (418   | ) |          |        | (2,013 | ) |         |        | (3     | )
|                                                                                      |                                                                                                    | Direct response advertising costs                           |         |        | (482   | ) |          |        | (549   | ) |         |        | 259    |  
|                                                                                      |                                                                                                    | Other assets                                                |         |        | (478   | ) |          |        | (469   | ) |         |        | (29    | )
|                                                                                      |                                                                                                    | Accounts payable, accrued and other liabilities             |         |        | 5,729  |   |          |        | (4,672 | ) |         |        | (1,013 | )
|                                                                                      |                                                                                                    | Accrued interest                                            |         |        | 1,646  |   |          |        | 6,509  |   |         |        |       |  
|                                                                                      |                                                                                                    | Deferred subscription revenue                               |         |        | (932   | ) |          |        | (390   | ) |         |        | 132    |  
|                                                                                      |                                                                                                    | Assets and liabilities held for sale, net                   |         |        |       |   |          |        | (238   | ) |         |        | 187    |  
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Net cash provided by operating activities                                             |                                                                                                    |                                                             | 25,174  |        |        |   | 32,146   |        |        |   | 32,893  |       
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Investing activities                                                                  |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|Additions to pre-publication costs                                                    |                                                                                                    |                                                             | (14,489 | )      |        |   | (14,051  | )      |        |   | (12,418 | )     
|Additions to property and equipment                                                   |                                                                                                    |                                                             | (3,398  | )      |        |   | (2,977   | )      |        |   | (2,044  | )     
|Additions to intangible assets                                                        |                                                                                                    |                                                             | (29     | )      |        |   |         |        |        |   |        |       
|Acquisitions, net of cash acquired                                                    |                                                                                                    |                                                             | (77,896 | )      |        |   |         |        |        |   |        |       
|Proceeds from sale of businesses                                                      |                                                                                                    |                                                             |        |        |        |   | 7,550    |        |        |   |        |       
|Proceeds from sale of assets                                                          |                                                                                                    |                                                             | 34      |        |        |   | 21       |        |        |   |        |       
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Net cash used in investing activities                                                 |                                                                                                    |                                                             | (95,778 | )      |        |   | (9,457   | )      |        |   | (14,462 | )     
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Financing activities                                                                  |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|Proceeds from
    121/2% senior
    discount notes                                    |                                                                                                    |                                                             | 73,653  |        |        |   |         |        |        |   |        |       
|Proceeds from
    113/4% senior
    notes                                             |                                                                                                    |                                                             | 33,150  |        |        |   | 140,000  |        |        |   |        |       
|Proceeds from floating rate term loan                                                 |                                                                                                    |                                                             | 30,000  |        |        |   | 100,000  |        |        |   |        |       
|Repayment of floating rate term loan                                                  |                                                                                                    |                                                             | (1,000  | )      |        |   | (250     | )      |        |   |        |       
|Proceeds from senior credit facility                                                  |                                                                                                    |                                                             |        |        |        |   | 12,000   |        |        |   | 4,425   |       
|Repayment of senior credit facility                                                   |                                                                                                    |                                                             |        |        |        |   | (154,350 | )      |        |   | (26,725 | )     
|Repayment of subordinated notes                                                       |                                                                                                    |                                                             |        |        |        |   | (75,211  | )      |        |   |        |       
|Repurchase of Series B Senior preferred stock                                         |                                                                                                    |                                                             | (13,999 | )      |        |   |         |        |        |   |        |       
|Additions to deferred financing costs                                                 |                                                                                                    |                                                             | (5,235  | )      |        |   | (15,391  | )      |        |   | (914    | )     
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Net cash (used in) provided by financing activities                                   |                                                                                                    |                                                             | 116,569 |        |        |   | 6,798    |        |        |   | (23,214 | )     
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Effect of exchange rates on cash                                                      |                                                                                                    |                                                             | 227     |        |        |   | 201      |        |        |   |        |       
|Net increase(decrease) in cash and cash equivalents                                   |                                                                                                    |                                                             | 46,192  |        |        |   | 29,688   |        |        |   | (4,783  | )     
|Cash and cash equivalents at beginning of year                                        |                                                                                                    |                                                             | 32,389  |        |        |   | 2,701    |        |        |   | 7,484   |       
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Cash and cash equivalents at end of year                                              |                                                                                                    | $                                                           | 78,581  |        |        | $ | 32,389   |        |        | $ | 2,701   |       
|                                                                                      |                                                                                                    |                                                             |         |        |        |   |          |        |       
|Supplemental disclosure                                                               |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|Cash paid during the year for:                                                        |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|                                                                                      | Interest                                                                                           |                                                             | $       | 21,855 |        |   | $        | 7,517  |        |   | $       | 9,968  |       
|Non-cash investing activity:                                                          |                                                                                                    |                                                             |         |        |        |   |          |        |        |   |         |       
|                                                                                      | Sale of business in exchange for note                                                              |                                                             | $       |       |        |   | $        |       |        |   | $       | 2,624  |       



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004


(In thousands)




|   |                                    
|-- | -----------------------------------
|1. | Nature of Business and Organization









|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segments                                   |  | Products and Markets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Sundance/ Newbridge Educational Publishing |  | Under the Sundance brand, Sundance/Newbridge publishes.
    educational materials for shared reading, guided reading,
    independent reading, phonics and comprehension skills for
    students in kindergarten through 9th grade, and markets
    non-proprietary, supplemental literature products for students
    in grades K-12. Under the Newbridge brand, Sundance/Newbridge
    publishes non-fiction, guided reading materials and
    teachers guides in the content areas of standards-based
    science, social studies and math for students in
    pre-kindergarten through 5th grade. Options Publishing is also
    reported under the Sundance/Newbridge segment since acquisition
    and this business publishes educational materials for K-8
    students who need additional help in the areas of reading,
    writing, math, science and parental involvement.
|Triumph Learning                           |  | Triumph Learning is a publisher of state-specific test
    preparation materials in print form for the K-12 market which it
    sells directly to educators, schools and school systems under
    both the Triumph and Buckle Down brands. Buckle Down has been
    reported within the Triumph segment since acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Oakstone Publishing                        |  | Oakstone offers monthly, subscription-based programs comprised
    of summaries and critical reviews of medical journal articles.
    Oakstone produces titles in audio, print, electronic and Web
    formats that enable its customers, which consist predominately
    of doctors, to maintain current knowledge and/or obtain
    continuing medical education credits for licensing and hospital
    affiliation purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segments                 |  | Products and Markets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Recorded Books           |  | Recorded Books, which we believe is the largest publisher and
    marketer of unabridged, spoken word audiobooks in the United
    States and the United Kingdom public library market, records and
    publishes unabridged audiobooks, across multiple genres,
    including mysteries, histories, classics, inspirational,
    westerns, romance, sports and other topics. Recorded Books
    supplements its proprietary title list by distributing
    non-proprietary titles, including certain titles in abridged
    form. Recorded Books sells its products to public and school
    libraries, retail bookstores and direct to consumers.
|Chelsea House Publishers |  | Chelsea House creates and publishes hard-cover, non-fiction
    books for children and young adults, which are sold to public
    and school libraries located throughout the United States.
    Chelsea Houses titles are typically published in a series,
    providing a mechanism for recurring sales as new editions are
    released.                                                                                                                                                                                                                                                                                                       



|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation





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





| |                              
| | -----------------------------
| | Concentrations of Credit Risk





| |                                                    
| | ---------------------------------------------------
| | Fair Value and Credit Risk of Financial Instruments

3 4 1 2


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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |                   |         |  |       |   |         | 
|-------------------------------- |  | ----------------- | ------- |  | ----- | - | ------- | 
|                                 |  | December 31, 2004 |        
|                                 |  |                   |        
|                                 |  | Carrying          |         |  | Fair  |  
|                                 |  | Value             |         |  | Value |  
|                                 |  |                   |         |  |       |  
|Senior secured term loan         |  | $                 | 127,450 |  |       | $ | 127,450 | 
|113/4% senior
    notes          |  |                   | 173,122 |  |       |   | 192,950 | 
|121/2% senior
    discount notes |  |                   | 82,270  |  |       |   | 89,100  | 



| |                 
| | ----------------
| | Cash Equivalents





| |                    
| | -------------------
| | Revenue Recognition





| |                      
| | ---------------------
| | Shipping and Handling





| |          
| | ---------
| | Inventory





| |                  
| | -----------------
| | Prepaid Royalties





| |            
| | -----------
| | Advertising





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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                      
| | ---------------------
| | Pre-publication Costs





| |                       
| | ----------------------
| | Property and Equipment

Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use.




| |         
| | --------
| | Goodwill

Goodwill and Other Intangible Assets




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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Long-Lived Assets

Accounting for the Impairment or Disposal of
Long-Lived Assets




| |                         
| | ------------------------
| | Stock-Based Compensation



Accounting for Stock-Based Compensation






|                        |  |      |          |   |      |  |          |      |  |  |          |  
|----------------------- |  | ---- | -------- | - | ---- |  | -------- | ---- |  |  | -------- | -
|                        |  | 2004 |          |   | 2003 |  |          | 2002 | 
|                        |  |      |          |   |      |  |          |      | 
|Risk free interest rate |  |      | 4.25     | % |      |  | 3.79     | %    |  |  | 3.79     | %
|Expected dividend yield |  |      | 0        | % |      |  | 0        | %    |  |  | 0        | %
|Expected lives          |  |      | 6  years |   |      |  | 6  years |      |  |  | 6  years |  





| |             
| | ------------
| | Income Taxes





| |                             
| | ----------------------------
| | Foreign Currency Translation



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                 
| | ----------------
| | Reclassification





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

Share-Based
Payment Accounting for Stock Issued to
Employees Statement of Cash Flows


Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity Accounting for Derivative Financial Instruments Indexed to or
Potentially Settled in, a Companys Own Stock, Redeemable Preferred
Stocks






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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research
Bulletin No. 51






|   |             
|-- | ------------
|3. | Acquisitions

Buckle Down




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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                          |  |             |        |         |            |   |        | 
|----------------------------------------- |  | ----------- | ------ | ------- | ---------- | - | ------ | 
|                                          |  |             |        | Options |           
|                                          |  | Buckle Down |        |         | Publishing |  
|                                          |  |             |        |         |            |  
|Working capital (excluding cash acquired) |  | $           | 1,769  |         |            | $ | 1,665  | 
|Pre-publication costs                     |  |             | 3,600  |         |            |   | 7,200  | 
|Property and equipment                    |  |             | 193    |         |            |   | 1,929  | 
|Intangibles                               |  |             | 9,000  |         |            |   | 12,500 | 
|                                          |  |             |        |         |            |  
|Net assets acquired                       |  |             | 14,562 |         |            |   | 23,294 | 
|Goodwill recorded                         |  |             | 11,717 |         |            |   | 29,416 | 
|                                          |  |             |        |         |            |  
|Total cost                                |  | $           | 26,279 |         |            | $ | 52,710 | 
|                                          |  |             |        |         |            |  





| |                                
| | -------------------------------
| | Pro Forma Financial Information



|                                                     |  |          |         |   |             |          |       |            |  |   |          |   |  |   |         |  
|---------------------------------------------------- |  | -------- | ------- | - | ----------- | -------- | ----- | ---------- |  | - | -------- | - |  | - | ------- | -
|                                                     |  |          |         |   |             | Proforma |       |            | 
|                                                     |  | HCC as   |         |   | Proforma    |          |       | Options    |  |   | HCC      |  
|                                                     |  | Reported |         |   | Buckle Down |          |       | Publishing |  |   | Proforma |  
|                                                     |  |          |         |   |             |          |       |            |  |   |          |  
|For the Year Ended December 31, 2004                 |  |          |         |   |             |          |       |            |  |   |          |   |  |   |         |  
|Revenue                                              |  | $        | 182,238 |   |             | $        | 2,721 |            |  | $ | 18,259   |   |  | $ | 203,218 |  
|Cost of goods sold                                   |  |          | 58,020  |   |             |          | 634   |            |  |   | 3,220    |   |  |   | 61,874  |  
|Marketing and sales                                  |  |          | 41,035  |   |             |          | 634   |            |  |   | 6,005    |   |  |   | 47,674  |  
|Fulfillment and distribution                         |  |          | 14,270  |   |             |          | 295   |            |  |   | 851      |   |  |   | 15,416  |  
|General and administrative                           |  |          | 23,760  |   |             |          | 381   |            |  |   | 1,443    |   |  |   | 25,584  |  
|Restructuring charges                                |  |          | 808     |   |             |          |      |            |  |   |         |   |  |   | 808     |  
|Amortization of pre-publication costs                |  |          | 11,804  |   |             |          | 540   |            |  |   | 1,332    |   |  |   | 13,676  |  
|Depreciation expense and amortization of intangibles |  |          | 3,083   |   |             |          | 520   |            |  |   | 1,441    |   |  |   | 5,044   |  
|                                                     |  |          |         |   |             |          |       |            |  |   |          |  
|Income (loss) from operations                        |  |          | 29,458  |   |             |          | (283  | )          |  |   | 3,967    |   |  |   | 33,142  |  
|Other income and (expense)                           |  |          | (52,039 | ) |             |          | (103  | )          |  |   | (5,953   | ) |  |   | 58,095  |  
|                                                     |  |          |         |   |             |          |       |            |  |   |          |  
|Net income/(loss)                                    |  | $        | (22,581 | ) |             | $        | (386  | )          |  | $ | (1,986   | ) |  | $ | (24,953 | )
|                                                     |  |          |         |   |             |          |       |            |  |   |          |  

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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                     |  |          |         |   |             |   |        |          |  |   |          |   |  |   |         |  
|---------------------------------------------------- |  | -------- | ------- | - | ----------- | - | ------ | -------- |  | - | -------- | - |  | - | ------- | -
|                                                     |  | HCC as   |         |   | Proforma    |   |        | Proforma |  |   | HCC      |  
|                                                     |  | Reported |         |   | Buckle Down |   |        | Options  |  |   | Proforma |  
|                                                     |  |          |         |   |             |   |        |          |  |   |          |  
|For the Year Ended December 31, 2003                 |  |          |         |   |             |   |        |          |  |   |          |   |  |   |         |  
|Revenue                                              |  | $        | 162,043 |   |             | $ | 10,712 |          |  | $ | 16,278   |   |  | $ | 189,033 |  
|Cost of goods sold                                   |  |          | 49,200  |   |             |   | 2,116  |          |  |   | 3,734    |   |  |   | 55,050  |  
|Marketing and sales                                  |  |          | 35,463  |   |             |   |       |          |  |   | 6,178    |   |  |   | 41,641  |  
|Fulfillment and distribution                         |  |          | 11,695  |   |             |   |       |          |  |   | 322      |   |  |   | 12,017  |  
|General and administrative                           |  |          | 19,092  |   |             |   | 4,849  |          |  |   | 1,060    |   |  |   | 25,001  |  
|Restructuring charges                                |  |          | 2,140   |   |             |   |       |          |  |   |         |   |  |   | 2,140   |  
|Amortization of pre-publication costs                |  |          | 9,137   |   |             |   | 900    |          |  |   | 1,440    |   |  |   | 11,477  |  
|Depreciation expense and amortization of intangibles |  |          | 2,224   |   |             |   | 694    |          |  |   | 1,561    |   |  |   | 4,479   |  
|                                                     |  |          |         |   |             |   |        |          |  |   |          |  
|Income from operations                               |  |          | 33,092  |   |             |   | 2,153  |          |  |   | 1,983    |   |  |   | 37,228  |  
|Other income and (expense)                           |  |          | (34,958 | ) |             |   | (1,089 | )        |  |   | (6,475   | ) |  |   | (42,522 | )
|                                                     |  |          |         |   |             |   |        |          |  |   |          |  
|Net income (loss)                                    |  | $        | (1,866  | ) |             | $ | 1,064  |          |  | $ | (4,492   | ) |  | $ | (5,294  | )
|                                                     |  |          |         |   |             |   |        |          |  |   |          |  



|   |                    
|-- | -------------------
|4. | Accounts Receivable



|                                     |  |              |        |  |      |   |        | 
|------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                     |  | December 31, |       
|                                     |  |              |       
|                                     |  | 2004         |        |  | 2003 |  
|                                     |  |              |        |  |      |  
|Accounts receivable                  |  | $            | 25,091 |  |      | $ | 20,310 | 
|Less allowance for doubtful accounts |  |              | 3,792  |  |      |   | 3,851  | 
|                                     |  |              |        |  |      |  
|                                     |  | $            | 21,299 |  |      | $ | 16,459 | 
|                                     |  |              |        |  |      |  



|   |          
|-- | ---------
|5. | Inventory



|                                |  |              |        |  |      |   |        | 
|------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                |  | December 31, |       
|                                |  |              |       
|                                |  | 2004         |        |  | 2003 |  
|                                |  |              |        |  |      |  
|Supplies                        |  | $            | 799    |  |      | $ | 1,015  | 
|Work-in-process                 |  |              | 783    |  |      |   | 642    | 
|Finished goods                  |  |              | 27,133 |  |      |   | 22,137 | 
|                                |  |              |        |  |      |  
|                                |  |              | 28,715 |  |      |   | 23,794 | 
|Less allowance for obsolescence |  |              | 4,488  |  |      |   | 1,644  | 
|                                |  |              |        |  |      |  
|                                |  | $            | 24,227 |  |      | $ | 22,150 | 
|                                |  |              |        |  |      |  



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                      
|-- | ---------------------
|6. | Pre-publication Costs



|                              |  |              |        |  |      |   |        | 
|----------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2004         |        |  | 2003 |  
|                              |  |              |        |  |      |  
|Pre-publication costs         |  | $            | 90,964 |  |      | $ | 65,470 | 
|Less accumulated amortization |  |              | 49,218 |  |      |   | 37,273 | 
|                              |  |              |        |  |      |  
|                              |  | $            | 41,746 |  |      | $ | 28,197 | 
|                              |  |              |        |  |      |  





|   |                       
|-- | ----------------------
|7. | Property and Equipment



|                              |  |              |        |  |      |   |        | 
|----------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2004         |        |  | 2003 |  
|                              |  |              |        |  |      |  
|Furniture and fixtures        |  | $            | 3,241  |  |      | $ | 2,178  | 
|Office equipment and software |  |              | 10,684 |  |      |   | 9,717  | 
|Land and building             |  |              | 4,753  |  |      |   | 2,763  | 
|Leasehold improvements        |  |              | 1,916  |  |      |   | 1,213  | 
|                              |  |              |        |  |      |  
|                              |  |              | 20,594 |  |      |   | 15,871 | 
|Less accumulated depreciation |  |              | 10,456 |  |      |   | 8,773  | 
|                              |  |              |        |  |      |  
|                              |  | $            | 10,138 |  |      | $ | 7,098  | 
|                              |  |              |        |  |      |  





|   |                         
|-- | ------------------------
|8. | Goodwill and Intangibles



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                            |                                                  |   |         |         |  
|--------------------------- | ------------------------------------------------ | - | ------- | ------- | -
|Goodwill, January 1, 2002   |                                                  | $ | 167,133 |        
|Less:                       |                                                  |   |         |        
|                            | Goodwill impairment writedown  Chelsea House    |   |         | (29,753 | )
|                            | Goodwill impairment writedown  Triumph Learning |   |         | (12,190 | )
|                            | Finalize Audio Adventures acquisition accounting |   |         | (185    | )
|                            |                                                  |   |        
|Goodwill, December 31, 2002 |                                                  | $ | 125,005 |        
|                            |                                                  |   |        



|                            |                                |   |         |        | 
|--------------------------- | ------------------------------ | - | ------- | ------ | 
|Goodwill, January 1, 2004   |                                | $ | 125,005 |       
|Add:                        |                                |   |         |       
|                            | Buckle Down Acquisition        |   |         | 11,717 | 
|                            | Options Publishing acquisition |   |         | 29,416 | 
|                            | Other                          |   |         | 41     | 
|                            |                                |   |        
|Goodwill, December 31, 2004 |                                | $ | 166,179 |       
|                            |                                |   |        





|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |        |        |  |   |        |        | 
|------------------------------ | --------------------- | ----- | ---------- | ------------ | ------------ | - | --- | ----------- | ------- | - | ---------- | ----- |  | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                               |                       |       |            | HCC          |              |   |     |             |         |   |           
|                               |                       |       |            | Exclusive of |              |   |     |             | Options |   |            |      
|                               |                       | Lives |            |              | Acquisitions |   |     | Buckle Down |         |   | Publishing |       |  | Consolidated |       
|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |       
|Definite Life Assets           |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |        |        |  |   |        |       
|Customer list                  |                       |       | 10 years   |              |              | $ |    |             |         | $ | 6,050      |       |  | $            | 12,000 |        |  | $ | 18,050 |       
|Noncompete agreements          |                       |       | 3-5  years |              |              |   |    |             |         |   | 250        |       |  |              | 500    |        |  |   | 750    |       
|Other                          |                       |       | 5 years    |              |              |   | 158 |             |         |   |           |       |  |              |       |        |  |   | 158    |       
|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |       
|                               |                       |       |            |              |              |   | 158 |             |         |   | 6,300      |       |  |              | 12,500 |        |  |   | 18,958 |       
|Less: accumulated amortization |                       |       |            |              |              |   | (97 | )           |         |   | (464       | )     |  |              | (109   | )      |  |   | (670   | )     
|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |       
|                               |                       |       |            |              |              |   | 61  |             |         |   | 5,836      |       |  |              | 12,391 |        |  |   | 18,288 |       
|Trademarks                     |                       |       | Indefinite |              |              |   |    |             |         |   | 2,700      |       |  |              |       |        |  |   | 2,700  |       
|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |       
|                               | Net intangible assets |       |            |              |              |   | $   | 61          |         |   | $          | 8,536 |  |              | $      | 12,391 |  |   | $      | 20,988 | 
|                               |                       |       |            |              |              |   |     |             |         |   |            |       |  |              |       



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |  |       |       | 
|---------------------------- |  | ----- | ----- | 
|                             |  | Total |      
|                             |  |       |      
|Amortization of intangibles: |  |       |       | 
|2005                         |  | $     | 2,105 | 
|2006                         |  |       | 2,086 | 
|2007                         |  |       | 1,855 | 
|2008                         |  |       | 1,855 | 
|2009                         |  |       | 1,855 | 
|                             |  |       |      
|                             |  | $     | 9,756 | 
|                             |  |       |      





|   |                                         
|-- | ----------------------------------------
|9. | Accounts Payable and Accrued Liabilities



|                                                    |  |              |        |  |      |   |        | 
|--------------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                    |  | December 31, |       
|                                                    |  |              |       
|                                                    |  | 2004         |        |  | 2003 |  
|                                                    |  |              |        |  |      |  
|Trade accounts payable                              |  | $            | 9,520  |  |      | $ | 5,084  | 
|Accrued liabilities                                 |  |              | 8,977  |  |      |   | 7,561  | 
|Accrued management incentive                        |  |              | 4,742  |  |      |   | 3,946  | 
|Accrued compensation and related taxes and benefits |  |              | 2,666  |  |      |   | 1,858  | 
|Accrued restructuring costs                         |  |              | 146    |  |      |   |       | 
|                                                    |  |              |        |  |      |  
|                                                    |  | $            | 26,051 |  |      | $ | 18,449 | 
|                                                    |  |              |        |  |      |  



|    |             
|--- | ------------
|10. | Income Taxes



|         |                 |              |    |    |      |   |   |      |  |   |   |   | 
|-------- | --------------- | ------------ | -- | -- | ---- | - | - | ---- |  | - | - | - | 
|         |                 | December 31,
|         |                 |             
|         |                 | 2004         |    |    | 2003 |   |   | 2002
|         |                 |              |    |    |      |   |   |     
|Current: |                 |              |    |    |      |   |   |      |  |   |   |  
|         | Federal         |              | $  |   |      |   | $ |     |  |   | $ |  | 
|         | State and local |              |    |   |      |   |   |     |  |   |   |  | 
|         | Foreign         |              |    | 47 |      |   |   |     |  |   |   |  | 
|         |                 |              |    |    |      |   |   |      | 
|         |                 | $            | 47 |    |      | $ |  |      |  | $ |  |  
|         |                 |              |    |    |      |   |   |      | 



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  | December 31, |        
|                                                |  |              |        
|                                                |  | 2004         |         |   | 2003 |  
|                                                |  |              |         |   |      |  
|Net operating loss carryforwards                |  | $            | 29,183  |   |      | $ | 28,691  |  
|Goodwill amortization and impairment            |  |              | 474     |   |      |   | 6,571   |  
|Restructuring charges                           |  |              | 58      |   |      |   | 160     |  
|Direct response advertising                     |  |              | (3,767  | ) |      |   | (2,695  | )
|Inventory reserves                              |  |              | 816     |   |      |   | (279    | )
|Interest on
    121/2% Senior
    Discount Note |  |              | 2,603   |   |      |   |        |  
|Allowance for doubtful accounts                 |  |              | 328     |   |      |   | 435     |  
|Accrued incentive compensation                  |  |              | 634     |   |      |   | 297     |  
|Other                                           |  |              | (952    | ) |      |   | 171     |  
|                                                |  |              |         |   |      |  
|Net deferred tax assets                         |  |              | 29,377  |   |      |   | 33,351  |  
|Less valuation allowance                        |  |              | (29,377 | ) |      |   | (33,351 | )
|                                                |  |              |         |   |      |  
|Net deferred tax assets                         |  | $            |        |   |      | $ |        |  
|                                                |  |              |         |   |      |  







|                                                      |  |              |     |   |      |  |     |      |  |  |     |  
|----------------------------------------------------- |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                      |  | Year Ended   |    
|                                                      |  | December 31, |    
|                                                      |  |              |    
|                                                      |  | 2004         |     |   | 2003 |  |     | 2002 | 
|                                                      |  |              |     |   |      |  |     |      | 
|Statutory rate                                        |  |              | 34  | % |      |  | 34  | %    |  |  | 34  | %
|State and local income taxes (net of federal benefit) |  |              | 6   |   |      |  | 6   |      |  |  | 6   |  
|Change in valuation allowance                         |  |              | (18 | ) |      |  | (39 | )    |  |  | (39 | )
|Nondeductible interest expense                        |  |              | (27 | ) |      |  |    |      |  |  |    |  
|Other                                                 |  |              | (5  | ) |      |  | (1  | )    |  |  | (1  | )
|                                                      |  |              |     |   |      |  |     |      | 
|Effective tax rate                                    |  |              |    | % |      |  |    | %    |  |  |    | %
|                                                      |  |              |     |   |      |  |     |      | 



|    |                       
|--- | ----------------------
|11. | Financing Arrangements



| |                                                             
| | ------------------------------------------------------------
| | Senior Secured Credit Facility  Retired
    August 20, 2003



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                 
| | ------------------------------------------------
| | Subordinated Notes  Retired August 20,
    2003







| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Senior Secured Revolving Credit Facility, Senior Secured
    Term Loan,
    113/4%
    Senior Notes

3 4




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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






3 4


3 4


121/2% Senior
Discount Notes


1 2 pari passu


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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  |   |         |         | 
|------------------------------- | -------------------- | -------- | -------- |  | -------- |  | -------- | ------- |  | ---------- | ----------- |  | ---------- | ---- | ------- | ----- | -------- |  | ----- | - |  | - | ------- | ------- | 
|                                |                      |          |          |  |          |  |          | Premium |  |            |             |  | Book Value |     
|                                |                      | Issuance |          |  |          |  | Face     |         |  | (Discount) |             |  | Interest   |      |         | as of |         
|Instrument:                     |                      | Date     |          |  | Due Date |  |          | Amount  |  |            | at Issuance |  |            | Rate |         |       | 12/31/04 | 
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          | 
|Haights Cross:                  |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  |   |         |        
|Senior secured term loan        |                      |          | 08/20/03 |  |          |  | 08/15/08 |         |  | $          | 100,000     |  |            |      |        |       |          |  | 6.5   | % |  | $ | 98,750  |        
|Senior secured term loan        |                      |          | 12/10/04 |  |          |  | 08/15/08 |         |  | $          | 30,000      |  |            |      |        |       |          |  | 5.5   | % |  |   | 30,000  |        
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          | 
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  | $ | 128,750 |        
|113/4% Senior
    notes         |                      |          | 08/20/03 |  |          |  | 08/15/11 |         |  | $          | 140,000     |  |            |      |        |       |          |  | 11.75 | % |  | $ | 140,000 |        
|113/4% Senior
    notes         |                      |          | 12/10/04 |  |          |  | 08/15/11 |         |  | $          | 30,000      |  |            | $    | 3,150   |       |          |  | 11.75 | % |  |   | 33,122  |        
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          | 
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  | $ | 173,122 |        
|Haights Cross Communications:   |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  |   |         |        
|121/2
    Senior discount notes |                      |          | 02/02/04 |  |          |  | 08/15/11 |         |  | $          | 135,000     |  |            | $    | (61,347 | )     |          |  | 12.5  | % |  | $ | 82,270  |        
|Series B preferred              |                      |          | 12/10/99 |  |          |  | 08/10/11 |         |  | $          | 50,006      |  |            | $    | (2,478  | )     |          |  | 16.0  | % |  | $ | 108,706 |        
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          | 
|                                | Total long term debt |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          |  |       |   |  |   | $       | 492,848 | 
|                                |                      |          |          |  |          |  |          |         |  |            |             |  |            |      |         |       |          | 



|                         |            |   |         |         | 
|------------------------ | ---------- | - | ------- | ------- | 
|Year ending December 31: |            |   |         |        
|                         | 2005       |   | $       | 1,300   | 
|                         | 2006       |   |         | 1,300   | 
|                         | 2007       |   |         | 1,300   | 
|                         | 2008       |   |         | 124,850 | 
|                         | Thereafter |   |         | 415,670 | 
|                         |            |   |        
|Total                    |            | $ | 544,420 |        
|                         |            |   |        



|    |                                      
|--- | -------------------------------------
|12. | Equity and Redeemable Preferred Stock





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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |  |                         |        |   |             |   |         |             |  |   |        |  
|------------------------------------- |  | ----------------------- | ------ | - | ----------- | - | ------- | ----------- |  | - | ------ | -
|                                      |  | As of December 31, 2004 |       
|                                      |  |                         |       
|                                      |  | Preferred A             |        |   | Preferred B |   |         | Preferred C | 
|                                      |  |                         |        |   |             |   |         |             | 
|                                      |  | (In thousands)          |       
|Issuance                              |  | $                       | 22,476 |   |             | $ | 50,005  |             |  | $ | 3,500  |  
|Accrued dividends                     |  |                         | 11,090 |   |             |   | 60,664  |             |  |   | 125    |  
|                                      |  |                         |        |   |             |   |         |             | 
|Liquidation value                     |  |                         | 33,566 |   |             |   | 110,669 |             |  |   | 3,625  |  
|Discount recorded on issuance         |  |                         | (203   | ) |             |   |        |             |  |   | (2,407 | )
|2,213 warrants for Series A Preferred |  |                         | 2,213  |   |             |   | (2,213  | )           |  |   |       |  
|2,139,047 warrants for common stock   |  |                         |       |   |             |   | (1,252  | )           |  |   |       |  
|Stock issuance costs                  |  |                         |       |   |             |   | (523    | )           |  |   |       |  
|Accumulated accretion of discount     |  |                         | 51     |   |             |   | 2,025   |             |  |   | 37     |  
|                                      |  |                         |        |   |             |   |         |             | 
|                                      |  | $                       | 35,627 |   |             | $ | 108,706 |             |  | $ | 1,255  |  
|                                      |  |                         |        |   |             |   |         |             | 





|    |                  
|--- | -----------------
|13. | Stock Option Plan







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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |                   |           |           |          |          |   |      |      | 
|------------------------------- | ----------------- | --------- | --------- | -------- | -------- | - | ---- | ---- | 
|                                |                   |           |           | Weighted |         
|                                |                   |           |           | Average  |         
|                                |                   | Number of |           |          | Exercise |  
|                                |                   | Shares    |           |          | Price    |  
|                                |                   |           |           |          |          |  
|Balance as of January 1, 2002   |                   |           | 835,700   |          |          | $ | 4.16 |     
|                                | Granted in 2002   |           |           | 855,250  |          |   |      | 1.59 | 
|                                | Forfeited in 2002 |           |           | (11,000  | )        |   |      | 2.48 | 
|                                | Cancelled in 2002 |           |           | (835,700 | )        |   |      | 4.16 | 
|                                |                   |           |           |          |          |  
|Balance as of December 31, 2002 |                   |           | 844,250   |          |          |   | 1.58 |     
|                                | Granted in 2003   |           |           | 738,500  |          |   |      | 2.79 | 
|                                | Forfeited in 2003 |           |           | (159,750 | )        |   |      | 1.54 | 
|                                | Cancelled in 2003 |           |           | (88,800  | )        |   |      | 2.84 | 
|                                |                   |           |           |          |          |  
|Balance as of December 31, 2003 |                   |           | 1,334,200 |          |          |   | 1.61 |     
|                                | Granted in 2004   |           |           | 587,500  |          |   |      | 1.00 | 
|                                | Forfeited in 2004 |           |           | (366,555 | )        |   |      | 2.27 | 
|                                | Cancelled in 2004 |           |           | (0       | )        |   |      | 0.00 | 
|                                |                   |           |           |          |          |  
|Balance as of December 31, 2004 |                   |           | 1,555,145 |          |          | $ | 1.71 |     
|                                |                   |           |           |          |          |  



|               |  |                     |           |           |                     |  |           |          |  |   |             |           |  |          |         |  |  |   |      | 
|-------------- |  | ------------------- | --------- | --------- | ------------------- |  | --------- | -------- |  | - | ----------- | --------- |  | -------- | ------- |  |  | - | ---- | 
|               |  | Options Outstanding |           |           | Options Exercisable | 
|               |  |                     |           |           |                     | 
|               |  |                     |           | Weighted- |                     |  |           |          | 
|               |  |                     |           | Average   |                     |  | Weighted- |          |  |   |             | Weighted- | 
|               |  |                     |           | Remaining |                     |  | Average   |          |  |   |             | Average   | 
|               |  | Options             |           |           | Contractual         |  |           | Exercise |  |   | Options     |           |  | Exercise |        
|Exercise Price |  | Outstanding         |           |           | Life                |  |           | Price    |  |   | Exercisable |           |  | Price    |        
|               |  |                     |           |           |                     |  |           |          |  |   |             |           |  |          |        
|$0.83          |  |                     | 204,000   |           |                     |  | 7.0 years |          |  | $ | 0.83        |           |  |          | 204,000 |  |  | $ | 0.83 | 
|$1.00          |  |                     | 587,500   |           |                     |  | 9.8 years |          |  | $ | 1.00        |           |  |          |        |  |  | $ | 1.00 | 
|$1.19          |  |                     | 124,500   |           |                     |  | 7.0 years |          |  | $ | 1.19        |           |  |          | 124,500 |  |  | $ | 1.19 | 
|$2.48          |  |                     | 187,000   |           |                     |  | 7.0 years |          |  | $ | 2.48        |           |  |          | 172,000 |  |  | $ | 2.48 | 
|$2.84          |  |                     | 452,145   |           |                     |  | 8.8 years |          |  | $ | 2.84        |           |  |          | 146,045 |  |  | $ | 2.84 | 
|               |  |                     |           |           |                     |  |           |          |  |   |             |           |  |          |        
|               |  |                     | 1,555,145 |           |                     |  |           |          |  | $ | 1.71        |           |  |          | 646,545 |  |  | $ | 1.79 | 
|               |  |                     |           |           |                     |  |           |          |  |   |             |           |  |          |        



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |            
|--- | -----------
|14. | Commitments



|                         |            |           |       |       |           |   |     |     | 
|------------------------ | ---------- | --------- | ----- | ----- | --------- | - | --- | --- | 
|                         |            | Occupancy |       |       |          
|                         |            | Space     |       |       | Equipment |  
|                         |            |           |       |       |           |  
|Year ending December 31: |            |           |       |       |           |   |     |    
|                         | 2005       |           | $     | 2,541 |           |   | $   | 247 | 
|                         | 2006       |           |       | 2,031 |           |   |     | 215 | 
|                         | 2007       |           |       | 1,661 |           |   |     | 64  | 
|                         | 2008       |           |       | 1,390 |           |   |     | 12  | 
|                         | Thereafter |           |       | 947   |           |   |     | 1   | 
|                         |            |           |       |       |           |  
|Total minimum payments   |            | $         | 8,570 |       |           | $ | 539 |    
|                         |            |           |       |       |           |  







|    |             
|--- | ------------
|15. | Savings Plan







|    |                        
|--- | -----------------------
|16. | Discontinued Operations



| |                          
| | -------------------------
| | Triumph Learning Software





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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Coriolis







| |                       
| | ----------------------
| | Andrews Communications









| |                         
| | ------------------------
| | Triumph Learning College





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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                      
|--- | ---------------------
|17. | Restructuring Charges







|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |    |  |  |   |     | 
|---------------------------------------------------------------------------- |  | ----------- | ----- | ------------- | --------------- | - | --- | ------------- |  | - | --------- |  | ------------- | --------- | --------------- | ------------ | ---- | - | -- |  |  | - | --- | 
|                                                                             |  |             |       | Accrued       |                 |   |     |               |  |   |           |  | Accrued       |          
|                                                                             |  |             |       | Restructuring |                 |   |     |               |  |   |           |  | Restructuring |          
|                                                                             |  | Amount      |       |               | Liability as of |   |     | Restructuring |  |   |           |  |               |           | Liability as of |             
|                                                                             |  | Expected to |       |               | December 31,    |   |     | Expense in    |  |   | Cash Paid |  |               |           |                 | December 31, |     
|                                                                             |  | be Incurred |       |               | 2003            |   |     | 2004          |  |   | in 2004   |  |               | Reversals |                 |              | 2004 |  
|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |  
|Warehouse and Order Fulfillment Consolidation                                |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |    |  |  |   |     | 
|Severance and related                                                        |  | $           | 600   |               |                 | $ | 103 |               |  | $ | 244       |  |               | $         | 310             |              |      | $ | 20 |  |  | $ | 17  | 
|Lease terminations costs                                                     |  |             | 730   |               |                 |   | 155 |               |  |   |          |  |               |           | 155             |              |      |   |   |  |  |   |    | 
|Relocation and other                                                         |  |             | 1,100 |               |                 |   | 33  |               |  |   | 110       |  |               |           | 130             |              |      |   |   |  |  |   | 13  | 
|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |  
|                                                                             |  | $           | 2,430 |               |                 | $ | 291 |               |  | $ | 354       |  |               | $         | 595             |              |      | $ | 20 |  |  | $ | 30  | 
|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |  
|Chelsea House Executive Management, Finance and Accounting
    Consolidation |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |    |  |  |   |     | 
|Severance and related                                                        |  | $           | 445   |               |                 | $ |    |               |  | $ | 445       |  |               | $         | 329             |              |      | $ |   |  |  | $ | 116 | 
|Relocation and other                                                         |  |             | 83    |               |                 |   |    |               |  |   | 83        |  |               |           | 29              |              |      |   | 54 |  |  |   |    | 
|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |  
|                                                                             |  | $           | 528   |               |                 | $ |    |               |  | $ | 528       |  |               | $         | 358             |              |      | $ | 54 |  |  | $ | 116 | 
|                                                                             |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |  

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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                              |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |   |     |  |  |   |     | 
|--------------------------------------------- |  | ----------- | ----- | ------------- | --------------- | - | ------------- |  |  | --------- | ----- | ------------- | --------- | --------------- | ------------ | ---- |  | - | --- |  |  | - | --- | 
|                                              |  |             |       | Accrued       |                 |   |               |  |  |           |       | Accrued       |          
|                                              |  |             |       | Restructuring |                 |   |               |  |  |           |       | Restructuring |          
|                                              |  | Amount      |       |               | Liability as of |   | Restructuring |  |  |           |       |               |           | Liability as of |             
|                                              |  | Expected to |       |               | December 31,    |   | Expense in    |  |  | Cash Paid |       |               |           |                 | December 31, |     
|                                              |  | be Incurred |       |               | 2002            |   | 2003          |  |  | in 2003   |       |               | Reversals |                 |              | 2003 | 
|                                              |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      | 
|Warehouse and Order Fulfillment Consolidation |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |   |     |  |  |   |     | 
|Severance and related                         |  | $           | 600   |               |                 | $ |              |  |  | $         | 584   |               |           | $               | 480          |      |  | $ | 1   |  |  | $ | 103 | 
|Lease terminations costs                      |  |             | 730   |               |                 |   |              |  |  |           | 607   |               |           |                 | 368          |      |  |   | 84  |  |  |   | 155 | 
|Relocation and other                          |  |             | 1,100 |               |                 |   |              |  |  |           | 1,066 |               |           |                 | 1,001        |      |  |   | 32  |  |  |   | 33  | 
|                                              |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |  
|                                              |  | $           | 2,430 |               |                 | $ |              |  |  | $         | 2,257 |               |           | $               | 1,849        |      |  | $ | 117 |  |  | $ | 291 | 
|                                              |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |  



|                    |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |           |           |  |   |     |  |  |  |    | 
|------------------- |  | ----------- | ----- | ------------- | --------------- | - | --- | ------------- |  | - | --------- |  | ------------- | --------- | --------------- | ------------ | ---- | - | --------- | --------- |  | - | --- |  |  |  | -- | 
|                    |  |             |       | Accrued       |                 |   |     |               |  |   |           |  | Accrued       |           |                 |             
|                    |  |             |       | Restructuring |                 |   |     |               |  |   |           |  | Restructuring |           |                 |             
|                    |  | Amount      |       |               | Liability as of |   |     | Restructuring |  |   |           |  |               |           | Liability as of |              |      |  
|                    |  | Expected to |       |               | December 31,    |   |     | Expense in    |  |   | Cash Paid |  |               |           |                 | December 31, |      |   | Headcount |          
|                    |  | be Incurred |       |               | 2003            |   |     | 2004          |  |   | in 2004   |  |               | Reversals |                 |              | 2004 |   |           | Reduction | 
|                    |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |           |           | 
|Sundance/ Newbridge |  | $           | 750   |               |                 | $ | 93  |               |  | $ |          |  |               | $         | 93              |              |      | $ | 0         |           |  | $ | 0   |  |  |  |   | 
|Chelsea House       |  |             | 1,528 |               |                 |   | 198 |               |  |   | 882       |  |               |           | 860             |              |      |   | 74        |           |  |   | 146 |  |  |  | 10 | 
|Triumph Learning    |  |             | 560   |               |                 |   |    |               |  |   |          |  |               |           |                |              |      |   |          |           |  |   |    |  |  |  |   | 
|Corporate           |  |             | 120   |               |                 |   |    |               |  |   |          |  |               |           |                |              |      |   |          |           |  |   |    |  |  |  |   | 
|                    |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |           |           | 
|                    |  | $           | 2,958 |               |                 | $ | 291 |               |  | $ | 882       |  |               | $         | 953             |              |      | $ | 74        |           |  | $ | 146 |  |  |  | 10 | 
|                    |  |             |       |               |                 |   |     |               |  |   |           |  |               |           |                 |              |      |   |           |           | 

|                    |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |           |           |  |  |   |     |  |  |  |    | 
|------------------- |  | ----------- | ----- | ------------- | --------------- | - | ------------- |  |  | --------- | ----- | ------------- | --------- | --------------- | ------------ | ---- |  | --------- | --------- |  |  | - | --- |  |  |  | -- | 
|                    |  |             |       | Accrued       |                 |   |               |  |  |           |       | Accrued       |           |                 |             
|                    |  |             |       | Restructuring |                 |   |               |  |  |           |       | Restructuring |           |                 |             
|                    |  | Amount      |       |               | Liability as of |   | Restructuring |  |  |           |       |               |           | Liability as of |              |      | 
|                    |  | Expected to |       |               | December 31,    |   | Expense in    |  |  | Cash Paid |       |               |           |                 | December 31, |      |  | Headcount |          
|                    |  | be Incurred |       |               | 2002            |   | 2003          |  |  | in 2003   |       |               | Reversals |                 |              | 2003 |  |           | Reduction | 
|                    |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |           |           | 
|Sundance/ Newbridge |  | $           | 750   |               |                 | $ |              |  |  | $         | 652   |               |           | $               | 546          |      |  | $         | 13        |  |  | $ | 93  |  |  |  | 3  | 
|Chelsea House       |  |             | 1,000 |               |                 |   |              |  |  |           | 903   |               |           |                 | 705          |      |  |           |          |  |  |   | 198 |  |  |  | 17 | 
|Triumph Learning    |  |             | 560   |               |                 |   |              |  |  |           | 582   |               |           |                 | 479          |      |  |           | 103       |  |  |   |    |  |  |  | 13 | 
|Corporate           |  |             | 120   |               |                 |   |              |  |  |           | 120   |               |           |                 | 119          |      |  |           | 1         |  |  |   |    |  |  |  | 1  | 
|                    |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |           |           |  | 
|                    |  | $           | 2,430 |               |                 | $ |              |  |  | $         | 2,257 |               |           | $               | 1,849        |      |  | $         | 117       |  |  | $ | 291 |  |  |  | 34 | 
|                    |  |             |       |               |                 |   |               |  |  |           |       |               |           |                 |              |      |  |           |           |  | 



|    |                  
|--- | -----------------
|18. | Segment Reporting





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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |         |  |  |   |        |     |  |   |         | 
|---------------------------------------------------- |  | --------- | ------- |  | -------- | - | ------ | ----------- |  | ---------- | ------ |  | -------- | ----- | ------- | ------- | ----- | - | ---------- | ----- |  | - | --------- | - |  | ------------ | ------- |  |  | - | ------ | --- |  | - | ------- | 
|                                                     |  |           |         |  |          |   |        | Total       |  |            |        |  |          |       | Total   |         |       |   |            |      
|                                                     |  |           |         |  |          |   |        | Educational |  |            |        |  |          |       | Library |         |       |   |            |      
|                                                     |  | Sundance/ |         |  | Triumph  |   |        |             |  | Publishing |        |  | Recorded |       |         | Chelsea |       |   | Publishing |       |  |   |           |  
|                                                     |  | Newbridge |         |  | Learning |   |        | Oakstone    |  |            | Group  |  |          | Books |         |         | House |   |            | Group |  |   | Corporate |   |  | Consolidated |        
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|2004                                                 |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |         |  |  |   |        |     |  |   |         | 
|Revenue                                              |  | $         | 49,170  |  |          | $ | 33,701 |             |  | $          | 19,144 |  |          | $     | 102,015 |         |       | $ | 68,878     |       |  | $ | 11,345    |   |  | $            | 80,223  |  |  | $ |       |     |  | $ | 182,238 | 
|Cost of good sold                                    |  |           | 12,734  |  |          |   | 7,642  |             |  |            | 5,142  |  |          |       | 25,518  |         |       |   | 27,480     |       |  |   | 5,022     |   |  |              | 32,502  |  |  |   |       |     |  |   | 58,020  | 
|Marketing and sales                                  |  |           | 13,717  |  |          |   | 7,083  |             |  |            | 5,523  |  |          |       | 26,323  |         |       |   | 12,497     |       |  |   | 2,215     |   |  |              | 14,712  |  |  |   |       |     |  |   | 41,035  | 
|Fulfillment and distribution                         |  |           | 4,609   |  |          |   | 2,390  |             |  |            | 1,837  |  |          |       | 8,836   |         |       |   | 4,459      |       |  |   | 975       |   |  |              | 5,434   |  |  |   |       |     |  |   | 14,270  | 
|General and administrative                           |  |           | 3,450   |  |          |   | 5,227  |             |  |            | 2,201  |  |          |       | 10,878  |         |       |   | 5,036      |       |  |   | 2,382     |   |  |              | 7,418   |  |  |   | 6,272  |     |  |   | 24,568  | 
|Amortization of pre-publication costs                |  |           | 3,184   |  |          |   | 2,110  |             |  |            | 248    |  |          |       | 5,542   |         |       |   | 3,564      | (a)   |  |   | 2,698     |   |  |              | 6,262   |  |  |   |       |     |  |   | 11,804  | 
|Depreciation expense and amortization of intangibles |  |           | 807     |  |          |   | 700    |             |  |            | 504    |  |          |       | 2,011   |         |       |   | 733        |       |  |   | 130       |   |  |              | 863     |  |  |   | 209    |     |  |   | 3,083   | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Income (loss) from operations                        |  | $         | 10,669  |  |          | $ | 8,549  |             |  | $          | 3,689  |  |          | $     | 22,907  |         |       | $ | 15,109     |       |  | $ | (2,077    | ) |  | $            | 13,032  |  |  | $ | (6,481 | )   |  | $ | 29,458  | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Interest expense                                     |  | $         | 3,267   |  |          | $ | 6,375  |             |  | $          | 2,716  |  |          | $     | 12,358  |         |       | $ | 6,744      |       |  | $ | 5,094     |   |  | $            | 11,838  |  |  | $ | 23,998 |     |  | $ | 48,194  | 
|Capital expenditures  property and equipment        |  |           | 856     |  |          |   | 891    |             |  |            | 188    |  |          |       | 1,935   |         |       |   | 1,255      |       |  |   | 152       |   |  |              | 1,407   |  |  |   | 56     |     |  |   | 3,398   | 
|Capital expenditures  pre- publication costs        |  |           | 4,198   |  |          |   | 3,420  |             |  |            | 107    |  |          |       | 7,725   |         |       |   | 4,438      |       |  |   | 2,326     |   |  |              | 6,764   |  |  |   |       |     |  |   | 14,489  | 
|Goodwill                                             |  |           | 53,809  |  |          |   | 32,370 |             |  |            | 15,487 |  |          |       | 101,666 |         |       |   | 64,513     |       |  |   |          |   |  |              | 64,513  |  |  |   |       |     |  |   | 166,179 | 
|Total assets                                         |  |           | 104,814 |  |          |   | 62,127 |             |  |            | 25,203 |  |          |       | 192,144 |         |       |   | 99,045     |       |  |   | 12,627    |   |  |              | 111,672 |  |  |   | 95,887 |     |  |   | 399,703 | 
|2003                                                 |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |         |  |  |   |        |     |  |   |         | 
|Revenue                                              |  | $         | 44,763  |  |          | $ | 25,171 |             |  | $          | 18,188 |  |          | $     | 88,122  |         |       | $ | 61,137     |       |  | $ | 12,784    |   |  | $            | 73,921  |  |  | $ |       |     |  | $ | 162,043 | 
|Cost of good sold                                    |  |           | 11,585  |  |          |   | 5,740  |             |  |            | 4,826  |  |          |       | 22,151  |         |       |   | 23,774     |       |  |   | 3,275     |   |  |              | 27,049  |  |  |   |       |     |  |   | 49,200  | 
|Marketing and sales                                  |  |           | 11,427  |  |          |   | 5,883  |             |  |            | 4,999  |  |          |       | 22,309  |         |       |   | 10,594     |       |  |   | 2,560     |   |  |              | 13,154  |  |  |   |       |     |  |   | 35,463  | 
|Fulfillment and distribution                         |  |           | 3,494   |  |          |   | 1,981  |             |  |            | 1,601  |  |          |       | 7,076   |         |       |   | 3,435      |       |  |   | 1,184     |   |  |              | 4,619   |  |  |   |       |     |  |   | 11,695  | 
|General and administrative                           |  |           | 3,621   |  |          |   | 3,845  |             |  |            | 2,038  |  |          |       | 9,504   |         |       |   | 4,570      |       |  |   | 2,895     |   |  |              | 7,465   |  |  |   | 4,263  |     |  |   | 21,232  | 
|Amortization of pre-publication costs                |  |           | 2,228   |  |          |   | 1,565  |             |  |            | 264    |  |          |       | 4,057   |         |       |   | 2,778      | (a)   |  |   | 2,302     |   |  |              | 5,080   |  |  |   |       |     |  |   | 9,137   | 
|Depreciation expense and amortization of intangibles |  |           | 562     |  |          |   | 101    |             |  |            | 557    |  |          |       | 1,220   |         |       |   | 659        |       |  |   | 125       |   |  |              | 784     |  |  |   | 220    |     |  |   | 2,224   | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Income (loss) from operations                        |  | $         | 11,846  |  |          | $ | 6,056  |             |  | $          | 3,903  |  |          | $     | 21,805  |         |       | $ | 15,327     |       |  | $ | 443       |   |  | $            | 15,770  |  |  | $ | (4,483 | )   |  | $ | 33,092  | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Interest expense                                     |  | $         | 2,567   |  |          | $ | 3,755  |             |  | $          | 2,272  |  |          | $     | 8,594   |         |       | $ | 6,076      |       |  | $ | 3,576     |   |  | $            | 9,652   |  |  | $ | 1,682  |     |  | $ | 19,928  | 
|Capital expenditures  property and equipment        |  |           | 1,418   |  |          |   | 69     |             |  |            | 310    |  |          |       | 1,797   |         |       |   | 935        |       |  |   | 162       |   |  |              | 1,097   |  |  |   | 83     |     |  |   | 2,977   | 
|Capital expenditures  pre- publication costs        |  |           | 4,780   |  |          |   | 1,743  |             |  |            | 195    |  |          |       | 6,718   |         |       |   | 4,115      |       |  |   | 3,218     |   |  |              | 7,333   |  |  |   |       |     |  |   | 14,051  | 
|Goodwill                                             |  |           | 24,393  |  |          |   | 20,612 |             |  |            | 15,487 |  |          |       | 60,492  |         |       |   | 64,513     |       |  |   |          |   |  |              | 64,513  |  |  |   |       |     |  |   | 125,005 | 
|Total assets                                         |  |           | 48,408  |  |          |   | 30,688 |             |  |            | 26,099 |  |          |       | 105,195 |         |       |   | 93,701     |       |  |   | 16,136    |   |  |              | 109,837 |  |  |   | 50,490 |     |  |   | 265,522 | 
|2002                                                 |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |         |  |  |   |        |     |  |   |         | 
|Revenue                                              |  | $         | 42,656  |  |          | $ | 21,682 |             |  | $          | 18,297 |  |          | $     | 82,635  |         |       | $ | 65,451     |       |  | $ | 15,056    |   |  | $            | 80,507  |  |  | $ |       |     |  | $ | 163,142 | 
|Cost of good sold                                    |  |           | 10,203  |  |          |   | 5,223  |             |  |            | 4,922  |  |          |       | 20,348  |         |       |   | 26,076     |       |  |   | 3,902     |   |  |              | 29,978  |  |  |   |       |     |  |   | 50,326  | 
|Marketing and sales                                  |  |           | 10,282  |  |          |   | 5,467  |             |  |            | 4,607  |  |          |       | 20,356  |         |       |   | 10,227     |       |  |   | 2,433     |   |  |              | 12,660  |  |  |   |       |     |  |   | 33,016  | 
|Fulfillment and distribution                         |  |           | 2,618   |  |          |   | 1,770  |             |  |            | 1,600  |  |          |       | 5,988   |         |       |   | 3,369      |       |  |   | 1,051     |   |  |              | 4,420   |  |  |   |       |     |  |   | 10,408  | 
|General and administrative                           |  |           | 3,280   |  |          |   | 2,211  |             |  |            | 1,705  |  |          |       | 7,196   |         |       |   | 4,181      |       |  |   | 2,095     |   |  |              | 6,276   |  |  |   | 8,509  |     |  |   | 21,981  | 
|Amortization of pre-publication costs                |  |           | 1,830   |  |          |   | 1,105  |             |  |            | 243    |  |          |       | 3,178   |         |       |   | 2,133      |       |  |   | 1,695     |   |  |              | 3,828   |  |  |   |       |     |  |   | 7,006   | 
|Depreciation expense and amortization of intangibles |  |           | 449     |  |          |   | 97     |             |  |            | 489    |  |          |       | 1,035   |         |       |   | 554        |       |  |   | 72        |   |  |              | 626     |  |  |   | 356    |     |  |   | 2,017   | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Income (loss) from operations                        |  | $         | 13,994  |  |          | $ | 5,809  |             |  | $          | 4,731  |  |          | $     | 24,534  |         |       | $ | 18,911     |       |  | $ | 3,808     |   |  | $            | 22,719  |  |  | $ | (8,865 | )   |  | $ | 38,388  | 
|                                                     |  |           |         |  |          |   |        |             |  |            |        |  |          |       |         |         |       |   |            |       |  |   |           |   |  |              |        
|Interest expense                                     |  | $         | 4,611   |  |          | $ | 4,370  |             |  | $          | 2,657  |  |          | $     | 11,638  |         |       | $ | 7,949      |       |  | $ | 4,285     |   |  | $            | 12,234  |  |  | $ | (5,879 | )   |  | $ | 17,993  | 
|Capital expenditures  property and equipment        |  |           | 310     |  |          |   | 54     |             |  |            | 436    |  |          |       | 800     |         |       |   | 977        |       |  |   | 89        |   |  |              | 1,066   |  |  |   | 178    |     |  |   | 2,044   | 
|Capital expenditures  pre-publication costs         |  |           | 3,467   |  |          |   | 1,868  |             |  |            | 110    |  |          |       | 5,445   |         |       |   | 2,785      |       |  |   | 3,485     |   |  |              | 6,270   |  |  |   | 703    | (b) |  |   | 12,418  | 
|Goodwill                                             |  |           | 24,393  |  |          |   | 20,612 |             |  |            | 15,487 |  |          |       | 60,492  |         |       |   | 64,513     |       |  |   |          |   |  |              | 64,513  |  |  |   |       |     |  |   | 125,005 | 
|Total assets                                         |  |           | 44,630  |  |          |   | 30,562 |             |  |            | 26,158 |  |          |       | 101,350 |         |       |   | 95,244     |       |  |   | 14,875    |   |  |              | 110,119 |  |  |   | 19,767 |     |  |   | 231,236 | 






|    |                                                                                      
|--- | -------------------------------------------------------------------------------------
|(a) | Includes an impairment charge on pre-publication costs of
    approximately $369,000.



|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(b) | Represents capital expenditures for operations of discontinued
    operations.

68



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##### Table of Contents



HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                            
|--- | -------------------------------------------
|19. | Condensed Consolidated Financial Statements

3 4




|                                            |  |                              |         |   |      |   |           |              |  |   |              |  |  |              |        |   |  |   |         |  
|------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | --------- | ------------ |  | - | ------------ |  |  | ------------ | ------ | - |  | - | ------- | -
|                                            |  | Year Ended December 31, 2004 |        
|                                            |  |                              |        
|                                            |  | Parent                       |         |   |      |   | Guarantor |              |  |  
|                                            |  | Guarantor                    |         |   | HCOC |   |           | Subsidiaries |  |   | Eliminations |  |  | Consolidated |       
|                                            |  |                              |         |   |      |   |           |              |  |   |              |  |  |              |       
|Revenue                                     |  | $                            |        |   |      | $ |          |              |  | $ | 182,238      |  |  | $            |       |   |  | $ | 182,238 |  
|Costs and expenses                          |  |                              |        |   |      |   | 6,481     |              |  |   | 146,299      |  |  |              |       |   |  |   | 152,780 |  
|                                            |  |                              |         |   |      |   |           |              |  |   |              |  |  |              |       
|Income (loss) from operations               |  |                              |        |   |      |   | (6,481    | )            |  |   | 35,939       |  |  |              |       |   |  |   | 29,458  |  
|Equity in the income (loss) of subsidiaries |  |                              | 2,167   |   |      |   | 6,832     |              |  |   |             |  |  |              | (8,999 | ) |  |   |        |  
|Other (income)/expenses                     |  |                              | 24,748  |   |      |   | (1,816    | )            |  |   | 29,107       |  |  |              |       |   |  |   | 52,039  |  
|                                            |  |                              |         |   |      |   |           |              |  |   |              |  |  |              |       
|Net income (loss)                           |  | $                            | (22,581 | ) |      | $ | 2,167     |              |  | $ | 6,832        |  |  | $            | (8,999 | ) |  | $ | (22,581 | )
|                                            |  |                              |         |   |      |   |           |              |  |   |              |  |  |              |       

|                                            |  |                              |        |   |      |   |           |              |  |   |              |  |  |              |         |   |  |   |         |  
|------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | --------- | ------------ |  | - | ------------ |  |  | ------------ | ------- | - |  | - | ------- | -
|                                            |  | Year Ended December 31, 2003 |       
|                                            |  |                              |       
|                                            |  | Parent                       |        |   |      |   | Guarantor |              |  |  
|                                            |  | Guarantor                    |        |   | HCOC |   |           | Subsidiaries |  |   | Eliminations |  |  | Consolidated |        
|                                            |  |                              |        |   |      |   |           |              |  |   |              |  |  |              |        
|Revenue                                     |  | $                            |       |   |      | $ |          |              |  | $ | 162,043      |  |  | $            |        |   |  | $ | 162,043 |  
|Costs and expenses                          |  |                              |       |   |      |   | 4,483     |              |  |   | 124,468      |  |  |              |        |   |  |   | 128,951 |  
|                                            |  |                              |        |   |      |   |           |              |  |   |              |  |  |              |        
|Income (loss) from operations               |  |                              |       |   |      |   | (4,483    | )            |  |   | 37,575       |  |  |              |        |   |  |   | 33,092  |  
|Equity in the income (loss) of subsidiaries |  |                              | (1,866 | ) |      |   | 13,318    |              |  |   |             |  |  |              | (11,452 | ) |  |   |        |  
|Other (income)/expenses                     |  |                              |       |   |      |   | 10,701    |              |  |   | 24,257       |  |  |              |        |   |  |   | 34,958  |  
|                                            |  |                              |        |   |      |   |           |              |  |   |              |  |  |              |        
|Net income (loss)                           |  | $                            | (1,866 | ) |      | $ | (1,866    | )            |  | $ | 13,318       |  |  | $            | (11,452 | ) |  | $ | (1,866  | )
|                                            |  |                              |        |   |      |   |           |              |  |   |              |  |  |              |        

|                                            |  |                              |         |   |      |   |           |              |  |   |              |   |  |              |        |  |  |   |         |  
|------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | --------- | ------------ |  | - | ------------ | - |  | ------------ | ------ |  |  | - | ------- | -
|                                            |  | Year Ended December 31, 2002 |        
|                                            |  |                              |        
|                                            |  | Parent                       |         |   |      |   | Guarantor |              |  |  
|                                            |  | Guarantor                    |         |   | HCOC |   |           | Subsidiaries |  |   | Eliminations |   |  | Consolidated |       
|                                            |  |                              |         |   |      |   |           |              |  |   |              |   |  |              |       
|Revenue                                     |  | $                            |        |   |      | $ |          |              |  | $ | 163,142      |   |  | $            |       |  |  | $ | 163,142 |  
|Costs and expenses                          |  |                              |        |   |      |   | 8,865     |              |  |   | 115,889      |   |  |              |       |  |  |   | 124,754 |  
|                                            |  |                              |         |   |      |   |           |              |  |   |              |   |  |              |       
|Income (loss) from operations               |  |                              |        |   |      |   | (8,865    | )            |  |   | 47,253       |   |  |              |       |  |  |   | 38,388  |  
|Equity in the income (loss) of subsidiaries |  |                              | (27,752 | ) |      |   | (30,302   | )            |  |   |             |   |  |              | 58,054 |  |  |   |        |  
|Other (income)/expenses                     |  |                              |        |   |      |   | (11,415   | )            |  |   | 77,555       |   |  |              |       |  |  |   | 66,140  |  
|                                            |  |                              |         |   |      |   |           |              |  |   |              |   |  |              |       
|Net income (loss)                           |  | $                            | (27,752 | ) |      | $ | (27,752   | )            |  | $ | (30,302      | ) |  | $            | 58,054 |  |  | $ | (27,752 | )
|                                            |  |                              |         |   |      |   |           |              |  |   |              |   |  |              |       

69



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##### Table of Contents



HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |          |          |          |   |         |          |          |  
|--------------------------------------------------------------------------- | ------------------- | --------------------------- | ------- | -------- | -------- | - | --------- | ------------ | ------ | - | ------------ | ------- | ------- | ------------ | -------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                            |                     | As of December 31, 2004     |        
|                                                                            |                     |                             |        
|                                                                            |                     | Parent                      |         |          |          |   | Guarantor |              |        |  
|                                                                            |                     | Guarantor                   |         |          | HCOC     |   |           | Subsidiaries |        |   | Eliminations |         |         | Consolidated |         
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         
|Assets                                                                      |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |          |          |          |   |         |         
|Current assets                                                              |                     | $                           | 3,460   |          |          | $ | 74,375    |              |        | $ | 57,871       |         |         | $            |         |          |          | $ | 135,706 |         
|Investment in subsidiaries                                                  |                     |                             | 44,314  |          |          |   | 267,783   |              |        |   |             |         |         |              | (312,097 | )        |          |   |        |         
|Long term assets                                                            |                     |                             | 2,947   |          |          |   | 15,106    |              |        |   | 245,944      |         |         |              |         |          |          |   | 263,997 |         
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         
|Total assets                                                                |                     | $                           | 50,721  |          |          | $ | 357,264   |              |        | $ | 303,815      |         |         | $            | (312,097 | )        |          | $ | 399,703 |         
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         
|                                                                           
|Liabilities, Redeemable Preferred Stock and
    Stockholders Deficit       |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |          |          |          |   |         |         
|Current liabilities                                                         |                     | $                           |        |          |          | $ | 12,378    |              |        | $ | 35,701       |         |         | $            |         |          |          | $ | 48,079  |         
|Long term liabilities                                                       |                     |                             | 195,282 |          |          |   | 300,572   |              |        |   | 331          |         |         |              |         |          |          |   | 496,185 |         
|Redeemable preferred stock                                                  |                     |                             | 36,882  |          |          |   |          |              |        |   |             |         |         |              |         |          |          |   | 36,882  |         
|Stockholders deficit:                                                      |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |          |          |          |   |         |         
|                                                                            | Common stock        |                             |         | 20       |          |   |           |             |        |   |              |        |         |              |          |         |          |   |         | 20       |         
|                                                                            | Accumulated deficit |                             |         | (181,463 | )        |   |           | 44,314       |        |   |              | 267,783 |         |              |          | (312,097 | )        |   |         | (181,463 | )       
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         
|                                                                            |                     | Total stockholders deficit |         |          | (181,443 | ) |           |              | 44,314 |   |              |         | 267,783 |              |          |          | (312,097 | ) |         |          | (181,443 | )
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         
|Total liabilities, redeemable preferred stock and
    stockholders deficit |                     | $                           | 50,721  |          |          | $ | 357,264   |              |        | $ | 303,815      |         |         | $            | (312,097 | )        |          | $ | 399,703 |         
|                                                                            |                     |                             |         |          |          |   |           |              |        |   |              |         |         |              |         

|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |          |          |          |   |         |          |          |  
|--------------------------------------------------------------------------- | ------------------- | --------------------------- | ------- | -------- | -------- | - | --------- | ------------ | ------- | - | ------------ | ------- | ------- | ------------ | -------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                            |                     | As of December 31, 2003     |        
|                                                                            |                     |                             |        
|                                                                            |                     | Parent                      |         |          |          |   | Guarantor |              |         |  
|                                                                            |                     | Guarantor                   |         |          | HCOC     |   |           | Subsidiaries |         |   | Eliminations |         |         | Consolidated |         
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         
|Assets                                                                      |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |          |          |          |   |         |         
|Current assets                                                              |                     | $                           |        |          |          | $ | 33,345    |              |         | $ | 48,334       |         |         | $            |         |          |          | $ | 81,679  |         
|Investment in subsidiaries                                                  |                     |                             | (12,691 | )        |          |   | 185,812   |              |         |   |             |         |         |              | (173,121 | )        |          |   |        |         
|Long term assets                                                            |                     |                             |        |          |          |   | 17,146    |              |         |   | 166,697      |         |         |              |         |          |          |   | 183,843 |         
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         
|Total assets                                                                |                     | $                           | (12,691 | )        |          | $ | 236,303   |              |         | $ | 215,031      |         |         | $            | (173,121 | )        |          | $ | 265,522 |         
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         
|                                                                           
|Liabilities, Redeemable Preferred Stock and
    Stockholders Deficit       |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |          |          |          |   |         |         
|Current liabilities                                                         |                     | $                           |        |          |          | $ | 10,244    |              |         | $ | 29,219       |         |         | $            |         |          |          | $ | 39,463  |         
|Long term liabilities                                                       |                     |                             |        |          |          |   | 238,750   |              |         |   |             |         |         |              |         |          |          |   | 238,750 |         
|Redeemable preferred stock                                                  |                     |                             | 143,663 |          |          |   |          |              |         |   |             |         |         |              |         |          |          |   | 143,663 |         
|Stockholders deficit:                                                      |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |          |          |          |   |         |         
|                                                                            | Common stock        |                             |         | 20       |          |   |           |             |         |   |              |        |         |              |          |         |          |   |         | 20       |         
|                                                                            | Accumulated deficit |                             |         | (156,374 | )        |   |           | (12,691      | )       |   |              | 185,812 |         |              |          | (173,121 | )        |   |         | (156,374 | )       
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         
|                                                                            |                     | Total stockholders deficit |         |          | (156,354 | ) |           |              | (12,691 | ) |              |         | 185,812 |              |          |          | (173,121 | ) |         |          | (156,354 | )
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         
|Total liabilities, redeemable preferred stock and
    stockholders deficit |                     | $                           | (12,691 | )        |          | $ | 236,303   |              |         | $ | 215,031      |         |         | $            | (173,121 | )        |          | $ | 265,522 |         
|                                                                            |                     |                             |         |          |          |   |           |              |         |   |              |         |         |              |         

70



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##### Table of Contents



HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |   |   |   |   |         |        |         |  
|---------------------------------------------------- | --------------------- | -------------------------------------------------- | ------- | --- | ------- | - | --------- | ------------ | ------- | - | ------------ | ------ | ------------ | - | - | - | - | - | ------- | ------ | ------- | -
|                                                     |                       | Year Ended December 31, 2004                       |        
|                                                     |                       |                                                    |        
|                                                     |                       | Parent                                             |         |     |         |   | Guarantor |              |         |  
|                                                     |                       | Guarantor                                          |         |     | HCOC    |   |           | Subsidiaries |         |   | Eliminations |        | Consolidated |  
|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |  
|Cash provided by (used in):                          |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |   |   |   |   |         |       
|                                                     | Operating activities  |                                                    | $       | 330 |         |   | $         | 1,088        |         |   | $            | 23,756 |              |   | $ |  |   |   | $       | 25,174 |        
|                                                     | Investing activities: |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |   |   |   |   |         |        |        
|                                                     |                       | Additions to pre-publication costs                 |         |     |        |   |           |              |        |   |              |        | (14,489      | ) |   |   |  |   |         |        | (14,489 | )
|                                                     |                       | Additions to property and equipment                |         |     |        |   |           |              | (56     | ) |              |        | (3,342       | ) |   |   |  |   |         |        | (3,398  | )
|                                                     |                       | Additions to intangibles                           |         |     |        |   |           |              |        |   |              |        | (29          | ) |   |   |  |   |         |        | (29     | )
|                                                     |                       | Intercompany activity                              |         |     | (53,515 | ) |           |              | 57,596  |   |              |        | (4,081       | ) |   |   |  |   |         |        |        |  
|                                                     |                       | Acquisitions, net of cash acquired                 |         |     |        |   |           |              | (77,896 | ) |              |        | (0           | ) |   |   |  |   |         |        | (77,896 | )
|                                                     |                       | Proceeds from sale of businesses and assets        |         |     |        |   |           |              |        |   |              |        | 34           |   |   |   |  |   |         |        | 34      |  
|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |  
|Net cash (used in) investing activities              |                       |                                                    | (53,515 | )   |         |   | (20,356   | )            |         |   | (21,907      | )      |              |   |  |   |   |   | (95,778 | )     
|                                                     | Financing activities: |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |   |   |   |   |         |        |        
|                                                     |                       | Proceeds from
    121/2% senior
    discount notes |         |     | 73,653  |   |           |              |        |   |              |        |             |   |   |   |  |   |         |        | 73,653  |  
|                                                     |                       | Proceeds from
    113/4% senior
    notes          |         |     |        |   |           |              | 33,150  |   |              |        |             |   |   |   |  |   |         |        | 33,150  |  
|                                                     |                       | Proceeds from floating rate term loan              |         |     |        |   |           |              | 30,000  |   |              |        |             |   |   |   |  |   |         |        | 30,000  |  
|                                                     |                       | Purchase of Series B Senior preferred stock        |         |     | (13,999 | ) |           |              |        |   |              |        |             |   |   |   |  |   |         |        | (13,999 | )
|                                                     |                       | Repayment of floating rate term loan               |         |     |        |   |           |              | (1,000  | ) |              |        |             |   |   |   |  |   |         |        | (1,000  | )
|                                                     |                       | Additions to deferred financing costs              |         |     | (3,009  | ) |           |              | (2,226  | ) |              |        |             |   |   |   |  |   |         |        | (5,235  | )
|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |  
|Net cash provided by financing activities            |                       |                                                    | 56,645  |     |         |   | 59,924    |              |         |   |             |        |              |   |  |   |   |   | 116,569 |       
|Effect of exchange rates on cash                     |                       |                                                    |        |     |         |   |          |              |         |   | 227          |        |              |   |  |   |   |   | 227     |       
|Net increase (decrease) in cash and cash equivalents |                       |                                                    | 3,460   |     |         |   | 40,656    |              |         |   | 2,076        |        |              |   |  |   |   |   | 46,192  |       
|Cash and cash equivalents at beginning of year       |                       |                                                    |        |     |         |   | 33,284    |              |         |   | (895         | )      |              |   |  |   |   |   | 32,389  |       
|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |  
|Cash and cash equivalents at end of year             |                       | $                                                  | 3,460   |     |         | $ | 73,940    |              |         | $ | 1,181        |        |              | $ |  |   |   | $ | 78,581  |       
|                                                     |                       |                                                    |         |     |         |   |           |              |         |   |              |        |              |   |  

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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |   |   |   |   |        |        |          |  
|---------------------------------------------------- | --------------------- | ------------------------------------------- | - | ---- | - | --------- | ------------ | ------ | -------- | ------------ | ------- | ------------ | ------- | - | - | - | - | - | ------ | ------ | -------- | -
|                                                     |                       | Year Ended December 31, 2003                |  
|                                                     |                       |                                             |  
|                                                     |                       | Parent                                      |   |      |   | Guarantor |              |        |         
|                                                     |                       | Guarantor                                   |   | HCOC |   |           | Subsidiaries |        |          | Eliminations |         | Consolidated |        
|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |        
|Cash provided by (used in):                          |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |   |   |   |   |        |       
|                                                     | Operating activities  |                                             | $ |     |   |           | $            | 16,949 |          |              | $       | 15,197       |         |   | $ |  |   |   | $      | 32,146 |         
|                                                     | Investing activities: |                                             |   |      |   |           |              |        |          |              |         |              |         |   |   |   |   |   |        |        |         
|                                                     |                       | Additions to pre-publication costs          |   |      |  |           |              |        |         |              |         |              | (14,051 | ) |   |   |  |   |        |        | (14,051  | )
|                                                     |                       | Additions to property and equipment         |   |      |  |           |              |        | (83      | )            |         |              | (2,894  | ) |   |   |  |   |        |        | (2,977   | )
|                                                     |                       | Proceeds from sale of businesses and assets |   |      |  |           |              |        | 7,568    |              |         |              | 3       |   |   |   |  |   |        |        | 7,571    |  
|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |  
|Net cash (used in) provided by investing activities  |                       |                                             |  |      |   |           | 7,485        |        |          |              | (16,942 | )            |         |   |  |   |   |   | (9,457 | )     
|                                                     | Financing activities: |                                             |   |      |   |           |              |        |          |              |         |              |         |   |   |   |   |   |        |        |         
|                                                     |                       | Proceeds from senior credit facility        |   |      |  |           |              |        | 12,000   |              |         |              |        |   |   |   |  |   |        |        | 12,000   |  
|                                                     |                       | Repayment of senior credit facility         |   |      |  |           |              |        | (154,350 | )            |         |              |        |   |   |   |  |   |        |        | (154,350 | )
|                                                     |                       | Repayment of subordinated notes             |   |      |  |           |              |        | (75,211  | )            |         |              |        |   |   |   |  |   |        |        | (75,211  | )
|                                                     |                       | Proceeds from
    113/4% senior
    notes   |   |      |  |           |              |        | 140,000  |              |         |              |        |   |   |   |  |   |        |        | 140,000  |  
|                                                     |                       | Proceeds from floating rate term loan       |   |      |  |           |              |        | 100,000  |              |         |              |        |   |   |   |  |   |        |        | 100,000  |  
|                                                     |                       | Repayment of floating rate term loan        |   |      |  |           |              |        | (250     | )            |         |              |        |   |   |   |  |   |        |        | (250     | )
|                                                     |                       | Additions to deferred financing costs       |   |      |  |           |              |        | (15,391  | )            |         |              |        |   |   |   |  |   |        |        | (15,391  | )
|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |  
|Net cash provided by financing activities            |                       |                                             |  |      |   |           | 6,798        |        |          |              |        |              |         |   |  |   |   |   | 6,798  |       
|Effect of exchange rates on cash                     |                       |                                             |  |      |   |           |             |        |          |              | 201     |              |         |   |  |   |   |   | 201    |       
|Net increase (decrease) in cash and cash equivalents |                       |                                             |  |      |   |           | 31,232       |        |          |              | (1,544  | )            |         |   |  |   |   |   | 29,688 |       
|Cash and cash equivalents at beginning of year       |                       |                                             |  |      |   |           | 2,052        |        |          |              | 649     |              |         |   |  |   |   |   | 2,701  |       
|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |  
|Cash and cash equivalents at end of year             |                       | $                                           |  |      |   | $         | 33,284       |        |          | $            | (895    | )            |         | $ |  |   |   | $ | 32,389 |       
|                                                     |                       |                                             |   |      |   |           |              |        |          |              |         |              |         |   |  

|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |   |   |   |   |         |        |         |  
|---------------------------------------------------- | --------------------- | ------------------------------------- | - | ---- | - | --------- | ------------ | ------ | ------- | ------------ | ------- | ------------ | ------- | - | - | - | - | - | ------- | ------ | ------- | -
|                                                     |                       | Year Ended December 31, 2002          |  
|                                                     |                       |                                       |  
|                                                     |                       | Parent                                |   |      |   | Guarantor |              |        |        
|                                                     |                       | Guarantor                             |   | HCOC |   |           | Subsidiaries |        |         | Eliminations |         | Consolidated |        
|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |        
|Cash provided by (used in):                          |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |   |   |   |   |         |       
|                                                     | Operating activities  |                                       | $ |     |   |           | $            | 18,445 |         |              | $       | 14,448       |         |   | $ |  |   |   | $       | 32,893 |        
|                                                     | Investing activities: |                                       |   |      |   |           |              |        |         |              |         |              |         |   |   |   |   |   |         |        |        
|                                                     |                       | Additions to pre-publication costs    |   |      |  |           |              |        |        |              |         |              | (12,418 | ) |   |   |  |   |         |        | (12,418 | )
|                                                     |                       | Additions to property and equipment   |   |      |  |           |              |        | (105    | )            |         |              | (1,939  | ) |   |   |  |   |         |        | (2,044  | )
|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |  
|Net cash (used in) investing activities              |                       |                                       |  |      |   |           | (105         | )      |         |              | (14,357 | )            |         |   |  |   |   |   | (14,462 | )     
|                                                     | Financing activities: |                                       |   |      |   |           |              |        |         |              |         |              |         |   |   |   |   |   |         |        |        
|                                                     |                       | Proceeds from senior credit facility  |   |      |  |           |              |        | 4,425   |              |         |              |        |   |   |   |  |   |         |        | 4,425   |  
|                                                     |                       | Repayment of senior credit facility   |   |      |  |           |              |        | (26,725 | )            |         |              |        |   |   |   |  |   |         |        | (26,725 | )
|                                                     |                       | Additions to deferred financing costs |   |      |  |           |              |        | (914    | )            |         |              |        |   |   |   |  |   |         |        | (914    | )
|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |  
|Net cash (used in) financing activities              |                       |                                       |  |      |   |           | (23,214      | )      |         |              |        |              |         |   |  |   |   |   | (23,214 | )     
|Net increase (decrease) in cash and cash equivalents |                       |                                       |  |      |   |           | (4,874       | )      |         |              | 91      |              |         |   |  |   |   |   | (4,783  | )     
|Cash and cash equivalents at beginning of year       |                       |                                       |  |      |   |           | 6,926        |        |         |              | 558     |              |         |   |  |   |   |   | 7,484   |       
|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |  
|Cash and cash equivalents at end of year             |                       | $                                     |  |      |   | $         | 2,052        |        |         | $            | 649     |              |         | $ |  |   |   | $ | 2,701   |       
|                                                     |                       |                                       |   |      |   |           |              |        |         |              |         |              |         |   |  

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HAIGHTS CROSS COMMUNICATIONS, INC.  PARENT
COMPANY





Schedule I  Condensed Financial
Information


Condensed Balance Sheets


|                                                 |                                             |                    |         |          |      |   |         |          |  
|------------------------------------------------ | ------------------------------------------- | ------------------ | ------- | -------- | ---- | - | ------- | -------- | -
|                                                 |                                             | As of December 31, |        
|                                                 |                                             |                    |        
|                                                 |                                             | 2004               |         |          | 2003 |  
|                                                 |                                             |                    |         |          |      |  
|ASSETS                                          
|Current assets                                   |                                             | $                  | 3,460   |          |      | $ |        |         
|Investment in subsidiary                         |                                             |                    | 44,314  |          |      |   |        |         
|Long term assets                                 |                                             |                    | 2,947   |          |      |   |        |         
|                                                 |                                             |                    |         |          |      |  
|                                                 | Total assets                                |                    | $       | 50,721   |      |   | $       |         |  
|                                                 |                                             |                    |         |          |      |  
|                                                
|LIABILITIES AND STOCKHOLDERS DEFICIT           
|Current liabilities                              |                                             | $                  |        |          |      | $ |        |         
|Deficit of investment in consolidated subsidiary |                                             |                    |        |          |      |   | 12,691  |         
|Long term debt                                   |                                             |                    | 190,976 |          |      |   |        |         
|Other long term liabilities                      |                                             |                    | 4,306   |          |      |   |        |         
|Redeemable preferred stock                       |                                             |                    | 36,882  |          |      |   | 143,663 |         
|Stockholders deficit:                           |                                             |                    |         |          |      |   |         |         
|                                                 | Common stock                                |                    |         | 20       |      |   |         | 20       |  
|                                                 | Accumulated deficit                         |                    |         | (181,463 | )    |   |         | (156,374 | )
|                                                 |                                             |                    |         |          |      |  
|                                                 | Total stockholders deficit                 |                    |         | (181,443 | )    |   |         | (156,354 | )
|                                                 |                                             |                    |         |          |      |  
|                                                 | Total liabilities and stockholders deficit |                    | $       | 50,721   |      |   | $       |         |  
|                                                 |                                             |                    |         |          |      |  

Condensed Statements of Operations


|                                    |  |                         |         |   |      |   |        |      |  |   |         |  
|----------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                    |  | Year Ended December 31, |        
|                                    |  |                         |        
|                                    |  | 2004                    |         |   | 2003 |   |        | 2002 | 
|                                    |  |                         |         |   |      |   |        |      | 
|Revenues                            |  | $                       |        |   |      | $ |       |      |  | $ |        |  
|General and administrative expenses |  |                         |        |   |      |   |       |      |  |   |        |  
|                                    |  |                         |         |   |      |   |        |      | 
|Operating income                    |  |                         |        |   |      |   |       |      |  |   |        |  
|Equity in net loss of subsidiary    |  |                         | (22,581 | ) |      |   | (1,866 | )    |  |   | (27,752 | )
|                                    |  |                         |         |   |      |   |        |      | 
|Net loss                            |  | $                       | (22,581 | ) |      | $ | (1,866 | )    |  | $ | (27,752 | )
|                                    |  |                         |         |   |      |   |        |      | 

Condensed Statements of Cash Flows


|                            |  |                         |         |   |      |   |      |  |  |   |   | 
|--------------------------- |  | ----------------------- | ------- | - | ---- | - | ---- |  |  | - | - | 
|                            |  | Year Ended December 31,
|                            |  |                        
|                            |  | 2004                    |         |   | 2003 |   | 2002
|                            |  |                         |         |   |      |   |     
|Cash provided by (used in): |  |                         |         |   |      |   |      |  |  |   |   | 
|Operating activities        |  | $                       | 330     |   |      | $ |     |  |  | $ |  | 
|Investing activities        |  |                         | (53,515 | ) |      |   |     |  |  |   |  | 
|Financing activities        |  |                         | 56,645  |   |      |   |     |  |  |   |  | 
|                            |  |                         |         |   |      |   |      |  | 
|Cash at the end of the year |  | $                       | 3,460   |   |      | $ |     |  |  | $ |  | 
|                            |  |                         |         |   |      |   |      |  | 

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|   |                      
|-- | ---------------------
|1. | Basis of Presentation



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HAIGHTS CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES





Schedule II  Valuation and Qualifying Account
Summary


For the Years ended December 31, 2004, 2003 and 2002:


|                              |                                               |              |   |           |            |  |  |              |   |            |                |      |            |       |             |   |          |  |  |       |     |  |   |         |  
|----------------------------- | --------------------------------------------- | ------------ | - | --------- | ---------- |  |  | ------------ | - | ---------- | -------------- | ---- | ---------- | ----- | ----------- | - | -------- |  |  | ----- | --- |  | - | ------- | -
|                              |                                               |              |   | Additions |            |  |  |              |  
|                              |                                               |              |   |           |            |  |  |              |  
|                              |                                               | Balance at   |   |           | Charged to |  |  |              |   | Charged to |                |      |            |       |            
|                              |                                               | Beginning of |   |           | Costs and  |  |  |              |   | Other      |                |      |            |       | Balance at  |  
|                              |                                               | Year         |   |           | Expenses   |  |  |              |   | Accounts   |                |      |            |       | End of Year |  
|                              |                                               |              |   |           |            |  |  |              |   |            |                |      | Deductions |       |             |   |         
|Description                   |                                               | (Credit)     |   |           | (Credit)   |  |  | Acquisitions |   |            | Debit/(Credit) |      |            | Debit |             |   | (Credit) | 
|                              |                                               |              |   |           |            |  |  |              |   |            |                |      |            |       |             |   |          | 
|Year ended December 31, 2004: |                                               |              |   |           |            |  |  |              |   |            |                |      |            |       |             |   |          |  |  |       |     |  |   |        
|                              | Allowance for doubtful accounts and returns   |              | $ | (3,851    | )          |  |  | (3,870       | ) |            |                | (209 | )(4)       |       |             |  |          |  |  | 4,138 |     |  | $ | (3,792  | )
|                              | Allowance for valuation of deferred tax asset |              | $ | (33,351   | )          |  |  |             |   |            |                |     |            |       |             |  |          |  |  | 3,974 |     |  | $ | (29,377 | )
|                              | Allowance for inventory obsolescence          |              | $ | (1,644    | )          |  |  | (3,195       | ) |            |                | (437 | )(4)       |       |             |  |          |  |  | 788   |     |  | $ | (4,488  | )
|Year ended December 31, 2003: |                                               |              |   |           |            |  |  |              |   |            |                |      |            |       |             |   |          |  |  |       |     |  |   |        
|                              | Allowance for doubtful accounts and returns   |              | $ | (4,275    | )          |  |  | (3,501       | ) |            |                |     |            |       |             |  |          |  |  | 3,925 | (2) |  | $ | (3,851  | )
|                              | Allowance for valuation of deferred tax asset |              | $ | (33,736   | )          |  |  |             |   |            |                |     |            |       |             |  |          |  |  | 385   | (6) |  | $ | (33,351 | )
|                              | Allowance for inventory obsolescence          |              | $ | (2,210    | )          |  |  | (1,035       | ) |            |                |     |            |       |             |  |          |  |  | 1,601 | (3) |  | $ | (1,644  | )
|Year ended December 31, 2002: |                                               |              |   |           |            |  |  |              |   |            |                |      |            |       |             |   |          |  |  |       |     |  |   |        
|                              | Allowance for doubtful accounts and returns   |              | $ | (4,935    | )          |  |  | (2,189       | ) |            |                |     |            |       |             |  |          |  |  | 2,849 | (5) |  | $ | (4,275  | )
|                              | Allowance for valuation of deferred tax asset |              | $ | (21,066   | )          |  |  | (12,670      | ) |            |                |     |            |       |             |  |          |  |  |      |     |  | $ | (33,736 | )
|                              | Allowance for inventory obsolescence          |              | $ | (5,835    | )          |  |  | (403         | ) |            |                | 188  | (1)        |       |             |  |          |  |  | 3,840 | (3) |  | $ | (2,210  | )






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Related to Recorded Books and Audio Adventures.                                                                                                                                                                                                                                    
|   
|(2) | Relates to account write-offs under continuing operations.                                                                                                                                                                                                                         
|   
|(3) | Relates to the destruction of obsolete inventory.                                                                                                                                                                                                                                  
|   
|(4) | Relates to the acquisitions of Buckle Down and Options
    Publishing.                                                                                                                                                                                                             
|   
|(5) | $0.4 million relates to discontinued operations,
    $1.1 million relates to reversal of reserve upon the
    signing of a contract to enact a non-returnable clause on sales
    of certain titles and $1.3 million relates to account
    write-offs under continuing operations.
|   
|(6) | Relates to the reduction of net deferred tax assets.                                                                                                                                                                                                                               

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.

Disclosure Controls and Procedures.


Changes in Internal Controls Over Financial Reporting.




|         |                   
|-------- | ------------------
|Item 9B. | Other Information.



Part III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.



|                       |  |     |    |  |          |                                                                         
|---------------------- |  | --- | -- |  | -------- | ------------------------------------------------------------------------
|Name                   |  | Age |    |  | Position
|                       |  |     |    |  |         
|Peter J. Quandt        |  |     | 56 |  |          | Chairman, Chief Executive Officer and President                         
|Paul J. Crecca         |  |     | 47 |  |          | Director, Executive Vice President and Chief Financial Officer          
|Linda Koons            |  |     | 50 |  |          | Executive Vice President and Publisher                                  
|Kevin M. McAliley      |  |     | 45 |  |          | Executive Vice President and President of Triumph Learning              
|Paul A. Konowitch      |  |     | 50 |  |          | Vice President, Corporate and New Business Development                  
|Mark Kurtz             |  |     | 40 |  |          | Vice President, Finance and Accounting, and Chief Accounting
    Officer
|Melissa L. Linsky      |  |     | 45 |  |          | Vice President, Finance and Planning, and Treasurer                     
|David Berset           |  |     | 50 |  |          | President, Recorded Books                                               
|Robert J. Laronga      |  |     | 62 |  |          | President, Sundance/Newbridge and Chelsea House                         
|Nancy McMeekin         |  |     | 50 |  |          | President, Oakstone Publishing                                          
|Christopher S. Gaffney |  |     | 41 |  |          | Director                                                                
|Stephen F. Gormley     |  |     | 54 |  |          | Director                                                                

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Executive Officers


Peter J. Quandt


Paul J. Crecca


Linda Koons


Kevin M. McAliley


Paul A. Konowitch


Mark Kurtz


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Melissa L. Linsky


Business Presidents


David Berset


Robert J. Laronga


Nancy McMeekin


Barbara Russell


Directors


Christopher S. Gaffney


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Stephen F. Gormley






79



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|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.

Compensation




Summary Compensation Table


|                            |                                        |                     |      |      |           |   |         |         |  |   |                 |         |     |   |       |       | 
|--------------------------- | -------------------------------------- | ------------------- | ---- | ---- | --------- | - | ------- | ------- |  | - | --------------- | ------- | --- | - | ----- | ----- | 
|                            |                                        | Annual Compensation |      |      |          
|                            |                                        |                     |      |      | All Other |  
|Name and Principal Position |                                        | Year                |      |      | Salary    |   |         | Bonus   |  |   | Compensation(2) |        
|                            |                                        |                     |      |      |           |   |         |         |  |   |                 |        
|Peter J. Quandt             |                                        |                     | 2004 |      |           | $ | 447,782 |         |  | $ | 256,838         |         |     | $ | 4,330 |      
|                            | Chairman, Chief Executive Officer and  |                     |      | 2003 |           |   |         | 445,770 |  |   |                 | 208,950 |     |   |       | 5,719 | 
|                            | President                              |                     |      | 2002 |           |   |         | 431,805 |  |   |                 | 287,991 |     |   |       | 5,500 | 
|Paul J. Crecca              |                                        |                     | 2004 |      |           |   | 319,072 |         |  |   | 146,410         |         |     |   | 4,330 |      
|                            | Director, Executive Vice President and |                     |      | 2003 |           |   |         | 318,700 |  |   |                 | 119,500 |     |   |       | 5,239 | 
|                            | Chief Financial Officer                |                     |      | 2002 |           |   |         | 306,398 |  |   |                 | 163,481 |     |   |       | 5,500 | 
|Kevin M. McAliley           |                                        |                     | 2004 |      |           |   | 309,400 |         |  |   | 138,920         |         |     |   | 3,559 |      
|                            | Executive Vice President and           |                     |      | 2003 |           |   |         | 309,400 |  |   |                 | 164,150 |     |   |       | 3,211 | 
|                            | President of Triumph Learning          |                     |      | 2002 |           |   |         | 288,919 |  |   |                 | 416,842 | (1) |   |       | 5,500 | 
|Linda Koons                 |                                        |                     | 2004 |      |           |   | 206,250 |         |  |   | 94,640          |         |     |   | 0     |      
|                            | Executive Vice President, Publisher    |                     |      |      |           |   |         |         |  |   |                 |         |     |   |       |       | 
|Paul Konowitch              |                                        |                     | 2004 |      |           |   | 200,000 |         |  |   | 57,358          |         |     |   | 0     |      
|                            | Senior Vice President, Corporate and   |                     |      | 2003 |           |   |         | 66,667  |  |   |                 | 15,623  |     |   |       | 0     | 
|                            | New Business Development               |                     |      |      |           |   |         |         |  |   |                 |         |     |   |       |       | 






|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $276,888 paid pursuant to the 2002 Equity Plan, a
    special management incentive plan adopted for the year ended
    December, 31 2002 only.
|   
|(2) | Represents our contributions to the named executive
    officers 401(k) account.                                                                      

Option Grants in Last Fiscal Year




|                  |  |            |         |  |                    |  |      |           |  |   |                 |       |         |          |                 |  |  |   |   | 
|----------------- |  | ---------- | ------- |  | ------------------ |  | ---- | --------- |  | - | --------------- | ----- | ------- | -------- | --------------- |  |  | - | - | 
|                  |  | Number of  |         |  | Percent of Total   |  |      |           |  |   |                 | Grant |        
|                  |  | Shares     |         |  | Options Granted to |  |      | Exercise  |  |   |                 |       | Date    |         
|                  |  | Underlying |         |  | Employees in       |  |      | Price per |  |   |                 |       | Present |         
|Name              |  | Options(1) |         |  | Fiscal Year        |  |      | Share     |  |   | Expiration Date |       |         | Value(2) |                
|                  |  |            |         |  |                    |  |      |           |  |   |                 |       |         |          |                
|Paul J. Crecca    |  |            | 50,000  |  |                    |  | 8.5  | %         |  | $ | 1.00            |       |         |          | October 1, 2014 |  |  | $ | 0 | 
|Kevin M. McAliley |  |            | 35,000  |  |                    |  | 6.0  | %         |  | $ | 1.00            |       |         |          | October 1, 2014 |  |  | $ | 0 | 
|Linda Koons       |  |            | 100,000 |  |                    |  | 17.0 | %         |  | $ | 1.00            |       |         |          | October 1, 2014 |  |  | $ | 0 | 
|Paul Konowitch    |  |            | 30,000  |  |                    |  | 5.1  | %         |  | $ | 1.00            |       |         |          | October 1, 2014 |  |  | $ | 0 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All options were granted as incentive stock options. Some
    options are subject to time-based vesting, pursuant to which
    they typically vest over a period of three years. Other options
    are subject to performance-based vesting, pursuant to which they
    typically vest in three tranches, with the vesting of each
    tranche subject to the achievement of specified annual financial
    goals by the unit at which the optionee is employed. Of the
    grants made in 2004, 54.3% of the options granted are subject to
    time-based vesting and 45.7% are subject to performance-based
    vesting.
|   
|(2) | We valued the options awarded in 2004 using the minimum value
    method, which is similar to the Black-Scholes valuation model.
    This method excludes volatility, which is not available since
    our common stock                                                                                                                                                                                                                                                                                                                                                                                                    

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| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | is not publicly traded. We valued the options using a risk-free
    interest rate of 4.25%, an expected dividend yield of zero, and
    an expected life of six years.

Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values






|                  |  |                          |         |  |                         |  |         |             |  |   |               |  |  |   |   | 
|----------------- |  | ------------------------ | ------- |  | ----------------------- |  | ------- | ----------- |  | - | ------------- |  |  | - | - | 
|                  |  | Number of Common Shares  |         |  | Value of Unexercised    | 
|                  |  | Underlying Options as of |         |  | In-the-Money Options    | 
|                  |  | December 31, 2004        |         |  | as of December 31, 2004 | 
|                  |  |                          |         |  |                         | 
|Name              |  | Exercisable              |         |  | Unexercisable           |  |         | Exercisable |  |   | Unexercisable | 
|                  |  |                          |         |  |                         |  |         |             |  |   |               | 
|Paul J. Crecca    |  |                          | 18,819  |  |                         |  | 95,000  |             |  | $ | 0             |  |  | $ | 0 | 
|Kevin M. McAliley |  |                          | 110,000 |  |                         |  | 65,000  |             |  | $ | 13,600        |  |  | $ | 0 | 
|Linda Koons       |  |                          | 0       |  |                         |  | 100,000 |             |  | $ | 0             |  |  | $ | 0 | 
|Paul Konowitch    |  |                          | 0       |  |                         |  | 30,000  |             |  | $ | 0             |  |  | $ | 0 | 

Employee Benefit Plans and Arrangements


2000 Stock Option and Grant Plan.




| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | incentive and non-qualified stock options;                                   
|
| |  | stock appreciation rights;                                                   
|
| |  | common stock with vesting or other restrictions, or without
    restrictions;
|
| |  | rights to receive common stock in the future with or without
    vesting;    
|
| |  | common stock upon the attainment of specified performance
    goals; and     
|
| |  | dividend rights in respect of common stock.                                  







81



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2002 Equity Plan.


Employment and Severance Agreements.




401(k) Savings Plan.


82



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Compensation of Directors









|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters.

Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                           |       |                            |           |           |                               |                         |                              |                                 |  |  |         |         | 
|---------------------------------------------------------- | ----- | -------------------------- | --------- | --------- | ----------------------------- | ----------------------- | ---------------------------- | ------------------------------- |  |  | ------- | ------- | 
|                                                           |       |                            |           |           |                               | Number of Securities    |                             
|                                                           |       |                            |           |           |                               | Remaining Available for |                             
|                                                           |       | Number of Securities to be |           |           |                               |                         | Future Issuance under Equity |                                
|                                                           |       | Issued upon Exercise of    |           |           | Weighted-Average Exercise     |                         |                              | Compensation Plans              | 
|                                                           |       | Outstanding Options,       |           |           | Price of Outstanding Options, |                         |                              | (Excluding Securities Reflected | 
|                                                           |       | Warrants and Rights        |           |           | Warrants and Rights           |                         |                              | in Column (a))                  | 
|Plan Category                                              |       | (a)                        |           |           | (b)                           |                         |                              | (c)                             | 
|                                                           |       |                            |           |           |                               |                         |                              |                                 | 
|Equity compensation plans approved by security holders     |       |                            | 1,555,145 |           |                               | $                       | 1.71                         |                                 |  |  | 844,855 |        
|Equity compensation plans not approved by security holders |       |                            |          |           |                               |                         |                             |                                 |  |  |        |        
|                                                           |       |                            |           |           |                               |                         |                              |                                 | 
|                                                           | Total |                            |           | 1,555,145 |                               |                         | $                            | 1.71                            |  |  |         | 844,855 | 
|                                                           |       |                            |           |           |                               |                         |                              |                                 | 

Security Ownership






| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | each person known by us to be the beneficial owner of more than
    5.0% of such stock;
|
| |  | each of our directors;                                                                 
|
| |  | each named executive officer; and                                                      
|
| |  | all of our directors and named executive officers as a group.                          







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|                                                                          |  |                           |            |          |                 |  |              |         |  |  |      |  
|------------------------------------------------------------------------- |  | ------------------------- | ---------- | -------- | --------------- |  | ------------ | ------- |  |  | ---- | -
|                                                                          |  | Shares Beneficially Owned |            |          |                
|                                                                          |  |                           |            |          |                
|                                                                          |  |                           |            | Series A |                 |  | Total Voting |        
|Name of Beneficial Owner                                                  |  | Common Stock              |            |          | Preferred Stock |  |              | Percent | 
|                                                                          |  |                           |            |          |                 |  |              |         | 
|Media/ Communications Partners III Limited Partnership and
    affiliates |  |                           | 14,342,193 | (1)      |                 |  | 20,397       | (2)     |  |  | 71.7 | %
|Peter J. Quandt                                                           |  |                           | 4,784,406  |          |                 |  | 1,362        |         |  |  | 23.9 | %
|Paul J. Crecca                                                            |  |                           | 388,819    | (3)      |                 |  | 0            |         |  |  | 1.9  | %
|Kevin M. McAliley                                                         |  |                           | 110,000    | (4)      |                 |  | 0            |         |  |  | *    |  
|Mark Kurtz                                                                |  |                           | 24,764     | (4)      |                 |  | 0            |         |  |  | *    |  
|Melissa L. Linsky                                                         |  |                           | 24,764     | (4)      |                 |  | 0            |         |  |  | *    |  
|Christopher S. Gaffney                                                    |  |                           | 14,342,192 | (1)      |                 |  | 20,397       | (2)     |  |  | 71.7 | %
|Stephen F. Gormley                                                        |  |                           | 14,342,192 | (1)      |                 |  | 20,397       | (2)     |  |  | 71.7 | %
|All directors and named executive officers as a group
    (seven persons) |  |                           | 19,674,945 |          |                 |  | 21,759       |         |  |  | 97.5 | %






| |   |             
| | - | ------------
| | * | Less than 1%



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This total includes 13,625,218 shares of common stock owned
    by Media/ Communications Partners III Limited Partnership
    and 716,975 shares of common stock owned by M/ C Investors
    L.L.C. Each of Messrs. Gaffney and Gormley is a limited
    partner and a member of the general partner of Media/
    Communications Partners III Limited Partnership and an
    investor in and managing member of M/ C Investors L.L.C. Each of
    Messrs. Gaffney and Gormley disclaims beneficial ownership
    of such shares, except to the extent of his pecuniary interest
    therein.                       
|   
|(2) | This total includes 19,377 shares of Series A
    preferred stock owned by Media/ Communications Partners III
    Limited Partnership and 1,020 shares of Series A
    preferred stock owned by M/ C Investors, L.L.C. Each of
    Messrs. Gaffney and Gormley is a limited partner and a
    member of the general partner of Media/ Communications
    Partners III Limited Partnership and an investor in and
    managing member of M/ C Investors L.L.C. Each of
    Messrs. Gaffney and Gormley disclaims beneficial ownership
    of such shares, except to the extent of his pecuniary interest
    therein.
|   
|(3) | This total includes 18,819 shares of common stock issuable
    upon exercise of options which were exercisable as of
    February 28, 2005 or within 60 days thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) | Consists of shares of common stock issuable upon exercise of
    options which were exercisable as of February 28, 2005 or
    within 60 days thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                           






|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.

Indemnification Matters






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Registration Rights









|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.





| |           
| | ----------
| | Audit Fees





| |                 
| | ----------------
| | Other audit Fees





| |         
| | --------
| | Tax Fees



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| |               
| | --------------
| | All Other Fees








PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.



Financial Statements.


|                                                                               |  |  |    | 
|------------------------------------------------------------------------------ |  |  | -- | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm |  |  | 40 | 
|Consolidated Balance Sheets                                                    |  |  | 41 | 
|Consolidated Statements of Operations                                          |  |  | 42 | 
|Consolidated Statements of Changes in
    Stockholders Deficit                |  |  | 43 | 
|Consolidated Statements of Cash Flows                                          |  |  | 44 | 
|Notes to Consolidated Financial
    Statements                                 |  |  | 45 | 

Financial Statement Schedules


|                                                           |  |  |    | 
|---------------------------------------------------------- |  |  | -- | 
|Schedule I  Condensed Financial
    Information           |  |  | 73 | 
|Schedule II  Valuation and
    Qualifying Account Summary |  |  | 75 | 



Exhibits.


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SIGNATURES






| |                                   
| | ----------------------------------
| | HAIGHTS CROSS COMMUNICATIONS, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ PETER J. QUANDT

| |                                          
| | -----------------------------------------
| |                                          
| | Peter J. Quandt                          
| | Chairman of the Board of Directors, Chief
| | Executive Officer and President          
| | (Principal Executive Officer)            



| |     |                   
| | --- | ------------------
| | By: | /s/ PAUL J. CRECCA

| |                                       
| | --------------------------------------
| |                                       
| | Paul J. Crecca                        
| | Director, Executive Vice President and
| | Chief Financial Officer               
| | (Principal Financial Officer)         



| |     |               
| | --- | --------------
| | By: | /s/ MARK KURTZ

| |                                           
| | ------------------------------------------
| |                                           
| | Mark Kurtz                                
| | Vice President, Finance and Accounting and
| | Chief Accounting Officer                  
| | (Principal Accounting Officer)            





|                                                         |  |                                                                               |  |                |  | 
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                                |  | Title                                                                         |  | Date          
|                                                         |  |                                                                               |  |               
|                                                        
|/s/ PETER J. QUANDTPeter
    J. Quandt                   |  | Chairman of the Board of Directors,
    Chief Executive Officer and President |  | March 30, 2005
|                                                        
|/s/ PAUL J. CRECCAPaul
    J. Crecca                     |  | Director, Executive Vice President and
    Chief Financial Officer            |  | March 30, 2005
|                                                        
|/s/ CHRISTOPHER S.
    GAFFNEYChristopher
    S. Gaffney |  | Director                                                                      |  | March 30, 2005
|                                                        
|/s/ STEPHEN F. GORMLEYStephen
    F. Gormley             |  | Director                                                                      |  | March 30, 2005





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EXHIBIT INDEX


|        |   |       |                     |                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | - | ----- | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |       |                    
|No.     |   |       | Exhibit Description
|        |   |       |                    
|        | 2 | .1    |                     | Asset Purchase Agreement, dated as of March 6, 2004, by and
    among Haights Cross Communications, Inc., Buckle Down Publishing
    Company and the other parties named therein, incorporated by
    reference to Exhibit 2.1 of Haights Cross Communications,
    Inc.s Current Report on Form 8-K filed April 20,
    2004                                                                                              
|        | 2 | .2    |                     | Asset Purchase Agreement, dated as of November 11, 2004, by
    and among Haights Cross Communications, Inc., Haights Cross
    Operating Company, Options Publishing, LLC, Options Publishing,
    Inc., and certain stockholders of Options Publishing, Inc. named
    therein, incorporated by reference to Exhibit 2.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K filed December 6, 2004
|       
|        | 2 | .3    |                     | Purchase and Sale Agreement, dated as of November 11, 2004,
    by and between Options Publishing, LLC and Merrimack M&R
    Realty LLC, incorporated by reference to Exhibit 2.2 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K filed December 6, 2004                                                                                                                                         
|       
|        | 3 | .1    |                     | Second Amended and Restated Certificate of Incorporation of
    Haights Cross Communications, Inc., incorporated by reference to
    Exhibit 3.1 of Haights Cross Communications, Inc.s
    Special Report on Form 10-K filed April 19, 2004                                                                                                                                                                               
|       
|        | 3 | .1(a) |                     | Certificate of Designations, Preferences and Rights of
    Series C Preferred Stock of Haights Cross Communications,
    Inc., incorporated by reference to Exhibit 3.1(a) of
    Haights Cross Communications, Inc.s Registration Statement
    on Form S-4 (Reg. No. 333-122750) filed
    February 11, 2005                                                                                                             
|       
|        | 3 | .2    |                     | Bylaws of Haights Cross Communications, Inc., incorporated by
    reference to Exhibit 3.2 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                   
|       
|        | 3 | .3    |                     | Certificate of Incorporation of Haights Cross Operating Company,
    incorporated by reference to Exhibit 3.3 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                            
|       
|        | 3 | .4    |                     | Bylaws of Haights Cross Operating Company, incorporated by
    reference to Exhibit 3.4 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                      
|       
|        | 3 | .5    |                     | Certificate of Formation of Chelsea House Publishers, LLC,
    incorporated by reference to Exhibit 3.5 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                  
|       
|        | 3 | .6    |                     | Amended and Restated Limited Liability Company Agreement of
    Chelsea House Publishers, LLC, incorporated by reference to
    Exhibit 3.6 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                  
|       
|        | 3 | .7    |                     | Certificate of Formation of Triumph Learning, LLC, incorporated
    by reference to Exhibit 3.7 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                          
|       
|        | 3 | .8    |                     | Amended and Restated Limited Liability Company Agreement of
    Triumph Learning, LLC, incorporated by reference to
    Exhibit 3.8 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                          
|       
|        | 3 | .9    |                     | Certificate of Formation of Oakstone Publishing, LLC,
    incorporated by reference to Exhibit 3.9 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                       
|       
|        | 3 | .10   |                     | Amended and Restated Limited Liability Company Agreement of
    Oakstone Publishing, LLC, incorporated by reference to
    Exhibit 3.10 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                      
|       
|        | 3 | .11   |                     | Certificate of Formation of Recorded Books, LLC, incorporated by
    reference to Exhibit 3.11 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                               

88



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|        |    |     |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- | ------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                    
|No.     |    |     | Exhibit Description
|        |    |     |                    
|       
|        | 3  | .12 |                     | Amended and Restated Limited Liability Company Agreement of
    Recorded Books, LLC, incorporated by reference to
    Exhibit 3.12 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                                                                                                
|       
|        | 3  | .13 |                     | Certificate of Formation of Sundance/Newbridge Educational
    Publishing, LLC, incorporated by reference to Exhibit 3.13
    of Haights Cross Communications, Inc.s Registration
    Statement on Form S-4 (Reg. No. 333-109381) filed
    October 2, 2003                                                                                                                                                                                                                                                                                     
|       
|        | 3  | .14 |                     | Amended and Restated Limited Liability Company Agreement of
    Sundance/Newbridge Educational Publishing, LLC, incorporated by
    reference to Exhibit 3.14 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                                                                     
|       
|        | 3  | .15 |                     | Certificate of Formation of The Coriolis Group, LLC,
    incorporated by reference to Exhibit 3.15 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                                                                                                                                            
|       
|        | 3  | .16 |                     | Third Amended and Restated Limited Liability Company Agreement
    of The Coriolis Group, LLC, incorporated by reference to
    Exhibit 3.16 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                                                                                      
|       
|        | 3  | .17 |                     | Articles of Association of W F Howes Limited, incorporated by
    reference to Exhibit 3.17 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                                                                                                                                       
|       
|        | 3  | .18 |                     | Memorandum of Association of W F Howes Limited, incorporated by
    reference to Exhibit 3.18 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                                                                                                                                                     
|       
|        | 3  | .19 |                     | Certificate of Formation of Options Publishing, LLC,
    incorporated by reference to Exhibit 3.19 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-122750) filed February 11,
    2005                                                                                                                                                                                                                                                                                                          
|       
|        | 3  | .20 |                     | Limited Liability Company Agreement of Options Publishing, LLC,
    incorporated by reference to Exhibit 3.20 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-122750) filed February 11,
    2005                                                                                                                                                                                                                                                                                               
|       
|        | 4  | .1  |                     | Indenture, dated as of August 20, 2003, by and between
    Haights Cross Operating Company and Wells Fargo Bank Minnesota,
    N.A., as Trustee, incorporated by reference to Exhibit 4.1
    of Haights Cross Communications, Inc.s Registration
    Statement on Form S-4 (Reg. No. 333-109381) filed
    October 2, 2003                                                                                                                                                                                                                     
|       
|        | 4  | .2  |                     | Form of Haights Cross Operating Company
    113/4% Senior
    Note due 2011, incorporated by reference to Exhibit 4.2 of
    Haights Cross Communications, Inc.s Registration Statement
    on Form S-4 (Reg. No. 333-109381) filed
    October 2, 2003                                                                                                                                                                                                                                                                                         
|       
|        | 4  | .3  |                     | Indenture, dated as of February 2, 2004, by and between
    Haights Cross Communications, Inc. and Wells Fargo Bank
    Minnesota, N.A., as Trustee, incorporated by reference to
    Exhibit 4.4 of Haights Cross Communications, Inc.s
    Special Report on Form 10-K filed April 19, 2004                                                                                                                                                                                                                                                   
|       
|        | 4  | .4  |                     | Form of Haights Cross Communications, Inc.
    121/2% Senior
    Discount Note due 2011, incorporated by reference to
    Exhibit 4.5 of Haights Cross Communications, Inc.s
    Special Report on Form 10-K filed April 19, 2004                                                                                                                                                                                                                                                                                                               
|       
|        | 4  | .5  |                     | Supplemental Indenture, dated as of December 10, 2004, by
    and among Options Publishing, LLC, Haights Cross Operating
    Company, the guarantors signatory thereto, and Wells Fargo Bank,
    N.A., as trustee, supplementing the Indenture, dated as of
    August 20, 2003, among Haights Cross Operating Company, the
    guarantors named therein and Wells Fargo Bank, N.A., as trustee,
    incorporated by reference to Exhibit 4.2 of Haights Cross
    Communications, Inc.s Current Report on Form 8-K
    filed December 15, 2004
|       
|        | 10 | .1  |                     | Lease Agreement, dated as of January 15, 2003, by and
    between Sundance Publishing, LLC and LIT Industrial Limited
    Partnership, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Registration Statement
    on Form S-4 (Reg. No. 333-109381) filed
    October 2, 2003                                                                                                                                                                                                                              

89



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##### Table of Contents



|        |    |     |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | --- | ------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                    
|No.     |    |     | Exhibit Description
|        |    |     |                    
|       
|        | 10 | .2* |                     | Form of Director Indemnification Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10 | .3  |                     | Investors Agreement, dated as of December 10, 1999, by and
    among Haights Cross Communications, Inc., Haights Cross
    Operating Company, the Existing Stockholders (as defined
    therein) and the DLJMB Investors (as defined therein), as
    amended by Amendment to Investors Agreement, dated as of
    June 27, 2003, incorporated by reference to
    Exhibit 10.5 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003 
|       
|        | 10 | .4  |                     | Investors Registration Rights Agreement, dated as of
    December 10, 1999, by and among Haights Cross
    Communications, Inc., Haights Cross Operating Company and the
    Holders (as defined therein), incorporated by reference to
    Exhibit 10.6 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                        
|       
|        | 10 | .5  |                     | Haights Cross Communications, Inc. Restated 2000 Stock Option
    and Grant Plan, incorporated by reference to Exhibit 10.1
    of Haights Cross Communications, Inc.s Current Report on
    Form 8-K filed September 28, 2004                                                                                                                                                                                                                                                                                
|       
|        | 10 | .6  |                     | Haights Cross Communications, Inc. 2002 Equity Plan,
    incorporated by reference to Exhibit 10.8 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                                                                                                          
|       
|        | 10 | .7  |                     | Haights Cross Communications, Inc. 401(k) Savings Plan,
    incorporated by reference to Exhibit 10.9 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-109381) filed October 2,
    2003                                                                                                                                                                                                                                                                       
|       
|        | 10 | .8  |                     | Term Loan Agreement, dated as of August 20, 2003, by and
    among Haights Cross Operating Company, the Several Lenders from
    time to time parties thereto and Bear Stearns Corporate Lending
    Inc., as Administrative Agent, incorporated by reference to
    Exhibit 10.10 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                              
|       
|        | 10 | .9  |                     | Revolving Credit Agreement, dated as of August 20, 2003, by
    and among Haights Cross Operating Company, the Several Lenders
    from time to time parties thereto, Bear Stearns Corporate
    Lending Inc., as Syndication Agent and The Bank of New York, as
    Administrative Agent, incorporated by reference to
    Exhibit 10.11 of Haights Cross Communications, Inc.s
    Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                       
|       
|        | 10 | .10 |                     | Amendment No. 1 and Consent No. 1 to Revolving Credit
    Agreement, dated as of January 26, 2003, by and among
    Haights Cross Operating Company, the Several Lenders from time
    to time parties thereto, Bear Stearns Corporate Lending Inc., as
    Syndication Agent and The Bank of New York, as Administrative
    Agent, incorporated by reference to Exhibit 10.11 of
    Haights Cross Communications, Inc.s Special Report on
    Form 10-K filed April 19, 2004                               
|       
|        | 10 | .11 |                     | Amendment No. 2 and Consent No. 2 to Revolving Credit
    Agreement, dated as of April 14, 2004, by and among Haights
    Cross Operating Company, the Several Lenders from time to time
    parties thereto, Bear Stearns Corporate Lending Inc., as
    Syndication Agent and The Bank of New York, as Administrative
    Agent, incorporated by reference to Exhibit 10.12 of
    Haights Cross Communications, Inc.s Registration Statement
    on Form S-4 (Reg. No. 333-115017) filed April 30,
    2004
|       
|        | 10 | .12 |                     | Employment Agreement, dated as of December 18, 2003, by and
    between Haights Cross Communications, Inc. and Peter J. Quandt,
    incorporated by reference to Exhibit 10.12 of Haights Cross
    Communications, Inc.s Amendment No. 2 to Registration
    Statement on Form S-4 (Reg. No. 333-109381) filed
    January 12, 2004                                                                                                                                                                          
|       
|        | 10 | .13 |                     | Form of incentive stock option agreement for options with time
    based vesting schedules, incorporated by reference to
    Exhibit 10.2 of Haights Cross Communications, Inc.s
    Current Report on Form 8-K filed September 28, 2004                                                                                                                                                                                                                                                                      
|       
|        | 10 | .14 |                     | Form of incentive stock option agreement for options with
    performance based vesting schedules, incorporated by reference
    to Exhibit 10.3 of Haights Cross Communications,
    Inc.s Current Report on Form 8-K filed
    September 28, 2004                                                                                                                                                                                                                                                           

90



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##### Table of Contents



|        |    |      |                     |                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ---- | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                    
|No.     |    |      | Exhibit Description
|        |    |      |                    
|       
|        | 10 | .15  |                     | Term Loan Agreement, dated as of December 10, 2004, by and
    among Haights Cross Operating Company, Bear Stearns &
    Co. Inc., as lead arranger, Bear Stearns Corporate Lending Inc.,
    as Administrative Agent, and the lenders party thereto,
    incorporated by reference to Exhibit 1.1 of Haights Cross
    Communications, Incs Current Report on Form 8-K filed
    December 15, 2004
|       
|        | 10 | .16  |                     | Registration Rights Agreement, dated as of December 10,
    2004, by and among Haights Cross Operating Company, Bear
    Stearns & Co. Inc. and the Guarantors named therein,
    incorporated by reference to Exhibit 4.1 of Haights Cross
    Communications, Inc.s Current Report on Form 8-K
    filed December 15, 2004                                                                       
|       
|        | 10 | .17* |                     | Amendment No. 3 and Consent No. 3 to Revolving Credit
    Agreement, dated as of December 1, 2004, by and among
    Haights Cross Operating Company, the Lenders from time to time
    parties thereto, Bear Stearns Corporate Lending, Inc., as
    Syndication Agent and The Bank of New York, as Administrative
    Agent                                                                        
|       
|        | 12 | .1*  |                     | Schedule of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 21 | .1   |                     | Subsidiaries of Haights Cross Communications, Inc., incorporated
    by reference to Exhibit 21.1 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4 (Reg. No. 333-122750) filed February 11,
    2005                                                                                                                                                              
|       
|        | 21 | .2   |                     | Subsidiaries of Haights Cross Operating Company, incorporated by
    reference to Exhibit 21.1 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-122750) filed February 11, 2005                                                                                                                                                                     
|       
|        | 21 | .3   |                     | Subsidiaries of Recorded Books, LLC, incorporated by reference
    to Exhibit 21.3 of Haights Cross Communications,
    Inc.s Registration Statement on Form S-4 (Reg.
    No. 333-109381) filed October 2, 2003                                                                                                                                                                                   
|       
|        | 23 | .1*  |                     | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 31 | .1*  |                     | Rule 13a-14(a)/15d-14(a) Certification of Peter J. Quandt                                                                                                                                                                                                                                                                                                                                           
|       
|        | 31 | .2*  |                     | Rule 13a-14(a)/15d-14(a) Certification of Paul J. Crecca                                                                                                                                                                                                                                                                                                                                            
|       
|        | 32 | .1** |                     | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002                                                                                                                                                                                                                                           
|       
|        | 32 | .2** |                     | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes Oxley Act of 2002                                                                                                                                                                                                                                           






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|** | furnished herewith

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