---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

|x                                              | Quarterly Report Pursuant to Section 13 or 15(d) of the   Securities Exchange Act of 1934 
|---------------------------------------------- | ------------------------------------------------------------------------------------------
|                                               |                                                                                           
|For the quarterly period ended June   30, 2004
|                                               |                                                                                           
|OR                                            
|                                               |                                                                                           
|o                                              | Transition Report Pursuant to Section 13 or 15(d) of the   Securities Exchange Act of 1934
|                                               |                                                                                           
|For the transition period from              to
|                                               |                                                                                           
|Commission File Number 000-32469              

THE PRINCETON REVIEW, INC.

(Exact name of registrant as specified in its charter)

|Delaware                                                                      |  | 22-3727603                            
|----------------------------------------------------------------------------- |  | --------------------------------------
|(State or   other jurisdiction of incorporation or organization)              |  | (I.R.S.   Employer Identification No.)
|                                                                              |  |                                       
|2315 Broadway   New York, New York
(Address   of principal executive offices) |  | 10024
(Zip Code)                      

Registrants telephone number, including area code (212) 874-8282

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
xNo
o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes
xNo
o

The Company had 27,510,964 shares of $0.01 par value common stock outstanding at August 5, 2004.

---



TABLE OF CONTENTS

|PART   I.  FINANCIAL INFORMATION |        
|-------------------------------- | -------
|                                 | Item 1.
|                                 |        
|                                 |        
|                                 |        
|                                 |        
|                                 | Item 2.
|                                 | Item 3.
|                                 | Item 4.
|PART II.  OTHER INFORMATION      |        
|                                 | Item 1.
|                                 | Item 2.
|                                 | Item 3.
|                                 | Item 4.
|                                 | Item 5.
|                                 | Item 6.
|SIGNATURES                       | 22     





PART I.  FINANCIAL INFORMATIONItem 1.  Consolidated Financial Statements

THE PRINCETON REVIEW, INC. AND SUBSIDIARIESConsolidated Balance Sheets (in thousands, except share data)

|                                                                                                                                                                                         |  | June 30,
2004 |         | December   31,   2003 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | --------------------- | -
|                                                                                                                                                                                         |  |               |         |                       |  
|                                                                                                                                                                                         |  | (unaudited)   |         |                       |  
|ASSETS                                                                                                                                                                                   |  |               |         |                       |  
|Current assets:                                                                                                                                                                          |  |               |         |                       |  
|Cash and cash equivalents                                                                                                                                                                |  | $             | 20,140  |                       | $
|Accounts receivable, net                                                                                                                                                                 |  |               | 20,666  |                       |  
|Other receivables                                                                                                                                                                        |  |               | 1,301   |                       |  
|Prepaid expenses                                                                                                                                                                         |  |               | 2,143   |                       |  
|Other assets                                                                                                                                                                             |  |               | 3,258   |                       |  
|                                                                                                                                                                                         |  |               |         |                       |  
|Total current assets                                                                                                                                                                     |  |               | 47,508  |                       |  
|Furniture,   fixtures, equipment and software development, net                                                                                                                           |  |               | 11,346  |                       |  
|Deferred   income taxes                                                                                                                                                                  |  |               | 15,853  |                       |  
|Investment   in affiliates                                                                                                                                                               |  |               | 1,750   |                       |  
|Goodwill                                                                                                                                                                                 |  |               | 39,578  |                       |  
|Other   intangibles, net                                                                                                                                                                 |  |               | 10,951  |                       |  
|Other   assets                                                                                                                                                                           |  |               | 4,605   |                       |  
|                                                                                                                                                                                         |  |               |         |                       |  
|Total assets                                                                                                                                                                             |  | $             | 131,591 |                       | $
|                                                                                                                                                                                         |  |               |         |                       |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                     |  |               |         |                       |  
|Current liabilities:                                                                                                                                                                     |  |               |         |                       |  
|Accounts payable                                                                                                                                                                         |  | $             | 2,758   |                       | $
|Accrued expenses                                                                                                                                                                         |  |               | 7,439   |                       |  
|Current maturities of long-term debt                                                                                                                                                     |  |               | 1,899   |                       |  
|Deferred income                                                                                                                                                                          |  |               | 16,151  |                       |  
|Book advances                                                                                                                                                                            |  |               | 190     |                       |  
|                                                                                                                                                                                         |  |               |         |                       |  
|Total current liabilities                                                                                                                                                                |  |               | 28,437  |                       |  
|Deferred   rent                                                                                                                                                                          |  |               | 1,120   |                       |  
|Long-term   debt                                                                                                                                                                         |  |               | 7,228   |                       |  
|Series   B-1 Preferred stock, $.01 par value; 10,000 and none authorized, issued and   outstanding at June 30, 2004 and December 31, 2003, respectively (liquidation   value of $10,037) |  |               | 9,881   |                       |  
|Stockholders equity                                                                                                                                                                     |  |               |         |                       |  
|Preferred
        stock, $.01 par value; 5,000,000 shares authorized at June 30, 2004 and
        December 31, 2003, respectively                                                        |  |               |        |                       |  
|Common stock, $.01 par value; 100,000,000 shares   authorized; 27,503,464 and 27,385,273 issued and outstanding at June 30, 2004   and December 31, 2003, respectively                   |  |               | 275     |                       |  
|Additional paid-in capital                                                                                                                                                               |  |               | 115,710 |                       |  
|Accumulated deficit                                                                                                                                                                      |  |               | (30,492 | )                     |  
|Accumulated other comprehensive loss                                                                                                                                                     |  |               | (568    | )                     |  
|                                                                                                                                                                                         |  |               |         |                       |  
|Total stockholders equity                                                                                                                                                               |  |               | 84,925  |                       |  
|                                                                                                                                                                                         |  |               |         |                       |  
|Total liabilities and stockholders equity                                                                                                                                               |  | $             | 131,591 |                       | $
|                                                                                                                                                                                         |  |               |         |                       |  

See accompanying notes.

2



THE PRINCETON REVIEW, INC. AND SUBSIDIARIESConsolidated Statements of Operations (in thousands, except per share data)

|                                                                              |  | Three Months
        Ended June 30, |        | Six Months
        Ended June 30, |  
|----------------------------------------------------------------------------- |  | ----------------------------------- | ------ | --------------------------------- | -
|                                                                              |  |                                     |        |                                   |  
|                                                                              |  | 2004                                |        | 2003                              |  
|                                                                              |  |                                     |        |                                   |  
|                                                                              |  | (Unaudited)                         |        | (Unaudited)                       |  
|Revenue                                                                       |  |                                     |        |                                   |  
|Test
        Preparation Services                                             |  | $                                   | 18,163 |                                   | $
|K-12
        Services                                                         |  |                                     | 7,697  |                                   |  
|Admissions
        Services                                                   |  |                                     | 2,587  |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Total
        revenue                                                         |  |                                     | 28,447 |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Cost
        of revenue                                                       |  |                                     |        |                                   |  
|Test
        Preparation Services                                             |  |                                     | 5,313  |                                   |  
|K-12
        Services                                                         |  |                                     | 3,005  |                                   |  
|Admissions
        Services                                                   |  |                                     | 557    |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Total
        cost of revenue                                                 |  |                                     | 8,875  |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Gross
        profit                                                          |  |                                     | 19,572 |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Operating
        expenses                                                    |  |                                     | 18,600 |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Income
        (loss) from operations                                         |  |                                     | 972    |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Interest
        expense                                                      |  |                                     | (121   | )                                 |  
|Other
        (expense) income                                                |  |                                     | (24    | )                                 |  
|                                                                              |  |                                     |        |                                   |  
|Income
        (loss) before (provision) benefit for income taxes             |  |                                     | 827    |                                   |  
|(Provision)
        benefit for income taxes                                  |  |                                     | (352   | )                                 |  
|                                                                              |  |                                     |        |                                   |  
|Net
        income (loss)                                                     |  |                                     | 475    |                                   |  
|Dividends
        on Series B-1 preferred stock                               |  |                                     | (37    | )                                 |  
|                                                                              |  |                                     |        |                                   |  
|Net
        income (loss) attributed to common stockholders                   |  | $                                   | 438    |                                   | $
|                                                                              |  |                                     |        |                                   |  
|Basic
        income (loss) per share                                         |  | $                                   | 0.02   |                                   | $
|                                                                              |  |                                     |        |                                   |  
|Diluted
        income (loss) per share                                       |  | $                                   | 0.02   |                                   | $
|                                                                              |  |                                     |        |                                   |  
|Weighted
        average shares used in computing net income (loss) per share |  |                                     |        |                                   |  
|Basic                                                                         |  |                                     | 27,430 |                                   |  
|                                                                              |  |                                     |        |                                   |  
|Diluted                                                                       |  |                                     | 28,014 |                                   |  
|                                                                              |  |                                     |        |                                   |  

See accompanying notes.

3



THE PRINCETON REVIEW, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows (in thousands)

|                                                                                                  |  | Six Months   Ended June 30, |       
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ------
|                                                                                                  |  |                             |       
|                                                                                                  |  | 2004                        |       
|                                                                                                  |  |                             |       
|                                                                                                  |  | (unaudited)                 |       
|Cash   flows from operating activities:                                                           |  |                             |       
|Net   loss                                                                                        |  | $                           | (231  
|Adjustments
        to reconcile net loss to net cash (used in) provided by operating activities: |  |                             |       
|Depreciation                                                                                      |  |                             | 741   
|Amortization                                                                                      |  |                             | 2,493 
|Bad debt expense                                                                                  |  |                             | 386   
|Gain on disposal of fixed assets                                                                  |  |                             |      
|Deferred income taxes                                                                             |  |                             | (53   
|Deferred rent                                                                                     |  |                             | (58   
|Stock based compensation                                                                          |  |                             | 48    
|Equity interest in operations of affiliates                                                       |  |                             | 31    
|Net change in operating assets and liabilities:                                                   |  |                             |       
|Accounts receivable                                                                               |  |                             | (836  
|Other receivables                                                                                 |  |                             | (256  
|Prepaid expenses                                                                                  |  |                             | (115  
|Other assets                                                                                      |  |                             | (380  
|Accounts payable                                                                                  |  |                             | (7,817
|Accrued expenses                                                                                  |  |                             | 1,925 
|Deferred income                                                                                   |  |                             | 3,272 
|Book advances                                                                                     |  |                             | 142   
|                                                                                                  |  |                             |       
|Net   cash (used in) provided by operating activities                                             |  |                             | (708  
|                                                                                                  |  |                             |       
|Cash flows from investing activities:                                                             |  |                             |       
|Purchase   of furniture, fixtures, equipment and software development                             |  |                             | (1,324
|Investment   in affiliates                                                                        |  |                             | (894  
|Purchase   of franchises and other businesses, net of cash acquired                               |  |                             |      
|Loan   receivable                                                                                 |  |                             | 500   
|Notes   receivable                                                                                |  |                             |      
|Additions   to capitalized development costs and other assets                                     |  |                             | (2,701
|                                                                                                  |  |                             |       
|Net   cash used in investing activities                                                           |  |                             | (4,419
|                                                                                                  |  |                             |       
|Cash flows from financing activities:                                                             |  |                             |       
|Capital   leases payments                                                                         |  |                             | (280  
|Notes   payable related to acquisitions                                                           |  |                             | (295  
|Proceeds   from credit facility                                                                   |  |                             | 2,000 
|Proceeds   from exercise of options                                                               |  |                             | 334   
|Proceeds   from sale of Series B Convertible preferred stock, net of issuance costs               |  |                             | 9,918 
|Payment   of deferred financing cost                                                              |  |                             | (138  
|                                                                                                  |  |                             |       
|Net   cash provided by (used in) financing activities                                             |  |                             | 11,539
|                                                                                                  |  |                             |       
|Effect   of exchange rate on cash                                                                 |  |                             | (209  
|Net   increase (decrease) in cash and cash equivalents                                            |  |                             | 6,203 
|Cash   and cash equivalents, beginning of period                                                  |  |                             | 13,937
|                                                                                                  |  |                             |       
|Cash   and cash equivalents, end of period                                                        |  | $                           | 20,140
|                                                                                                  |  |                             |       
|Supplemental   disclosure of non-cash investing activities:                                       |  |                             |       
|Equipment acquired through capital leases                                                         |  | $                           | 566   
|Shares issued in conjunction with investment in   affiliates                                      |  | $                           | 500   

See accompanying notes.

4



THE PRINCETON REVIEW, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Unaudited) June 30, 2004

1. Basis of Presentation

The
  accompanying unaudited interim consolidated financial statements of The Princeton
  Review, Inc. (the Company) include the accounts of the Company and
  its wholly-owned subsidiaries, Princeton Review Products, LLC, Princeton Review
  Management, LLC, Princeton Review Publishing, LLC, Princeton Review Operations,
  LLC, Princeton Review Carolinas, LLC and The Princeton Review Canada Inc., as
  well as the Companys national advertising fund. This financial information
  has been prepared in accordance with generally accepted accounting principles
  for interim financial information and reflects all adjustments, consisting only
  of normal recurring accruals, that are, in the opinion of management, necessary
  for a fair presentation of the interim financial statements. The interim consolidated
  financial statements should be read in conjunction with the consolidated financial
  statements and related notes for the year ended December 31, 2003 included in
  the Companys Annual Report on Form 10-K, as filed with the Securities
  and Exchange Commission. The results of operations for the three-month and six-month
  periods ended June 30, 2004 are not necessarily indicative of the results to
  be expected for the entire fiscal year or any future period.

Other Intangible Assets

Intangibles consist of the following (in thousands):

|                                                     |  | June 30,   2004           |        | December   31, 2003        |  
|---------------------------------------------------- |  | ------------------------- | ------ | -------------------------- | -
|                                                     |  |                           |        |                            |  
|                                                     |  | Gross   Carrying   Amount |        | Accumulated   Amortization |  
|                                                     |  |                           |        |                            |  
|Amortizable intangible assets                        |  |                           |        |                            |  
|Franchise costs                                      |  | $                         | 283    |                            | $
|Publishing rights                                    |  |                           | 1,761  |                            |  
|Web content                                          |  |                           | 7,579  |                            |  
|Trademark                                            |  |                           | 338    |                            |  
|Non-compete agreements                               |  |                           | 1,105  |                            |  
|Customer lists                                       |  |                           | 2,700  |                            |  
|Course development                                   |  |                           | 1,116  |                            |  
|                                                     |  |                           |        |                            |  
|Total                                                |  |                           | 14,882 |                            |  
|Intangible   assets not subject to amortization      |  |                           |        |                            |  
|Territorial marketing rights                         |  |                           | 2,208  |                            |  
|                                                     |  |                           |        |                            |  
|Total   intangibles                                  |  | $                         | 17,090 |                            | $
|                                                     |  |                           |        |                            |  
|Total   intangibles, net of accumulated amortization |  | $                         | 10,951 |                            |  
|                                                     |  |                           |        |                            |  

5



Products and Services

The following table summarizes the Companys revenue and cost of revenue for the three-month and six-month periods ended June 30, 2004 and 2003:

|                      |  | Three   Months Ended June 30, |        | Six Months   Ended June 30, |  
|--------------------- |  | ----------------------------- | ------ | --------------------------- | -
|                      |  |                               |        |                             |  
|                      |  | 2004                          |        | 2003                        |  
|                      |  |                               |        |                             |  
|                      |  | (in   thousands)              |       
|Revenue               |  |                               |        |                             |  
|Services              |  | $                             | 22,460 |                             | $
|Products              |  |                               | 4,101  |                             |  
|Other                 |  |                               | 1,886  |                             |  
|                      |  |                               |        |                             |  
|Total revenue         |  | $                             | 28,447 |                             | $
|                      |  |                               |        |                             |  
|Cost   of Revenue     |  |                               |        |                             |  
|Services              |  | $                             | 7,353  |                             | $
|Products              |  |                               | 1,357  |                             |  
|Other                 |  |                               | 165    |                             |  
|                      |  |                               |        |                             |  
|Total cost of revenue |  | $                             | 8,875  |                             | $
|                      |  |                               |        |                             |  

Services revenue includes course fees, professional development, subscription fees and marketing services fees. Products revenue includes sales of workbooks, test booklets, printed tests, sales of course material to independently-owned franchisees and fees from a publisher for manuscripts delivered.  Other revenue includes royalties from independently-owned franchises, as well as royalties, and marketing fees received from publishers.

Stock Based Compensation

The
  Company accounts for the issuance of stock options using the intrinsic value
  method in accordance with Accounting Principles Board (APB) No.
  25, Accounting for Stock Issued to Employees,and related interpretations.
  Generally for the Companys stock option plans, no compensation cost is
  recognized in the Consolidated Statements of Operations because the exercise
  price of the Companys stock options equals the market price of the underlying
  stock on the date of grant.

6



Had the Company accounted for its employee stock options under the fair-value method of that statement, the Companys net income (loss) and earnings (loss) per share would have been as follows:

|                                                                                                                                        |  | Three   Months Ended June 30,           |      | Six Months   Ended June 30, |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---- | --------------------------- | -
|                                                                                                                                        |  |                                         |      |                             |  
|                                                                                                                                        |  | 2004                                    |      | 2003                        |  
|                                                                                                                                        |  |                                         |      |                             |  
|                                                                                                                                        |  | (in   thousands, except per share data) |     
|Net income (loss) attributed to common stockholders,   as reported                                                                      |  | $                                       | 438  |                             | $
|Total stock-based   employee compensation expense determined under fair-value based method for   all awards, net of related tax effects |  |                                         | (319 | )                           |  
|Pro forma net income (loss) attributed to common   stockholders                                                                         |  | $                                       | 119  |                             | $
|Basic and diluted earnings (loss) per share, as reported                                                                                |  | $                                       | 0.02 |                             | $
|Basic and diluted earnings (loss) per share, pro forma                                                                                  |  | $                                       | 0.00 |                             | $

During the six months ended June 30, 2004, employees exercised 43,112 stock options.

Reclassification

Certain balances have been reclassified to conform to the current year presentation.

2. Lines of Credit

On
  May 21, 2004, the Company entered into a credit agreement with Commerce Bank,
  N.A. for a three-year revolving credit facility with a maximum aggregate principal
  amount of $5.0 million.  The line of credit is secured by the Companys
  accounts receivable and bears a variable interest rate based on either the prime
  rate or 150 to 175 basis points over the London Interbank Offered Rate (LIBOR)
  in accordance with the terms of the agreement. As of June 30, 2004, the effective
  interest rate was 2.7%.  This credit facility is subject to the Company
  maintaining certain financial covenants and other covenants set forth in the
  credit agreement and requires the Company to pay quarterly an unused facility
  fee of 0.375%. As of June 30, 2004, $2.0 million was outstanding and $3.0 million
  was available under this credit facility.

3. Sale of Series B-1 Preferred Stock

On June 4,
2004, the Company sold 10,000 shares of Series B-1 Cumulative Convertible
Preferred Stock (the Series B-1 Preferred Stock) for $10.0 million in
the aggregate to Fletcher International, Ltd.  Prior to conversion, each
share accrues dividends at an annual rate of the greater of: (1) five percent
(5%), and (2) the 90-day LIBOR plus one and one-half percent (1.5%), payable, at
the Companys option, in cash or registered shares of the Companys
common stock. As of June 30, 2004, the dividend rate was 5%. The shares are
convertible into the Companys common stock at any time at a conversion
rate of $11.00 per share subject to adjustment upon certain events. As of June
30, 2004 there were 909,091 shares of common stock reserved for issuance upon
conversion of the Series B-1 Preferred Stock.  Fletcher has the right, for
a period of two years beginning July 1, 2005, to purchase up to $20.0 million in
newly created series of preferred stock (the Additional

7



Preferred Stock) having similar
terms, conditions, rights preferences and privileges as the Series B-1 Preferred
Stock.  The Additional Preferred Stock is convertible into shares of the
Companys common stock at a conversion price equal to 120% of the then
prevailing price of the common stock, subject to a minimum of $11.00 per
share.  After 18 months, Fletcher may also redeem the value of its original
investment in the Series B-1 Preferred Stock and the Additional Preferred Stock
for shares of common stock based upon a redemption rate equal to 102.5% of
the then prevailing price of the Companys common stock plus the value of
any accrued and unpaid dividends or, at the Companys option,
cash.

The voting
rights of the Series B-1 Preferred stockholders are limited to voting with
regard to: (1) any changes to the rights, preferences or privileges of the
Series B-1 Preferred stockholders, (2) authorizing, creating or issuing any
senior securities or securities that pari passu with the Series B-1 and (3) changing the number of authorized shares of preferred
stock.

4. Investment in Affiliates

On June 25, 2004, the Company invested $625,000 and issued 63,562 shares of the Companys common stock, with an approximate value of $500,000 at the time of issuance, and incurred $269,000 of acquisition costs for an approximate 22% equity interest in Oasis Childrens Services, LLC (Oasis).  Oasis works with schools, school systems and communities to run summer and after-school programs.  In conjunction with the investment, Oasis and the Company have agreed to, from time to time, jointly develop, market and sell summer programs for the K-12 market that combine recreational and enrichment programs and activities provided by Oasis with educational programs and activities provided by the Company.  The Company will account for its investment in Oasis using the equity method.

5. Segment Information

The Companys operations are aggregated into three reportable segments.  The operating segments reported below are the segments of the Company for which separate financial information is available and for which operating income is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance.

The following segment results include the allocation of certain information technology costs, accounting services, executive management costs, office facilities expenses, human resources expenses and other shared services which are allocated based on consumption. Corporate consists of unallocated administrative support functions. The Company operates its business through three segments. The majority of the Companys revenue is earned by the Test Preparation Services division, which sells a range of services including test preparation, tutoring and academic counseling. Test Preparation Services derives its revenue from Company operated locations and from royalties from and product sales to independently-owned franchises. The K-12 Services division earns fees from assessment, remediation and professional development services it renders to K-12 schools and from its content development work.  The
Admissions Services division earns revenue from subscription, transaction and marketing fees from higher education institutions and

8



from selling advertising and sponsorships. Additionally, each division earns royalties and other fees from sales of its books published by Random House.

The segment results include EBITDA for the periods indicated. As used in this report, EBITDA means earnings before interest, income taxes, depreciation and amortization. The Company believes that EBITDA, a non-GAAP financial measure, represents a useful measure of evaluating its financial performance because it reflects earnings trends without the impact of certain non-cash and non-operations-related charges or income. The Companys management uses EBITDA to measure the operating profits or losses of the business. Analysts, investors and rating agencies frequently use EBITDA in the evaluation of companies, but the Companys presentation of EBITDA is not necessarily comparable to other similarly titled measures of other companies because of potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to net income as an indicator of the Companys operating
performance, nor as an alternative to any other measure of performance calculated in conformity with GAAP.

9



|                                                               |  | Three   Months Ended June 30, 2004 |       
|-------------------------------------------------------------- |  | ---------------------------------- | ------
|                                                               |  |                                    |       
|                                                               |  | (dollars   in thousands)           |       
|                                                               |  | Test   Preparation   Services      |       
|                                                               |  |                                    |       
|Revenue                                                        |  | $                                  | 18,163
|Operating   Expenses (including depreciation and amortization) |  | $                                  | 10,575
|Segment   Assets                                               |  | $                                  | 30,423
|Segment   operating income (loss)                              |  | $                                  | 2,275 
|Depreciation   & Amortization                                  |  | $                                  | 391   
|Other                                                          |  |                                    |      
|Segment   EBITDA                                               |  | $                                  | 2,666 

|                                                               |  | Three Months   Ended June 30, 2003 |       
|-------------------------------------------------------------- |  | ---------------------------------- | ------
|                                                               |  |                                    |       
|                                                               |  | Test   Preparation   Services      |       
|                                                               |  |                                    |       
|Revenue                                                        |  | $                                  | 16,448
|Operating   Expenses (including depreciation and amortization) |  | $                                  | 9,497 
|Segment   Assets                                               |  | $                                  | 32,573
|Segment   operating income (loss)                              |  | $                                  | 1,673 
|Depreciation   & Amortization                                  |  | $                                  | 376   
|Segment   EBITDA                                               |  | $                                  | 2,049 

|                                                               |  | Six Months   Ended June 30, 2004 |       
|-------------------------------------------------------------- |  | -------------------------------- | ------
|                                                               |  |                                  |       
|                                                               |  | Test   Preparation   Services    |       
|                                                               |  |                                  |       
|Revenue                                                        |  | $                                | 36,993
|Operating   Expenses (including depreciation and amortization) |  | $                                | 21,932
|Segment   Assets                                               |  | $                                | 30,423
|Segment   operating income (loss)                              |  | $                                | 3,928 
|Depreciation   & Amortization                                  |  | $                                | 769   
|Other                                                          |  |                                  |      
|Segment   EBITDA                                               |  | $                                | 4,697 

|                                                               |  | Six Months   Ended June 30, 2003 |       
|-------------------------------------------------------------- |  | -------------------------------- | ------
|                                                               |  |                                  |       
|                                                               |  | Test   Preparation   Services    |       
|                                                               |  |                                  |       
|Revenue                                                        |  | $                                | 32,478
|Operating   Expenses (including depreciation and amortization) |  | $                                | 19,681
|Segment   Assets                                               |  | $                                | 32,573
|Segment   operating income (loss)                              |  | $                                | 3,227 
|Depreciation   & Amortization                                  |  | $                                | 760   
|Other                                                          |  |                                  |      
|Segment   EBITDA                                               |  | $                                | 3,987 

|                                                     |  | Three Months
        Ended June 30, |      | Six Months
        Ended June 30, |  
|---------------------------------------------------- |  | ----------------------------------- | ---- | --------------------------------- | -
|                                                     |  |                                     |      |                                   |  
|                                                     |  |                                     | 2004 |                                   |  
|                                                     |  |                                     |      |                                   |  
|Reconciliation
        of operating loss to net loss |  |                                     |      |                                   |  
|Total
        income (loss) for reportable segments  |  | $                                   | 972  |                                   | $
|Unallocated
        amounts:                         |  |                                     |      |                                   |  
|Interest
        expense                             |  |                                     | (121 | )                                 |  
|Other
        (expense) income                       |  |                                     | (24  | )                                 |  
|Provision
        (benefit) for income taxes         |  |                                     | (352 | )                                 |  
|                                                     |  |                                     |      |                                   |  
|Net
        income (loss)                            |  | $                                   | 475  |                                   | $
|                                                     |  |                                     |      |                                   |  

10



6. Income (Loss) Per Share

Basic
  and diluted net income (loss) per share information for all periods is presented
  under the requirements of SFAS No. 128, Earnings per Share.Basic
  net income (loss) per share is computed by dividing net income (loss) attributed
  to common stockholders by the weighted average number of common shares outstanding
  during the period. Diluted net income (loss) per share is determined in the
  same manner as basic net income (loss) per share except that the number of shares
  is increased assuming exercise of dilutive stock options, warrants and convertible
  securities, and dividends related to convertible securities are added back to
  net income attributed to common shareholders. The calculation of diluted net
  loss per share excludes potential common shares if the effect is antidilutive. 
  During the periods presented in which the Company reported a loss, shares of
  convertible securities and stock options that would be dilutive were excluded
  because to include them would have been antidilutive.

The following table sets forth the denominators used in computing basic and diluted earnings (loss) per common share for the periods indicated:

|                                                                                      |  | Three   Months Ended June 30, |        | Six Months   Ended June 30, | 
|------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | --------------------------- | 
|                                                                                      |  |                               |        |                             | 
|                                                                                      |  | 2004                          |        | 2003                        | 
|                                                                                      |  |                               |        |                             | 
|                                                                                      |  | (in   thousands)              |       
|Weighted   average common shares outstanding                                          |  |                               |        |                             | 
|Basic                                                                                 |  |                               | 27,430 |                             | 
|Net effect of dilutive stock options-based on the treasury stock   method             |  |                               | 306    |                             | 
|Net effect of dilutive convertible preferred stock-based on the if   converted method |  |                               | 269    |                             | 
|Other                                                                                 |  |                               | 9      |                             | 
|                                                                                      |  |                               |        |                             | 
|Diluted                                                                               |  |                               | 28,014 |                             | 
|                                                                                      |  |                               |        |                             | 

For the six months ended June 30, 2004, 378,157 stock options, 134,865 shares of convertible preferred stock and 9,128 contingency shares were excluded from the computation of diluted earnings per common share due to their antidilutive effect. For the six months ended June 30, 2003, 97,325 stock options and 9,128 contingency shares were excluded from the computation of diluted earnings per common share due to their antidilutive effect.

7. Comprehensive Income (Loss)

The
  components of comprehensive income (loss) for the three-month and six-month
  periods ended June 30, 2004 and 2003 are as follows:

|                                                                                                                                             |  | Three   Months Ended June 30, |     | Six Months   Ended June 30, |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | --- | --------------------------- | -
|                                                                                                                                             |  |                               |     |                             |  
|                                                                                                                                             |  | 2004                          |     | 2003                        |  
|                                                                                                                                             |  |                               |     |                             |  
|                                                                                                                                             |  | (in   thousands)              |    
|Net income (loss)                                                                                                                            |  | $                             | 475 |                             | $
|Foreign currency translation adjustment                                                                                                      |  |                               | (96 | )                           |  
|Unrealized gain (loss) on available-for-sale   securities, net of tax (provision) benefits of $0 and $(1), and $(12) and   $10, respectively |  |                               |    |                             |  
|                                                                                                                                             |  |                               |     |                             |  
|Total comprehensive income (loss)                                                                                                            |  | $                             | 379 |                             | $
|                                                                                                                                             |  |                               |     |                             |  

11



Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

All
statements in this Form 10-Q that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.  Such forward-looking
statements may be identified by words such as believe,
intend, expect, may, could,
would, will, should, plan,
project, contemplate, anticipate or similar
statements.  Because these statements reflect our current views concerning
future events, these forward-looking statements are subject to risks and
uncertainties.  Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including, but not limited to, demand for our products and services, our ability
to compete effectively, our ability to increase revenue from our newer products
and services and the other factors described under the caption Risk
Factors in our Annual Report on Form 10-K for the year ended December 31,
2003 filed with the Securities and Exchange Commission.  We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the
future.

The following information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2003, as well as in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-Q.

Overview

We develop, market and sell integrated classroom-based, print and online products and services to students, parents, educators and educational institutions. We operate our businesses through three divisions.

Our Test
Preparation Services division derives the majority of its revenue from
classroom-based and Princeton Review Online test preparation courses and
tutoring and more recently it began offering Supplementary Educational Services
(SES), or after school academic instruction, to students in public
school districts.  During the first half of 2004 the fastest growing areas
for this division have been its tutoring and online courses, in part because
students are enrolling to prepare for the new version of the SAT test which goes
into effect in early 2005, and SES courses, sales of which have increased in
response to the increased emphasis on state assessments. We expect that these
trends will contribute to the growth of this division for the near term. We
anticipate that this division will grow its revenue this year by at least 10%
over the 2003 levels and increase its operating income by at least 20% over the
same period.

Our K-12
Services division provides a number of products and services to K-12 schools and school
districts, including assessment, professional development and face-to-face
instruction.  As a result of the increased emphasis on accountability and
the measurement of student performance in public schools in this county and the
centralization of school districts purchasing of assessment, professional
development and supplemental educational products and services, this division has
seen the interest by the public school market for its products grow and the
average dollar volume of its contracts double over the last year.  Revenues
in this division grew by 113% in 2003 compared to 2002 and through the first six
months of 2004 revenues have increased by 72% over the comparable

12



six-month period in 2003 and while this is
no guaranty that revenues in this division will continue to grow at these rates,
we are optimistic that we can continue to grow revenues significantly in this
K-12 market and begin to show sustained operating profits in this division in
the near term. One factor that makes estimating operating profits difficult is
the ability to assess our customers needs for our various products which have
different gross margins.  This divisions professional development and
live course instruction products typically have lower gross margins than its
fees for its assessment products and printed materials.

Our
Admissions Services division derives most of its revenue from the sale of our
web-based admissions and application management products to educational
institutions. This year the Admissions Services division began selling a new
high school counseling service in a pilot program with several high schools
Colorado.  In 2003 revenues in this division did not grow over the 2002
levels and while we expect revenues to grow in this division by 20% in 2004, we
will need to further increase revenues before this division will show
sustainable operating profits.

Results of Operations

Three Months Ended June 30, 2004 Compared With Three Months Ended June 30, 2003

In
  general, the second quarter of 2004 showed solid growth in revenue in all of
  our divisions compared to the comparable quarter in 2003, and our results were
  generally in line with our expectations. The affects of anxiety about the new
  SAT test and the increased emphasis on state assessment tests were major forces
  behind the increased revenues in the Test Prep division during the quarter. 
  The K-12 Services divisions revenue growth in the quarter was driven by
  the public school markets need for improved performance on state assessment
  tests and to find vendors with products that assist students performance. 
  We expect these market trends to contribute to revenue growth in these divisions
  for at least the next 12 months. In the Admissions Services division we rolled
  out a new counseling product which greatly contributed to the increased revenues,
  but this division continues to grow below our expectations given the opportunities
  we see.

Revenue

Our total revenue increased from $23.7 million in 2003 to $28.4 million in 2004, representing a 20% increase.

Test Preparation Services revenue increased from $16.4 million in 2003 to $18.2 million in 2004, representing a 10% increase, comprised primarily of an increase of approximately $1.6 million in revenue from our company-owned operations.  The increased revenue from company-owned operations resulted from an increase of approximately $249,000 in revenue attributable to the operations acquired from our former franchisee Princeton Review of North Carolina, Inc. and an increase of approximately $298,000 in SES sales to schools and an increase of approximately $1.1 million in course and tutoring revenue at our other locations. Of the $1.1 million increase at our other locations, approximately $1.5 million is attributable to enrollment increases which was partially offset by decreases in average prices for courses.

13



K-12 Services revenue increased from $5.1 million in 2003 to $7.7 million in 2004, representing a 50% increase. This increase resulted primarily from an increase of approximately $2.6 million in revenue from schools for printed test materials, professional development and training and subscriptions to our web-based, K-12 test preparation and assessment product, Homeroom.

Admissions Services revenue increased from $2.1 million in 2003 to $2.6 million in 2004, representing a 22% increase. This increase resulted primarily from increased web-based subscription fees from post secondary institutions, as well as, the sale of college counseling, a new product in 2004, which contributed approximately $225,000 in revenue.

Cost of Revenue

Our total cost of revenue increased from $7.2 million in 2003 to $8.9 million in 2004, representing a 23% increase.

Test
Preparation Services cost of revenue remained unchanged at $5.3 million in 2003 and
2004, primarily as a result of better classroom utilization through larger
average class size.  Furthermore, the major cause for the revenue increase
in this division was growth in our online courses which have direct costs of
less than 14%, which had the effect of limiting the proportionate growth in cost
of revenue.

K-12 Services cost of revenue increased from $1.4 million in 2003 to $3.0 million in 2004, representing a 108% increase. This increase is primarily attributable to an increase in costs incurred to service contracts with school-based customers.  The increase in cost of revenue was significantly higher than the increase in revenue in this division primarily because of increased sales of professional development services which have lower margins.

Admissions Services cost of revenue increased from $470,000 in 2003 to $557,000 in 2004, representing a 19% increase, primarily due to greater sales commissions and customer support costs.

Operating Expenses

Selling, general and administrative expenses increased from $15.8 million in 2003 to $18.6 million in 2004, representing an 18% increase.  This increase resulted from the following:

| |  | an increase of approximately $837,000 in salaries   and payroll taxes;                                                                                                                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of approximately $509,000 attributable   primarily to personnel related costs, including office rent and expenses,   travel and entertainment, employee benefits and recruiting fees;
| |  | an increase of approximately $378,000 in advertising   and marketing expenses;                                                                                                                   
| |  | an increase of approximately $299,000 in bad debt   expense; and                                                                                                                                 
| |  | an increase of approximately $165,000 in web   development.                                                                                                                                      

14



Six Months Ended June 30, 2004 Compared With Six Months Ended June 30, 2003

In
  general, the six-month period ended June 30, 2004 also showed solid growth in
  revenues in all of our divisions compared to the comparable period in 2003. 
  Market factors and trends during this six-month period were similar to those
  described in the three-month comparison. Market changes because of the new SAT
  and continued emphasis on state assessment tests drove growth in the Test Preparation
  Services and K-12 Services divisions, and we expect these market factors to
  continue to drive growth in the near term.

Revenue

Our total revenue increased from $45.4 million in 2003 to $56.4 million in 2004, representing a 24% increase.

Test Preparation Services revenue increased from $32.5 million in 2003 to $37.0 million in 2004, representing a 14% increase, comprised primarily of an increase of approximately $4.6 million in revenue from our company-owned operations. The increased revenue from company-owned operations resulted from an increase of approximately $452,000 in revenue attributable to the operations acquired from our former franchisee Princeton Review of North Carolina, Inc., an increase of approximately $1.1 million in SES sales to schools and an increase of approximately $3.0 million in course and tutoring revenue at our other locations. Of the $3.0 million increase at our other locations, approximately $4.0 million is attributable to enrollment increases which was partially offset by decreases in average prices for courses.

K-12 Services revenue increased from $8.1 million in 2003 to $14.0 million in 2004 representing a 72% increase.  This increase resulted primarily from an increase of approximately $6.1 million in revenue from schools for printed test materials, professional development, live course revenues and Homeroom subscriptions, which was partially offset by a decrease in revenue from the McGraw-Hill Companies, Inc.  Our contract with McGraw-Hill, pursuant to which we provided content and editorial services, expired in 2003 and while we continue to earn royalties, we no longer earn marketing fees and workbook development fees.

Admissions Services revenue increased from $4.8 million in 2003 to $5.4 million in 2004, representing a 13% increase. This increase resulted primarily from increased web-based subscription fees from post secondary institutions, as well as, the sale of college counseling, a new product in 2004, which contributed approximately $300,000 in revenue.

Cost of Revenue

Our total cost of revenue increased from $13.6 million in 2003 to $19.0 million in 2004, representing a 39% increase.

Test Preparation Services cost of revenue increased from $9.6 million in 2003 to $11.1 million in 2004, representing a 16% increase primarily as a result of increasing the number of courses and tutoring sessions delivered year to date and costs of approximately $149,000 associated with the operations acquired from Princeton Review of North Carolina, Inc.  As sales of courses and tutoring sessions increase, we expect cost of revenue to increase proportionately.

15



K-12 Services cost of revenue increased from $2.7 million in 2003 to $6.7 million in 2004, representing a 151% increase.  This increase is primarily attributable to an increase in costs incurred to service increasing numbers and increasingly complex contracts with school-based customers.  The percentage increase in cost of revenue was significantly higher than the increase in revenue in this division primarily because of increased sales of professional development services which have lower margins.

Admissions
  Services cost of revenue decreased from $1.4 million in 2003 to $1.2 million
  in 2004, representing a 16% decrease, primarily due to lower web site development
  expenses.

Operating Expenses

Selling, general and administrative expenses increased from $33.1 million in 2003 to $37.6 million in 2004, representing a 14% increase.  This increase resulted from the following:

| |  | an increase of approximately $1.5
        million attributable primarily to personnel related costs, including office
        rent and expenses travel and entertainment, employee benefits and recruiting
        fees;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of approximately $648,000
        in advertising and marketing expenses;                                                                                                                                    
| |  | an increase of approximately $949,000
        in salaries and payroll taxes; and                                                                                                                                        
| |  | an increase of approximately $645,000
        in web site technology and development expenses.                                                                                                                          

Liquidity and Capital Resources

Our
  current primary sources of liquidity are cash and cash equivalents and cash
  flow from operations.  Our Test Prep division currently generates the largest
  portion of our cash from its retail classroom and tutoring courses. 
  Increasingly in this division as well as in our K-12 and Admissions Services
  divisions we are generating cash from contracts with institutions such as K-12
  schools and post secondary schools.  Additionally, during 2004 we raised
  money from the issuance of preferred stock and established a revolving credit
  facility.

While
  we historically have had minimal bad debt write-offs, our cash receipts related
  to contracts with large institutions or school districts can contribute to the
  level of variability in the timing of our cash receipts.  As of June 30,
  2004, the days sales outstanding was 65 days which may increase if we experience
  large delays in collecting on our sales to institutions.  However, we expect
  our cash balances will increase over current levels over the next two quarters,
  which are historically our largest revenue generating quarters.

Our future capital requirements will depend on factors, including market acceptance of our products and services and the resources we devote to developing, marketing, selling and supporting these products and services. Our contractual obligations in both the near and long term consist primarily of operating lease obligations and purchase obligations.  We anticipate that our sources of

16



cash will be more than sufficient to cover these obligations, the costs of revenue and the costs of our infrastructure and people, our largest uses of cash.

Net cash used in operating activities during the six months ended June 30, 2004 was $708,000 resulting primarily from the payment to post secondary schools for application fees collected as of December 31, 2003 on their behalf, as well as, the payment of trade payables due as of that date.  Application fees collected on behalf of post secondary schools are typically at their highest levels at the end of December when many school have their application deadlines. These uses of cash were partially offset by increases in deferred income, as well as, depreciation and amortization for the six months ended June 30, 2004.

Net cash used in investing activities during the six months ended June 30, 2004 was $4.4 million, resulting primarily from the purchase of fixed assets, investment in development projects and our investment in Oasis Childrens Services, LLC.  Net cash contributed by financing activities during the six months ended June 30, 2004 was $11.5 million, resulting primarily from the issuance of preferred stock to Fletcher International for $10.0 million and the borrowing of $2.0 million under our credit facility with Commerce Bank.

At June 30, 2004, we had approximately $20.1 million of cash and cash equivalents.  We anticipate that our cash balances, together with cash generated from operations, will be sufficient to meet our normal operating requirements for at least the next 12 months.

Impact of Inflation

Inflation
  has not had a significant impact on our historical operations.

Seasonality in Results of Operations

We experience, and we expect to continue to experience, seasonal fluctuations in our revenue because the markets in which we operate are subject to seasonal fluctuations based on the scheduled dates for standardized admissions tests and the typical school year. These fluctuations could result in volatility or adversely affect our stock price.  We typically generate the largest portion of our test preparation revenue in the third quarter.  The electronic application revenue recorded in our Admissions Services division is highest in the first and fourth quarters, corresponding with the busiest times of year for submission of applications to academic institutions. Our K-12 Services division may also experience seasonal fluctuations in revenue, but we are not yet able to predict the impact of seasonal factors on this business with any degree of accuracy.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Our
  portfolio of marketable securities includes primarily short-term money market
  funds.  The fair value of our portfolio of marketable securities would
  not be significantly impacted by either a 100 basis point increase or decrease
  in interest rates due primarily to the short-term nature of the portfolio. 
  While some of our outstanding long-term debt bears interest at fixed rates,
  our recently completed $5.0 million credit facility with Commerce Bank includes
  variable interest based on the prime lending rate or LIBOR.  Additionally,
  the recently completed Series B-1 Preferred

17



Stock issuance includes quarterly dividends
  at the greater of 5% or 1.5% above 90-day LIBOR.  We do not currently hold
  or issue derivative financial instruments.

Revenue from our international operations and royalty payments from our international franchisees constitute an insignificant percentage of our revenue.  Accordingly, our exposure to exchange rate fluctuations is minimal.

Item 4.  Controls and Procedures

We
  conducted an evaluation of the effectiveness of the design and operation of
  our disclosure controls and procedures (Disclosure Controls) as
  of the end of the period covered by this Quarterly Report. The controls evaluation
  was done under the supervision and with the participation of management, including
  our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Scope of the Controls Evaluation

The
  evaluation of our Disclosure Controls included a review of the controls
  objectives and design, our implementation of the controls and the effect of
  the controls on the information generated for use in this Quarterly Report.
  In the course of the controls evaluation, we sought to identify data errors,
  control problems or acts of fraud and confirm that appropriate corrective actions,
  including process improvements, were being undertaken. This type of evaluation
  is performed on a quarterly basis so that the conclusions of management, including
  the CEO and CFO, concerning the effectiveness of the controls can be reported
  in our Quarterly Reports on Form 10-Q and to supplement our disclosures made
  in our Annual Report on Form 10-K. Many of the components of our Disclosure
  Controls are also evaluated on an ongoing basis by other personnel in our accounting
  and finance organization. The overall goals of these various evaluation activities
  are to monitor our Disclosure Controls, and to modify them on an ongoing basis
  as necessary.

A
  control system, no matter how well designed and operated, can provide only reasonable,
  not absolute, assurance that the control systems objectives will be met.
  Because of the inherent limitations in all control systems, no evaluation of
  controls can provide absolute assurance that all control issues and instance
  of fraud, if any, have been detected. Over time, controls may become inadequate
  because of changes in conditions or deterioration in the degree of compliance
  with policies or procedures. Because of inherent limitations in a cost-effective
  control system, misstatements due to error or fraud may occur and not be detected.

Conclusions

During
  the period covered by this report and as a result of the increasing number and
  increasing complexities of our contracts, many of which have multiple-element
  arrangements as defined in EITF 00-21, we generally strengthened the review
  process to ensure proper revenue and expense recognition.  Additionally,
  as a result of the recent growth in revenues, the increase in the number of
  transactions, the increased complexity of our contracts and the increasing need
  to shorten the reporting cycle, we have entered into a contract with a tier-1
  accounting software vendor to purchase a new accounting and financial reporting
  system.  We expect this system will be operational sometime in 2005. 
  In the meantime, we will continue to make modifications as necessary to our
  review procedures to ensure adequate control of the financial reporting process.

18



Based
  upon the controls evaluation, our CEO and CFO have concluded that, subject to
  the limitations noted above, our Disclosure Controls were effective as of the
  end of the period covered by this Quarterly Report. During the period covered
  by this Form 10-Q, we have made certain modifications to our Disclosure Controls
  as described above. There has been no change in our internal control over financial
  reporting identified in connection with the evaluation described above that
  occurred during the period covered by this Form 10-Q that has materially affected,
  or is reasonably likely to materially affect, our internal control over financial
  reporting.

19



PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time, we are involved in legal proceedings incidental to the conduct of our business.  We are not currently a party to any legal proceeding which, in the opinion of our management, is likely to have a material adverse effect on us.

Item 2.  Changes in Securities and Use of Proceeds

On
  June 4, 2004, we completed a private placement, pursuant to Section 4(2) of
  the Securities Act of 1933, as amended, of $10.0 million of a newly designated
  class of cumulative preferred stock (Series B-1 Cumulative Convertible Preferred
  Stock, par value $0.01 per share) to Fletcher International, Ltd.  The
  preferred stock is convertible into 909,091 shares of our common stock at a
  conversion price of $11.00 per share, subject to adjustment upon certain events,
  and is subject to redemption rights after 18 months.  Fletcher also has
  the right, beginning July 1, 2005, to invest, from time to time, up to an additional
  $20.0 million in newly created series of preferred stock similar to Series B-1
  Preferred Stock but at a conversion price of 120% of the then prevailing price
  of our common stock, subject to a minimum price of $11.00 per share.

On
  June 25, 2004, we issued in a private placement, pursuant to Section 4(2) of
  the Securities Act of 1933, as amended, 63,562 shares of our common stock, with
  an approximate value of $500,000 at time of issuance, to Oasis Childrens
  Services, LLC (Oasis) in partial consideration for our purchase
  of an approximate 22% equity interest in Oasis.

Item 3.  Defaults Upon Senior Securities

Not applicable.

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

(a)     We held our Annual Meeting of Stockholders on June 9, 2004.

(b)     Proxies for the meeting were solicited pursuant to Regulation 14 under the Exchange Act; there was no solicitation in opposition to managements nominees as listed in the Proxy Statement and all such nominees were elected.

Directors elected to the 2007 Class were Richard Sarnoff and Howard A. Tullman.

Election of Directors:

|                  |  | For |            | Withheld | 
|----------------- |  | --- | ---------- | -------- | 
|                  |  |     |            |          | 
|Richard Sarnoff   |  |     | 23,844,276 |          | 
|Howard A. Tullman |  |     | 25,895,794 |          | 

Other directors whose terms continue after the meeting were John S. Katzman, Richard Katzman, Sheree Speakman, Frederick Humphries and John Reid.

20



(c)     The appointment of Ernst & Young LLP, independent accountants, to audit our consolidated financial statements for the year 2004 was ratified by the following vote:

For                    26,058,961

Against                  100,607

Abstain                      2,570

Item 5.  Other Information

On June 30, 2004, Margot Lebenberg joined us to serve as Executive Vice President and General Counsel.              On June 1, 2004, Timothy Conroy joined us to serve as Executive Vice President and General Manager of our K-12 Services division.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits:

|Exhibit   Number |  | Description                                                                                                                                                                                                   
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |                                                                                                                                                                                                               
|4.1              |  | Certificate of Designation of Series B-1 Cumulative   Convertible Preferred Stock of The Princeton Review, Inc. (incorporated   hereby by reference to the Current Report on Form 8-K filed on June 9, 2004). 
|                 |  |                                                                                                                                                                                                               
|10.1             |  | Agreement, dated as of May 28, 204, by and between   The Princeton Review, Inc. and Fletcher International, Ltd. (incorporated   hereby by reference to the Current Report on Form 8-K filed on June 9, 2004).
|                 |  |                                                                                                                                                                                                               
|31.1             |  | Certification Pursuant to Rule 13a-14(a), as Adopted   Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                             
|                 |  |                                                                                                                                                                                                               
|31.2             |  | Certification Pursuant to Rule 13a-14(a), as Adopted   Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                             
|                 |  |                                                                                                                                                                                                               
|32.1             |  | Certification Pursuant to 18 U.S.C. Section 1350, as   Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                     

(b)     Reports on Form 8-K

A current report on Form 8-K was furnished to the SEC on May 7, 2004 in connection with The Princeton Reviews public announcement of financial results for the first quarter of 2004.

A current report on Form 8-K was filed with the SEC on June 9, 2004 in connection with The Princeton Reviews private placement of $10.0 million of a newly designated class of convertible preferred stock to Fletcher International, Ltd.

21



SIGNATURES

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

|                 | THE PRINCETON REVIEW,   INC.
|---------------- | ----------------------------
|                 |                             
|                 | By:                         
|                 |                             
|                 |                             
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|August 6,   2004 |                             

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