<PAGE>

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

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

For the year ended December 31, 2002          Commission File No.  333-96119

      WRC MEDIA INC.                            WEEKLY READER CORPORATION
 (Exact name of Registrant                     (Exact name of Registrant
as specified in its charter)                 as specified in its charter)

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

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

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

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

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

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

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

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

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

          Securities Registered Pursuant to Section 12 (b) of the Act:
                                      None

          Securities Registered Pursuant to Section 12 (g) of the Act:
                   12 3/4% Senior Subordinated Notes due 2009
                       15% Senior Preferred Stock due 2011

--------------------------------------------------------------------------------
TITLE OF CLASS                                NAME OF EACH EXCHANGE ON
                                              WHICH REGISTERED
--------------------------------------------------------------------------------
12 3/4% Senior Subordinated Notes due 2009    NONE
15% Senior Preferred Stock due 2011           NONE
--------------------------------------------------------------------------------

                                   Page 2 of 2
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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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

PART I

ITEM 1   BUSINESS OVERVIEW

We are a leading publisher of supplemental education materials for the Pre K-12
market. Our portfolio of products includes a broad range of print and electronic
supplemental instructional materials, testing and assessment products and
library materials. We believe our products have well-known brand names and that
they are recognized by our customers for their effectiveness and consistent,
high quality educational content.

On May 14, 1999, Ripplewood Holdings L.L.C., which specializes in private equity
investments, formed WRC Media Inc. (WRC Media) as a holding company to pursue
acquisitions in the media industry. WRC Media now serves as a holding company
for CompassLearning, Inc. (CompassLearning), Weekly Reader Corporation and
ChildU, Inc. (ChildU). Weekly Reader Corporation includes Weekly Reader and its
subsidiaries- American Guidance Service, Inc. (AGS or American Guidance) and
World Almanac. CompassLearning was incorporated on May 12, 1999, and Weekly
Reader Corporation was incorporated on November 28, 1990. ChildU was
incorporated on June 1, 1999 and on May 9, 2001 ChildU was acquired by WRC
Media.

WRC Media acquired CompassLearning on July 14, 1999. Prior to this acquisition,
WRC Media had no material operations other than seeking acquisitions. On
November 17, 1999, WRC Media completed the recapitalization of the Supplemental
Education Group of PRIMEDIA Inc., consisting of the businesses of Weekly Reader,
American Guidance and World Almanac and their respective subsidiaries. As a
result of this transaction, Weekly Reader became a subsidiary of WRC Media. For
more information on the recapitalization of the Supplemental Education Group of
PRIMEDIA see Note 1 to the Consolidated Financial Statements of WRC Media. On
May 9, 2001, WRC Media Inc. and subsidiaries completed two acquisitions. WRC
entered into an Agreement and Plan of Merger with ChildU, Inc. ChildU was
incorporated on June 1, 1999 and is a leading provider of Internet-based
educational services to both individual and institutional consumers. Pursuant to
the agreement, each issued share of ChildU's common and preferred stock not
directly or indirectly owned by ChildU was converted into a contingent right to
receive a number of shares of WRC Media Inc. common stock. Concurrent with the
ChildU acquisition, on May 9, 2001, a subsidiary of the Company acquired the
assets of Lindy Enterprises, Inc. Lindy develops a curriculum-based skills
assessment and test preparation product that correlates to national and state
curriculum. Our operations, which consist of one

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business segment, are now conducted primarily through two operating groups
consisting of the following five operating subsidiaries, each of which is a
market leader in its respective product categories.

REFERENCE AND PERIODICALS GROUP

WEEKLY READER. Weekly Reader has been a leading publisher of classroom
periodicals for pre K-12 students for over 100 years. Weekly Reader, or its
former parent or affiliates of its former parent, acquired Facts on File News
Services in 1996, Gareth Stevens, Inc. in 1997 and American Guidance in 1998. We
were the largest publisher of classroom periodicals during the 2001-2002 school
year in terms of total circulation with over 7.0 million subscribers. In
addition to our well-recognized classroom periodicals, such as WEEKLY READER
and CURRENT EVENTS, we publish distinct, grade-specific basic and life skills
workbooks. We also publish instructional materials paid for by various sponsors,
such as Six Flags Theme Parks, Inc, Ford Motor, Center for Disease Control and
the National Fire Protection Association, which are distributed for free
primarily to K-12 students throughout the United States. For the year ended
December 31, 2002, Weekly Reader, not including American Guidance or World
Almanac, had net revenue of $44.6 million, representing approximately 21% of our
total net revenue during this period.

AMERICAN GUIDANCE. AGS has been a leading publisher of individually administered
and group testing and assessment products, and supplemental instructional
materials for over 45 years. In May 2001, AGS acquired the operating assets of
Lindy Enterprises, Inc. (Lindy). Lindy develops curriculum-based skills
assessment and test preparation products on CD-ROM that correlate to national
and state curricula. AGS's testing and assessment products are primarily for
K-12 students and its supplemental instructional materials are primarily for
low-performing students in middle and secondary schools. One or more of AGS's
testing and assessment products or supplemental instructional materials are used
in over 12,000 school districts, or approximately 76% of the school districts in
the United States. Our testing and assessment products are used to diagnose
learning disabilities and measure the cognitive ability, educational
achievement, or personal and social adjustment of individual students. AGS's
supplemental instructional materials include various textbooks and worktexts,
many of which we believe set the standard for quality in their respective
product categories, with full-color content and accompanying extensive teacher
support materials. For the year ended December 31, 2002, AGS had net revenue of
$57.9 million, representing approximately 28% of our total net revenue during
this period.

COMPASSLEARNING. CompassLearning is a research-based technology learning
solutions company that produces educational assessment, curriculum and
management tools for grades Pre-K through 12, all of which are aligned to local,
state and national standards. Offering more than 8,000 hours of interactive
standards-based managed curriculum that inspires educators and students to
explore and achieve success, CompassLearning has been serving the Pre-K to 12
market for over 25 years and its products are a significant part of the learning
and teaching process in more than 20,000 schools, representing approximately 19%
of all the schools in the United States. For the year ended December 31, 2002,
CompassLearning had net revenue of $51.2 million, representing approximately 24%
of our total net revenue during this period.

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CHILDU. ChildU, Inc. was incorporated on June 1, 1999 and is a provider of
Internet-based educational services to both individual and institutional
consumers. On May 9, 2001, the Company entered into an Agreement and Plan of
Merger with WRC Media. ChildU's expertise lies in the design of web-enabled
courseware. Teamed with the developers at CompassLearning, ChildU is
co-developing new web-enabled products for the Pre-K to 12 market. In 2002,
ChildU and CompassLearning co-developed the new on-line product, Odyssey.
Odyssey's online curriculum solutions, developed by educators and built on sound
instructional pedagogy, utilize engaging, self-paced, project-based activities.
For the year ended December 31, 2002, ChildU had revenue of $2.3 million,
representing approximately 1% of our total net revenue during this period.

WORLD ALMANAC. World Almanac has been a leading publisher of reference and
informational materials targeted to K-12 students, as well as other well-known
general reference and informational materials, for over 130 years. Over 55% of
the approximately 130,000 school and public libraries in the United States have
purchased products from World Almanac. World Almanac publishes well-known print
reference materials, such as THE WORLD ALMANAC AND BOOK OF FACTS and nonfiction
and fiction books for K-8 students under three GARETH STEVENS imprints. In
addition, World Almanac publishes electronic reference materials such as the
FUNK & WAGNALLS ENCYCLOPEDIA database and an Internet-based version of FACTS ON
FILE WORLD NEWS DIGEST, which in its print version is World Almanac's leading
subscription-based product with renewal rates averaging approximately 87% from
1997 through 2002. World Almanac also distributes third-party products that are
targeted for K-12 students through its World Almanac Education Library Services
("WAELS") catalogs. Revenue is recognized when the third-party products are
shipped to WAELS customers who are primarily public and school libraries. For
the year ended December 31, 2002, World Almanac had net revenue of $54.0
million, representing approximately 26% of our total net revenue during this
period.

COMPETITIVE STRENGTHS

We believe a number of competitive strengths that have contributed to our
leading market positions, include:

BROAD PRODUCT PORTFOLIO. We are a leading publisher in the supplemental
education materials market and one of the few companies with a comprehensive
portfolio of products covering all the major segments of this market. We offer a
wide range of products to our customers. This broad product portfolio allows us
to address the most attractive segments of the market and respond to emerging
trends and funding sources, including the rapidly developing market of parents
seeking to buy supplemental education materials. See "Products and Services" for
a detailed description of our product portfolio.

STRONG, WELL-ESTABLISHED BRAND NAMES. We believe that we have strong brand names
in each of the market segments we serve. Several of our most recognized print
titles have been in circulation for decades, including CURRENT EVENTS, a Weekly
Reader publication, which was first published in 1902, the PEABODY PICTURE
VOCABULARY TEST, which

                                     5 of 5
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was first published in 1959, and THE WORLD ALMANAC AND BOOK OF FACTS, which was
first published in 1868. We believe that our products are well known and trusted
by teachers, other educational professionals and parents for their effectiveness
and consistent, high quality educational content. Brand name and reputation are
significant criteria in the purchasing decision process for supplemental
education materials as they are usually selected at the discretion of individual
teachers, school and school district-level administrators or parents.

STABLE REVENUE BASE. We have a significant base of long-term customers who have
exhibited substantial product loyalty, resulting in a consistent level of
revenues from recurring sales to these customers. In our experience, once a
teacher or administrator is familiar with and accustomed to using a supplemental
instructional product and has developed lesson plans using the product, the
teacher or administrator tends to purchase the same product year-after-year
leading to a high subscription renewal rate. In addition, we believe there is an
important component of trust in the quality, consistency and support of many of
our products which makes it difficult for a competitor to introduce new products
for the same subject area without significant investment and the support of key
opinion makers in the industry. As a result of this loyalty, many of our
products enjoy long customer histories with high renewal rates. For the last ten
years, over 80% of schools purchasing Weekly Reader periodicals re-subscribed
the following year. We believe our school renewal rates are important because of
the value we place on ensuring that our periodicals remain available within any
given school, providing us with a base on which to further penetrate that
school. In addition, six of our top ten revenue - producing testing and
assessment products, have been published for over 25 years. Typically, these
products have undergone revisions to ensure that they reliably meet the existing
population's curriculum needs. Achievement tests generally require revisions
every 8 to 10 years while tests that measure personal and social adjustment or
cognitive ability in some cases do not require revision for as long as 15 years.

SUBSTANTIAL ELECTRONIC DELIVERY PLATFORM. At CompassLearning, we have over 20
years of experience in developing and providing electronically delivered
supplemental instructional materials. We believe that we are well positioned to
capitalize on this rapidly growing market segment. One or more of
CompassLearning's products have been sold to over 20,000 K-12 schools in the
United States, more schools than have been reached by any other publisher of
comprehensive electronic courseware. Most CompassLearning products can be
delivered in the school's platform of choice, LAN, WAN or Internet.

Our primary operating subsidiaries have web sites that promote their respective
products, provide product information and, in some cases, enable users to order
products over the Internet. Given the importance of quality and name recognition
to the development of Internet-based business, we believe that the strength of
our brands and our direct distribution channels position us well for significant
growth in this area.

STRONG DISTRIBUTION CHANNELS. Our products are used in over 80,000 schools, by
over ten million students, in over 6.5 million homes (through Weekly Reader
periodicals being taken home) and in over 68,000 school and public libraries. We
have an extensive network with direct distribution channels into these end user
markets. Some of our products are sold using direct field and telephone sales,
emphasizing one-to-one relationships with teachers, school and

                                     6 of 6
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school district-level administrators and other educational professionals.
CompassLearning, for example, uses a three-pronged approach that provides every
customer a sales contact, an educational consultant and a technology support
person, for comprehensive customer service. We also utilize sophisticated direct
mail campaigns, which at Weekly Reader and World Almanac are enhanced by our
proprietary databases. These databases track the purchasing habits of teachers,
schools and/or librarians for many of our products as well as specific
demographics and other factors we believe affect purchasing habits.

EXPERIENCED MANAGEMENT TEAM. We have assembled an experienced management team at
both the administrative and the operating levels. This management team is led by
Martin E. Kenney, Jr., our Chief Executive Officer, who has over 25 years of
experience in educational publishing and electronic courseware. Prior to joining
WRC Media, Mr. Kenney was Executive Vice President of the Educational Publishing
Group and President of the Education Technology Group at Simon & Schuster, the
world's largest educational publisher at that time.

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PRODUCTS AND SERVICES

The following chart outlines our product offerings by primary operating
subsidiary in each of the segments of the supplemental education market in which
we compete:

<TABLE>
<CAPTION>
                              WEEKLY READER        AMERICAN GUIDANCE        COMPASSLEARNING            WORLD ALMANAC
<S>                       <C>                    <C>                     <C>                    <C>
PRINT AND ELECTRONIC      PERIODICALS:  16       BASIC SKILLS:           ELECTRONIC             TEACHING KITS:  Kits
INSTRUCTIONAL MATERIALS   grade or               Supplemental            COURSEWARE:            developed by World
                          subject-specific       textbooks and           Approximately 8,000    Almanac Education
                          periodicals for pre    worktexts targeted      hours of electronic    Library Services
                          K-12 students and 2    for low-performing      courseware for Pre-K   used to teach a
                          subscription           students in middle      - 12 students,         variety of skills
                          supplements,           and secondary schools   primarily for          including research
                          including Weekly       covering core           reading, math and      skills, map skills
                          Reader, Teen           curriculum subjects.    language arts,         and Internet skills.
                          Newsweek and Current                           through the
                          Events.                TEST PREPARATION:       CompassLearning
                                                 Instructional           Odyssey Product line.
                          SKILLS BOOKS:  168     materials to prepare
                          distinct, grade        for three of the        MANAGEMENT SYSTEM:
                          specific, workbooks    leading achievement     Odyssey management
                          for K-9 students       tests for K-12          system enables
                          that build and         students.               teachers to track
                          reinforce basic                                student performance,
                          skills, including      PERSONAL GROWTH:        record grades,
                          the Map Skills         Various personal        report on progress
                          series, or focus on    growth materials        and prescribe
                          current topics such    covering topics such    lessons based on
                          as health issues or    as drug use             results.
                          upcoming               prevention and
                          Presidential           anti-violence
                          elections.             training, self-esteem
                                                 and career education

                          SPONSORED
                          INSTRUCTIONAL
                          MATERIALS: A variety
                          of free instructional
                          materials, including
                          print and video
                          products, paid for by
                          corporate, trade
                          association and/or
                          not-for-profit
                          sponsors primarily
                          for K-12 students.

TESTING AND ASSESSMENT             N/A           INDIVIDUALLY            ASSEMENT TEST:                  N/A
PRODUCTS                                         ADMINISTERED TESTS:     CompassLearning
                                                 Assessment products     Explorer assessment
                                                 for K-12 students and   tool evaluates
                                                 adults, includes        student performance,
                                                 Ability Assessment,     meet the Assessment
                                                 Behavior & Social       of educational
                                                 Skills Assessment,      Progress (NAEP)
                                                 Language, Speech &      objectives and is
                                                 Auditory Skills         aligned with the
                                                 Assessment.             core state standards.

                                                 GROUP TESTS GRADE:
                                                 Group testing, which
                                                 offers reliable
                                                 reading diagnostics
                                                 for individual
                                                 students.

LIBRARY MATERIALS                  N/A                    N/A                     N/A           K-12 REFERENCE AND OTHER
                                                                                                INFORMATINOAL MATERIALS:
                                                                                                Materials developed by us
                                                                                                targeted to K-12 students such as
                                                                                                THE WORLD ALMANAC FOR KIDS AND
                                                                                                GARETH STEVENS, INC. products, as
                                                                                                well as materials developed by
                                                                                                third-parties and distributed by
                                                                                                us.


                                                                                                GENERAL REFERENCE AND OTHER
                                                                                                INFORMATION MATERIALS: Materials
                                                                                                developed by us, such as THE
                                                                                                WORLD ALMANAC AND BOOK OF FACTS,
                                                                                                FUNK & WAGNALLS ENCYCLOPEDIA
                                                                                                database and FACTS ON FILE WORLD
                                                                                                NEWS DIGEST.
</TABLE>

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WEEKLY READER

         Weekly Reader has four primary product lines:

         -        elementary school periodicals;

         -        middle and secondary school periodicals;

         -        sponsored instructional materials published by its subsidiary,
                  Lifetime Learning Systems, Inc.; and

         -        skills books.

         In addition, Weekly Reader licenses the content of some of its
         publications for commercial use by third parties and sells advertising
         space in some of its publications as well as on its web site.

ELEMENTARY SCHOOL PERIODICALS. WEEKLY READER, first published in 1928, has
established itself as a leading source for current events information for
students in grades Pre-K to 6. WEEKLY READER features seven grade-specific
editions for students, with between 25 and 32 issues per school year for each
edition. Within Elementary, Weekly Reader also offers one optional monthly
supplement, SCIENCESPIN. The following table lists each edition of the WEEKLY
READER and our other elementary school periodicals indicating issues per
subscription and subscription price.

<TABLE>
<CAPTION>
                                                                                      2002-2003 SUBSCRIPTION
                                                                         ISSUES PER    PRICE (PER STUDENT,
PUBLICATION                                                             SUBSCRIPTION        YEAR) (a)
-----------                                                             ------------  ----------------------
<S>                                                                           <C>     <C>
WEEKLY READER:
Pre-K...........................................................              28      $       5.35
K...............................................................              28              4.86
Grade 1.........................................................              32              3.56
Grade 2.........................................................              25              3.56
Grade 3.........................................................              25              3.94
Grade 4.........................................................              25              3.94
Grades 5-6......................................................              25              4.27
SCIENCESPIN.....................................................               7              1.03
</TABLE>

(a) Includes shipping and handling costs.

Subscriptions to Weekly Reader elementary school periodicals in the 2001-2002
school year represented approximately 39% of all elementary school periodical
subscriptions circulated in that year by the three major publishers of these
periodicals. We believe that three publishers account for virtually all
periodicals targeted for classrooms. According to publishers' Statements of
Ownership filed with the USPS in the fall of 2002 for average circulation for
the 2001-02 school year and issue nearest filing date for 2002-03 school year,
Weekly Reader's periodicals had the highest total circulation of elementary
school periodicals in the 2001-2002 school year, totaling approximately 5.7
million subscriptions (including approximately 0.25 million unpaid, promotional
or teacher reference subscriptions.

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Each edition of WEEKLY READER is specifically written and designed for a
particular grade level in order to bring information on current events to
elementary school students at a conceptually appropriate level. The editions for
younger audiences contain "soft" news focusing on topics such as fire prevention
and animals. Higher-grade level editions contain "hard" news concerning topics
such as world news and current events, including, for example, the 2002
congressional mid-term elections, corporate corruption and the Mid-East
conflict. A teacher's guide with background information, discussion topics and
follow-up questions is included with each issue of each edition.

MIDDLE AND SECONDARY SCHOOL PERIODICALS. We publish nine subject-specific
periodicals covering six subject areas for students in middle and secondary
schools and a Sex Supplement publication offered to Current Health 2, with
between 6 and 26 issues per school year per periodical. For example, CURRENT
EVENTS first published in 1902, one of our most popular periodicals for middle
school students, provides information on current events tailored to the reading
levels and school curriculum of students in the sixth through tenth grades. The
following table lists each of our middle and secondary school periodicals
indicating target grades, issues per subscription, subject area and subscription
price.

<TABLE>
<CAPTION>
                                                                                 2002-2003 SUBSCRIPTION
                                                  ISSUES PER                       PRICE (PER STUDENT
              PUBLICATION               GRADE    SUBSCRIPTION     SUBJECT AREA        PER YEAR) (a)
-------------------------------------   ------   ------------  ----------------  ----------------------
<S>                                       <C>          <C>     <C>                       <C>
Current Events......................      6-10         25      Social Studies            $  9.67
Current Science.....................      6-10         16      Science                     10.42
READ................................      6-10         18      Language Arts               10.53
Writing.............................      7-10          6      Language Arts               10.26
Know Your World Extra...............      5-9          12      Remedial Reading            11.34
Career World........................      7-12          6      Career Guidance             10.75
Current Health 1....................      4-7           8      Health                      10.53
Current Health 2....................      7-12          8      Health                      10.53
CH2 Sex Supplement..................      7-12          8      Health                       3.78
Teen Newsweek.......................      6-9          26      Social Studies               7.94
</TABLE>

(a) Includes shipping and handling costs.

Weekly Reader's middle and secondary school periodical subscriptions in the
2001-2002 school year represented approximately 45% of all middle and secondary
school periodical subscriptions circulated that year by the three major
publishers which we believe account for virtually all middle and secondary
school periodicals targeted for classrooms. Weekly Reader's middle and secondary
school periodicals had the second highest total circulation of periodicals for
these schools in the 2001-2002 school year with approximately 1.5 million
subscriptions including approximately 0.1 million unpaid promotional or teacher
reference subscriptions. In each of the last ten years, over 60% of middle and
secondary schools that have subscribed to one or more of our middle or secondary
school periodicals renewed their subscription for the following year. To target
the growing sixth to ninth grade market, Weekly Reader entered into a
relationship with NEWSWEEK magazine to create TEEN NEWSWEEK, which was launched
in September 1999. TEEN NEWSWEEK focuses on social studies and current events
and contains grade-appropriate news stories that link history, geography,
government and cultures to the news stories. The relationship is intended to
capitalize on Weekly Reader's expertise in publishing and marketing materials
for classroom use and NEWSWEEK's strong news image, rapid distribution
capabilities and experience in advertising sales.

                                  Page 10 of 10
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LIFETIME LEARNING SYSTEMS Our Lifetime Learning Systems business is a leader in
the creation and distribution of a variety of supplemental education materials
which are paid for by corporate, trade association and/or not-for-profit
sponsors and are distributed free to a target audience. The materials produced
focus on topics chosen by the sponsor and are typically targeted for use in K-12
classrooms. Lifetime Learning Systems also produces sponsored supplemental
education materials targeted for the college and senior citizen markets.
Lifetime Learning Systems has created a variety of formats for supplemental
education materials over the years including:

         -        posters, teacher's guides and reproducible student activities;

         -        audio and video tapes; and

         -        web sites.

Sponsors of Lifetime Learning Systems, Inc. projects have included corporate
sponsors such as Ford Motor Credit, Kimberly Clark, Gillette and the New York
Stock Exchange as well as not-for-profit sponsors such as the National Fire
Protection Association, Center for Disease Control, Cotton, Inc. and United Way.

SKILLS BOOKS. We offer skills books, a line of workbooks and other supplemental
education materials that build and reinforce students' basic skills in
curriculum areas such as math or language arts as well as other titles, which
focus on life issues, such as current events or health. The skills book product
line includes 30 different series of workbooks including 168 distinct,
grade-specific titles spanning K-9 grades. For example, the highly successful
Map Skills for Today series builds geographic literacy by teaching students
basic map-reading concepts and skills. The success of this series is
attributable to a proven sequential approach to teaching map skills that matches
the curriculum established by many school systems. Additional products include
series covering topics such as AIDS and anti-drug education.

WEEKLYREADER.COM. In addition to our presence in the classroom through printed
materials, we redesigned and re-launched Weekly Reader's website, with the goal
of strengthening the brand image of our print products and positioning Weekly
Reader to capitalize on electronic distribution opportunities. In 2002 the
website was expanded to include the WRTOOLKIT which gives subscribers the
ability to research topics in a database of archived articles. Weekly Reader's
website is a free site with pages specifically addressing students, teachers and
parents needs. It offers materials, in the form of articles, puzzles,
experiments and games, which correlate with the content of Weekly Reader
periodicals. In addition, the web site informs users about our periodicals and
skills books allowing customers to subscribe over the Internet. For the year
ended December 31, 2002, the web site had approximately 10.5 million page views
with the average user spending approximately ten minutes on the site per visit.

OTHER PRODUCTS AND SERVICES. Weekly Reader also licenses the content of some of
its publications, promotes other products in its publications and provides its
"seal of approval" to various products. Weekly Reader's licensed content is
generally recognized as revenue over the

                                  Page 11 of 11
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term of the license agreement. Advertising revenues are recognized as income on
the issue date, net of provisions for rebates, adjustments and discounts. Weekly
Reader continues to sell "Weekly Reader Editor's Choice" book selections
licensed from trade book publishers on QVC generating some of the largest
one-day sales totals in Weekly Reader's history. Weekly Reader expects this new
sales channel to continue to expand in future years. Sales of books, tests and
other items are generally recognized as revenue upon shipment, net of an
allowance for returns.

AGS

AGS has two principal product lines:

         -        testing and assessment products; and

         -        supplemental instructional materials.

TESTING AND ASSESSMENT PRODUCTS. AGS's testing and assessment products provide
educators with reliable individually-administered and group tests, and manuals
explaining how to administer our tests. Our testing and assessment products and
supplemental instructional materials are primarily used in K-12 schools, but are
also used in community health centers, clinics, hospitals, correctional
facilities, community colleges and other adult education programs. These
products are used to diagnose learning disabilities and measure the cognitive
ability, educational achievement and personal and social adjustment of students.

AGS currently publishes over 30 testing and assessment products. AGS's testing
and assessment products are generally sold as part of a test kit. Test kits
typically contain the test record forms, "easels" used to administer the test
items, and a manual describing the proper method to score and evaluate the
particular test. Four of AGS's top five testing products, based on sales, have
been published for over 25 years. AGS's tests are revised periodically to ensure
that they reliably measure existing populations. Achievement tests generally
require revisions every eight to ten years while tests that measure personal and
social adjustment or cognitive ability in some cases do not require revision for
as long as 15 years.

Educators and clinicians apply AGS's testing and assessment products on an
individual basis to understand a student's particular educational needs. In our
experience, once the validity and effectiveness of a test is established and
accepted in the educational community, educators', psychologists' and
clinicians' familiarity with the product grows along with their reluctance to
change suppliers and learn different assessment content, administration
approaches and scoring techniques. These professionals often prefer to use the
same tests over a long period of time in order to compare performance of their
student populations. The goal of AGS is to increase its brand awareness in the
markets it serves - primarily specialists in the K-12 market. Our goal is to
establish the AGS name in association with our products and services. By
increasing our visibility as a company on a national and local level with
special educators, we will be able to help the customer connect our products
with our company name. To grow in our critical markets, AGS plans to
aggressively pursue four main areas for growing our product line:

                                  Page 12 of 12
<PAGE>

         -        Revisions - Many of our top-selling tests and curriculum are
                  on schedule to be revised over the next 5 years.
         -        New Product - AGS annually increases its new product offering
                  through internal development.
         -        Acquisitions - AGS historically has pursued acquisitions to
                  enhance and supplement its internal development efforts.
         -        Distribution - AGS has increased its emphasis on distributing
                  complementary products to its target markets. Gareth-Stevens
                  and Weekly Reader titles (over 150) have been added to four of
                  our main catalogs this fall, and we have added key reading
                  assessments that will put us in a good position to capture
                  Reading First, federally funded reading initiative, dollars.

SUPPLEMENTAL INSTRUCTIONAL MATERIALS. AGS's supplemental instructional materials
consist of curriculum-based instructional materials, many of which are for
low-performing students. Low-performing students are defined as those students
scoring in the lower 50th percentile of the student population at a particular
grade level. We focus primarily on serving middle and secondary schools with
additional sales to post-secondary markets, such as community colleges and
correctional facilities. We generally produce three types of instructional
materials:

         -        supplemental hardcover textbooks in core curriculum areas for
                  low-performing students, with related products such as
                  workbooks;

         -        soft cover worktexts in core curriculum areas for
                  low-performing students; and

         -        test preparation materials which can be used to prepare all
                  students for leading achievement tests.

AGS's supplemental hardcover textbooks are designed to provide comprehensive
coverage of skills and concepts in short, concise lessons. They are geared to a
fourth grade reading level or below with photography and content that are
appropriate for middle and secondary school students as well as adults.

We believe AGS's supplemental hardcover textbooks set the standard for quality
in the market, with full-color content and accompanying extensive teacher
support materials. Each textbook has a wrap-around teacher's edition that
reproduces the student edition with notes for the teacher indicated next to the
text such as overviews for each new lesson, alternative questions a teacher may
ask and answers to questions in the text. Each textbook has available a set of
quizzes, worksheets, problem sets and other materials that teachers are
permitted to reproduce for their classes. These materials also are available on
CD-ROM. Most of AGS's supplemental hardcover textbooks have related soft cover
workbooks, activity books and study guide programs including videos available in
print and on CD-ROM for self-guided learning.

                                  Page 13 of 13
<PAGE>

AGS's soft cover worktexts also cover core curriculum areas. These worktexts are
designed as stand-alone products so that a teacher may use them to supplement
any textbook. These soft cover worktexts cover smaller portions of any given
curriculum area other than our supplemental hardcover textbooks.

Approximately 10% of AGS's net revenue for the year ended December 31, 2002 was
from sales of testing and assessment products and supplemental instructional
materials in which the end users were not K-12 schools.

AGS also publishes a rapidly growing line of test-preparation materials
developed to assist students preparing to take three of the leading achievement
tests: Stanford Achievement Test (SAT), Iowa Test of Basic Skills (ITBS), and
TERRANOVA (Comprehensive Test of Basic Skills (CTBS) and Multiple Assessments
tests).

Additional preparation materials for state specific tests are also published.
AGS's test preparation materials are sold in package format.

COMPASSLEARNING

CompassLearning is a research-based technology learning solutions company that
produces educational assessment, curriculum, and management tools for grades
Pre-K through 12, all of which are aligned to local, state, and national
standards. The CompassLearning solutions are easily integrated into classroom
activities that support curricular goals. CompassLearning derives most of its
revenue from the sale of solution products and related professional development
and technical support services.

CompassLearning's Learning Odyssey(R) product line is a comprehensive library of
over 8,000 hours of interactive, standards-based, managed curriculum. The
Odyssey curriculum focuses on reading, math, and data management tools designed
for grades Pre-K through 12. Use of stimulating graphics, interactive animation,
and audio technology for all types of learning instruction help motivate
students to learn. Assessment products assign lessons based on each student's
needs. Products cover a full range of development, from basic skill instruction,
to critical thinking exercises, to project-based learning. Management tools are
designed to reduce the time teachers spend on administrative tasks and increase
one-on-one work with students. The Odyssey product line is delivered in the
school's platform of choice including LAN, WAN and Internet access.

CompassLearning Explorer is an assessment tool designed to help evaluate student
performance. It covers the National Assessment of Educational Progress (NAEP)
objectives and is aligned with the core state standards. CompassLearning
Explorer offers criterion-referenced tests, prescriptive learning paths with the
flexibility to integrate third-party products, as well as allowing for
customization to meet individual students' and teachers' needs. It can be
delivered via the Internet with computer-based and print components. Curriculum
options vary, letting students navigate with the program at their own pace or on
a timed basis.

                                  Page 14 of 14
<PAGE>

A typical CompassLearning sale consists of software products packaged with
professional development and technical support services for an average price of
$30,000 per school per year. The curriculum sells for an average of $120 per
subject per grade level plus $100 per workstation for simultaneous access. The
Odyssey management system sells for $3,500 and CompassLearning Explorer sells
for $5,000. Professional development services range in price from $1,000 per day
for a standard course to $1,230 per day for customized training sessions. These
services are typically purchased under a contract for specific number of days of
service. Technical support services are typically purchased under one-year
contracts for an average cost of $3,950 per year. After the expiration of any
service contract, services can be purchased on an ongoing basis.

CompassLearning provides professional development services and technical support
services. CompassLearning has a team of over 65 full-time educational
consultants providing professional development services to teachers, ranging
from basic software training to services designed to assist teachers in
implementing and integrating technology into the classroom.

CompassLearning offers various technical support services in connection with the
purchase and ongoing use of its software products. An initial buyer of our
software products typically purchases one year of toll-free telephone help line
services, on-site system engineer services and software updates.

Several of the Company's customers are subject to fiscal funding requirements.
If the funding requirements are subject to governmental approval, the likelihood
of cancellation is assessed. If the likelihood of cancellation is assessed as
remote, revenue is recognized. If the likelihood of cancellation is assessed as
other than remote, revenue is deferred. If the funding requirements are subject
to non-governmental approval, revenue is deferred and recognized in accordance
with the remaining provisions of SOP 97-2.

WORLD ALMANAC

World Almanac's operations are divided into the following five divisions: World
Almanac Books, World Almanac Education Library Services, Gareth Stevens, Inc.,
Facts On File News Services and Funk & Wagnalls.

WORLD ALMANAC BOOKS: THE WORLD ALMANAC(R) AND BOOK OF FACTS is, we believe, one
of the most widely used and well-respected general reference publications in the
United States. In 1998, the American Library Association named it one of the
three most important information sources found in libraries and the best almanac
overall. We believe THE WORLD ALMANAC(R) AND BOOK OF FACTS provides more
complete and up-to-date information than competing almanacs. Its
comprehensiveness and brand identity are critical assets. In print for over 130
years, THE WORLD ALMANAC(R) AND BOOK OF FACTS perennially makes the NEW YORK
TIMES' bestseller list. World Almanac Books also licenses the content of THE
WORLD ALMANAC(R) AND BOOK OF FACTS to third parties for inclusion in their
products. Since 1995, World Almanac Books has also published THE WORLD ALMANAC
FOR KIDS, with over 2,000,000 copies sold to date.

                                  Page 15 of 15
<PAGE>

WORLD ALMANAC EDUCATION LIBRARY SERVICES: World Almanac Education Library
Services is a niche distributor of reference and informational materials, which
it targets primarily to K-12 school and public libraries. There are
approximately 108,000 K-12 school libraries and 16,000 public libraries in the
United States. World Almanac Education Library Services reviews and selects
materials from third-party publishers for inclusion in its fourteen catalogs.
The catalogs also include THE WORLD ALMANAC AND BOOK OF FACTS, THE WORLD ALMANAC
FOR KIDS and several best selling series from Gareth Stevens, Inc. World Almanac
Education Library Services mailed a total of approximately 2.1 million catalogs
in 2002. World Almanac Education Library Services also publishes a small amount
of proprietary teaching kits, including kits covering research skills, map
skills and Internet skills, which include items such as lesson plans for books
we believe are appropriate for classroom use to encourage multiple-copy sales.

GARETH STEVENS, INC.: Gareth Stevens, Inc. publishes nonfiction and fiction
books for K-8 students. These books cover a broad spectrum of topics including
nature, science, social studies, reference, and language arts, all closely
related to curriculum standards. Approximately 79% of Gareth Stevens, Inc.'s
sales derive from books published under the three Gareth Stevens' imprints:
Gareth Stevens Publishing (K-6), World Almanac Library (4-8), and Weekly Reader
Early Learning Library (Pre-K-3). In the Gareth Stevens Publishing imprint, a
majority of these titles are sourced from domestic and international third
parties for which Gareth Stevens, Inc. usually holds at a minimum exclusive
distribution rights for K-12 school and public libraries in North America.
Royalty advances are generally paid on titles sourced in this manner and then
earned out over the life of the title. Sales made in the wholesale channel are
recognized when books are shipped to wholesalers net of estimated sales returns.
Sales made through the telemarketing preview channel are recorded upon return of
unwanted preview product. In the World Almanac Library and Weekly Reader Early
Learning Library imprints, the majority of titles are created by Gareth Stevens
and in most of the cases in which Gareth Stevens, Inc. does not own the title,
we hold the worldwide rights to the titles. The remaining approximately 21% of
Gareth Stevens, Inc.'s sales result from the telesales distribution of books
from other publishers, primarily two lines from Rosen publishing (a K-3 line and
a 6-12 line), and books from a handful of other publishers, including Capstone,
Heinemann Library, Crabtree, and Compass Point, sold on consignment through the
LibraryOne Direct division.

FACTS ON FILE NEWS SERVICES: World Almanac, through Facts On File News Services,
publishes and sells subscription news reference products in print and Internet
formats. There are five print products:

         -        FACTS ON FILE WORLD NEWS DIGEST;

         -        ISSUES AND CONTROVERSIES ON FILE;

         -        TODAY'S SCIENCE ON FILE;

         -        EDITORIALS ON FILE; and

         -        SOFTWARE AND CD-ROM REVIEWS ON FILE.

                                  Page 16 of 16
<PAGE>

Its core product, FACTS ON FILE WORLD NEWS DIGEST, is a highly respected
publication used by libraries as a comprehensive index of world events beginning
in 1940 in the print version and in 1999 in the electronic version. Librarians,
journalists and library patrons typically use Facts On File News Services
products to research historical events. The in-house editorial staff of FACTS ON
FILE WORLD NEWS DIGEST distills key news information from more than 100
different newspapers, periodicals, journals and government Internet sources and
uses it to update the product weekly in the print and Internet formats. The core
print product has an annual subscription list price of $915, which is discounted
for public and school libraries. The print edition of FACTS ON FILE WORLD NEWS
DIGEST sold over 2,900 subscriptions in 2002 and continues to meet with great
acceptance, as evidenced by renewal rates averaging approximately 87% from 1997
through 2002. Subscriptions to the print edition, however, are expected to
decline gradually as it is replaced by Internet-based versions of the product
described below.

To take advantage of accelerated library spending on electronic delivery of
reference materials, World Almanac launched FACTS.com in 1999, an on-line
version of FACTS ON FILE WORLD NEWS DIGEST. The increased functionality of the
Internet version allows World Almanac to price this product higher than the
print version. The Internet version has a list price of $1,595 for a single-site
installation, with price discounts per site for multiple-site installation. In
2000, we launched three additional World Almanac databases as part of the
Reference Suite @ Facts.com web service: Issues and Controversies On File,
Today's Science On File and the World Almanac Reference Database. Revenue for
the on-line version of Facts On File products is recognized ratably over the
term of the subscription. FACTS.com subscriptions are sold primarily through
telemarketing.

FUNK & WAGNALLS: World Almanac operates in the electronic encyclopedia business
through Funk & Wagnalls. Although the FUNK & WAGNALLS ENCYCLOPEDIA is no longer
published in print format, Funk & Wagnalls licenses an electronic version of its
encyclopedic database to various third parties and is delivered via FACTS.com.
Funk & Wagnalls also annually sells a general yearbook containing a review of
the major news events that transpired in the previous year and a science
yearbook containing a review of the major scientific events in the previous
year. The yearbooks (general and science) are licensed from World Book
Encyclopedia, Inc. The active subscriber list for these two publications, which
primarily consists of former subscribers to the print edition of the FUNK &
WAGNALLS ENCYCLOPEDIA, is approximately 47,100 for the general yearbook and
17,700 for the science yearbook. Most science yearbook subscribers are also
general yearbook subscribers. We do not target new subscribers for these
yearbooks; however, renewal rates have averaged approximately 81% for the
general yearbook and 77% for the science yearbook from 1997 through 2002.

                                  Page 17 of 17
<PAGE>

PRODUCT AND CONTENT DEVELOPMENT

WEEKLY READER. Weekly Reader has a team of 48 people working in product and
content development. This team includes:

         -        editors and writers, who are typically grade and subject
                  specialists with journalism or teaching experience; and

         -        designers, who are responsible for the "look and feel" of the
                  products, including the layout of each publication.

Editors, writers and designers work in teams on any particular project including
planning meetings used for determining content and educational focus, the
selection of appropriate graphics and photographs and final editing before
submission for printing. The time it takes to develop our products varies
substantially according to the type of product. Product development for a new
periodical typically takes approximately nine months from concept to initial
marketing, whereas new issues of our existing periodicals typically take
approximately one to two weeks from conception to printing. Our skills books
typically take approximately eight to twelve months from concept to initial
marketing for an entirely new title, and approximately four to six months for
updated versions of existing titles. Development times for Lifetime Learning
Systems, Inc.'s products vary substantially depending upon the type of product
involved, but typically take approximately three to four months from concept to
distribution.

Weekly Reader's periodicals are written by a combination of staff and freelance
writers. WEEKLY READER, for example, is written internally. Our staff of
editors, writers and designers determines the subject matter for the particular
edition after which the content is written and edited by Weekly Reader's
employees. For SCIENCESPIN, however, once the content and educational focus for
a particular issue is determined internally, the writing is contracted out to
third parties with the relevant scientific knowledge and the ability to write
for the applicable target audience. TEEN NEWSWEEK is written internally based
upon content from upcoming stories in NEWSWEEK made available to our writers
prior to NEWSWEEK'S publication, and our own internally created content. The
TEEN NEWSWEEK writers determine which stories are appropriate for the targeted
audience and then rewrite the stories with age appropriate information and
language. TEEN NEWSWEEK'S content is subject, in all cases, to NEWSWEEK'S
approval.

Weekly Reader's skills books are typically written by freelance writers at the
direction of Weekly Reader's editors. Lifetime Learning Systems, Inc.'s products
are developed in a variety of formats by an in-house editorial and design staff
with varying degrees of direction provided by the applicable sponsor. In the
past, some sponsors of Lifetime Learning Systems, Inc. projects have approached
Lifetime Learning Systems, Inc. with a specific concept for which they are
seeking implementation and production, while other sponsors simply have a
message they wish to get across to a target audience and request proposals as
how best to accomplish that goal.

                                  Page 18 of 18
<PAGE>

Prior to distribution, whether created internally or externally, all of Weekly
Reader's products are reviewed by either the Editor in Chief of Weekly Reader or
one or more Senior Managing Editors to ensure that the content of the applicable
product is appropriate for the age group targeted by the product, according to
standards developed by Weekly Reader. Lifetime Learning Systems, Inc.'s products
are reviewed by its editorial director for their age and content
appropriateness.

AGS. AGS's new and revised testing and assessment products are developed
internally by in-house personnel, most of who are trained in one or more
specialties including psychology, education, early childhood development and
speech/language, among other disciplines. In some cases the in-house personnel
revise existing products under the direction of well known external authors who
control the original copyright or content of the test and who receive royalties
from the sale of these tests.

Our testing and assessment products are firmly rooted in established
psychological and pedagogic theory, and our product development philosophy is
customer focused. New test concepts are usually derived from the marketplace,
often from our sales representatives who are in contact with teachers, guidance
counselors, school psychologists, school administrators and other professionals
who identify a testing need.

We also develop new products through a systematic review of industry trends,
including emerging trends in the education community, or in conversations with
educators and other professionals who attend various trade and professional
conferences where we are an exhibitor or attendee. Occasionally, we will be
approached by an external author with a new test concept, which we will then
evaluate in terms of its overall market potential. AGS also distributes a few
select assessments from other publishers.

After we have created or revised a test, we then subject it to field tests. Once
field-testing and any indicated adjustments are complete, the test undergoes
standardization, generally being tested on 200 students per age year targeted by
the test and covering a broad range of demographic characteristics. In addition,
we seek support for the test from key opinion makers in the subject area of the
test. Only at this stage do we begin to market the test. The process is similar
for most revisions of existing tests because when a test is updated, the new
content similarly must be field-tested and then the revised test must undergo
standardization. The development cycle for a new test or to make revisions to an
existing test is typically five years from concept through the launch of the new
or revised test. The life cycle for the new or revised test can be up to 15
years or more.

We develop supplemental instructional products internally and externally with
developers and in close consultation with outside authors, on a royalty basis or
on a fee-for-service arrangement. New product concepts are derived from various
sources, including in-house development staff, outside authors and our sales
force based on their regular meeting with educators and administrators.

                                  Page 19 of 19
<PAGE>

Most of these instructional products have a development cycle of approximately
one year. In general, we solicit bids for our new products from outside
developers and award the contract based on price and other factors relating to
the developer's ability to deliver the finished product according to our exact
specifications.

COMPASSLEARNING AND CHILDU. CompassLearning and ChildU have a combined product
development team of 60 employees. Product development expertise consists of
software engineers, programmers, quality assurance analysts, technical writers,
instructional designers, and project managers. The co-development effort will
focus on three primary objectives:

         -        delivering a Pre-K through 8 web-enabled curricula,

         -        developing a state-of-the-art instructional management system,
                  and

         -        creating a national-standards-based assessment product.


WORLD ALMANAC.  World Almanac has a 37 person in-house editorial staff that:

         -        in the case of the World Almanac Books and Funk & Wagnalls,
                  works in conjunction with outside work-for-hire editors to
                  develop its content; and

         -        in the case of the Facts On File New Services products,
                  develops the content of these products.

Individual members of the in-house editorial staff are generally responsible for
only one of the product lines. The contents of our Funk & Wagnalls yearbooks are
licensed from third parties. The Gareth Stevens, Inc. nonfiction and fiction
books are comprised of either content licensed from third parties and then
repackaged and/or rewritten for the K-12 market in the United States or,
especially in the case of books for the World Almanac Library and Weekly Reader
Early Learning Library imprints, original content developed by in-house staff,
freelance writers, and other providers of editorial services. World Almanac
Education Library Services has a three-person creative staff which designs the
layout for the catalogs and selects the reference and informational materials
which will be included in the catalogs.

World Almanac Education Library Services updates its catalogs twice each year.
New editions of THE WORLD ALMANAC(R) AND BOOK OF FACTS and THE WORLD ALMANAC FOR
KIDS are published each year. New product development is currently focused on
offering products through Internet delivery. In 2000, we launched the following
three additional World Almanac databases as part of the Facts On File News
Services web service: Issues & Controversies On File, Today's Science On File
and the World Almanac Reference Database.

CUSTOMERS

Our targeted customers, who vary depending on the product line, are teachers,
school and school district-level administrators, librarians, other educational
professionals and parents.

                                  Page 20 of 20
<PAGE>

Weekly Reader's periodicals and other instructional materials are purchased
mainly by teachers, as well as by school and school district-level
administrators. In addition, schools sometimes ask parents of students to pay
for their children's subscriptions to Weekly Reader periodicals. According to
Weekly Reader, it was the largest publisher of classroom periodicals in terms of
total circulation in the 2001-2002 school year with over 7.0 million
subscribers.

Customers of Lifetime Learning System, Inc.'s products generally are:

         -        corporations;

         -        trade associations;

         -        not-for-profit organizations; and

         -        government agencies.

Customers of AGS's assessment products generally are guidance counselors, school
psychologists, speech pathologists, special education teachers and other similar
school district-level specialists.

Customers of AGS's supplemental instructional materials generally are teachers
and school-level administrators as well as school district-level administrators.
AGS also has customers outside of K-12 schools for its testing and assessment
products and supplemental instructional materials, which includes clinical
psychologists, community colleges, adult educational programs and correctional
facilities.

One or more of AGS's testing and assessment or supplemental instructional
products are used in over 12,000 school districts, or approximately 76% of the
school districts in the United States.

CompassLearning's customers consist primarily of school and school
district-level administrators, including:

         -        superintendents;

         -        curriculum directors;

         -        technology directors; and

         -        principals.

Although individual teachers do not typically make final purchasing decisions,
they frequently have substantial input in the decision making process. One or
more of CompassLearning's products has been sold to more than 20,000 K-12
schools, representing approximately 19% of all schools in the United States.

                                  Page 21 of 21
<PAGE>

In 2002, approximately 87% of World Almanac's sales were to schools and
libraries. The remaining 13% of its sales consisted of sales of yearbooks to
former encyclopedia purchasers and sales of THE WORLD ALMANAC(R) AND BOOK OF
FACTS and THE WORLD ALMANAC FOR KIDS to consumers.

Funk & Wagnalls licenses its electronic encyclopedia database to various
licensees and sells its yearbooks primarily to former print encyclopedia
purchasers. Facts On File News Services sells FACTS ON FILE WORLD NEWS DIGEST
and its other products to libraries of all types. World Almanac Education
Library Services and Gareth Stevens, Inc. sell their products primarily to
school libraries and to a lesser extent to public libraries. Over 55% of the
approximately 124,000 school and public libraries in the United States have
purchased products from World Almanac.

SALES, MARKETING AND DISTRIBUTION

We have an extensive network with direct distribution channels to reach our
primary customers. Our four primary operating subsidiaries use one or more of
the following methods to sell and market our products: direct mail, direct
sales, telemarketing and distribution through retail channels. The chart set
forth below contains information regarding sales, marketing and distribution by
Weekly Reader, American Guidance, CompassLearning and World Almanac, including
their primary distribution channels.

<TABLE>
<CAPTION>
                           WEEKLY READER          AMERICAN GUIDANCE         COMPASSLEARNING          WORLD ALMANAC
<S>                     <C>                     <C>                      <C>                    <C>
Primary Method of       Direct Mail             Direct Sales Force       Direct Sales Force     Direct Mail: Facts
Sales and Marketing                             (field and telesales)                           On File News
                                                                                                Services, World Almanac
                                                                                                Education Library Services
                                                                                                and Funk & Wagnalls
                                                                                                Telemarketing: Gareth
                                                                                                Stevens, Inc. and Facts On
                                                                                                File News Services Retail
                                                                                                Marketing: World Almanac
                                                                                                Books

Size of Staff                     8                       50                      55                     113

Number of Mailings in   Total mail quantity               N/A                     N/A           Facts On File News
2002                    of 9.0 million (in                                                      Services generally
                        March, April, July                                                      mails twice a year;
                        and August)                                                             World Almanac
                                                                                                Education Library Services
                                                                                                generally mails four times
                                                                                                a year; Yearbook mail
                                                                                                campaigns once a year

Number of Schools/      Over 110,000 schools;   250,000 customer                  N/A           Approximately
Teachers/Libraries in   3.4 million teachers     locations                                      106,516 schools,
Database                                                                                        16,664 school
                                                                                                districts, 15,847
                                                                                                public libraries,
                                                                                                3,985 academic
                                                                                                libraries

Estimated Number of     Over 60,000 schools     Over 15,000 school       Over 20,000 schools    Over 68,000 school
Schools/School                                  districts                                       and public libraries
Districts/Libraries                                                                             have purchased
with our products                                                                               products from World
                                                                                                Almanac
</TABLE>

                                  Page 22 of 22
<PAGE>

DIRECT MAIL. Direct mail consists mainly of well-planned mailings that target
current and prospective customers, often with enclosed product samples and
catalogs, which are used to generate product sales. This marketing technique is
utilized to a significant extent by Weekly Reader, World Almanac's Facts On File
News Services and World Almanac Education Library Services, and to a lesser
extent by American Guidance, CompassLearning and World Almanac's Funk &
Wagnalls.

Weekly Reader's classroom periodicals are marketed primarily through the use of
direct mailings. Its experienced and skilled marketing staff has developed
detailed mailing schedules and marketing strategies to reach current and
prospective customers. In the marketing of its classroom periodicals, Weekly
Reader has developed and maintained a valuable and proprietary database tracing
the purchasing habits of approximately 3.4 million individual teachers and
administrators and approximately 110,000 schools over the past five years as
well as various demographic factors in each locale. In 2002, Weekly Reader
mailed over 0.6 million catalogs and 9.0 million direct mail pieces primarily to
teachers as well as to school and school district-level administrators,
librarians and parents. Schools are segmented for mailings according to
"purchasing" and "non-purchasing" status, with marketing campaigns based on
purchasing history specifically targeted to teachers, who are typically the key
decision makers in connection with the purchase of Weekly Reader's classroom
periodicals. Schools that currently purchase Weekly Reader's classroom
periodicals are then further segmented according to penetration levels for each
elementary school grade or middle or secondary school subject area. The timing
of mailings, inclusion of product samples and timing and amount of discounts
offered, among other things, vary depending on which segment is being targeted.

World Almanac also uses direct mail to generate sales. For example, Facts On
File News Services uses direct mailings for general product announcements, to
generate sales leads and for order procurement from new customers. The strategy
for attracting new customers consists of using targeted direct mail, followed by
telesales calls from representatives who are recruited and trained by Facts On
File News Services. World Almanac's World Almanac Education Library Services
also uses direct mail to sell its products. This division of World Almanac has
developed a sophisticated database that tracks customers and purchasing habits,
including monetary value of an average purchase and other relevant factors,
which it uses to target customers with the appropriate catalogs. Most of World
Almanac Education Library Services' sales are generated from mailings of its
main catalog, which is sent to existing customers, and its prospect catalog,
which is mailed to prospective customers. World Almanac mailed approximately 2.7
million direct mail pieces in 2002, including 2.1 million catalogs.

American Guidance printed and mailed more than 1.5 million promotional materials
and catalogs in 2002, aimed at developing customer leads, spurring
direct-response sales and building overall marketplace awareness of its brand
and products.

CompassLearning also sells its products with the aid of mailings and catalogs
targeted at smaller schools and school districts. World Almanac's Funk &
Wagnalls primarily markets its yearbooks to former subscribers of its previously
published print format encyclopedia using direct mail.

                                  Page 23 of 23
<PAGE>

TELEMARKETING. Telemarketing involves the use of the telephone to contact
current and prospective customers as a means of generating sales. World
Almanac's Gareth Stevens, Inc. and Facts On File News Services utilize this
marketing technique to a significant extent, while CompassLearning, Weekly
Reader and World Almanac Education Library Services use it to a lesser extent.

Gareth Stevens, Inc.'s marketing strategy consists primarily of selling products
through its active and growing telemarketing program. The telemarketing division
generates approximately 48% of all Gareth Stevens, Inc. sales by contacting
existing and prospective accounts to solicit commitments to preview titles from
Gareth Stevens, Inc. and other third-party publishers. Through the preview
process, librarians are invited to receive copies of Gareth Stevens, Inc. titles
or the third-party titles it distributes. The librarians then have the
opportunity to review actual copies of the selected titles at their convenience.
Gareth Stevens, Inc. telemarketers follow up with these librarians over a
specified time period to ensure that the product has been received and reviewed.
Any titles not selected for purchase are picked up from the librarian's
location, with all postage and handling expenses borne by Gareth Stevens, Inc.
Depending on the school year cycle, there are usually between 50 and 100
part-time and full-time telesales representatives in the Gareth Stevens, Inc.
telemarketing unit.

CompassLearning's inside sales group, comprised of six people, assists its
direct sales force by qualifying sales leads in conjunction with funding
eligibility and also promotes renewal sales of professional development and
technical support services contracts.

World Almanac's Facts On File News Services' strategy for attracting new
customers consists of using targeted direct mail, followed by telemarketing
calls from representatives who are recruited and trained by Facts On File News
Services. World Almanac Education Library Services also has recently begun using
telemarketing to promote its products. Weekly Reader's internal telemarketing
group consists of nine individuals, targeting new subscribers. Weekly Reader
also conducts telemarketing campaigns, to assist in the generation of renewal
sales.

DIRECT SALES FORCES. American Guidance, CompassLearning and Weekly Reader's
Lifetime Learning Systems, Inc. each primarily use a direct sales force to sell
and market their products.

To market its testing and supplemental instructional materials, AGS pursues a
strategy of developing strong relationships with its current and prospective
customers primarily by using its sales organization.

                                  Page 24 of 24
<PAGE>

These representatives work closely with schools to determine which of AGS's
products best serve the needs of a specific school's student body. Unlike
traditional telemarketing, AGS's telephone (inside) sales representatives
develop relationships with customers and occasionally make field visits. All of
AGS's sales representatives go through a training process with defined
objectives that they must satisfy during the initial six months of their
employment and each year thereafter. In addition, AGS enlists professionals on a
per diem basis to provide instruction to educators concerning test
administration, scoring and other professional training such as disciplinary
methods and substance abuse and violence prevention techniques.

CompassLearning maintains a direct sales force of 55 sales representatives. The
sales representatives are each assigned to a sales region within the United
States. Each member of the direct sales force has access to CompassLearning's
database of detailed information concerning the school districts, current
customers, school funding and other data for its sales territories. On the basis
of this information, the sales representatives seek to establish relationships
with, and brand awareness for, CompassLearning's products among existing and
potential customers in their respective districts by making personal sales
visits to the schools or school administrators.

Weekly Reader's Lifetime Learning Systems, Inc. has a dedicated marketing and
sales team of ten people who make presentations directly to potential corporate,
trade association and not-for-profit organization clients. Presentations
generally consist of proposals for education materials and programs to be
shipped free to teachers and schools under the client's sponsorship.

RETAIL MARKETING/WHOLESALERS. Approximately 69% of World Almanac Books' revenue
is generated from product sold through retail bookstores or through wholesalers
into mass-market locations such as supermarkets and newsstands. World Almanac
Books' products are also sold to book clubs and other resellers as well as into
libraries through World Almanac Education Library Services. In addition, Gareth
Stevens, Inc. distributes approximately 39% of its products through its network
of wholesalers to libraries.

INTERNET WEB SITES. Weekly Reader, American Guidance and World Almanac all have
free Internet web sites, which allow customers to order their products. The
Weekly Reader web site:

         -        features pages specifically addressing students, teachers, and
                  parents; and

         -        offers materials in the form of puzzles, experiments and games
                  that correlate with the content of Weekly Reader periodicals.

The AGS web site, launched in 1996, provides extensive company information,
customer service information, order placement information and a complete
description of its products. The web site also includes product forums which
give detailed information about those specific products. AGS had approximately
$4.9 million in web site sales in 2002.

World Almanac has multiple websites that offer a variety of content/services.
Both the World Almanac Education Library Services and Gareth Stevens websites
offer Internet ordering as well as provide a complete description of their
products. The World Almanac for Kids website offers

                                  Page 25 of 25
<PAGE>

materials in the form of games, quizzes and reference facts that correlate with
the content of The World Almanac for Kids book. In addition to free Internet
websites, World Almanac sells subscription based Internet products through its
Facts On File News Services unit.

The CompassLearning web site serves as a customer resource for information about
the software solutions.

SHIPMENT. Our periodicals are typically shipped second-class mail directly from
the location at which they were printed. TEEN NEWSWEEK, however, is delivered by
truck and/or air directly to United States Postal Service bulk mail centers to
speed delivery. Our other print materials are typically delivered by
fourth-class mail or, in some cases, by the United Parcel Service or other
courier services. Since 1986, we have distributed FACTS ON FILE WORLD NEWS
DIGEST through third parties, which provide electronic on-line delivery of
databases to libraries and have paid these distributors a royalty for each
subscription. Because we have now developed our own Internet delivery format, we
expect our use of these distributors to decline.

COMPETITION

WEEKLY READER. Our primary competitors in the Pre K-12 classroom periodicals
market are Scholastic Inc. and Time, Inc. These publishers together with Weekly
Reader publish virtually the entire market of periodicals targeted for Pre K-12
classrooms. Scholastic Inc. publishes six editions in the elementary school
market and eight editions in the middle and secondary school market. Time, Inc.
publishes three editions in the elementary school market and no editions in the
middle and secondary school market. Competition in the school periodicals market
is based primarily on:

         -        content;

         -        prices;

         -        reputation; and

         -        customer service.

In the elementary school periodicals market, we believe we have a competitive
advantage over both our competitors with respect to:

         -        content that has close ties to school curriculum; and

         -        an extensive marketing system.

In the secondary school periodicals market, our competitive strengths include:

         -        content that has strong educational value;

         -        content that has close ties to school curriculum; and

                                  Page 26 of 26
<PAGE>

         -        strong database marketing capabilities.

We require a longer lead-time to deliver news to classrooms than Time, Inc., and
we charge customers prices that are generally higher than Scholastic Inc. and
Time, Inc.

In skills books we compete with many large and small publishers, primarily on
the basis of:

         -        subject matter expertise;

         -        breadth of offerings; and

         -        price.

Although we have developed a strong niche in map skills books and geography
books, our skills books line maintains a relatively small market share in the
larger market for supplementary instructional materials. This market includes
many widely recognized brands published by competitors with greater brand
recognition, larger marketing budgets and more frequent product revision.

In sponsored supplemental educational materials, Lifetime Learning Systems
competes primarily with Scholastic Inc., as well as with other regional
competitors. Competition in this market is based on editorial quality,
distribution capability and cost.

Lifetime Learning Systems' strengths, which we believe give us a significant
competitive advantage over our smaller competitors, include:

         -        name recognition with our corporate sponsors;

         -        breadth and variety of product development offerings; and

         -        broad distribution capabilities through both its own and
                  Weekly Reader's distribution channels.

Notwithstanding, we face competition from Scholastic Inc. which combines similar
strengths with stronger corporate relationships and greater promotional
capabilities.

AGS. In the assessment area, our principal competitors are The Psychological
Corporation, The Riverside Publishing Company and CTB/McGraw-Hill.

These companies focus mainly on norm referenced achievement tests, which are
administered in large groups, while individually administered assessment tests,
our target market, represent a secondary product line. We believe we are well
positioned to compete successfully in both the individually administered
assessment test market and the supplemental print instructional materials market
based on our reputation, content and ability to reach the customer base.

                                  Page 27 of 27
<PAGE>

In the individually administered assessment test market, where quality and
reputation are the primary decision criteria, we have been providing
market-leading materials for over 45 years.

We believe we are internationally recognized for publishing technically sound
diagnostic assessments that are primarily used to identify strengths and
weaknesses at the individual level. Because we believe none of our competitors
has matched our depth in content, authorship and test instruction in
speech/language assessments, we maintain a competitive advantage in the
individually administered assessment test market.

In the supplemental print instructional materials market, we compete directly
with Globe-Fearon Inc., which also targets low-performing students. Other
competitors include Steck-Vaughn Company, and Scholastic Inc. but none of these
large publishers focus exclusively on low-performing students as we do.

In the supplemental print instructional materials market, we believe we are the
only publisher to offer full-color textbooks with complete teacher support for
students reading below grade level in middle and senior high school.

COMPASSLEARNING. Within the electronic courseware market, we compete primarily
with other providers of integrated curriculum software and, to a lesser extent,
with independent software vendors and traditional print education publishers.
Our primary competitors are:

         -        NCS Learn;

         -        Riverdeep; and

         -        Lightspan.

Competition in the supplemental electronic instructional materials market is
based primarily upon product effectiveness, design flexibility and relationships
with customers. We believe we are competitive on all these factors.

WORLD ALMANAC. World Almanac Education Library Services is a niche player in the
school and public library distribution business. Competitors range from full
service distributors, such as Follet Library Resources and Baker & Taylor
Corporation, to smaller ones such as Gumdrop Books, Inc. and Davidson
Publishing, Inc. World Almanac Education Library Services competes with larger
distributors by providing:

         -        more product information;

         -        better customer service; and

         -        a pre-screened selection of the season's titles.

                                  Page 28 of 28
<PAGE>

Gareth Stevens, Inc. competes in the K-12 nonfiction and fiction-publishing
segment of this market which is highly fragmented with many competitors ranging
from small publishers that specialize in the library market to larger publishers
that also sell into the trade market. Some of Gareth Stevens, Inc.'s larger
competitors (and their library imprints or subsidiaries) include:

         -        Reed Elsevier (Heinemann Library, Raintree Steck Vaughn)

         -        Scholastic (Children's Press, Franklin Watts)

         -        The Gale Group (Lucent, Greenhaven, KidsHaven, Blackbirch)

         -        Capstone Publishing

         -        Haights Cross (Chelsea House)

         -        Rosen Publishing Group (Rosen, Rosen Central, PowerKids Press)

         -        Lerner Publishing

Competition in the electronic reference materials category is somewhat more
concentrated. Some of the larger competitors in this category include:

         -        The Gale Group, Inc.;

         -        EBSCO Industries, Inc.;

         -        ProQuest, Inc.; and

         -        SIRS, Inc.

Products sold to school and public libraries tend to be less price sensitive
than in a consumer market. The WORLD ALMANAC(R) AND BOOK OF FACTS competes
primarily with the three other almanacs currently available:

         -        THE TIME/INFORMATION PLEASE ALMANAC;

         -        THE NEW YORK TIMES ALMANAC; and

         -        ENCYCLOPEDIA BRITTANICA ALMANAC.

We believe that our almanac has a market share greater than 70% competition in
all of these segments is primarily based on reputation and brand names of
products, the length of time products have been on the market and the uniqueness
of a product. We believe we have a competitive advantage with all these factors.
Our competitors, however, have larger publishing organizations, and therefore
are able to generate greater potential economies of scale than we

                                  Page 29 of 29
<PAGE>

can. Our larger competitors, which offer broader product lines, also provide
more comprehensive shopping opportunities to library customers than we do with
our narrower product focus.

PRODUCTION, FULFILLMENT AND CUSTOMER SERVICE

All of our print products are printed and bound by third parties with whom we
have contracts. We believe that outside printing and binding services at
competitive prices are available, and we currently use a different printer for
each product line. Most of our pre-press production, typesetting, layout and
design functions are conducted in-house, with the exception of American Guidance
where most pre-press and product assembly is conducted by third-party vendors.
Our non-print products, such as Lifetime Learning Systems, Inc.'s videos and
CompassLearning's CD-ROMs, are produced internally and, if necessary, replicated
by third parties. Some of World Almanac's divisions rely on internal production
capabilities while others utilize third-party manufacturers.

The principal raw materials utilized in our products are paper and ink. Paper is
purchased by Weekly Reader and several of World Almanac's divisions from both
suppliers and printers directly based on pricing and, to a lesser extent,
availability, while American Guidance purchases finished goods including paper
components from the printers of its publications. Ink utilized by our
publications is provided by the respective printers of our publications and
included in the cost of print production. Both paper and ink are commodity
products which are affected by demand, capacity and economic conditions. We
believe that adequate sources of supply are, and will continue to be, available
to fulfill our requirements.

Order processing, customer service, cash application, collection functions and
fulfillment are typically performed at separate locations for each of our
operating subsidiaries, including at:

         -        Delran, New Jersey for Weekly Reader;

         -        Circle Pines and Shoreview, Minnesota for AGS;

         -        Phoenix, Arizona, Springfield, Illinois and San Diego,
                  California for CompassLearning; and

         -        Delran, New Jersey, Milwaukee, Wisconsin, New York, New York
                  and Cleveland, Ohio for World Almanac.

However, fulfillment for some of World Almanac's products are conducted by third
parties.

INTELLECTUAL PROPERTY

WEEKLY READER. Each printed periodical or skills book is copyrighted by Weekly
Reader, including any materials written by freelance or third-party contract
writers. Photographs or artwork used in our products are typically used pursuant
to one-time licenses which grant us the right to use the photograph or artwork
in the particular product and within the United States only. Some material from
third parties is reprinted with permission for one-time use. Ownership of the

                                  Page 30 of 30
<PAGE>

intellectual property rights in the materials produced by Lifetime Learning
Systems, Inc. are negotiated on a case-by-case basis with each sponsor.

AGS. Our tests, the accompanying score sheets and test record forms, and
supplemental instructional materials are protected by copyrights. Some material
from third parties is reprinted with permission. In addition, some products use
registered trademarks.

COMPASSLEARNING. CompassLearning's computer software products are copyrighted by
CompassLearning, but incorporate software under license from other entities,
such as Microsoft. In addition, we periodically obtain permission to use
excerpts of third-party materials on an ongoing basis in some of our products or
obtain a license from these parties to act as a distributor of their products.

WORLD ALMANAC. World Almanac owns copyrights for each edition of THE WORLD
ALMANAC(R) AND BOOK OF FACTS, THE WORLD ALMANAC FOR KIDS, all Facts On File News
Services products other than EDITORIALS ON FILE which consists of editorials
reprinted with permission, all Gareth Stevens, Inc. books which are written
in-house or commissioned, the FUNK & WAGNALLS ENCYCLOPEDIA database and the
World Almanac Education Library Services catalogs. World Almanac is typically a
licensee of the content of the remainder of its products, other than products it
solely distributes, in which it has no intellectual property rights.

ENVIRONMENTAL MATTERS

We are subject to environmental laws and regulations relating to the protection
of the environment, including those that regulate the generation and disposal of
hazardous materials and worker health and safety. We believe that we currently
conduct our operations in substantial compliance with applicable environmental
laws and regulations. Based on our experience to date, the nature of our
operations and an environmental indemnity from PRIMEDIA delivered with the 1999
recapitalization transactions by which WRC Media acquired its interest in Weekly
Reader and World Almanac, we believe that the future cost of compliance with
existing environmental laws and regulations and liability for known
environmental claims will not have a material adverse effect on our financial
condition or results of operations.

EMPLOYEES

At December 31, 2002, we had a total of approximately 898 full-time and 70
part-time employees. None of our employees are represented by any union or other
labor organization. We have had no recent strikes or work stoppages and believe
our relations with our employees are good.

                                 Page 31 of 31
<PAGE>

PART I.

ITEM 2.  PROPERTIES

The Company maintains its headquarters in the metropolitan New York area, where
it leases approximately 35,000 square feet of space for executive offices and
certain of its operating divisions. The Company is investigating consolidation
and subleasing possibilities for more economic and efficient operation. The
Company also leases an aggregate of approximately 450,000 square feet of office,
warehouse and mixed use space in New York, Connecticut, California, Arizona,
Minnesota, Florida, New Jersey, Ohio, Illinois and Wisconsin.

The Company considers its properties adequate for its current needs. No
difficulties are anticipated in negotiating lease renewals as leases expire or
in finding other satisfactory space, if current premises become unavailable.

PART I.

ITEM 3.  LEGAL PROCEEDINGS

Various claims and lawsuits arising out of the normal course of business are
pending against the Company. The results of these proceedings are not expected
to have a material adverse effect on the Company's consolidated financial
position or results of operations.

PART I.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year covered by this report, no matter was
submitted to the vote of security holders, through the solicitation of proxy or
otherwise.

PART II.

ITEM 5.  MARKET FOR THE REGISTRANT'S SENIOR SUBORDINATED NOTES

The Company's 12.75% Senior Subordinated Notes are traded on the
Over-the-Counter Market under the symbol WRCMED.

PART II.

ITEM 6.  SELECTED HISTORICAL FINANCIAL INFORMATION WRC MEDIA AND ITS
SUBSIDIARIES

The following table presents selected historical consolidated financial
information for WRC Media and its subsidiaries as of and from the date of
inception (May 14, 1999) to December 31, 1999 and selected historical
consolidated financial information for WRC Media and its

                                  Page 32 of 32
<PAGE>

subsidiaries as of and for the years ended December 31, 2000, 2001 and 2002. The
selected historical consolidated financial information presented in the table
below is derived from the historical consolidated financial statements of WRC
Media and its subsidiaries as of and for the period May 14, 1999 (inception)
through December 31, 1999 and as of December 31, 2000, which are not included
elsewhere in this annual report and the historical consolidated financial
statements of WRC Media and its subsidiaries as of December 31, 2001 and 2002
and for the years ended December 31, 2000, 2001 and 2002, which are included
elsewhere in this annual report. The selected historical consolidated financial
information does not purport to indicate results of operations as of any future
date or for any future period. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--WRC Media and Subsidiaries," and the
financial statements of WRC Media and its subsidiaries and the notes to them,
included elsewhere in this annual report.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                              Period from      For the        For the       For the
                                                              May 14, 1999-   year ended     year ended    year ended
                                                               December 31,   December 31,   December 31,  December 31,
                                                                  1999            2000           2001          2002
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            <C>
STATEMENT OF INCOME DATA:
SALES, NET                                                      $  50,570      $ 218,847      $ 231,469      $ 209,958
GROSS PROFIT                                                       34,468        152,375        165,787        150,947
SALES AND MARKETING                                                14,030         48,879         54,658         49,096
RESEARCH AND DEVELOPMENT                                            3,861          4,708          5,751          1,728
GENERAL AND ADMINISTRATIVE EXPENSES                                 8,904         48,600         51,339         49,931
OTHER OPERATING COSTS:
    RESTRUCTURING COSTS AND OTHER NON-RECURRING EXPENSE (a)          --             --             --            8,594
    GOODWILL AND INTANGIBLE ASSET
    AMORTIZATION AND DEPRECIATION (b)                               7,233         76,519         66,984         21,853
    WRITE-OFF ON IN-PROCESS RESEARCH AND DEVELOPMENT (c)            9,000           --             --             --
INCOME (LOSS) FROM OPERATIONS                                      (7,570)       (26,331)       (12,945)        19,745
INTEREST EXPENSE, NET                                               7,902         35,315         33,319         29,844
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (d)                           --             --             --           72,022
NET LOSS                                                          (19,331)       (62,015)       (48,505)       (95,444)
BALANCE SHEET DATA:
   (END OF YEAR)
WORKING CAPITAL (DEFICIT)                                          (9,990)       (27,830)       (23,760)       (32,656)
TOTAL ASSETS                                                      572,229        504,464        478,862        374,252
LONG TERM OBLIGATIONS (Long term debt, short term debt and
    Redeemable preferred stock)                                   341,323        351,735        372,475        383,906
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                              105,283         30,248        (13,286)      (129,084)
OTHER DATA:
    CAPITAL EXPENDITURES, including pre-publication costs             700          8,836         11,194         11,146
    RATIO OF EARNINGS TO FIXED CHARGES (e)                           --             --             --             --
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)      For the year ended December 31, 2002 $8,594 of restructuring costs and
         other non-recurring expense was recorded to account for the Company's
         2002 Plan of Restructuring. The major integration and cost reduction
         initiatives included in the 2002 Plan of Restructuring consisted of:
         closure of facilities and a reduction in work force. One hundred and
         seven positions were eliminated throughout WRC Media. The workforce
         reduction involved each of the four operating units of the Company.

(b)      Includes depreciation of fixed assets, amortization of capitalized
         software, prepublication costs, goodwill, and other intangibles

(c)      WRC Media and its subsidiaries wrote off purchased in-process research
         and development on July 14, 1999 after its purchase of CompassLearning.

(d)      On January 1, 2002, the Company adopted SFAS No. 142 for its goodwill
         and identifiable intangible assets. As a result, the Company recorded a
         transitional goodwill and indefinite lived intangible asset impairment
         charge of $72,022 at American Guidance Service, Inc. a subsidiary of
         Weekly Reader Corporation. This charge is reported as a cumulative
         effect of accounting change, as of January 1, 2002, in the Condensed
         Consolidated Statements of Operations.

(e)      Ratio of earnings to fixed charges is calculated as earnings, which is
         defined as income (loss) before income tax provision (benefit) plus
         fixed charges, divided by fixed charges. Fixed charges are defined as
         interest expended and capitalized, amortized premiums, discounts and
         capitalized expenses related to indebtedness and estimated interest
         included in rental expense. Earnings were insufficient to cover fixed
         charges by $15,995 for the period May 14, 1999 through December 31,
         1999, $61,380 for the year ended December 31, 2000, $47,847 for the
         year ended December 31, 2001 and $12,442 for the year ended December
         31, 2002.


                                 Page 33 of 33
<PAGE>

             SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
                                  WEEKLY READER

The following table presents selected historical consolidated financial
information for Weekly Reader and its subsidiaries as of and for each of the
five years in the period ended December 31, 2002. The financial statements of
Weekly Reader included in this annual report, including the selected historical
consolidated financial information presented below, include a retroactive
adjustment to reflect the contribution of 100% of the capital stock of American
Guidance and World Almanac by PRIMEDIA to Weekly Reader in 1999 using the
historical carrying value of the stock. The selected historical consolidated
financial information presented below is derived from the historical
consolidated financial statements of Weekly Reader as of December 31, 1998, 1999
and 2000 and for the years ended December 31, 1998 and 1999, which are not
included in this annual report, as well as the historical consolidated financial
statements of Weekly Reader as of December 31, 2001 and 2002 and for the years
ended December 31, 2000, 2001 and 2002 which are included elsewhere in this
annual report. The selected historical consolidated financial statements do not
indicate results of operations as of any future date or for any future period.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Weekly Reader and Subsidiaries" and the financial statements and
related notes to them included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                                    For the years ended December 31, (a)
----------------------------------------------------------------------------------------------------------------------------------

                                                                            1998       1999        2000       2001        2002
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>        <C>         <C>        <C>
STATEMENT OF INCOME DATA:
SALES, NET (b)                                                            $ 118,236   $ 148,287  $ 154,819   $ 162,165  $ 156,498
GROSS PROFIT (c)                                                             30,646     108,076    113,493     118,474    116,938
SALES AND MARKETING                                                          17,636      24,316     27,060      29,255     28,345
GENERAL AND ADMINISTRATIVE EXPENSES (d, e)                                   42,335      45,374     42,214      43,803     43,638
OTHER OPERATING COSTS:
    RESTRUCTURING COSTS AND OTHER NON-RECURRING EXPENSE (f)                       -           -          -           -      4,280
     GOODWILL AND INTANGIBLE
     AMORTIZATION AND DEPRECIATION (g)                                       12,212      15,345     13,983      13,944     10,709
INCOME FROM OPERATIONS                                                       15,407      23,041     30,236      31,472     29,966
INTERCOMPANY INTEREST EXPENSE                                                 9,232      10,133          -           -          -
INTEREST EXPENSE, NET                                                             -       4,690     34,293      32,403     28,849
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (h)                                        -                      -           -     72,022
NET INCOME (LOSS)                                                             1,865       3,189     (4,418)     (1,046)   (71,241)
BALANCE SHEET DATA:
   (END OF YEAR)
     WORKING CAPITAL (DEFICIT)                                               (1,766)        218     (2,525)     (3,410)    (6,577)
     TOTAL ASSETS                                                           237,276     236,341    220,973     220,830    144,087
     LONG TERM OBLIGATIONS (Long term debt and
        Redeemable preferred stock)                                               -     352,962    362,485     382,288    392,786
     TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                   167,392    (191,375)  (208,605)   (222,375)  (308,657)
OTHER DATA:
     CAPITAL EXPENDITURES (including prepublication costs)                    4,299       5,870      7,251      10,965     10,834
     RATIO OF EARNINGS TO FIXED CHARGES (i)                                   1.62x       1.52x          -           -       0.1x

----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                 Page 34 of 34
<PAGE>

(a)  The financial statements of Weekly Reader included in this annual report,
     including the selected historical consolidated financial information
     presented in the table above, include a retroactive adjustment to reflect
     the contribution of 100% of the capital stock of American Guidance and
     World Almanac by PRIMEDIA to Weekly Reader using the historical carrying
     value of the stock, which occurred prior to the recapitalization of Weekly
     Reader on November 17, 1999. The financial statements include the
     operations of American Guidance from July 1, 1998, the effective date of
     PRIMEDIA's acquisition of all of the capital stock of American Guidance.

(b)  Total sales include sales of American Guidance following American
     Guidance's acquisition in July 1998. For the year ended December 31, 1999,
     $440 of sales was recorded to account for non-recurring income related to a
     discontinued contract.

(c)  For the year ended December 31, 1999, $866 of cost of goods sold were
     recorded to account for a non-recurring charge to inventory.

(d)  For the year ended December 31, 1999, $600 of general and administrative
     expenses were recorded to account for non-recurring litigation.

(e)  Includes, through November 17, 1999, cost for: (1) amounts allocated as
     corporate overhead to Weekly Reader by PRIMEDIA for services and
     administrative functions shared with PRIMEDIA and its other operating
     companies, such as, executive management costs, salaries and fringe
     benefits for legal, financial, information technology and human resources
     personnel, information technology expenses, real estate expenses and third
     party costs; and (2) direct group overhead costs such as the salaries,
     fringe benefits and expenses for PRIMEDIA staff directly involved in Weekly
     Reader's operations.

(f)  For the year ended December 31, 2002 $4,280 of restructuring costs and
     other non-recurring expense was recorded to account for the Company's 2002
     Plan of Restructuring. The major integration and cost reduction initiatives
     included in the 2002 Plan of Restructuring consisted of: closure of
     facilities and a reduction in work force. Fifty-one positions were
     eliminated throughout Weekly Reader Corporation. The workforce reduction
     involved each of the three operating units of Weekly Reader Corporation.

(g)  Includes depreciation of fixed assets, amortization of capitalized
     software, prepublication costs, goodwill, and other intangibles.

(h)  On January 1, 2002, the Company adopted SFAS No. 142 for its goodwill and
     identifiable intangible assets. As a result, the Company recorded a
     transitional goodwill and indefinite lived intangible asset impairment
     charge of $72,022 at American Guidance Service, Inc. a subsidiary of Weekly
     Reader Corporation. This charge is reported as a cumulative effect of
     accounting change, as of January 1, 2002, in the Condensed Consolidated
     Statements of Operations.

(i)  Ratio of earnings to fixed charges is calculated as earnings, which is
     defined as income (loss) before income tax provision (benefit) plus fixed
     charges, divided by fixed charges. Fixed charges are defined as interest
     expensed and capitalized, amortized premiums, discounts and capitalized
     expenses related to indebtedness and estimated interest included in rental
     expense. Earnings were insufficient to cover fixed charges by $3,826 in
     2000 and $765 in 2001.


PART II.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding the financial
condition as of December 31, 2002 of WRC Media Inc. ("WRC Media") and its
subsidiaries, Weekly Reader Corporation and its subsidiaries, and their results
of operations for the years ended December 31, 2000, 2001 and 2002. You should
read the following discussion in conjunction with the Consolidated Financial
Statements of WRC Media and Weekly Reader Corporation and its subsidiaries
("Weekly Reader") and the Notes thereto included in Item 8, consolidated
financial statements. Unless the context otherwise requires, references to
"Weekly Reader" herein are to Weekly Reader and its subsidiaries, including
American Guidance Service, Inc. ("American Guidance" or "AGS") and World Almanac
Education Group, Inc. ("World Almanac"). Unless the context otherwise requires,
the terms "we," "our," and "us" refer to WRC Media and its subsidiaries and
their predecessor companies after giving effect to the transactions related to
the acquisition of CompassLearning, Inc. ("CompassLearning"), and
recapitalization of Weekly Reader effectuated on July 14, 1999 and November 17,
1999, respectively (the "Acquisition and Recapitalization"). This discussion and
analysis contains forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that these
plans, intentions or

                                  Page 35 of 35
<PAGE>

expectations will be achieved. These forward-looking statements are subject to
risks, uncertainties and assumptions about us.

OVERVIEW

We are a leading publisher of supplemental education materials for the Pre K-12
education market. Our portfolio of products includes a broad range of both print
and electronic supplemental instructional materials, testing and assessment
products and library materials, several of which have been published for over
100 years.

Our revenues consist primarily of:

         -        subscription revenues from our periodicals;

         -        revenues from sales of printed products including nonfiction
                  and fiction books, workbooks, worktexts, reference materials
                  and test preparation materials;

         -        computer courseware and hardware;

         -        professional development services; and

         -        technical support services.

Our operations are conducted primarily through the following four operating
subsidiaries:

         -        Weekly Reader;

         -        American Guidance;

         -        World Almanac; and

         -        CompassLearning.

In 2001, the Company acquired ChildU, Inc. a provider of Internet-based
educational services to both individual and institutional consumers. ChildU net
revenue for the year ended December 31, 2002 was $2.3 million representing only
1.1% of WRC Media total revenues.

On July 14, 1999, WRC Media acquired 100% of the capital stock of
CompassLearning through a wholly-owned subsidiary. On August 13, 1999, WRC Media
entered into the recapitalization agreement providing for the recapitalization
of PRIMEDIA's Supplemental Education Group. In connection with the
recapitalization, PRIMEDIA contributed 100% of the outstanding capital stock of
American Guidance and World Almanac to Weekly Reader, prior to WRC Media's
acquisition of 94.9% of the outstanding common stock of Weekly Reader, with the
remaining 5.1% being retained by PRIMEDIA.

                                 Page 36 of 36
<PAGE>

The financial statements for Weekly Reader included in this annual report and
used as a basis for the financial presentation and discussion of Weekly Reader's
results of operations below include a retroactive adjustment on Weekly Reader's
financial statements reflecting the contribution of 100% of the capital stock of
American Guidance and World Almanac by PRIMEDIA to Weekly Reader using the
historical carrying value of the stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

REVENUE RECOGNITION

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

-        MAGAZINES - Revenue is deferred and recognized ratably over the
         subscription period, as the magazines are delivered.

-        EDUCATIONAL PUBLISHING - For shipments to schools, revenue is
         recognized on passage of title, which occurs upon shipment. Shipments
         to depositories are on consignment. Revenue is recognized based on
         actual shipments from the depositories to the schools. For certain
         software-based product, the Company offers new customers installation
         and training. In such cases, revenue is recognized when installation
         and training are complete.

-        REFERENCE AND TRADE - Revenue from the sale of children's books through
         the wholesale channel are recognized when books are shipped to
         wholesalers. Sales to school and public libraries made through the
         telemarketing preview channel are recorded upon return of unwanted
         preview product. Sale of children's books to bookstores and mass
         merchandisers primarily is recognized at the time of shipment, when
         title transfers to the customer. A reserve for estimated returns is
         established at the time of sale and recorded as a reduction to revenue.
         Actual returns are charged to the reserve as received. The calculation
         for the reserve for estimated returns is based on historical return
         rates and sales patterns. Actual returns could differ from the
         Company's estimate which could result in an increase or decrease in
         subsequent years revenue.

                                 Page 37 of 37
<PAGE>

-        EDUCATIONAL SOFTWARE AND RELATED PRODUCTS AND SERVICES - Software
         revenues are recognized in accordance with the provisions of Statement
         of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP
         98-9, Modification of SOP 97-2, Software Revenue Recognition, with
         Respect to Certain Transactions. Under SOP 97-2, we recognize revenue
         for hardware and software sales upon shipment of the product, provided
         collection of the receivable is probable, payment is due within one
         year and the fee is fixed or determinable. If an acceptance period is
         required, revenues are recognized upon the earlier of customer
         acceptance or the expiration of the acceptance period. If significant
         post-delivery obligations exist or if a product is subject to customer
         acceptance, revenues are deferred until no significant obligations
         remain or acceptance has occurred. Revenue from service contracts,
         instruction and user training is recognized as the services are
         performed and post-contract support is recognized ratably over the
         related contract. Deferred revenue represents the Company's obligation
         to perform under signed contracts. For contracts with multiple elements
         (e.g., deliverable and undeliverable products, maintenance and other
         post-contract support), the Company allocates revenue to each
         undelivered element of the contract based on vendor specific objective
         evidence of its fair value, which is specific to the Company. The
         Company recognizes revenue allocated to delivered products on the
         residual method when the criteria for product revenue set forth above
         are met. Several of the Company's customers are subject to fiscal
         funding requirements. If the funding requirements are subject to
         governmental approval, the likelihood of cancellation is assessed. If
         the likelihood of cancellation is assessed as remote, revenue is
         recognized. If the likelihood of cancellation is assessed as other than
         remote, revenue is deferred. If the funding requirements are subject to
         non-governmental approval, revenue is deferred and recognized in
         accordance with the remaining provisions of SOP 97-2.

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

-        ADVERTISING - Revenue is recognized when the magazine is shipped and
         available to the subscribers.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

RESERVE FOR SALES RETURNS

Reserves for sales returns and allowances are primarily related to our printed
publications. The Company estimates and maintains these reserves based primarily
on its distributors' historical return practices and our actual return
experience. If actual sales returns and allowances differ

                                 Page 38 of 38
<PAGE>

from the estimated return and allowance rates used, we may need to increase or
decrease our reserve for sales returns and allowances.

IMPAIRMENT OF LONG-LIVED ASSETS

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

IMPAIRMENT OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS

The company periodically reviews the carrying value of its goodwill and
indefinite lived intangible assets (trademarks) in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 142 specifies
the financial accounting and reporting for acquired goodwill and other
intangible assets. Goodwill and intangible assets that have indefinite useful
lives are no longer amortized but rather are tested at least annually for
impairment. This review is performed using estimates of future undiscounted cash
flows. If the carrying value of our goodwill and indefinite lived intangible
assets is considered impaired, an impairment charge would be recorded for the
amount by which the carrying value of the goodwill or indefinite lived
intangible asset exceeds its fair value. Management believes that the estimates
of future cash flows and fair value are reasonable; however, changes in
estimates of such cash flows and fair value could affect future evaluations.

                                 Page 39 of 39
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company's contractual obligations and commercial commitments as of December
31, 2002 are as follows:

Contractual Obligations and Commercial Commitments

<TABLE>
<CAPTION>
       Contractual                                Less than                                               After
       Obligation                 Total            1 year           1-3 years         4-5 years          5 years
--------------------------    --------------    --------------    --------------    --------------    ---------------
<S>                           <C>               <C>               <C>               <C>               <C>
Long-Term Debt                    $ 278,667           $ 7,721          $ 36,226          $ 82,720          $ 152,000

Operating Leases                     41,436             7,103            11,203             9,757             13,373

Employment
Obligations                           1,200               600               600                 -                  -

Other Long-Term
Obligations                         121,717                 -                 -                 -            121,717
                              --------------    --------------    --------------    --------------    ---------------

Total Contractual
Cash Obligations                  $ 443,020          $ 15,424          $ 48,029          $ 92,477          $ 287,090
                              ==============    ==============    ==============    ==============    ===============
</TABLE>

<TABLE>
<CAPTION>
          Other                   Total                      Amount of Commitment Expiration Per Period
       Commercial                Amounts          Less than                                               After
       Commitments              Committed          1 year           1-3 years         4-5 years          5 years
--------------------------    --------------    --------------    --------------    --------------    ---------------

<S>                           <C>               <C>               <C>               <C>               <C>
Lines of Credit                    $ 30,000               $ -          $ 30,000               $ -                $ -

Standby Letters
Of Credit                             2,000                 -                 -                 -              2,000
                              --------------    --------------    --------------    --------------    ---------------

Total Contractual
Cash Obligations                   $ 32,000               $ -          $ 30,000               $ -            $ 2,000
                              ==============    ==============    ==============    ==============    ===============
</TABLE>


REVENUES

For the year ended December 31, 2002, WRC Media and its subsidiaries had net
revenue of $210.00 million. On a separate company basis, for the year ended
December 31, 2002, Weekly Reader (excluding American Guidance and World Almanac)
had net revenue of $44.6 million, American Guidance had net revenue of $57.9
million, World Almanac had net revenue of $54.0 million, CompassLearning had net
revenue of $51.2 million and ChildU had net revenue of $2.3 million.

                                 Page 40 of 40
<PAGE>

WEEKLY READER. Weekly Reader's revenues are derived from its own operations,
including those of its subsidiary Lifetime Learning Systems, Inc., as well as
from the operations of American Guidance and World Almanac. Weekly Reader, not
including American Guidance or World Almanac, derives revenues from three
primary sources:

         -        periodicals;

         -        skills books; and

         -        sponsored instructional materials published by its subsidiary,
                  Lifetime Learning Systems, Inc.

Weekly Reader's periodicals are sold as subscriptions, the great majority of
which are for periods of twelve months or less, with a significant amount of
each year's revenues coming from subscription renewals. Lifetime Learning
Systems, Inc.'s sponsored supplemental educational materials are paid for by
corporate, trade association or not-for-profit sponsors and are distributed for
free primarily to K-12 students.

American Guidance derives revenues from two product lines:

         -        testing and assessment products; and

         -        supplemental instructional materials.

Testing and assessment products are typically sold in kits containing the test,
test record forms, easels used to administer the test, scoring sheets and a
manual describing the proper use of the test. Each test uses a different test
record form, which typically come in packages of 25 and must be purchased from
American Guidance for as long as the school uses the test. Some tests are used
for over 15 years. American Guidance's supplemental instructional materials
consist of curriculum-based instructional materials and are sold primarily to
middle and secondary schools.

World Almanac derives revenues primarily from the sale of its reference and
informational materials, including:

         -        printed products and electronic databases;

         -        nonfiction and fiction books; and

         -        the distribution of third-party products targeted for K-12
                  students.

Weekly Reader's subscriptions are recorded as deferred revenue when received and
recognized as income over the term of the subscription, whereas sales of its
other products, including sponsored instructional materials, skills books, tests
and other supplemental instructional materials, are recognized as revenue upon
shipment, net of an allowance for returns.

                                 Page 41 of 41
<PAGE>

COMPASSLEARNING.  CompassLearning's revenues are derived from its:

         -        software products;

         -        professional development services;

         -        technical support services; and

         -        hardware sales.

Professional development services generally consist of a specific number of days
of training. Technical support service contracts are typically for one-year
periods and are provided at varying levels, from telephone help-line services to
priority systems engineer dispatching. CompassLearning's electronic courseware
customers purchase, on average, six days of professional development services
and a one-year technical support contract for help-line and systems engineer
services in connection with their software purchases. These service contracts
are frequently renewed following the expiration of the initial service period,
with approximately 66% of technical support and approximately 16% of
professional development contract dollars for the year ended 2002 coming from
renewal contracts. CompassLearning's services revenues, particularly those
attributable to renewals of existing services contracts, have been decreasing
recently as a result of:

         -        the improved quality of our software products, which require
                  less technical support; and

         -        more customers supplying their own training and support
                  services through in-house expertise.

Professional development services revenue is recognized as the services are
performed and technical support services revenue is recognized ratably over the
related contract.

CompassLearning's hardware business revenues are generally derived from
reselling hardware to customers who request that CompassLearning provide a
package of software and hardware. Currently, CompassLearning is a reseller for
Apple, IBM, Compaq and Dell computers in order to accommodate requests by
customers for complete hardware and software solutions. Revenues from sales of
hardware are typically recognized upon shipment.

OPERATING COSTS AND EXPENSES

WEEKLY READER. For Weekly Reader, operating costs and expenses are comprised
primarily of:

         -        cost of goods sold;

         -        sales and marketing;

         -        distribution, circulation and fulfillment;

                                 Page 42 of 42
<PAGE>

         -        editorial;

         -        general and administrative expenses;

         -        corporate overhead costs; and

         -        depreciation and amortization.

Weekly Reader's cost of goods sold for its products consist primarily of paper,
printing and binding costs. Sales and marketing expenses are typically for
direct mail costs including:

         -        postage;

         -        paper;

         -        printing;

         -        advertising;

         -        mailing list rental fees;

         -        telemarketing costs; and

         -        the costs of sales employees.

Distribution, circulation and fulfillment expenses are typically for postage,
third-party fulfillment, warehousing and shipping.

Weekly Reader's editorial costs consist of expenses incurred for its staff of
writers as well as third-party contractors, such as freelance writers.

General and administrative expenses consist primarily of: salaries and fringe
benefits for executives as well as for finance, information technology and human
resources employees; information technology expenses, other than salaries; and
real estate expenses.

Corporate overhead expense include costs for:

         -        amounts allocated as corporate overhead by WRC Media for
                  services and administrative functions shared with WRC Media's
                  other operating companies, including, but not limited to:

         -        executive management costs;

         -        real estate expenses; and

                                 Page 43 of 43
<PAGE>

         -        third-party costs.

COMPASSLEARNING. CompassLearning's operating costs and expenses consist
primarily of:

         -        cost of products sold;

         -        sales and marketing;

         -        research and development; and

         -        general and administrative expenses.

Sales and marketing expenses are the largest component of operating costs and
expenses and consist primarily of direct sales force expenses, primarily
compensation and sales commissions as well as expenses for promotional
activities.

Cost of products sold consist primarily of:

         -        production and packaging costs and royalty expenses;

         -        salaries and related costs of employees providing professional
                  development services and technical support services for
                  CompassLearning's services business; and

         -        the cost to CompassLearning to purchase the hardware for
                  resale, as well as the internal cost to support this line of
                  business.

Research and development costs consist primarily of salaries and related costs
of employees, as well as temporary staff hired as needed, and are typically
expensed as incurred. From January 1, 2000 through December 31, 2001, all new
software development costs were expensed as incurred as none of these costs have
been considered eligible for capitalization. In 2002, certain software
development costs related to the CompassLearning / ChildU co-developed Odyssey
on-line software product were capitalized. For the year ended December 31, 2002
capitalized software development costs associated with the Odyssey on-line
software product approximated $4.3 million.

                                 Page 44 of 44
<PAGE>

Consolidated Results of Operations for the year ended December 31, 2002-- WRC
Media Inc. and Subsidiaries

The consolidated results of operations of WRC Media and its subsidiaries
encompass the operations of (i) Weekly Reader and its subsidiaries, including
American Guidance and World Almanac; (ii) CompassLearning and (iii) ChildU. The
results of operations of WRC Media and its subsidiaries should be read together
with the separate discussion of the results of operations of Weekly Reader.
Management's discussion and analysis (MD&A) of CompassLearning and ChildU have
been incorporated in WRC Media's MD&A as these two entities are 100% wholly
owned subsidiaries of WRC Media.

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

                                 Page 45 of 45
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31
                                                                     2001                              2002
                                                                  --------------------------------  -------------------------------
                                                                    Amount       % of Net Sales       Amount       % of Net Sales
                                                                  ------------  ------------------  ------------  -----------------
                                                                                       (Dollars in millions)

<S>                                                               <C>           <C>                 <C>           <C>
Sales, net                                                            $ 231.5              100.0%       $ 210.0             100.0%
Cost of goods sold                                                       65.7               28.4%          59.0              28.1%
                                                                  ------------  ------------------  ------------  -----------------
Gross profit                                                            165.8               71.6%         151.0              71.9%
Costs and expenses:
      Sales and marketing                                                54.7               23.6%          49.1              23.4%
      Research and development                                            5.8                2.5%           1.7               0.8%
      Distribution, circulation and fulfillment                          14.3                6.2%          14.6               7.0%
      Editorial                                                          10.6                4.6%          10.9               5.2%
      General and administrative                                         26.4               11.4%          24.5              11.7%
      Restructuring costs and other non-recurring expenses                  -                0.0%           8.6               4.1%
      Depreciation                                                        3.2                1.4%           3.0               1.4%
                                                                  ------------  ------------------  ------------  -----------------
                                                                        115.0               49.6%         112.4              53.4%
                                                                  ------------  ------------------  ------------  -----------------
Income before amortization of goodwill and intangible assets,
interest expense, income taxes and other, net                            50.8               21.9%          38.6              18.5%
Amortization of goodwill and intangible assets                           63.8               27.6%          18.8               9.0%
                                                                  ------------  ------------------  ------------  -----------------
Income(loss) from operations                                            (13.0)              (5.5%)         19.8               9.4%
Interest expense, including amortization
of deferred financing costs                                             (33.2)             (14.3%)        (29.8)            (14.2%)
Loss on investments                                                      (0.9)              (0.4%)         (3.1)             (1.5%)
Other income (expense), net                                              (0.7)              (0.3%)          0.7               0.4%
                                                                  ------------  ------------------  ------------  -----------------
Loss before income tax provision                                        (47.8)             (20.5%)        (12.4)             (5.9%)
Income tax provision                                                      0.7                0.3%          11.0               5.2%
                                                                  ------------  ------------------  ------------  -----------------
Net loss before cumulative effect of change
   in accounting principle                                              (48.5)             (20.8%)        (23.4)            (11.1%)
Cumulative effect of change in accounting principle                         -                0.0%         (72.0)            (34.4%)
                                                                  ------------  ------------------  ------------  -----------------
Net loss                                                              $ (48.5)             (20.8%)      $ (95.4)            (45.5%)
                                                                  ============  ==================  ============  =================

      Adjusted EBITDA(a)                                               $ 56.2               24.3%        $ 53.0              25.2%
                                                                  ============  ==================  ============  =================
</TABLE>

(a) EBITDA is defined as income (loss) before interest expense, income taxes,
depreciation and amortization. Adjusted EBITDA is defined as income (loss)
before interest expense, income taxes, depreciation and amortization not
including WRC Media's unrestricted subsidiaries. EBITDA data is included because
we believe that this information may be considered by investors as an additional
basis on which to evaluate WRC Media's ability to pay interest, repay debt and
make capital expenditures. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA in this report is not necessarily
comparable to similarly titled measures of other companies. Adjusted EBITDA is
not intended to represent cash flow from operating activities and should not be
considered an alternative to net income or loss (as determined in conformity
with GAAP) as an indicator of the Company's operating performance or to cash
flow as a measure of liquidity. It is presented herein as the Company evaluates
and measures each business unit's performance based on their EBITDA results.
EBITDA may not be available for the Company's discretionary use as there are
requirements to repay debt, among other payments. Given the projected near-term
financial performance of ChildU and ThinkBox, WRC Media designated ChildU and
ThinkBox "Unrestricted Subsidiaries" under its Credit Agreement so as to: (i)
exclude them from all the negative covenants in the Credit Agreement including
the financial covenants, and from agreed upon affirmative covenants,
representations and warranties and events of default; and (ii) permit additional
investments in ChildU and ThinkBox by WRC Media and its subsidiaries in excess
of the acquisition funding requirements to fund operations, if necessary. As a
result of the above-mentioned designation, ChildU and ThinkBox performance will
not be included in any covenant calculations. Accordingly, Adjusted EBITDA
(excluding unrestricted subsidiaries) is defined as WRC Media consolidated
EBITDA excluding the $4.8 million EBITDA loss in 2002 and the $3.8 million
EBITDA loss in 2001 contributed by its unrestricted subsidiaries - ChildU and
its investment in ThinkBox.


Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Sales, net. For the year ended December 31, 2002, net sales decreased $21.5
million, or 9.3%, to $210.0 million from $231.5 million in 2001. This decrease
was primarily due to a decrease in sales at CompassLearning of $17.3 million, or
25.3%, to $51.2 million for the year ended December 31, 2002 from $68.5 million
in 2001 combined with a decrease in sales at Weekly Reader of $5.7 million, or
3.5%, to $156.5 million for the year ended December 31, 2002 from $162.2 million
in 2001. These sales decreases were partially offset by ChildU. ChildU net sales
increased significantly by $1.5 million, or 187.5%, to $2.3 million for the year
ended December 31, 2002 from $0.8 million in 2001. This increase in sales was
driven by greater revenue from ChildU's on-line software products.

                                 Page 46 of 46
<PAGE>

The decrease in sales at Weekly Reader was due to (1) a decrease in sales at
World Almanac of $4.0 million, or 6.9% to $54.0 million for the year ended
December 31, 2002 from $58.0 million for the year ended December 31, 2001 as a
result of lower sales at WAE Library Services and World Almanac Books partially
offset by higher sales at Gareth Stevens which grew approximately 9.8%
year-over-year. The lower sales at WAE Library Services is driven by lower sales
from its catalog channels. The lower sales at World Almanac Books is largely
driven by a change in the World Almanac distributor in the non-trade retail
market. The higher sales at Gareth Stevens are driven by higher sales in its
telemarketing, and wholesale channels from the sale of its World Almanac Library
and Weekly Reader Early Learning Library Imprints; (2) a decrease in sales at
Weekly Reader, not including World Almanac and American Guidance, of $2.7
million, or 5.7% for the year ended December 31, 2002 to $44.6 million from
$47.3 million for the year ended December 31, 2001. This decrease was primarily
attributable to lower Lifetime Learning revenue, ($1.8) million; lower skills
books revenue, ($0.2) million; and lower periodical revenue resulting from the
planned restructuring of the shipping schedule and lower circulation, ($1.2)
million; partially offset by higher licensing revenue of $0.5 million; partially
offset by (3).an increase in sales at American Guidance Service of $1.0 million,
or 1.8%, to $57.8 for the year ended December 31, 2002 from $56.8 million for
the year ended December 31, 2001. Assessment and curriculum revenues have
increased by $0.4MM and $0.6MM, respectively.

CompassLearning net revenue decreased $17.3 million, or 25.3%, to $51.2 million
from $68.5 million in 2001. This decrease was primarily due to (1) a decrease in
software revenue of $13.2 million, or 33.1%, to $26.7 million from $39.9 million
in 2001 primarily as a result of delayed Title 1 funding and post-September 11
state budget deficits, which contributed to additional spending delays, (2) a
planned decrease in hardware revenue of $1.3 million, or 52.0%, to $1.2 million
from $2.5 million in 2001, (3) a decrease in service revenue from technical
support of $1.2 million, or 8.2%, to $13.5 million from $14.7 million in 2001,
and (4) a decrease in professional development revenue of $1.6 million, or
14.0%, to $9.8 million from $11.4 million in 2001.

Gross profit. For the year ended December 31, 2002, gross profit decreased by
$14.8 million or 8.9%, to $151.0 million from $165.8 million in 2001. This
decrease was due to the revenue decrease discussed above. At CompassLearning
gross profit decreased $14.4 million, or 30.7%, to $32.5 million from $46.9
million in 2001 primarily due to $13.0 million of lower software margin
attributable to lower software sales. Gross profit at CompassLearning as a
percent of revenue decreased to 63.5% in 2002 from 68.5% in 2001. At ChildU,
gross profit increased $1.1 million, or 275.0%, to $1.5 million from $0.4
million in 2001 primarily due to the higher revenue discussed above. Gross
profit at Weekly Reader decreased $1.6 million or 1.4% to $116.9 million for the
year ended December 31, 2002 from $118.5 million in 2001 primarily as a result
of (1) a decrease in gross profit at World Almanac of $1.7 million, or 4.4%, to
$36.5 million from $38.2 million in 2001. Gross profit at World Almanac as a
percent of revenue increased to 67.6% from 65.9% in 2001 mainly due to a change
in product mix; (2) a decrease in gross profit at Weekly Reader, not including
AGS and World Almanac of $1.4 million, or 3.7%, to $36.3 million from $37.7
million for the same period in 2001 partially offset by (3) an increase in gross
profit at American Guidance of $1.5 million, or 3.5% to $44.1 million for the
year ended

                                 Page 47 of 47
<PAGE>

December 31, 2002 from $42.6 million in 2001 driven by the AGS volume increase
described above coupled with a shift in sales mix compared to the prior year.
Overall, WRC Media consolidated gross profit as a percent of revenue increased
slightly to 71.9% for the year ended December 31, 2002 from 71.6% in 2001 mainly
due to the change in sales mix discussed above.

Operating costs and expenses. For the year ended December 31, 2002, operating
costs and expenses (before amortization of goodwill and intangible assets)
decreased by $2.6 million, or 2.3%, to $112.4 million from $115.0 million in
2001. This decrease was primarily the result of (i) $5.6 million or 10.2%
decrease in sales and marketing expense due in part to the lower revenue
discussed above resulting in lower variable sales and marketing expenses such as
sales commissions; (ii) $4.1 million or 70.7% decrease in research and
development expense primarily at CompassLearning resulting from capitalization
of specific product development costs associated with products introduced to the
market in 2002; and (iii) $1.9 million or 7.2% decrease in general and
administrative expense primarily driven by the work force reduction implemented
in 2002; partially offset by (iv) an $8.6 million restructuring and other
non-recurring expense charge recorded in 2002 In January 2002, the company's
board of directors approved a separate restructuring plan (the "2002 Plan of
Restructuring") and accordingly, the company incurred charges for restructuring,
asset write-downs and other exit costs totaling $8.6 million.

Pursuant to the 2002 Plan of Restructuring, 107 positions were eliminated
throughout the company. Severance and other benefit costs of approximately $3.2
million relate to the reduction of these employees from the workforce. This
workforce reduction primarily took place at CompassLearning but all four
operating units of WRC Media were impacted. Most of the workforce reductions
represented administrative and back office related employees. Approximately $1.8
million in severance and other benefit costs relating to the 2002 Plan of
Restructuring were paid as of December 31, 2002. The workforce reductions were
substantially complete by mid-January 2003. Certain benefit costs will extend
beyond the completion of the workforce reductions due to the Company's
contractual severance obligations.

Lease termination costs include future obligations under long-term
non-cancelable lease agreements at facilities being vacated following workforce
reductions. This charge primarily consisted of the estimated lease costs, net of
probable sublease income, associated with the Company's corporate office lease
at 512 Seventh Avenue in New York, N.Y. which expires in 2015. As of December
31, 2002, $5.4 million of the total net charge of $8.6 million has been incurred
for lease termination costs.

Of the pre-tax restructuring and other non-recurring expenses totaling $8.6
million, $6.7 million represents non-cash charges at December 31, 2002.
Approximately $1.9 million was spent in 2002 and the remaining $6.3 million is
expected to be spent as follows: 2003 - $2.9 million and 2004 and beyond - $3.4
million. The total cash outlay is expected to be funded from existing cash
balances and internally generated cash flows from operations. The actions to
implement the 2002 restructuring initiative are expected to generate at least
$9.0 million in ongoing savings for the Company, primarily from the reduction of
fixed costs. The Company expects to begin to fully realize these benefits in
2003 and beyond, once the restructuring initiatives are completely implemented.

                                 Page 48 of 48
<PAGE>

Components of the Company's restructuring plans and other non-recurring charges,
including the plans initiated in 2002, are shown in the following table.

<TABLE>
<CAPTION>
($ in 000's)                            Balance at                                Amount             Balance at
                                     December 31, 2001        Charges            Incurred        December 31, 2002
                                    --------------------  ----------------- ------------------- ---------------------
<S>                                 <C>                   <C>               <C>                 <C>
Severance and other benefits        $                 -   $          3,150  $           (1,813) $              1,337
Lease terminations                                    -              4,956                 (41)                4,915
Asset write-downs                                     -                488                (488)                    -
                                    --------------------  ----------------- ------------------- ---------------------
Total                               $                 -   $          8,594  $           (2,342) $              6,252
                                    ====================  ================= =================== =====================
</TABLE>

Income before amortization of goodwill and intangible assets, interest expense,
income taxes and other, net. For the year ended December 31, 2002, income before
amortization of goodwill and intangible assets, interest expense, income taxes
and other, net decreased by $12.2 million, or 24.0%, to $38.6 million from $50.8
million in 2001. This decrease was primarily a result of $14.8 million of lower
gross profit driven by the decrease in sales described above partially offset by
$2.6 lower operating costs and expenses (before amortization of goodwill and
intangible assets) described above.

Amortization of goodwill and intangible assets. For the year ended December 31,
2002, amortization of goodwill and intangible assets decreased by $45.0 million,
or 70.5%, to $18.8 million from $63.8 million in 2001. This decrease was
primarily due to a decrease in amortization of goodwill and intangibles with
indefinite lives as a result of the Company's adoption of SFAS No. 142 in 2002,
which requires among other things that goodwill and intangible assets are not
amortized but rather be tested at least annually for impairment. The initial
reassessment of estimated useful lives of intangible assets was completed during
the first quarter of 2002. As a result of the Company's adoption of SFAS No.
142, a portion of the intangible assets and all of goodwill recognized prior to
December 31, 2001 is no longer being amortized effective January 1, 2002. The
Company completed the transitional goodwill impairment test during the second
quarter ended June 30, 2002 resulting in an impairment charge of $72.0 million,
which was recorded as a cumulative effect of an accounting change as of January
1, 2002. In December 2002, the Company completed its first annual re-assessment
of its goodwill and intangible assets with indefinite lives and determined that
the fair value of its equity exceeded its carrying value. Accordingly, no change
in the book value of the Company's goodwill and indefinite lived intangible
assets was recorded at December 31, 2002. Management believes that the estimates
of future cash flows and fair value are reasonable; however, future results
could differ from assumptions used.

Income (loss) from operations. For the year ended December 31, 2002, income from
operations increased $32.8 million, or 252.3%, to income from operations of
$19.8 million from a loss from operations of $13.0 million in 2001. This
increase was primarily due to lower amortization of goodwill and intangible
assets of $45.0 million described above partially offset by $12.2 million lower
income before amortization of goodwill and intangible assets, interest expense,
income taxes and other, net also described above.

                                 Page 49 of 49
<PAGE>

Loss on investments. For the years ended December 31, 2001 and 2002, loss on
investments of $0.9 million and $3.1 million, respectively relate to the
Company's recognition of its loss on its minority investment in ThinkBox, Inc.,
an unrestricted investment of WRC Media. The Company's investment in ThinkBox
has been fully reserved for at December 31, 2002. This investment (as well as
the acquisition of ChildU Inc.) was financed with the issuance of $13.8 million
18% Junior Cumulative Convertible Preferred Stock on May 9, 2001. See Liquidity
and Capital Resources.

Interest expense, including amortization of deferred financing costs. For the
year ended December 31, 2002, interest expense decreased by $3.4 million, or
10.2%, to $29.8 million from $33.2 million in 2001 and interest expense as a
percentage of sales decreased slightly to 14.2% from 14.3% in 2001. Interest
expense for the years ended December 31, 2002 and 2001 relates to debt and
amortization of deferred financing costs associated with the Acquisition and
Recapitalization.

Other, net. For the year ended December 31, 2002, other, net increased $1.4
million or 200% to $0.7 million income from other expense of $0.7 million in
2001. This increase was primarily driven by a $1.7 million gain from hedging
transactions.

Income tax provision. For the year ended December 31, 2002, the provision for
income taxes increased by $10.3 million or 1471.4% to an income tax provision of
$11.0 million from a provision for income taxes of $0.7 million in 2001 driven
by the Company's adoption of SFAS 142. A non-cash charge of $10.7 million was
recorded for the year ended December 31, 2002 to increase the valuation
allowance related to the Company's net operating losses. The Company recorded
non-cash deferred income tax expense of approximately $8.7 million on January 1,
2002 and $2 million during the year ended December 31, 2002, both of which would
not have been required prior to the adoption of SFAS 142. The non-cash charge of
$8.7 million on January 1, 2002 was recorded to increase the valuation allowance
related to the Company's net operating losses. As a result of the adoption of
SFAS 142, amortization will not occur during the carry-forward period of the
operating losses. In addition, since book amortization of tax-deductible
goodwill and trademarks ceased on January 1, 2002, the Company will have
deferred tax liabilities that will arise each year because the taxable temporary
differences related to the amortization of these assets will not reverse prior
to the expiration period of the Company's deductible temporary differences
unless the related assets are sold or an impairment of the assets is recorded.
Accordingly, the Company recorded an additional $2.0 million to increase the
valuation allowance for the year ended December 31, 2002.

Net loss. For the year ended December 31, 2002, net loss increased by $46.9
million, or 96.7%, to $95.4 million from $48.5 million in 2001 primarily due to
the $37.7 million of net non-cash charges (comprised of the $72.0 million
non-cash impairment charge recorded as a cumulative effect of an accounting
change, $10.7 million of non-cash tax provision partially offset by $45.0
million lower amortization of goodwill) resulting from the Company's adoption
of SFAS No. 142 described above. Net loss as a percentage of net sales increased
to negative 45.5% for the year ended December 31, 2002 from negative 20.8% in
2001.

                                 Page 50 of 50
<PAGE>

ADJUSTED EBITDA. For the year ended December 31, 2002, Adjusted EBITDA (Footnote
(a) in the table above) decreased $3.2 million, or 5.7%, to $53.0 million from
$56.2 million in 2001. This decrease is primarily driven by lower revenue
partially offset by reduced operating expenses discussed above. EBITDA is
defined as income (loss) before interest expense, income taxes, depreciation and
amortization. Adjusted EBITDA is defined as income (loss) before interest
expense, income taxes, depreciation and amortization not including WRC Media's
unrestricted subsidiaries. EBITDA data is included because we believe that this
information may be considered by investors as an additional basis on which to
evaluate WRC Media's ability to pay interest, repay debt and make capital
expenditures. Because all companies do not calculate EBITDA identically, the
presentation of EBITDA in this report is not necessarily comparable to similarly
titled measures of other companies. Adjusted EBITDA is not intended to represent
cash flow from operating activities and should not be considered an alternative
to net income or loss (as determined in conformity with GAAP) as an indicator of
the Company's operating performance or to cash flow as a measure of liquidity.
It is presented herein as the Company evaluates and measures each business
unit's performance based on their EBITDA results. EBITDA may not be available
for the Company's discretionary use as there are requirements to repay debt,
among other payments. Given the projected near-term financial performance of
ChildU and ThinkBox, WRC Media designated ChildU and ThinkBox "Unrestricted
Subsidiaries" under its Credit Agreement so as to: (i) exclude them from all the
negative covenants in the Credit Agreement including the financial covenants,
and from agreed upon affirmative covenants, representations and warranties and
events of default; and (ii) Permit additional investments in ChildU and ThinkBox
by WRC Media and its subsidiaries in excess of the acquisition funding
requirements to fund operations, if necessary. As a result of the
above-mentioned designation, ChildU and ThinkBox performance will not be
included in any covenant calculations. Accordingly, Adjusted EBITDA is defined
as WRC Media EBITDA excluding the $4.8 million EBITDA loss in 2002 and the $3.8
million EBITDA loss in 2001 contributed by its unrestricted subsidiaries -
ChildU and its investment in ThinkBox. See Adjusted EBITDA reconciliation below
($ in 000's):

<TABLE>
<CAPTION>
                                                          For the years ended December 31,
Adjusted EBITDA reconciliation                              2001                   2002
                                                         ---------               ---------
<S>                                                      <C>                     <C>
     Net Loss                                            $ (48,505)              $ (95,444)
     Depreciation and amortization of intangibles**         66,984)                 22,209
     Income taxes                                              658                  10,980
     Interest expense                                       33,319                  29,844
     Non-cash, non-recurring charges                           -                    80,616
                                                         ---------               ---------
EBITDA                                                      52,456                  48,205
     Add: ChildU EBITDA loss                                 2,909                   1,727
     Add: Thinkbox EBITDA loss                                 875                   3,064
                                                         ---------               ---------
Adjusted EBITDA                                          $  56,240               $  52,996
                                                         =========               =========
</TABLE>

** 2002 Amount includes amortization of capitalized software costs of $356
   which are included in operating costs and expenses above.

                                 Page 51 of 51
<PAGE>

Consolidated Results of Operations for the year ended December 31, 2001-- WRC
Media Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31
                                                                              2000                            2001
                                                                 ------------------------------  -------------------------------
                                                                   Amount      % of Net Sales      Amount       % of Net Sales
                                                                 ------------  ----------------  ------------  -----------------
                                                                                     (Dollars in millions)
<S>                                                              <C>            <C>              <C>           <C>
Sales, net                                                           $ 218.8            100.0%       $ 231.5             100.0%
Cost of goods sold                                                      66.4             30.3%          65.7              28.4%
                                                                 ------------  ----------------  ------------  -----------------
Gross profit                                                         $ 152.4             69.7%       $ 165.8              71.6%
Costs and expenses:
       Sales and marketing                                              48.9             22.3%          54.7              23.6%
       Research and development                                          4.7              2.1%           5.8               2.5%
       Distribution, circulation and fulfillment                        13.0              5.9%          14.3               6.2%
       Editorial                                                        10.5              4.8%          10.6               4.6%
       General and administrative                                       25.1             11.5%          26.4              11.4%
       Depreciation                                                      2.8              1.3%           3.2               1.4%
                                                                 ------------  ----------------  ------------  -----------------
                                                                       105.0             48.0%         115.0              49.6%
                                                                 ------------  ----------------  ------------  -----------------
Income before amortization of goodwill and intangible assets,
interest expense, income taxes and other, net                           47.4             21.7%          50.8              21.9%
Amortization of goodwill and intangible assets                          73.8             33.7%          63.8              27.6%
                                                                 ------------  ----------------  ------------  -----------------
Loss from operations                                                   (26.4)           (12.0%)        (13.0)             (5.5%)
Interest expense, including amortization
of deferred financing costs                                            (35.3)           (16.1%)        (33.2)            (14.3%)
Loss on investments                                                        -                 -          (0.9)             (0.4%)
Other income (expense), net                                              0.3              0.1%          (0.7)             (0.3%)
                                                                 ------------  ----------------  ------------  -----------------
Loss before income tax provision                                       (61.4)           (28.0%)        (47.8)            (20.5%)
Income tax provision                                                    (0.6)            (0.3%)         (0.7)             (0.3%)
                                                                 ------------  ----------------  ------------  -----------------
Net loss                                                             $ (62.0)           (28.3%)      $ (48.5)            (20.8%)
                                                                 ============  ================  ============  =================

       Adjusted EBITDA(a)                                             $ 50.9             23.3%        $ 56.2              24.3%
                                                                 ============  ================  ============  =================
</TABLE>

(a) EBITDA is defined as income (loss) before interest expense, income taxes,
depreciation and amortization.
Adjusted EBITDA is defined as income (loss) before interest expense, income
taxes, depreciation and amortization not including WRC Media's unrestricted
subsidiaries. EBITDA for the year ended December 31, 2000 excludes $0.4 million
of non-recurring expenses related to changing CompassLearning's name from its
predecessor's name. EBITDA data is included because we believe that this
information may be considered by investors as an additional basis on which to
evaluate WRC Media's ability to pay interest, repay debt and make capital
expenditures. Because all companies do not calculate EBITDA identically, the
presentation of EBITDA in this report is not necessarily comparable to similarly
titled measures of other companies.
Adjusted EBITDA is not intended to represent cash flow from operating activities
and should not be considered an alternative to net income or loss (as determined
in conformity with GAAP) as an indicator of the Company's operating performance
or to cash flow as a measure of liquidity. It is presented herein as the Company
evaluates and measures each business unit's performance based on their EBITDA
results. EBITDA may not be available for the Company's discretionary use as
there are requirements to repay debt, among other payments. Given the projected
near-term financial performance of ChildU and ThinkBox, WRC Media designated
ChildU and ThinkBox "Unrestricted Subsidiaries" under its Credit Agreement so as
to: (i) exclude them from all the negative covenants in the Credit Agreement
including the financial covenants, and from agreed upon affirmative covenants,
representations and warranties and events of default; and (ii) Permit additional
investments in ChildU and ThinkBox by WRC Media and its subsidiaries in excess
of the acquisition funding requirements to fund operations, if necessary. As a
result of the above-mentioned designation, ChildU and ThinkBox performance will
not be included in any covenant calculations. Accordingly, Adjusted EBITDA for
the year ended December 31, 2001 is defined as WRC Media consolidated EBITDA
excluding the $3.8 million EBITDA loss contributed by its unrestricted
subsidiaries - ChildU and its investment in ThinkBox.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Sales, net. For the year ended December 31, 2001, net sales increased $12.7
million, or 5.8%, to $231.5 million from $218.8 million in 2000. This increase
was primarily due to an increase in sales at CompassLearning of $4.5 million, or
7.0%, to $68.5 million for the year ended December 31, 2001 from $64.0 million
in 2000 combined with an increase in sales at Weekly Reader of $7.4 million, or
4.8%, to $162.2 million for the year ended December 31, 2001 from $154.8 million
in 2000 and ChildU sales of $0.8 million. The increase in sales at Weekly Reader
was due to (1) an increase in sales at American Guidance Service of $2.8
million, or 5.2%, to

                                 Page 52 of 52
<PAGE>

$56.8 million for the year ended December 31, 2001 from $54.0 million for the
year ended December 31, 2000 as a result of $3.9 million or 14.1% increase in
curriculum sales driven by our new Florida textbook adoption partially offset by
a $1.0 million decrease in sales of assessment products primarily attributable
to the prior year's strong GFTA (Goldman-Fristoe Test of Articulation) product
release, (2) an increase in sales at World Almanac of $2.9 million, or 5.3% to
$58.0 million for the year ended December 31, 2001 from $55.1 million for the
year ended December 31, 2000 as a result of higher telemarketing and website
sales at World Almanac's Facts On File News Service and higher sales at Gareth
Stevens, Inc. partially offset by decreases at Funk & Wagnalls Yearbook sales.
The lower sales at Funk & Wagnalls are driven by the anticipated decline in the
Yearbook business. Excluding Funk & Wagnalls, World Almanac's core revenue
increased by $3.7 million, or 7.2% to $55.4 million from $51.7 million in 2000;
and (3) an increase in sales at Weekly Reader, not including World Almanac and
American Guidance, of $1.6 million, or 3.5% for the year ended December 31, 2001
to $47.3 million from $45.7 million for the year ended December 31, 2000. This
increase was primarily attributable to higher revenue from a new distribution
channel, $1.4 million; higher licensing revenue, $1.0 million or 105.5%; higher
shipments in Lifetime Learning Systems, $0.6 million or 7.9%; offset by lower
Skills book revenue, $1.1 million or 42.3% and lower Periodical revenue, $0.2
million or 0.6%. Weekly Reader added a new distribution channel in 2001. The
Weekly Reader Book Club was sold for the first time on the QVC television
network. Sales through QVC were robust- with Weekly Reader selling more than
$1.4 million in high quality books in a one-day promotion in November 2001. The
decrease in Skills book revenue is attributable to 2001 representing an off
presidential election year. Skills book revenue historically significantly
increases in presidential election years.

CompassLearning net revenue increased $4.5 million, or 7.0%, to $68.5 million
from $64.0 million in 2000. This increase was primarily due to an increase in
software revenue of $7.4 million, or 22.8%, to $39.9 million from $32.5 million
in 2000. We believe new software sales increased primarily as a result: (i) our
integrated product development strategy; (ii) the software being delivered by a
seasoned sales force and (iii) reduced market confusion in 2001 as a result of
many smaller startup companies exiting the marketplace due to poor sales
performance or loss of additional financing. CompassLearning's professional
development revenue increased $1.0 million or 9.6%, to $11.4 million from $10.4
million in 2000. These increases was primarily offset by a planned decrease in
hardware revenue of $3.7 million, or 59.7%, to $2.5 million from $6.2 million in
2000, and a decrease in service revenue from technical support of $0.2 million,
or 1.3%, to $14.7 million from $14.9 million in 2000. It is our strategy to grow
CompassLearning's core business, which is the electronic courseware and the
related professional development services to train our customers in implementing
that electronic courseware most efficiently as well as software maintenance from
technical support services. Revenue from these sources increased $8.1 million or
14.0%, to $66.0 million from $57.9 million in 2000.

Gross profit. For the year ended December 31, 2001, gross profit increased by
$13.4 million or 8.8%, to $165.8 million from $152.4 million in 2000. This
increase was due to an increase in gross profit at CompassLearning of $8.0
million, or 20.6%, to $46.9 million for the year ended December 31, 2001 from
$38.9 million in 2000 combined with an increase in gross profit at Weekly Reader
of $5.0 million, or 4.4%, to $118.5 million for the year ended December 31, 2001
from $113.5 in 2000 and $0.4 million contributed by ChildU. The increase in
gross profit

                                  Page 53 of 53
<PAGE>

at CompassLearning was primarily due to $8.3 million of higher software margin
attributable to the significant increase in software sales. The increase in
gross profit at Weekly Reader was a result of (1) an increase in gross profit at
American Guidance of $3.2 million, or 8.1%, to $42.6 million from $39.4 million
for the year ended December 31,2000 primarily as a result of an increase in
sales volume described above but also driven by a favorable gross margin rate
related to our successful Florida textbook adoption; (2) an increase in gross
profit at World Almanac of $1.7 million, or 4.7%, to $38.2 million from $36.5
million in 2000. This increase is driven by higher sales at Fact On File New
Service and Gareth Stevens. Gross profit at Weekly Reader, not including World
Almanac and American Guidance, of $37.7 million for the year ended December 31,
2001 increased $0.1 million from $37.6 million in 2000 as a result of higher
overall sales partially offset by a lower gross margin contribution resulting
from higher low margin licensing revenue. Overall, WRC Media consolidated gross
profit as a percent of revenue increased to 71.6% for the year ended December
31, 2001 from 69.7% in 2000.

Operating costs and expenses. For the year ended December 31, 2001, operating
costs and expenses (excluding amortization of goodwill and intangible assets)
increased by $10.0 million, or 9.5%, to $115.0 million from $105.0 million in
2000. This increase was primarily the result of (i) $5.8 million or 11.9%
increase in sales and marketing expense; (ii) $1.3 million or 5.2% increase in
general and administrative expense; (iii) $1.3 million or 10.0% increase in
distribution, circulation and fulfillment expense combined with (iv) $1.1
million or 23.4% increase in research and development and (v) $0.4 million or
14.3% increase in depreciation expense.

Sales and marketing expense increased $5.8 million or 11.9% to $54.7 million for
the year ended December 31, 2001 from $48.9 million in 2000 primarily as the
result of (i) a $3.3 million or 15.1% increase in sales and marketing expense in
2001 at CompassLearning from 2000 resulting from higher sales commissions paid
to its sales force driven by significantly higher sales of new software as
discussed above; combined with (ii) an increase in Weekly Reader's sales and
marketing expenses of $2.3 million or 8.5% primarily at American Guidance and
World Almanac attributable to the higher sales volume also described above.

General and administrative expense increased $1.3 million or 5.2% to $26.4
million for the year ended December 31, 2001 from $25.1 million in 2000
primarily driven by the establishment of WRC Media's new headquarters in spring
2001, $0.7 million and to a lesser extent general and administrative expense
associated with ChildU which was acquired in May 2001.

The increase in distribution, circulation and fulfillment expense of $1.3
million or 10.0% to $14.3 million for the year ended December 31, 2001 from
$13.0 million in 2000 was primarily driven by higher distribution costs at
Weekly Reader (excluding AGS and World Almanac) related to its new QVC sales
channel and at AGS driven by higher sales.

Research and development expense increased $1.1 million or 23.4% to $5.8 million
for the year ended December 31, 2001 from $4.7 million in 2000. This increase
resulted from $2.4 million of research and development expense incurred at
ChildU since its acquisition in May 2001 offset by a decrease in research and
development at CompassLearning of $1.3 million, or 27.7%, to $3.4 million from
$4.7 million and as a percentage of revenue decreased to 4.9% from 7.3% in

                                  Page 54 of 54
<PAGE>

2000.The shift in research and development was primarily due to a change in the
company strategy to exit LAN/WAN software development to pursue new web
strategies.

Depreciation expense increased $0.4 million or 14.3% to $3.2 million for the
year ended December 31, 2001 from $2.8 million in 2000 primarily as a result of
depreciation of leasehold improvements made to WRC Media's corporate office in
2001.

Income before amortization of goodwill and intangible assets, interest expense,
income taxes and other, net. For the year ended December 31, 2001, income before
amortization of goodwill and intangible assets, interest expense, income taxes
and other, net increased by $3.4 million, or 7.2%, to $50.8 million from $47.4
million in 2000. This increase was primarily a result of $13.4 million of higher
gross profit driven by the increase in sales described above partially offset by
$10.0 higher operating costs and expenses (before amortization of goodwill and
intangible assets) described above.

Amortization of goodwill and intangible assets. For the year ended December 31,
2001, amortization of goodwill and intangible assets decreased by $10.0 million,
or 13.6%, to $63.8 million from $73.8 million in 2000. This decrease was
primarily due to a decrease in amortization of a non-compete agreement, which
ended in November 2001.

Loss from operations. For the year ended December 31, 2001, loss from operations
decreased $13.4 million, or 50.8%, to $13.0 million from $26.4 million in 2000.
This decrease was primarily due to lower amortization of goodwill and intangible
assets of $10.0 million combined with $3.4 million higher income before
amortization of goodwill and intangible assets, interest expense, income taxes
and other, net described above.

Loss on investments. For the year ended December 31, 2001, loss on investments
of $0.9 million represents the Company's recognition of its loss on its minority
investment in ThinkBox, Inc.

Interest expense, including amortization of deferred financing costs. For the
year ended December 31, 2001, interest expense decreased by $2.1 million, or
5.9%, to $33.2 million from $35.3 million in 2000 and interest expense as a
percentage of sales decreased to 14.3% from 16.1% in 2000. Interest expense for
the years ended December 31, 2001 and 2000 relates to debt and amortization of
deferred financing costs associated with the Acquisition and Recapitalization.

Other, net. For the year ended December 31, 2001, other, net increased $1.0
million or 333.3% to $0.7 million expense from other income of $0.3 million in
2000. This increase was primarily the result of a $1.0 million management fee
paid to a related party of WRC Media (see related party footnote no. 18 to WRC
Media's consolidated financial statements for further discussion).

Income tax provision. For the year ended December 31, 2001, provision for income
taxes increased by $0.1 million or 16.7% to an income tax provision of $0.7
million from a provision for income taxes of $0.6 million in 2000.

                                  Page 55 of 55
<PAGE>

Net loss. For the year ended December 31, 2001, net loss decreased by $13.5
million, or 21.8%, to $48.5 million from $62.0 million in 2000 primarily due to
lower amortization of goodwill and intangible assets of $10.0 million combined
with $3.4 million higher income before amortization of goodwill and intangible
assets, interest expense, income taxes and other, net described above. Net loss
as a percentage of net sales decreased to negative 20.8% for the year ended
December 31, 2001 from negative 28.3% in 2000.

ADJUSTED EBITDA. For the year ended December 31, 2001, Adjusted EBITDA increased
$5.3 million, or 10.4%, to $56.2 million from $50.9 million in 2000. This
increase is primarily attributable to $13.4 million or 8.8% increase in gross
profit for the year ended December 31, 2001 driven by higher sales partially
offset by higher operating costs and expenses comprised primarily of $5.8
million of higher sales and marketing expenses and $1.3 million of higher
general and administrative expenses. EBITDA is defined as income (loss) before
interest expense, income taxes, depreciation and amortization. Adjusted EBITDA
is defined as income (loss) before interest expense, income taxes, depreciation
and amortization not including WRC Media's unrestricted subsidiaries. EBITDA
data is included because we believe that this information may be considered by
investors as an additional basis on which to evaluate WRC Media's ability to pay
interest, repay debt and make capital expenditures. Because all companies do not
calculate EBITDA identically, the presentation of EBITDA in this report is not
necessarily comparable to similarly titled measures of other companies. Adjusted
EBITDA is not intended to represent cash flow from operating activities and
should not be considered an alternative to net income or loss (as determined in
conformity with GAAP) as an indicator of the Company's operating performance or
to cash flow as a measure of liquidity. It is presented herein as the Company
evaluates and measures each business unit's performance based on their EBITDA
results. EBITDA may not be available for the Company's discretionary use as
there are requirements to repay debt, among other payments. Given the projected
near-term financial performance of ChildU and ThinkBox, WRC Media designated
ChildU and ThinkBox "Unrestricted Subsidiaries" under its Credit Agreement so as
to: (i) exclude them from all the negative covenants in the Credit Agreement
including the financial covenants, and from agreed upon affirmative covenants,
representations and warranties and events of default; and (ii) permit additional
investments in ChildU and ThinkBox by WRC Media and its subsidiaries in excess
of the acquisition funding requirements to fund operations, if necessary. As a
result of the above-mentioned designation, ChildU and ThinkBox performance will
not be included in any covenant calculations. Accordingly, Adjusted EBITDA is
defined as WRC Media EBITDA excluding the $3.8 million EBITDA loss in
2001 and the $0 EBITDA loss in 2000 contributed by its unrestricted subsidiaries
- ChildU and its investment in ThinkBox. See Adjusted EBITDA reconciliation
below ($ in 000's):

                                  Page 56 of 56
<PAGE>

<TABLE>
<CAPTION>
                                                          For the years ended December 31,
Adjusted EBITDA reconciliation                               2000                2001
                                                        ----------------    ---------------
<S>                                                             <C>              <C>
      Net Loss                                                  (62,015)         $ (48,505)
      Depreciation and amortization of intangibles               76,519             66,984
      Income taxes                                                  635                658
      Interest expense                                           35,315             33,319
      Non-cash, non-recurring charges                               440                  -
                                                        ----------------    ---------------
EBITDA                                                           50,894             52,456
      Add: ChildU EBITDA loss                                         -              2,909
      Add: Thinkbox EBITDA loss                                       -                875
                                                        ----------------    ---------------
Adjusted EBITDA                                                  50,894           $ 56,240
                                                        ================    ===============
</TABLE>


                                  Page 57 of 57
<PAGE>
Results of Operations for the year ended December 31, 2002 -- Weekly Reader
Corporation and Subsidiaries

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

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31
                                                                               2001                          2002
                                                                 --------------------------------  ------------------------------
                                                                   Amount       % of Net Sales       Amount       % of Net Sales
                                                                 ------------  ------------------  ------------  ----------------
                                                                                      (Dollars in millions)
<S>                                                                  <C>                  <C>          <C>                 <C>
Sales, net                                                       $     162.2              100.0%   $     156.5             100.0%
Cost of goods sold                                                      43.7               26.9%          39.6              25.3%
                                                                 ------------  ------------------  ------------  ----------------
Gross profit                                                           118.5               73.1%         116.9              74.7%
Costs and expenses:
      Sales and marketing                                               29.3               18.2%          28.3              18.1%
      Distribution, circulation and fulfillment                         14.3                8.8%          14.6               9.3%
      Editorial                                                         10.6                6.5%          10.9               7.0%
      General and administrative                                        18.9               11.7%          18.2              11.6%
      Restructuring costs and other non-recurring expenses                 -                0.0%           4.3               2.7%
      Depreciation                                                       2.0                1.2%           1.9               1.2%
                                                                 ------------  ------------------  ------------  ----------------
                                                                        75.1               46.4%          78.2              50.1%
                                                                 ------------  ------------------  ------------  ----------------
Income before amortization of goodwill and intangible assets,
  interest expense, income taxes and other, net                         43.4               26.7%          38.7              24.6%
Amortization of goodwill and intangible assets                          12.0                7.4%           8.7               5.6%
                                                                 ------------  ------------------  ------------  ----------------
Income from operations                                                  31.4               19.3%          30.0              19.0%
Interest expense                                                       (32.4)             (20.0%)        (28.9)            (18.5%
Other income (expense), net                                              0.2                0.1%           1.8               1.3%
                                                                 ------------  ------------------  ------------  ----------------
Income (loss) before income tax provision                               (0.8)              (0.6%)          2.9               1.8%
Income tax provision                                                     0.3                0.2%           2.1               1.3%
                                                                 ------------  ------------------  ------------  ----------------
Net loss before cumulative effect of change
   in accounting principle                                              (1.1)              (0.8%)          0.8               0.5%
Cumulative effect of change in accounting principle                        -                0.0%         (72.0)            (46.0%
                                                                 ------------  ------------------  ------------  ----------------
Net loss                                                         $      (1.1)              (0.8%)  $     (71.2)            (45.5%
                                                                 ============  ==================  ============  ================

      EBITDA(a)                                                  $      45.6               28.1%   $      46.7              29.8%
                                                                 ============  ==================  ============  ================
</TABLE>

(a) EBITDA is defined as income (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA data is included because we believe that
this information may be considered by investors as an additional basis on which
to evaluate Weekly Reader Corporation's ability to pay interest, repay debt and
make capital expenditures. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA in this report is not necessarily
comparable to similarly titled measures of other companies. EBITDA is not
intended to represent cash flow from operating activities and should not be
considered an alternative to net income or loss(as determined in conformity with
GAAP) as an indicator of the Company's operating performance or to cash flow as
a measure of liquidity. It is presented herein as the Company evaluates and
measures each business units performance based on their EBITDA results. EBITDA
may not be available for the Company's discretionary use as there are
requirements to repay debt, among other payments.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Sales, net. For the year ended December 31, 2002, net sales decreased $5.7
million, or 3.5%, to $156.5 million from $162.2 million for the year ended
December 31, 2001. The decrease in sales at Weekly Reader was due to (1) a
decrease in sales at World Almanac of $4.0 million, or 6.9% to $54.0 million for
the year ended December 31, 2002 from $58.0 million for the year ended December
31, 2001 as a result of lower sales at WAE Library Services and World Almanac
Books being partially offset by higher sales at Gareth Stevens which grew
approximately 9.8% year-over-year. The lower sales at WAE Library Services is
driven by lower sales from its catalog channels. The lower sales at World
Almanac Books is largely driven by a change in the World Almanac distributor in
the non-trade retail. The higher sales at Gareth Stevens is driven by higher
sales in its telemarketing, and wholesale channels from sale of its

                                  Page 58 of 58
<PAGE>

World Almanac Library and Weekly Reader Early Learning Library Imprints; (2) a
decrease in sales at Weekly Reader, not including World Almanac and American
Guidance, of $2.7 million, or 5.7% for the year ended December 31, 2002 to $44.6
million from $47.3 million for the year ended December 31, 2001. This decrease
was primarily attributable to lower Lifetime Learning revenue, ($1.8) million;
lower skills books revenue, ($0.2) million; and lower periodical revenue
resulting from the planned restructuring of the shipping schedule and lower
circulation, ($1.2) million; partially offset by higher licensing revenue, $0.5
million; partially offset by (3) an increase in sales at American Guidance
Service of $1.0 million, or 1.8%, to $57.8 for the year ended December 31, 2002
from $56.8 million for the year ended December 31, 2001. Assessment and
curriculum revenues have increased by $0.4MM and $0.6MM, respectively, offset by
(2).

Gross profit. Gross profit at Weekly Reader decreased $1.6 million or 1.4% to
$116.9 million for the year ended December 31, 2002 from $118.5 million in 2001
primarily as a result of (1) a decrease in gross profit at World Almanac of $1.7
million, or 4.4%, to $36.5 million from $38.2 million in 2001. Gross profit at
World Almanac as a percent of revenue increased to 67.6% from 65.9% in 2001
mainly due to a change in product mix; and (2) a decrease in gross profit at
Weekly Reader, not including AGS and World Almanac of $1.4 million, or 3.7%, to
$36.3 million from $37.7 million for the same period in 2001. This was primarily
due to the sales variance mentioned above partially offset by lower paper costs;
and (3) an increase in gross profit at American Guidance of $1.5 million, or
3.5% to $44.1 million for the year ended December 31, 2002 from $42.6 million in
2001 driven by the AGS volume increase described above coupled with a shift in
sales mix compared to the prior year. Gross profit as a percentage of sales
increased to 74.7% for the year ended December 31, 2002 from 73.1% in 2001
driven by a favorable sales mix change and lower paper costs.

Operating costs and expenses. For the year ended December 31, 2002, operating
costs and expenses (excluding amortization of goodwill and intangible assets)
increased $3.1 million, or 4.1%, to $78.2 million from $75.1 million in 2001
primarily due to (i) $4.3 million of restructuring costs and other non-recurring
expenses incurred during the year ended December 31, 2002 partially offset by
(ii) $1.0 million or 3.4% decrease in sales and marketing expense resulting
primarily from lower sales commissions paid and (iii) $0.7 million or 3.7%
decrease in general and administrative expense.

In January 2002, the company's board of directors approved a restructuring plan
(the "2002 Plan of Restructuring") and accordingly, the company incurred charges
for restructuring, asset write-downs and other exit costs totaling $4.3 million.

Pursuant to the 2002 Plan of Restructuring, 51 positions were eliminated
throughout the Weekly Reader Corporation. Severance and other benefit costs of
approximately $1.6 million relate to the reduction of these employees from the
workforce. This workforce reduction involved each of the three operating units
of Weekly Reader Corporation. Most of the workforce reductions represented
administrative and back office related employees. Approximately $1.0 million in
severance and other benefit costs relating to the 2002 Plan of Restructuring
were paid as of December 31, 2002. The workforce reductions were completed by
December 31, 2002. Certain

                                  Page 59 of 59
<PAGE>

benefit costs will extend beyond the completion of the workforce reductions due
to the Company's contractual severance obligations.

Lease termination costs include future obligations under long-term
non-cancelable lease agreements at facilities that were vacated following
workforce reductions. This charge primarily consisted of the estimated lease
costs, net of probable sublease income, associated with the Company's WAEG
office lease at 512 Seventh Avenue in New York, N.Y. which expires in 2015. As
of December 31, 2002, $2.2 million of the total charge of $4.3 million recorded
relates to lease termination costs.

Of the pre-tax restructuring and other non-recurring charges totaling $4.3
million, $3.3 million represents non-cash charges at December 31, 2002.
Approximately $1.0 million was spent in 2002 and the remaining $2.8 million is
expected to be spent as follows: 2003 - $1.1 million and 2004 and beyond - $1.7
million. The total cash outlay is expected to be funded from existing cash
balances and internally generated cash flows from operations. The actions to
implement the 2002 restructuring initiative are expected to generate at least
$3.5 million in ongoing savings for the Company, primarily from the reduction of
fixed costs. The Company expects to begin to fully realize these benefits in
2003 and beyond, once the restructuring initiatives are completely implemented.

Components of the company's restructuring plans and other non-recurring charges,
including the plans initiated in 2002, are shown in the following table.

<TABLE>
<CAPTION>
($ in 000's)                            Balance at                                Amount             Balance at
                                     December 31, 2001        Charges            Incurred        December 31, 2002
                                    --------------------  ----------------- ------------------- ---------------------
<S>                                 <C>                   <C>               <C>                 <C>
Severance and other benefits        $                 -   $          1,630  $             (981) $                649
Lease terminations                                    -              2,162                 (41)                2,121
Asset write-downs                                     -                488                (488)                    -
                                    --------------------  ----------------- ------------------- ---------------------
Total                               $                -    $         4,280   $          (1,510)  $             2,770
                                    ====================  ================= =================== =====================
</TABLE>


Income before amortization of goodwill and intangible assets, interest expense,
income taxes and other, net. For the year ended December 31, 2002, income before
amortization of goodwill and intangible assets, interest expense, income taxes
and other, net decreased by $4.7 million, or 10.8%, to $38.7 million from $43.4
million in 2001. This decrease was primarily the result of the $4.3 million
restructuring charge and other non-recurring expenses described above.

Amortization of goodwill and intangible assets. For the year ended December 31,
2002, amortization of goodwill and intangible assets decreased $3.3 million or
27.5% to $ 8.7 million from $12.0 million in 2001. This decrease was primarily
due to a decrease in amortization of goodwill and intangibles with indefinite
lives as a result of the Company's adoption of SFAS No. 142 in 2002, which
requires that goodwill and intangible assets that have indefinite useful lives
not be amortized but be tested at least annually for impairment. The initial
reassessment of estimated useful lives of intangible assets was completed during
the first quarter of 2002. As a result of the Company's adoption of SFAS No.
142, a portion of the intangible assets and all of goodwill recognized prior to
December 31, 2001 is no longer being amortized effective January 1, 2002. The
Company completed the transitional goodwill impairment test during the

                                  Page 60 of 60
<PAGE>

second quarter ended June 30, 2002 resulting in an impairment charge of $72.0
million, which was recorded as a cumulative effect of an accounting change as of
January 1, 2002. In December 2002, the Company completed its first annual
re-assessment of its goodwill and intangible assets with indefinite lives and
determined that the fair value of its equity based on estimated future cash
flows exceeded its carrying value. Accordingly, no change in the book value of
the Company's goodwill and indefinite lived intangible assets was recorded at
December 31, 2002. Management believes that the estimates of future cash flows
and fair value are reasonable; however, future results could differ from
assumptions used.

Income from operations. For the year ended December 31, 2002, income from
operations decreased by $1.4 million, or 4.5%, to $30.0 million from $31.4
million in 2001 and operating income as a percentage of sales decreased to 19.0%
from 19.4% in 2001 due to the factors described above.

Interest expense. For the year ended December 31, 2002, interest expense
decreased by $3.5 million, or 10.8%, to $28.9 million from $32.4 million in 2001
and interest expense as a percentage of sales decreased to 18.5% from 20.0% in
2001. Interest expense for the years ended December 31, 2002 and 2001 relates to
debt and amortization of deferred financing costs associated with the
Acquisition and Recapitalization.

Other, net. For the year ended December 31, 2002, other, net increased to $1.8
million of other income, net from $0.2 in 2001. This increase was primarily
driven by a $1.7 million gain from hedging transactions.

Income tax provision. For the year ended December 31, 2002, provision for income
taxes increased by $1.8 million or 600.0% to an income tax provision of $2.1
million from a provision for income taxes of $0.3 million in 2001 driven by the
Company's adoption of SFAS 142. The Company recorded non-cash deferred income
tax expense of $1.4 million on January 1, 2002 and $0.6 million during the year
ended December 31, 2002, both of which would not have been required prior to the
adoption of SFAS 142. The non-cash charge of $1.4 million on January 1, 2002 was
recorded to increase the valuation allowance related to the Company's net
operating losses. As a result of the adoption of SFAS 142, amortization will not
occur during the carry-forward period of the operating losses. In addition,
since book amortization of tax-deductible goodwill and trademarks ceased on
January 1, 2002, the Company will have deferred tax liabilities that will arise
each year because the taxable temporary differences related to the amortization
of these assets will not reverse prior to the expiration period of the Company's
deductible temporary differences unless the related assets are sold or an
impairment of the assets is recorded. Accordingly, the Company recorded $0.6
million to increase the valuation allowance for the year ended December 31,
2002.

Net loss. For the year ended December 31, 2002, net loss increased by $71.2
million, or 6372.7%, to a net loss of $71.2 million from net loss of $1.1
million in 2001 primarily due to the $74.0 million of non-cash charges resulting
for the Company's adoption of SFAS No. 142 described above. Net loss as a
percentage of net sales decreased to negative 46.5% for the year ended December
31, 2001 from negative 0.8% in 2001. The decrease to net loss was primarily due
to the factors described above.

                                  Page 61 of 61
<PAGE>

EBITDA. For the year ended December 31, 2002, EBITDA increased $1.1 million, or
2.4%, to $46.7 million from $45.6 million in 2001. This increase is primarily
attributable to factors described above. EBITDA is defined as income (loss)
before interest expense, income taxes, depreciation and amortization. EBITDA
data is included because we believe that this information may be considered by
investors as an additional basis on which to evaluate WRC Media's ability to pay
interest, repay debt and make capital expenditures. Because all companies do not
calculate EBITDA identically, the presentation of EBITDA in this report is not
necessarily comparable to similarly titled measures of other companies. EBITDA
is not intended to represent cash flow from operating activities and should not
be considered an alternative to net income or loss (as determined in conformity
with GAAP) as an indicator of the Company's operating performance or to cash
flow as a measure of liquidity. It is presented herein as the Company evaluates
and measures each business unit's performance based on their EBITDA results.
EBITDA may not be available for the Company's discretionary use as there are
requirements to repay debt, among other payments. See EBITDA reconciliation
below ($ in 000's):

<TABLE>
<CAPTION>
                                                         For the years ended December 31,
                                                              2001           2002
                                                            --------       ---------
<S>                                                         <C>            <C>
EBITDA reconciliation
     Net Loss                                               $ (1,046)      $ (71,241)
     Depreciation and amortization of intangibles             13,944          10,709
     Income taxes                                                281           2,101
     Interest expense                                         32,403          28,849
     Non-cash, non-recurring charges                              --          76,302
                                                            --------       ---------
     EBITDA                                                 $ 45,582       $  46,720
                                                            ========       =========
</TABLE>



                                  Page 62 of 62
<PAGE>

Results of Operations for the year ended December 31, 2001 -- Weekly Reader
Corporation and Subsidiaries

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

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                2000 (a)                2001
                                                                      -----------------------------  ------------------------------
                                                                        Amount      % of Net Sales     Amount      % of Net Sales
                                                                      -----------   ---------------  ------------  ----------------
                                                                                         (Dollars in millions)

<S>                                                                  <C>            <C>             <C>            <C>
Sales, net                                                               $ 154.8            100.0%       $ 162.2            100.0%
Cost of goods sold                                                          41.3             26.7%          43.7             26.9%
                                                                      -----------   ---------------  ------------  ----------------
Gross profit                                                             $ 113.5             73.3%       $ 118.5             73.1%
Costs and expenses:
      Sales and marketing                                                   27.0             17.5%          29.3             18.2%
      Distribution, circulation and fulfillment                             13.0              8.4%          14.3              8.8%
      Editorial                                                             10.5              6.8%          10.6              6.5%
      General and administrative                                            18.7             12.1%          18.9             11.7%
      Depreciation                                                           1.9              1.2%           2.0              1.2%
                                                                      -----------   ---------------  ------------  ----------------
                                                                            71.1             45.9%          75.1             46.4%
                                                                      -----------   ---------------  ------------  ----------------
Income before amortization of goodwill and intangible assets,
  interest expense, income taxes and other, net                             42.4             27.4%          43.4             26.7%
Amortization of goodwill and intangible assets                              12.1              7.8%          12.0              7.4%
                                                                      -----------   ---------------  ------------  ----------------
Income from operations                                                      30.3             19.5%          31.4             19.3%
Interest Expense                                                           (34.3)           (22.2%)        (32.4)           (20.0%)
Other income (expense), net                                                  0.2              0.1%           0.2              0.1%
                                                                      -----------   ---------------  ------------  ----------------
Loss before income tax provision                                            (3.8)            (2.6%)         (0.8)            (0.6%)
Income tax provision                                                        (0.6)            (0.4%)         (0.3)            (0.2%)
                                                                      -----------   ---------------  ------------  ----------------
Net loss                                                                  $ (4.4)            (2.9%)       $ (1.1)            (0.8%)
                                                                      ===========   ===============  ============  ================

      EBITDA(b)                                                           $ 44.5             28.7%        $ 45.6             28.1%
                                                                      ===========   ===============  ============  ================
</TABLE>

(a) Certain reclassifications have been made to the prior year in order to be
consistent with current year presentation.

(b) EBITDA is defined as income (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA data is included because we believe that
this information may be considered by investors as an additional basis on which
to evaluate Weekly Reader Corporation's ability to pay interest, repay debt and
make capital expenditures. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA in this report is not necessarily
comparable to similarly titled measures of other companies. EBITDA is not
intended to represent cash flow from operating activities and should not be
considered an alternative to net income or loss(as determined in conformity with
GAAP) as an indicator of the Company's operating performance or to cash flow as
a measure of liquidity. It is presented herein as the Company evaluates and
measures each business units performance based on their EBITDA results. EBITDA
may not be available for the Company's discretionary use as there are
requirements to repay debt, among other payments.


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Sales, net. For the year ended December 31, 2001, net sales increased $7.4
million, or 4.8%, to $162.2 million from $154.8 million for the year ended
December 31, 2000. The increase in sales at Weekly Reader was due to (1) an
increase in sales at American Guidance Service of $2.8 million, or 5.2%, to
$56.8 million for the year ended December 31, 2001 from $54.0 million for the
year ended December 31, 2000 as a result of $3.9 million increase in curriculum
sales partially offset by $1.0 million decrease in sales of assessment products
primarily caused by the strong performance of our revised GFTA assessment
(Goldman-Fristoe Test of Articulation) release in 2000; (2) an increase in sales
at World Almanac of $2.9 million, or 5.3% to $58.0 million for the year ended
December 31, 2001 from $55.1 million for the year ended December 31, 2000
primarily as a result of (i) $1.6 million or 25.0% higher telemarketing and
website sales at World Almanac's Facts On File News Service; (ii) $1.0 million
or 7.3% higher

                                  Page 63 of 63
<PAGE>

telemarketing sales at Gareth Stevens; (iii) $1.1 million or 3.5% increase in
sales of World Almanac books ($0.4 million) and sales of World Almanac
Education's Library Services ($0.7 million) partially offset by $0.8 million or
24.3% sales decrease at Funk & Wagnalls. The decrease at Funk & Wagnalls is
driven by the anticipated decline in the Yearbook business. Excluding Funk &
Wagnalls, World Almanac's core revenue increased by $3.7 million, or 7.2% to
$55.4 million from $51.7 million in 2000; and (iv) and increase in Weekly
Reader's sales, not including World Almanac and American Guidance, of $1.6
million or 3.5% for the year ended December 31, 2001 to $47.3 million from $45.7
million for the year ended December 31, 2000, primarily attributable to higher
Licensing revenue, $2.4 million or 252.8%; higher shipments in Lifetime Learning
Systems, $0.6 million or 7.9%; offset by lower Skills Books $1.1 million or
42.3%; and unfavorable Periodical revenue, $0.2 million or 0.6%. Weekly Reader's
licensing, which is primarily known for its flagship Weekly Reader Seal of
Approval program, added a new distribution channel in 2001. The Weekly Reader
Book Club was sold for the first time on the QVC television network over one day
in November 2001. Sales through QVC exceeded all expectations- with Weekly
Reader selling more than $1.4 million in high quality books. The decrease in
Skills book revenue is attributable to the prior year of 2000 representing a
presidential election year. Skills book sales historically significantly
increase in presidential election years.

Gross profit. For the year ended December 31, 2001, gross profit increased $5.0
million or 4.4% to $118.5 million from $113.5 million in 2000. This increase was
a result of (1) an increase in gross profit at American Guidance of $3.2
million, or 8.1%, to $42.6 million from $39.4 million for the year ended
December 31, 2000 as a result of an increase in sales volume described above;
and (2) an increase in gross profit at World Almanac of $1.7 million, or 4.7%,
to $38.2 million from $36.5 million in 2000 as a result higher sales. Gross
profit at Weekly Reader, not including World Almanac and American Guidance,
increased $0.1 million, or 0.3%, to $37.6 million for the year ended December
31, 2001 from $37.5 million for the year ended December 31, 2000 as a result of
an increase in sales volume described above.

Gross profit as a percentage of sales decreased slightly to 73.1% for the year
ended December 31, 2001 from 73.3% in 2000.

Operating costs and expenses. For the year ended December 31, 2001, operating
costs and expenses (excluding amortization of goodwill and intangible assets)
increased $4.0 million, or 5.6%, to $75.1 million from $71.1 million in 2000
primarily due to (i) $2.3 million or 8.5% increase in sales and marketing
expense; (ii) $1.3 million or 10.0% increase in distribution, circulation and
fulfillment expense; and (iii) $0.2 million or 1.1% increase in general and
administrative expense.

Sales and marketing expense increased $2.3 million or 8.5% primarily at American
Guidance and World Almanac attributable to the higher sales volume described
above.

The increase in distribution, circulation and fulfillment expense of $1.3
million or 10.0% to $14.3 million for the year ended December 31, 2001 from
$13.0 million in 2000 was primarily driven by higher distribution costs at
Weekly Reader (excluding AGS and World Almanac) related to its new QVC sales
channel and at AGS driven by higher sales.

                                  Page 64 of 64
<PAGE>

Income before amortization of goodwill and intangible assets, interest expense,
income taxes and other, net. For the year ended December 31, 2001, Income before
amortization of goodwill and intangible assets, interest expense, income taxes
and other, net increased by $1.0 million, or 2.4%, to $43.4 million from $42.4
million in 2000. This increase was primarily a result of $5.0 million of higher
gross profit driven by the increase in sales described above partially offset by
$4.0 higher operating costs and expenses (before amortization of goodwill and
intangible assets) described above.

Amortization of goodwill and intangible assets. For the year ended December 31,
2001, amortization of goodwill and intangible assets of $12.0 million was
essentially flat compared to 2000.

Income from operations. For the year ended December 31, 2001, income from
operations increased by $1.1 million, or 3.6%, to $31.4 million from $30.3
million in 2000 and operating income as a percentage of sales decreased to 19.4%
from 19.6% in 2000 due to the factors described above.

Interest expense. For the year ended December 31, 2001, interest expense
decreased by $1.9 million, or 5.5%, to $32.4 million from $34.3 million in 2000
and interest expense as a percentage of sales decreased to 20.0% from 22.2% in
2000. Interest expense for the years ended December 31, 2001 and 2000 relates to
debt and amortization of deferred financing costs associated with the
Acquisition and Recapitalization.

Other, net. For the year ended December 31, 2000, other, net remained unchanged
at $0.2 million.

Income tax provision. For the year ended December 31, 2001, provision for income
taxes decreased by $0.3 million or 50.0% to an income tax provision of $0.3
million from a provision for income taxes of $0.6 million in 2000.

Net loss. For the year ended December 31, 2001, net loss decreased by $3.3
million, or 75.0%, to a net loss of $1.1 million from net loss of $4.4 million
in 2000. Net loss as a percentage of net sales decreased to negative 0.8% for
the year ended December 31, 2001 from negative 3.0% in 2000. The decrease to net
loss was primarily due to the factors described above.

EBITDA. For the year ended December 31, 2001, EBITDA increased $1.1 million, or
2.5%, to $45.6 million from $44.5 million in 2000. This increase is primarily
attributable to $5.0 million of higher gross profit driven by the increase in
sales described above partially offset by $4.1 million higher operating costs
and expenses not including depreciation described above. EBITDA is defined as
income (loss) before interest expense, income taxes, depreciation and
amortization. EBITDA data is included because we believe that this information
may be considered by investors as an additional basis on which to evaluate WRC
Media's ability to pay interest, repay debt and make capital expenditures.
Because all companies do not calculate EBITDA identically, the presentation of
EBITDA in this report is not necessarily comparable to similarly titled measures
of other companies. EBITDA is not intended to represent cash flow from operating
activities and should not be considered an alternative to net income or loss (as

                                  Page 65 of 65
<PAGE>

determined in conformity with GAAP) as an indicator of the Company's operating
performance or to cash flow as a measure of liquidity. It is presented herein as
the Company evaluates and measures each business unit's performance based on
their EBITDA results. EBITDA may not be available for the Company's
discretionary use as there are requirements to repay debt, among other payments.
See EBITDA reconciliation below ($ in 000's):

<TABLE>
<CAPTION>
                                                          For the years ended December 31,
                                                           2000                    2001
                                                         ---------               ---------
<S>                                                      <C>                     <C>
EBITDA reconciliation
     Net Loss                                            $  (4,418)              $  (1,046)
     Depreciation and amortization of intangibles           13,983                  13,944
     Income taxes                                              592                     281
     Interest expense                                       34,293                  32,403
     Non-cash, non-recurring charges                             9                     -
                                                         ---------               ---------
EBITDA                                                      44,459               $  45,582
                                                         =========               =========
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

WRC Media's sources of cash are its operating subsidiaries, Weekly Reader and
CompassLearning, and a $30.0 million revolving credit facility. As of December
31, 2002, there were no outstanding advances under the revolving credit
facility. Additionally, a stand-by letter of credit in the amount of $2.0
million is outstanding in connection with a real estate lease, which reduces
available borrowing under our revolving credit facility by $2.0 million. These
sources of cash are considered adequate for the Company's needs for the
foreseeable future.

For the January through June time period, WRC Media and its subsidiaries usually
experience negative cash flow due to the seasonality of its business As a result
of this business cycle, borrowings usually increase during the period January
through June time period, and borrowings generally will be at its lowest point
in the fourth quarter. The Company's cash and cash equivalents increased by $0.2
million during the year ended December 31, 2002. Included in cash is
approximately $1.2 million of restricted monies which represent the remaining
proceeds from the issuance of $13.8 million 18% Junior Cumulative Convertible
Preferred Stock on May 9, 2001 used to purchase and fund ChildU and its minority
investment in ThinkBox. The $1.2 million in funds cannot be commingled with WRC
Media's cash from operations or borrowings under its revolving credit facility.
Similarly, the Company cannot use cash from operations or borrowings under its
revolving credit facility to fund WRC Media's unrestricted subsidiary, ChildU
and its investment in ThinkBox.

WRC Media and its subsidiaries' operations provided $12.5 million in cash for
the year ended December 31, 2002. WRC Media and its subsidiaries' principal uses
of cash are for debt service, capital expenditures, working capital and
acquisitions.

WRC Media and its subsidiaries' investing activities for the year ended December
31, 2002 included: capital expenditures of $1.4 million and investment in
software development of $4.3 million. Weekly Reader's capital expenditures,
which consisted primarily of expenditures for property and equipment, were $1.1
million for the year ended for December 31, 2002. During

                                  Page 66 of 66
<PAGE>

2002, the Company received proceeds of approximately $0.6 million from
disposition of a building it owned. CompassLearning's capital expenditures,
which consisted primarily of purchases of computer equipment, were $0.3 million
for the year ended December 31, 2002. In the prior year ended December 31, 2001,
WRC Media and subsidiaries investing activities included: the acquisition of
ChildU for $11.3 million, the acquisition of Lindy for $7.0 million, capital
expenditures of $4.1 million and investment in ThinkBox of $3.9 million.

WRC Media and its subsidiaries' financing activities consist of making drawings
from and repayments to, our revolving credit facility and retiring amounts due
under our senior secured term loans. For the year ended December 31, 2002,
financing activities used cash of $7.2 million. The company repaid $6.2 million
of the senior secured term loans, incurred $0.7 million in financing fees,
realized proceeds from sale of common stock of $0.2 million and incurred $0.5
million to re-purchase common stock subject to redemption.

For the year ended December 31, 2001, financing activities provided cash of
$25.7 million, resulting from proceeds from the issuance of preferred stock of
$13.8 million, proceeds from issuance of common stock of $6.5 million and
proceeds from term loans of $10.0 million. In 2001, the Company used cash to
repay $4.6 million of the senior secured term loans. The proceeds from the
issuance of the preferred stock and common stock in 2001 were used to acquire
ChildU and allow WRC Media to make its strategic investment in ThinkBox. In
addition, in 2001 the $10.0 million in proceeds from term loans was used to
acquire Lindy for $7.0 million and the $3.0 million excess funds were used for
general corporate purposes, primarily repayment of revolving credit advances.

We believe that our current cash position, cash from operations and the
availability under our revolving credit facility is sufficient to finance the
Company's operations through December 31, 2003.

The terms of our senior secured credit agreement require us on an ongoing basis
to meet certain financial covenants, including a maximum leverage ratio covenant
and a minimum fixed charge coverage ratio covenant. The ratios are measured as
of the last day of each fiscal quarter. On January 1, 2003, our minimum fixed
charge coverage ratio covenant (as defined in the credit agreement) increased
from 1.0:1.0 to 1.05:1.0, and on October 1, 2003 and January 1, 2004, will
increase to 1.10:1.0 and 1.5:1.0, respectively. The maximum leverage ratio
covenant (as defined in the credit agreement amended on July 15, 2002) will
decrease on July 1, 2003 from 5.75:1.0 to 5.50:1.0, and on October 1, 2003 and
January 1, 2004, will decrease to 5.0:1.0 and 4.0:1.0, respectively. Neither the
leverage ratio covenant nor the fixed charge coverage ratio covenant will change
after January 1, 2004. As of December 31, 2002, our leverage ratio was 5.31:1.0
and our fixed charge ratio coverage ratio was 1.45:1.0. As of December 31, 2002,
we were in compliance with both the leverage ratio covenant and the fixed charge
coverage ratio covenant. If we are unable to comply with the financial covenants
as in effect at the end of each fiscal quarter, we will be in default under the
credit agreement. Upon any default, the lenders have no obligation to grant a
waiver and have the right to accelerate repayment in full of all amounts
outstanding under credit agreement, including all amounts outstanding under the
term loan facilities and revolving credit facility. As of December 31, 2002,
$126.7 million was outstanding under our term loan facilities, and there were no
outstanding borrowings under the revolving credit facility. We can make no
assurances that, if any such

                                  Page 67 of 67
<PAGE>

default occurs and is not waived, we would be able to repay such amounts. Our
credit agreement is secured by liens on substantially all of our assets.

WORKING CAPITAL

As of December 31, 2002, WRC Media and its subsidiaries had negative working
capital of $32.7 million. Weekly Reader subscriptions are recorded as deferred
revenue when received and recognized as income over the term of the
subscription. Excluding Weekly Reader deferred revenue of $14.4 million as of
December 31, 2002 related to 2002-2003 school year subscriptions results in
negative working capital of $18.3 million. There are no unusual registrant or
industry practices or requirements relating to working capital items.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company documents and accounts for derivative and hedging activities in
accordance with the provisions of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities as
amended." Changes in the fair value of derivatives which are not designated as,
or which do not qualify as, hedges for accounting purposes are reported in
earnings in the period in which they occur.

As disclosed in Note 2 to the Financial Statements, the Company uses derivative
financial instruments to reduce its exposure to interest rate volatility. In
2002, the Company used interest rate swaps and caps to reduce exposure to
interest rate changes. WRC Media Corporation has $152 million of callable senior
subordinated notes outstanding. These notes pay a fixed coupon of 12.75% and
mature on November 15, 2009. The prolonged Fed easing campaign of 2001-2002 has
brought short-term rates down to 40-year lows, greatly increasing the
opportunity cost of the notes. In order to immediately reduce funding costs, WRC
Media moved down the yield curve by swapping a portion of the fixed rate 12.75%
Notes to floating rate. In addition, WRC also guaranteed positive carry for the
one-year period May 15, 2002 through May 15, 2003 of the transaction by locking
in the LIBOR forwards below the fixed rate of the swap. The swap transaction did
not qualify for hedge accounting treatment and as such, the Company
marks-to-market the swap contract at the end of each quarter. In the fourth
quarter ended December 31, 2002, WRC unwound its interest rate swaps recognizing
a realized gain of $1.7 million. This gain is reflected in Other, net in the
consolidated statement of operations. At December 31, 2002, Weekly Reader
Corporation had one outstanding derivative financial instrument in place, an
interest rate cap on 50% of its senior secured term loans as required by the
senior credit facility. Our senior credit facilities require us to obtain
interest rate protection on at least 50% of our senior secured term loans for
the duration of the senior credit facilities. On November 15, 2002, we entered
into financial instruments with a notional value of $64.8 million, which
terminates on November 15, 2003 and requires us to pay a floating rate of
interest based on the three-month LIBO rate as defined in that arrangement with
a cap rate of 2.5%. The fair value of the interest rate cap as of December 31,
2002 was de-minimus.

                                  Page 68 of 68
<PAGE>

SEASONALITY

Our operating results have varied and are expected to continue to vary from
quarter to quarter as a result of seasonal patterns. Weekly Reader and
CompassLearning's sales are significantly affected by the school year. Weekly
Reader's sales in the third, and to a lesser extent the fourth, quarter are
generally the strongest as products are shipped for delivery prior to the start
of the school year. CompassLearning's sales are generally strongest in the
fourth quarter, and to a lesser extent the second quarter. CompassLearning's
fourth quarter sales are strong as a result of sales patterns driven in part by
its commissioned sales force seeking to meet year-end sales goals as well as by
schools purchasing software to be installed in time for teachers to be trained
prior to the end of the school year in June. CompassLearning's sales are strong
in the second quarter generally because schools frequently combine funds from
two budget years, which typically end on June 30 of each year, to make
significant purchases, such as purchases of CompassLearning's electronic
courseware, and because by purchasing in the second quarter, schools are able to
have the software products purchased installed over the summer and ready to
train teachers when they return from summer vacation.

INFLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141 "Business Combinations" (SFAS No. 141), No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142) and No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS No. 141 changes the accounting for business
combinations, requiring that all business combinations be accounted for using
the purchase method and that intangible assets be recognized as assets apart
from goodwill if they arise from contractual or other legal rights, or if they
are separable or capable of being separated from the acquired entity and sold,
transferred, licensed, rented, or exchanged. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
company is currently evaluating the effect that this statement may have on its
financial position and results of operations, but does not believe it will have
a material impact.

In August 2001, FASB issued FAS 144 which superseded FAS 121. FAS 144 also
superseded the accounting and reporting provisions of APB 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, relating to the disposal of a segment of a business. FAS 121 did
not address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30 and, therefore, two accounting models
existed for long-lived assets to be disposed of. FAS 144 established one
accounting model for long-lived assets to be held and used, long-lived assets
(including those accounted for as a discontinued operation)

                                  Page 69 of 69
<PAGE>

to be disposed of by sale and long-lived assets to be disposed of other than by
sale. The Company adopted FAS 144 on January 1, 2002, and it did not have a
material effect on its Consolidated Financial Statements.

In June 2002, FASB issued FAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. FAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). FAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred rather than the date an entity commits to an exit plan. FAS 146 also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of FAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company adopted FAS
146 in 2002 (see Note 13).

In December 2002, the Financial Accounting Standards Board ("FASB") issued FAS
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, FAS
148 amends FAS 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock based employee compensation and the
effect of the method used on reported results. The provisions of FAS 148 are
effective for financial statements for fiscal years and interim periods ending
after December 15, 2002. The disclosure provisions of FAS 148 have been adopted
by the Company (see the Stock Option and Employee Stock Purchase Plans section
to this Note). FAS 148 did not require the Company to change to the fair value
based method of accounting for stock-based compensation. The Company adopted the
disclosure requirements of FAS 148 in 2002.

In November 2002, FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. FIN 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligations undertaken in issuing the guarantee. The
disclosure provisions of FIN 45 are effective for financial statements of
periods ending after December 15, 2002. The Company has adopted the disclosure
provisions. Additionally, the recognition of a guarantor's obligation should be
applied on a perspective basis to guarantees issued after December 31, 2002. The
Company does not believe that the recognition provisions of FIN 45 will have a
material effect on its Consolidated Financial Statements.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variables Interest Entities ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The Company is required to adopt the provisions of
FIN 46 for variable interest entities

                                  Page 70 of 70
<PAGE>

created after January 31, 2003. The adoption of FIN 46 is not expected to have a
material impact on the Company's results of operations or financial position.

The Company has adopted the provisions of EITF Issue No. 99-19, "Reporting
Revenue as Principal versus Net as an Agent" as of January 1, 2000. As a result,
the subsidiary financial statements of CompassLearning, Inc. have recorded all
sales involving hardware components on the gross method for all periods ended in
2000. This accounting change had no effect on gross profit in 2000. The
consolidated financial statements of WRC Media Inc. reflected this accounting
change in its year 2000, 2001 and 2002 results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

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

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

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

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

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

-        Competition from other supplemental education materials companies;

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

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

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

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

                                  Page 71 of 71
<PAGE>

-        The terms of our senior secured credit agreement require us on an
         ongoing basis to meet certain financial covenants, including a maximum
         leverage ratio covenant and a minimum fixed charge coverage ratio
         covenant. Each ratio becomes more stringent periodically through
         January 1, 2004. A default under the credit agreement could result in
         acceleration of payment obligations and would impact our ability to
         finance our business through other debt agreements.

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

PART II

ITEM 7A            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

We are subject to market risk exposure related to changes in interest rates on
our $126.7 million (as of December 31, 2002) senior secured term loans under our
senior credit facilities. Interest on borrowings under our senior credit
facilities will bear interest at a rate per annum equal to:

         (1)      for the revolving credit facility maturing in three years and
                  the $20.2 million senior secured term loan A facility maturing
                  in three years, the LIBO rate as defined in the credit
                  agreement plus 3.50% or the alternate base rate as defined in
                  the credit agreement plus 2.50% subject to performance-based
                  step; and

         (2)      for the $96.7 million senior secured term loan B facility
                  maturing in four years, the LIBO rate plus 4.25% or the
                  alternate base rate plus 3.25%.

         (3)      for the $9.8 million senior secured new term A loan facility
                  maturing in four years, the LIBO rate plus 4.25% or the
                  alternate base rate plus 3.25%

As discussed above, our senior credit facilities require us to obtain interest
rate protection for at least 50% of our senior secured term loans for the
duration of the senior credit facilities. On November 15, 2002, we entered into
an arrangement with a notional value of $64.8 million, which terminates on
November 15, 2003 and requires us to pay a floating rate of interest based on
the three-month LIBO rate as defined in that arrangement with a cap rate of
2.5%. The fair value of the interest rate cap as of December 31, 2002 was
de-minimus.

                                  Page 72 of 72
<PAGE>

PART II

ITEM 8            CONSOLIDATED FINANCIAL STATEMENTS

Index to Consolidated Financial Statements and
  Financial Statement Schedule                                           PAGE(S)

WRC MEDIA INC. AND SUBSIDIARIES (CO-ISSUER OF SENIOR
SUBORDINATED NOTES):
Independent Auditors Report--Deloitte & Touche LLP                           74
Report of Independent Public Accountants-Arthur Andersen LLP                 75
Consolidated Balance Sheets as of December 31, 2001 and 2002                 76
Consolidated Statements of Operations for the Years
Ended December 31, 2000, 2001 and 2002                                       78
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2000, 2001 and 2002                                       79
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 2001 and 2002                                 80
Notes to Consolidated Financial Statements                                   81

WEEKLY READER CORPORATION AND SUBSIDIARIES (CO-ISSUER OF
SENIOR SUBORDINATED NOTES):
Independent Auditors Report--Deloitte & Touche LLP                          109
Report of Independent Public Accountants-Arthur Andersen LLP                110
Consolidated Balance Sheets as of December 31, 2001 and 2000                111
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 2001 and 2002                                            113
Consolidated Statements of Stockholders' Deficit for the
Years Ended December 31, 2000, 2001 and 2002                                114
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 2001 and 2001                                            115
Notes to Consolidated Financial Statements                                  116

                                  Page 73 of 73
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
WRC Media Inc.
New York, New York

We have audited the accompanying consolidated balance sheet of WRC Media Inc.
and subsidiaries (the "Company") as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity(deficit), and cash
flows for the year ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company as of and for the years ended December 31, 2001 and
2000, prior to the addition of the transitional disclosures relating to the
goodwill and intangible assets, as described in note 2 of the notes to the
consolidated financial statements, were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on those
financial statements in their report dated February 21, 2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of WRC Media Inc. and subsidiaries as
of December 31, 2002, and the results of their operations and their cash flows
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in note 2 of the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets to
conform to statement of financial standards No. 142 as of January 1, 2002.

As disclosed above, the consolidated financial statements of WRC Media Inc. and
subsidiaries as of December 31, 2000 and 2001, and for the years then ended were
audited by other auditors who have ceased operations. As described in note 2,
these consolidated financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting Standards
No. 142 ("Goodwill and Other Intangible Assets") (SFAS No. 142), which was
adopted by the Company as of January 1, 2002. Our audit procedures with respect
to the disclosures in note 2 of the notes to the consolidated financial
statements relating to Goodwill and Intangible Assets for 2000 and 2001 included
(i) agreeing the previously reported net loss to the previously issued financial
statements and the adjustments to reported net loss representing amortization
expense recognized in those periods related to intangible assets and goodwill
that are no longer being amortized, as a result of initially applying SFAS No.
142 to the Company's underlying records obtained from management, and (ii)
testing the mathematical accuracy of the reconciliation of adjusted net loss to
reported net loss. In our opinion, the transitional disclosures for 2000 and
2001 in note 2 of the notes to the consolidated financial statements relating to
Goodwill and Intangible Assets are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2000 and 2001 consolidated
financial statements of the Company other than with respect to such disclosures
and, accordingly, we do not express an opinion or any other form of assurance on
the 2000 and 2001 consolidated financial statements taken as a whole.

DELOITTE & TOUCHE LLP
New York, New York
March 7, 2003

                                  Page 74 of 74
<PAGE>

WRC Media Inc. dismissed Arthur Andersen LLP on April 29, 2002, and subsequently
engaged Deloitte & Touche LLP as its independent auditors. The predecessor
auditors' report appearing below is a copy of Arthur Andersen LLP's previously
issued opinion dated February 21, 2002. In fiscal 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). As discussed in the Intangible Assets
and Goodwill note to the financial statements, the Company has presented
transitional disclosures for 2000 and 2001 required by SFAS No. 142. The Arthur
Andersen LLP report does not extend to these transitional disclosures. These
disclosures are reported on by Deloitte & Touche LLP as stated in their report
appearing on the previous page. Since WRC Media Inc. is unable to obtain a
manually signed audit report, a copy of Arthur Andersen LLP's most recently
signed and dated report has been included to satisfy filing requirements, as
permitted under Rule 2-02(e) of Regulation S-X.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To WRC Media Inc.:

We have audited the accompanying consolidated balance sheets of WRC Media Inc.
(a Delaware corporation) and subsidiaries as of December 31, 2000 and 2001, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the period from May 14, 1999 (inception) through
December 31, 1999 and for the years ended December 31, 2000 and 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WRC Media Inc. and subsidiaries
as of December 31, 2000 and 2001, and the results of its operations and its cash
flows for the period from May 14, 1999 (inception) through December 31, 1999 and
for the years ended December 31, 2000 and 2001, in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 21, 2002

                                  Page 75 of 75
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                             December 31,
                  ASSETS                                 2001            2002
                  ------                             ------------    ------------
<S>                                                  <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                        $      8,919    $      9,095
    Accounts receivable (Note 3)                           43,658          38,373
    Inventories, net (Notes 2 and 4)                       15,026          15,287
    Prepaid expenses                                        3,468           3,200
    Other current assets (Note 5)                          13,891           1,797
                                                     ------------    ------------
                 Total current assets                      84,962          67,752
PROPERTY AND EQUIPMENT, net (Notes 2 and 8)                 9,215           6,299
PURCHASED SOFTWARE, net (Note 6)                            2,851           4,970
GOODWILL (Notes 1 and 2)                                  234,982         163,349
DEFERRED FINANCING COSTS, net (Note 2)                      6,645           6,165
OTHER INTANGIBLE ASSETS, net (Note 7)                     119,492         100,499
OTHER ASSETS AND INVESTMENTS (Note 9)                      20,715          25,218
                                                     ------------    ------------
                 Total assets                        $    478,862    $    374,252
                                                     ============    ============
</TABLE>

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

                                  Page 76 of 76
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                         December 31,
                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  2001             2002
                    ----------------------------------------------              -----------      -------------
<S>                                                                             <C>              <C>
CURRENT LIABILITIES:
  Accounts payable                                                              $    18,180      $      20,869
  Accrued payroll, commissions and benefits                                          11,305              8,693
  Current portion of deferred revenue (Note 2)                                       39,070             39,840
  Other accrued liabilities (Note 10)                                                33,996             23,285
  Current portion of long-term debt (Note 12)                                         6,171              7,721
                                                                                -----------      -------------
               Total current liabilities                                            108,722            100,408

DEFERRED REVENUE, net of current portion (Note 2)                                     2,040              1,167

DUE TO RELATED PARTY                                                                  2,160              2,160

DEFERRED TAX LIABILITY                                                                    -             10,700

LONG-TERM DEBT (Note 12)                                                            273,544            266,219
                                                                                -----------      -------------
               Total liabilities                                                    386,466            380,654
                                                                                -----------      -------------
COMMITMENTS AND CONTINGENCIES (NOTE 20):

15% SERIES B PREFERRED STOCK SUBJECT TO REDEMPTION, including
  accrued dividends and accretion of warrant value (Note 14) (Liquidation
  preference of $75,000 plus accrued dividends)                                      92,760            109,966
                                                                                -----------      -------------
WARRANTS ON PREFERRED STOCK (Note 14)                                                11,751             11,751
                                                                                -----------      -------------
COMMON STOCK SUBJECT TO REDEMPTION (Note 14)                                          1,180                965
                                                                                -----------      -------------
STOCKHOLDERS' EQUITY (Note 17):
  Common stock ($.01 par value, 20,000,000 shares authorized; 7,009,750
    outstanding)                                                                         70                 70
  Preferred stock ($.01 par value, 750,000 shares authorized,
    459,525 outstanding)                                                             15,413             18,381
  Additional paid-in capital                                                        132,562            132,464
  Accumulated comprehensive loss                                                       (316)            (3,357)
  Accumulated deficit                                                              (161,024)          (276,642)
                                                                                -----------      -------------
               Total stockholders' equity (deficit)                                 (13,295)          (129,084)
                                                                                -----------      -------------
               Total liabilities and stockholders' equity (deficit)             $   478,862      $     374,252
                                                                                ===========      =============
</TABLE>

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

                                 Page 77 of 77
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                    2000            2001         2002
                                                                                -----------      ----------   -----------
<S>                                                                             <C>              <C>          <C>
SALES, net                                                                      $   218,847      $  231,469   $   209,958

COST OF GOODS SOLD                                                                   66,472          65,682        59,011
                                                                                -----------      ----------   -----------
               Gross profit                                                         152,375         165,787       150,947
                                                                                -----------      ----------   -----------
COSTS AND EXPENSES:
  Sales and marketing                                                                48,879          54,658        49,096
  Research and development                                                            4,708           5,751         1,728
  Distribution, circulation and fulfillment                                          13,019          14,350        14,614
  Editorial                                                                          10,519          10,558        10,847
  General and administrative                                                         25,062          26,431        24,470
  Restructuring costs and other non-recurring expenses                                    -               -         8,594
  Depreciation                                                                        2,789           3,227         3,041
  Amortization of goodwill and intangible assets                                     73,730          63,757        18,812
                                                                                -----------      ----------   -----------
               Total operating costs and expenses                                   178,706         178,732       131,202
                                                                                -----------      ----------   -----------
               Income (loss) from operations                                        (26,331)        (12,945)       19,745

INTEREST EXPENSE, INCLUDING AMORTIZATION OF DEFERRED FINANCING COSTS                (35,315)        (33,319)      (29,844)

LOSS ON INVESTMENT (Note 9)                                                               -            (875)       (3,064)

OTHER EXPENSE (INCOME), net                                                             266            (708)          721
                                                                                -----------      ----------   -----------
               Loss before income tax provision                                     (61,380)        (47,847)      (12,442)

INCOME TAX PROVISION                                                                    635             658        10,980
                                                                                -----------      ----------   -----------
               Loss before cumulative effect of change in accounting
               accounting principle                                                 (62,015)        (48,505)      (23,422)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                       -               -       (72,022)
                                                                                -----------      ----------   -----------
               Net loss                                                         $   (62,015)     $  (48,505)  $   (95,444)
                                                                                ===========      ==========   ===========
</TABLE>

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

                                Page 78 of 78
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 and 2002
(in thousands, except share data)

<TABLE>
<CAPTION>
                                                               Common Stock                                    Other
                                                           ---------------------         Additional        Comprehensive
                                                            Shares        Value        Paid-In Capital     Income (Loss)
                                                           -------     -----------     ---------------     -------------
<S>                                                        <C>         <C>             <C>                 <C>
Balance January 1, 2000                                      6,856     $        69     $       126,063     $           -
  Other comprehensive loss:
    Net loss                                                     -               -                   -                 -
    Minimum pension liability                                                    -                   -                 9
    Total comprehensive loss                                     -
  Acquisition of Common Stock Subject to Redemption             (5)              -                   -                 -
  Preferred stock dividends                                      -               -                   -                 -
  Accretion of preferred stock                                   -               -                   -                 -
  Unrealized gain on investment                                  -               -                   -                 -
                                                           -------     -----------     ---------------     -------------
Balance December 31, 2000                                    6,851     $        69     $       126,063     $           9
  Other comprehensive loss:
    Net loss                                                     -               -                   -                 -
    Minimum pension liability                                    -               -                   -              (325)
    Total comprehensive loss
  Acquisition of Common Stock Subject to
    Redemption                                                  (1)              -                   -                 -
  Preferred stock dividends                                      -               -                   -                 -
  Accretion of preferred stock                                   -               -                   -                 -
  Junior preferred stock issued-343,750 Shs
    @ $40.00 per share                                           -               -                   -                 -
  Junior preferred stock dividends                               -               -                   -                 -
  Common stock issues-163 Shs @ $40.00 per share               163               1               6,499                 -
                                                           -------     -----------     ---------------     -------------
Balance December 31, 2001                                    7,013     $        70     $       132,562     $        (316)
  Other comprehensive loss:
    Net loss                                                     -               -                   -                 -
    Minimum pension liability                                    -               -                   -            (3,041)
    Total comprehensive loss
  Preferred stock dividends                                      -               -                   -                 -
  Accretion of preferred stock                                   -               -                   -                 -
  Junior preferred stock dividends                               -               -                   -                 -
  Common stock issues - 8064 shares @ $18.60 per
    share                                                        8               -                 150                 -
  Common stock repurchase -11,559 @
    $18.60-40.00per share                                      (12)              -                (248)                -
                                                           -------     -----------     ---------------     -------------
Balance December 31, 2002                                    7,009     $        70     $       132,464     $      (3,357)
                                                           =======     ===========     ===============     =============

<CAPTION>
                                                                              Junior Preferred Stock            Total
                                                           Accumulated      --------------------------       Stockholder's
                                                             Deficit          Shares         Value         Equity (Deficit)
                                                           -----------      ---------     ------------     ----------------
<S>                                                        <C>                    <C>     <C>              <C>
Balance January 1, 2000                                    $   (20,849)             -     $          -     $        105,283
  Other comprehensive loss:
    Net loss                                                   (62,015)             -                -
    Minimum pension liability                                        -              -                -
    Total comprehensive loss                                                                                        (62,006)
  Acquisition of Common Stock Subject to Redemption                  -              -                -                    -
  Preferred stock dividends                                    (12,122)             -                -              (12,122)
  Accretion of preferred stock                                    (907)             -                -                 (907)
  Unrealized gain on investment                                      -              -                -                    -
                                                           ------------      --------     ------------     ----------------
Balance December 31, 2000                                  $    (95,894)            -     $          -     $         30,248
  Other comprehensive loss:
    Net loss                                                    (48,505)            -                -
    Minimum pension liability                                         -             -                -
    Total comprehensive loss
  Acquisition of Common Stock Subject to                                                                            (48,830)
    Redemption                                                        -             -                -                    -
  Preferred stock dividends                                     (14,044)            -                -              (14,044)
  Accretion of preferred stock                                     (919)            -                -                 (919)
  Junior preferred stock issued-343,750 Shs
    @ $40.00 per share                                                -           344           13,750               13,750
  Junior preferred stock dividends                               (1,663)           42            1,663                    -
  Common stock issues-163 Shs @ $40.00 per share                      -             -                -                6,500
                                                           ------------      --------     ------------     ----------------
Balance December 31, 2001                                  $   (161,024)          386     $     15,413     $        (13,295)
  Other comprehensive loss:
    Net loss                                                    (95,444)            -                -
    Minimum pension liability                                         -             -                -
    Total comprehensive loss                                                                                        (98,485)
  Preferred stock dividends                                     (16,274)            -                -              (16,274)
  Accretion of preferred stock                                     (932)            -                -                 (932)
  Junior preferred stock dividends                               (2,968)           74            2,968                    -
  Common stock issues - 8064 shares @ $18.60 per share                -             -                -                  150
  Common stock repurchase -11,559 @
    $18.60-40.00per share                                             -             -                -                 (248)
                                                           ------------      --------     ------------     ----------------
Balance December 31, 2002                                  $  (276,642)           460     $     18,381     $       (129,084)
                                                           ============      ========     ============     ================
</TABLE>

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

                                 Page 79 of 79
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      2000         2001         2002
                                                                                  -----------  -----------  -----------
<S>                                                                               <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                      $   (62,015) $   (48,505) $   (95,444)
    Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
        Cumulative effect of change in accounting                                           -            -       72,022
        Deferred income tax provision                                                       -            -       10,700
        Depreciation and amortization                                                  76,519       66,984       22,209
        Loss on investment                                                                  -          875        3,064
        Gain (loss) on disposition of property and equipment                              (16)         130          711
        Interest expense-accretion of debt discount                                       304          345          396
        Amortization of deferred financing costs                                        1,030        1,041        1,165
        Changes in operating assets and liabilities net of effects of
        acquisitions-
          Decrease (increase) in accounts receivable                                    4,464         (650)       5,285
          Decrease (increase) in inventories                                               77         (421)        (261)
          Decrease in prepaid expenses and other current assets                         2,377        3,504       12,362
          Increase in other non-current assets                                        (26,206)      (8,034)     (11,117)
          (Decrease) increase in accounts payable                                      (2,232)      (1,635)       2,689
          Decrease in due to related party                                                  -         (786)           -
          Increase in deferred revenue                                                    582        1,986          427
          Decrease in accrued liabilities                                              (1,435)      (7,735)     (11,695)
                                                                                  -----------  -----------  -----------
               Net cash provided by (used in) operating activities                     (6,551)       7,099       12,513
                                                                                  -----------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of acquired business                                                           -      (18,786)           -
    Purchases of property and equipment                                                (3,005)      (4,077)      (1,414)
    Software development costs                                                              -            -       (4,333)
    Proceeds from the disposition of property & equipment                                   -            -          578
    Cost investments                                                                       16       (3,938)           -
                                                                                  -----------  -----------  -----------
               Net cash used in investing activities                                   (2,989)     (26,801)      (5,169)
                                                                                  -----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Retirement of senior bank debt                                                     (2,938)      (4,587)      (6,170)
    Increase in deferred financing fees                                                     -            -         (685)
    Proceeds from term loans                                                                -       10,000            -
    Proceeds from issuance of preferred stock                                               -       13,750            -
    Proceeds from issuance of common stock                                                  -        6,500          150
    Purchase of common stock subject to redemption                                        (75)         (10)        (463)
                                                                                  -----------  -----------  -----------
               Net cash provided by (used in) financing activities                     (3,013)      25,653       (7,168)
                                                                                  -----------  -----------  -----------
    Increase (decrease) in cash and cash equivalents                                  (12,553)       5,951          176

CASH AND CASH EQUIVALENTS, beginning of period                                         15,521        2,968        8,919
                                                                                  -----------  -----------  -----------

CASH AND CASH EQUIVALENTS, end of period                                          $     2,968  $     8,919  $     9,095
                                                                                  ===========  ===========  ===========
</TABLE>

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

                                 Page 80 of 80
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

1.  ORGANIZATION AND DESCRIPTION OF BUSINESS ORGANIZATION

The accompanying consolidated financial statements include the accounts of WRC
Media Inc. ("WRC" or "WRC Media") and its subsidiaries - Weekly Reader
Corporation ("Weekly Reader"), CompassLearning, Inc ("Compass") and ChildU, Inc.
("ChildU"). WRC was incorporated on May 14, 1999. The term "Company" refers to
WRC and its subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.

Business

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

Acquisitions

On July 14, 1999, WRC acquired Compass in a business combination accounted for
as a purchase.

On November 17, 1999, WRC completed the recapitalization and purchase of Weekly
Reader and its subsidiaries. As a result of these transactions, WRC owns 94.9%
and PRIMEDIA Inc. ("PRIMEDIA") owns 5.1% of the common stock of Weekly Reader.

The recapitalization and purchase of Weekly Reader consisted of the following:

         -        The issuance of $152,000 in aggregate principal amount of 12
                  3/4% Senior Subordinated Notes due 2009 by WRC, Weekly Reader
                  and Compass.

         -        WRC loaned Weekly Reader $112,363 of the principal amount of
                  the 12 3/4% Senior Subordinated Notes.

         -        The completion of the senior bank credit facility by WRC,
                  Weekly Reader and Compass as borrowers, comprising of a
                  $30,000 revolving credit facility, a $31,000 term A loan and a
                  $100,000 term B loan.

         -        The issuance of $75,000 of 15% Series B Preferred Stock by WRC
                  and the related issuance of Weekly Reader Preferred Stock to
                  WRC, with substantially identical terms to the WRC preferred
                  stock.

         -        The purchase by Weekly Reader of 71.7% of its common stock
                  outstanding from PRIMEDIA for $287,363.

         -        The purchase by WRC for $107,638 of the remaining 23.2% of
                  Weekly Reader's common stock outstanding.

The acquisition of 94.9% of the stock of Weekly Reader by WRC Media has been
reflected as a business combination accounted for as a purchase. The total cost
of the acquisition, including transaction costs aggregated $429,201.

During 2000, the allocation of the purchase price was finalized. The most
significant adjustment to the preliminary allocation was the valuation of the
non-compete agreement with PRIMEDIA. The net effect of the allocation was the
reclassification of approximately $76,000 related to the non-compete agreement
from goodwill.

                                 Page 81 of 81
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

On May 9, 2001, WRC Media Inc. and subsidiaries completed two acquisitions (the
"2001 acquisitions"). WRC entered into an Agreement and Plan of Merger with
ChildU, Inc. ChildU was incorporated on June 1, 1999 and is a leading provider
of Internet-based educational services to both individual and institutional
consumers. Pursuant to the agreement, each issued share of ChildU's common and
preferred stock not directly or indirectly owned by ChildU was converted into a
contingent right to receive a number of shares of WRC Media Inc. common stock.
Following the merger, WRC agreed to provide funding to ChildU for up to $5,872
of ChildU's existing or committed obligations and liabilities. Concurrent with
the merger, WRC and all holders of ChildU's Group One Notes have entered into an
exchange agreement pursuant to which WRC exchanged 162,500 shares of WRC Media
common stock for all the outstanding Group One Notes. WRC issued $13.75 million
of 18% Junior Participating Cumulative Convertible Preferred Stock, the proceeds
of which will fund the operating losses of ChildU and WRC Media's investment in
ThinkBox(TM) (see Note 9).

The total cost of the acquisition of ChildU was $26,514 (including $ 4,029 of
acquisition costs) and was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows-

         Cash infusion and issuance of WRC stock           $ 11,349
         Goodwill                                            15,165
                                                           --------
                                                           $ 26,514
                                                           ========

Concurrent with the ChildU acquisition, on May 9, 2001, a subsidiary of the
Company acquired the assets of Lindy Enterprises, Inc. ("Lindy"). Lindy develops
a curriculum-based skills assessment and test preparation product that
correlates to national and state curriculum. The total cost of the acquisition
of Lindy was $7,543 (including $1,043 of acquisition costs) and was allocated to
the assets acquired based on their estimated fair values as follows-

         Net liabilities assumed                           $      -
         Property and equipment                                  80
         Deferred financing fees                                993
         Copyrights                                           6,420
         Goodwill                                                50
                                                           --------
                                                           $  7,543
                                                           ========
The 2001 acquisitions were fold-in acquisitions into two existing operating
units of WRC and together did not meet the criteria of the significant
subsidiary test for acquired businesses. As such no pro forma results of
operations are presented.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.

                                 Page 82 of 82
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) basis. The Company periodically evaluates the
realizability of inventories and adjusts its allowance for excess or obsolete
inventory as necessary.

Fair Value of Financial Instruments

The estimated fair value of financial instruments, primarily derivative
financial instruments has been determined by the Company using available market
information and valuation methodologies. Considerable judgment is required in
estimating fair values. Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange. The carrying
values of cash, accounts receivable, and accounts payable approximate fair value
based on the short-term nature of these financial instruments.

Derivative Financial Instruments

Derivative financial instruments are held for purposes other than trading. The
company uses derivative financial instruments to reduce its exposure to interest
rate volatility. All derivative instruments are recorded at fair value. For
those instruments that do not qualify for hedge accounting, changes in fair
value are recognized in income.

The carrying values of the Company's Senior Bank Credit Facilities are assumed
to approximate the market value due to the variable interest rates on these
instruments. The estimated fair values of other financial instruments as of
December 31, 2002 are as follows:

                                        Carrying Amount      Face Value
                                        ---------------      ----------
12 3/4 % Senior Subordinated Notes          $147,273          $152,000

There is no market value information available for the preferred stock and a
reasonable estimate could not be made without incurring excessive costs.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents. Included in cash
as of December 31, 2002 is approximately $1.1 million of restricted monies which
represent the remaining proceeds from the issuance of $13,800 18% Junior
Cumulative Convertible Preferred Stock on May 9, 2001 used to purchase and fund
ChildU and its minority investment in ThinkBox. The $1.1 million in funds cannot
be commingled with WRC Media's cash from operations or borrowings under its
revolving credit facility. Similarly, the Company cannot use cash from
operations or borrowings under its revolving credit facility to fund WRC Media's
unrestricted subsidiary, ChildU and its investment in ThinkBox.

Software Development Costs

Research and Development costs are charged to expense when incurred.
Additionally, the Company capitalizes acquired and developed technologies that
meet the provisions of Statement of Financial Accounting Standards ("SFAS") No.
86. Accounting for the costs of computer software to be sold, leased, or
otherwise marketed. The

                                 Page 83 of 83
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

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

Goodwill and Indefinite Lived Intangible

Goodwill represents the excess of the purchase price of companies acquired over
the fair value of their net assets at the acquisition date. On January 1, 2002,
the Company adopted the requirements of SFAS No. 142, Goodwill and Other
Intangible Assets, for its goodwill and identifiable intangible assets. On
January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible
Assets." Under SFAS 142, goodwill and intangible assets deemed to have
indefinite lived intangible assets (primarily trademarks) are no longer
amortized but are subject to annual impairment tests. Upon adoption of SFAS No.
142,the Company ceased amortizing goodwill and indefinite lived intangible
assets.

The Company tests goodwill for impairment, at least annually, using a fair value
approach at the reporting unit level. A reporting unit is an operating segment
or one level below an operating segment for which discrete financial information
is available and reviewed regularly by management. Assets and liabilities of the
Company have been assigned to the reporting units to the extent that they are
employed in or are a liability related to the operations of the reporting unit
and were considered in determining the fair value of the reporting unit.
Indefinite lived intangible assets will also be tested at least annually for
impairment using a fair value approach.

Intangible assets with a definite life will continue to be tested for impairment
in accordance with the guidance in SFAS 144 "Accounting for the Impairment of
Disposal of Long Lived Assets". Additional details are discussed in Note 7.

Deferred Financing Fees

Deferred financing fees are related to direct costs paid by the Company in
connection with their financing agreements. These costs are deferred and are
being amortized on a straight-line basis over the term of the related debt.
Amortization expense charged to operations for the years ended December 31,
2000, 2001 and 2002 was $1,030, $1,041 and $1,165, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the related assets. Depreciation is provided principally on the
straight-line method for financial reporting purposes and on accelerated methods
for income tax purposes. Leasehold improvements are depreciated over the shorter
of their useful life or lease term.

Revenue Recognition

Subscriptions are recorded as deferred revenue when received and recognized as
income over the term of the subscription. Sales of books, tests and other items
are generally recognized as revenue upon shipment, net of an allowance for
returns.

                                 Page 84 of 84
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The Company recognizes software-based product revenues in accordance with the
provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition, as
amended by SOP 98-4, Deferral of the Effective Date of Certain Provisions of SOP
97-2. Under SOP 97-2, the Company recognizes revenue for hardware and software
sales upon shipment of the product, provided collection of the receivable is
probable, payment is due within one year and the fee is fixed or determinable.
If an acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. If significant
post-delivery obligations exist, revenues are deferred until no significant
obligations remain. Revenue from service contracts, instruction and user
training is recognized ratably as the services are performed and post-contract
support is recognized ratably over the related contract. Deferred revenue
represents the Company's obligation to perform under signed contracts.

In November 2002, the EITF reached a consensus on EITF No. 00-21, "Accounting
for Revenue Arrangements with Multiple Element Deliverables." The issue
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets. Revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate units of
accounting based on their relative fair values. EITF 00-21 also supersedes
certain guidance set forth in Staff Accounting Bulletin Number 101 (SAB 101),
"Revenue Recognition in Financial Statements," issued by the Securities and
Exchange Commission. The final consensus is applicable to agreements entered
into in quarters beginning after June 15, 2003, with early adoption permitted.
Additionally, companies are permitted to apply the consensus guidance to all
existing arrangements as a cumulative effect of a change in accounting
principle. The adoption of EITF 00-21 is not expected to have a material impact
on the Company's consolidated financial statements.

For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance and other post contract support), the Company allocates
revenue to each component of the contract based on vendor specific objective
evidence of its fair value, which is specific to the Company, or for products
not being sold separately, the price established by management. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.

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

Revenue is recognized for magazine subscriptions when the issue is shipped and
available to the subscribers

Comprehensive Loss

SFAS No. 130 "Reporting Comprehensive Income," establishes standards for
reporting and displaying of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. The components of other comprehensive loss consist of pension
liability adjustments.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance is required to offset any net deferred tax
assets if, based upon the available evidence, it is more likely than not that
some or all of the deferred tax asset will not be realized (see Note 16).

                                 Page 85 of 85
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

Expense Recognition and Direct-Response Advertising Costs

Marketing, selling, distribution, editorial, and other general and
administrative expenses are generally expensed as incurred. Certain editorial
costs relating to the American Guidance product lines are deferred and amortized
using both straight-line and accelerated methods over a period of up to ten
years. Capitalized editorial costs are recorded as prepublication costs and are
included in amortization of goodwill and intangible assets. As of December 31,
2001 and 2002, other assets and investments on the accompanying balance sheets,
include prepublication costs, net of amortization of $5,496 and $9,046, of
$13,821 and $20,003.

Advertising and subscription acquisition costs are expensed the first time the
advertising takes place, except for direct-response advertising, the primary
purpose of which is to elicit sales from customers who can be shown to have
responded specifically to the advertising and that results in probable future
economic benefits. Direct-response advertising consists of product promotional
mailings, catalogs and subscription promotions. These direct-response
advertising costs are capitalized and amortized over the estimated period of
future benefit using a ratio of current period revenues to total current and
estimated future period revenues. The amortization periods range from ten months
to thirty months subsequent to the promotional event. Amortization of
direct-response advertising costs is included in marketing and selling expenses
on the accompanying statements of consolidated operations. Direct response
advertising costs charged to operations for the years ended December 31, 2000,
2001 and 2002 was $7,955, $8,903 and $7,596, respectively. As of December 31,
2001 and 2002, other assets and investments on the accompanying balance sheets,
include direct-response advertising costs, net of amortization of $5,002 and
$3,641, of $3,093 and $4,319.

Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires
that an entity account for employee stock-based compensation under a fair value
based method. However, SFAS 123 also allows an entity to continue to measure
compensation cost for employee stock-based compensation arrangements using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company continues to account for employee stock-based compensation using the
intrinsic value based method and is required to make pro forma disclosures of
net income (loss) and related per share amounts as if the fair value based
method of accounting under SFAS 123 had been applied.

At December 31, 2002, the Company has one stock-based employee compensation
plan, which is described more fully in Note 17. The Company accounts for the
plan under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation costs is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.

                                 Page 86 of 86
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The following table details the effect on net loss and loss per share had
compensation expense for the Stock Option Plan been recorded based on the fair
value method under SFAS 123, as amended (see Note 17).

<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                                -----------------------------------------------

                                                     2000            2001            2002
                                                ---------------  --------------  --------------
<S>                                             <C>              <C>             <C>
Net Income, as reported                           $  (62,015)      $  (48,505)     $  (95,444)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects                                     (388)            (753)           (750)
                                                  ----------       ----------      ----------

Pro forma net income                              $  (62,403)      $  (49,258)     $  (96,194)
                                                  ==========       ==========      ==========

Earning per share:
   Basic- as reported                             $    (8.85)      $    (6.92)     $   (13.62)
   Basic- pro forma                               $    (8.90)      $    (7.03)     $   (13.72)

   Diluted- as reported                           $    (8.13)      $    (6.36)     $   (12.51)
   Diluted- pro forma                             $    (8.18)      $    (6.45)     $   (12.61)
</TABLE>

Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board ("FASB") issued FAS
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, FAS
148 amends FAS 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock based employee compensation and the
effect of the method used on reported results. The provisions of FAS 148 are
effective for financial statements for fiscal years and interim periods ending
after December 15, 2002. The disclosure provisions of FAS 148 have been adopted
by the Company (see the Stock Option and Employee Stock Purchase Plans section
to this Note). FAS 148 did not require the Company to change to the fair value
based method of accounting for stock-based compensation. The Company adopted the
disclosure requirements of FAS 148 in 2002.

In November 2002, FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. FIN 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligations undertaken in issuing the guarantee. The
disclosure provisions of FIN 45 are effective for financial statements of
periods ending after December 15, 2002. The Company has adopted the disclosure
provisions. Additionally, the recognition of a guarantor's obligation should be
applied on a perspective basis to guarantees issued after December 31, 2002. The
Company does not believe that the recognition provisions of FIN 45 will have a
material effect on its Consolidated Financial Statements.

                                 Page 87 of 87
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variables Interest Entities ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The Company is required to adopt the provisions of
FIN 46 for variable interest entities created after January 31, 2003. The
adoption of FIN 46 is not expected to have a material impact on the Company's
results of operations or financial position.

In August 2001, FASB issued FAS 144 which superseded FAS 121. FAS 144 also
superseded the accounting and reporting provisions of APB 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, relating to the disposal of a segment of a business. FAS 121 did
not address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30 and, therefore, two accounting models
existed for long-lived assets to be disposed of. FAS 144 established one
accounting model for long-lived assets to be held and used, long-lived assets
(including those accounted for as a discontinued operation) to be disposed of by
sale and long-lived assets to be disposed of other than by sale. The Company
adopted FAS 144 on January 1, 2002, and it did not have a material effect on its
Consolidated Financial Statements.

In June 2002, FASB issued FAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. FAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). FAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred rather than the date an entity commits to an exit plan. FAS 146 also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of FAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company adopted FAS
146 in 2002 (see Note 13).

In July 2001, the Financial Accounting Standards Board ("FASB") issued two new
statements, SFAS No.141, "Business Combinations," and SFAS No.142, "Goodwill and
Other Intangible Assets". SFAS No. 141 requires that the purchase method be used
for all business combinations initiated after June 30, 2001 and prohibits the
use of the pooling of interest method. The adoption of SFAS No. 141 did not have
a material effect on the Company's results of operations or financial position.
SFAS No. 142 specifies the financial accounting and reporting for acquired
goodwill and other intangible assets. Goodwill and intangible assets that have
indefinite useful lives will not be amortized but rather be tested at least
annually for impairment. SFAS No. 142 requires that the useful lives of
intangible assets acquired on or before June 30, 2001 be reassessed and the
remaining amortization periods adjusted accordingly. Previously recognized
intangible assets deemed to have indefinite lives should be tested for
impairment as well. Goodwill recognized on or before June 30, 2001 has been
assigned to various reporting units and has been tested for impairment during
the six months ending June 30, 2002, the period in which SFAS No. 142 is
initially applied in its entirety. On January 1, 2002, the Company adopted SFAS
No. 142 for its goodwill and identifiable intangible assets. Upon adoption, the
Company ceased the amortization of goodwill and other indefinite lived
intangible assets, which consist of trademarks. As required by this statement,
the Company reviewed its indefinite lived intangibles (trademarks) for
impairment as of January 1, 2002. The effect on the results of operations for
the comparative period ended December 31, 2001 and 2000 had the Company adopted
this accounting change on January 1, 2000 would have resulted in reducing the
Company's amortization expense and pre-tax losses approximately $10,993 and
$11,039 for the years ended December 31, 2001 and 2000, respectively.

                                 Page 88 of 88
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The Company completed the transitional impairment tests on its goodwill and
indefinite lived intangibles during the second quarter ended June 30, 2002. The
previous method for determining impairment prescribed by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of," utilized an undiscounted cash flow approach for the impairment
assessment, while SFAS No. 142 utilizes a fair value approach. The Company has
five reporting units with goodwill. Goodwill was tested for impairment at the
reporting unit level. The Company's measurement of fair value was based on an
evaluation of future discounted cash flows. This evaluation utilized the best
information available in the circumstances, including reasonable and supportable
assumptions and projections. The discounted cash flow evaluation considered
several earnings scenarios and the likelihood of possible outcomes.
Collectively, this evaluation was management's best estimate of projected future
cash flows. The Company's discounted cash flow evaluation used a range of
discount rates that corresponds to the Company's weighted-average cost of
capital. This discount rate range assumed was consistent with that used for
investment decisions and takes into account the specific and detailed operating
plans and strategies of the WRC Media's reporting units.

Certain other key assumptions utilized, including changes in revenue, operating
expenses, working capital requirements and capital expenditures including
pre-publication costs, are based on reasonable estimates related to the
Company's strategic initiatives and current market conditions. Such assumptions
also are consistent with those utilized in the Company's annual planning
process. As a result, the Company recorded a transitional goodwill and
indefinite lived intangible asset impairment charge of $72,022 at American
Guidance Service, Inc. a subsidiary of Weekly Reader Corporation. This charge is
reported as a cumulative effect of accounting change, as of January 1, 2002, in
the Condensed Consolidated Statements of Operations. The Company is required to
perform impairment tests on an annual basis, or between yearly tests under
certain circumstances for goodwill and indefinite lived intangibles. There can
be no assurance that future impairment tests will not result in a charge to
earnings.

The Company performed the required impairment tests during the fourth quarter of
2002. No further impairment of goodwill and indefinite lived intangibles was
noted.

<TABLE>
<CAPTION>
                                         ----------------------------------------------------------------------
                                          December 31,        Impairment            Other          December 31,
(in thousands)                                2001            Adjustment          Adjustment           2002
------------------------------------     ----------------------------------------------------------------------

<S>                                         <C>                <C>                 <C>              <C>
Goodwill                                    $ 234,982          $ (66,961)          $  (4,672)       $ 163,349
Long Lived Assets - Trademarks                 47,211             (5,061)                -             42,150
                                            ---------          ---------           ---------        ---------

                                            $ 282,193          $ (72,022)          $  (4,672)       $ 205,499
                                            =========          =========           =========        =========
</TABLE>

In the above table, other adjustments represent $4,672 of acquisition reserves
that were reversed against goodwill. These were related to differences in actual
cost from initial estimates in implementing staffing integrations that arose as
a result of the Compass and Weekly Reader acquisitions. As a result of changes
in estimates in the fourth quarter of 2002, reserves related to these
acquisitions were reversed and recorded as a reduction in goodwill. The staffing
integrations were completed by year-end 2001.

The Company also recorded non-cash deferred income tax expense of approximately
$8,700 on January 1, 2002 and $2,000 during the twelve months ended December 31,
2002, related to the adoption of SFAS 142. The non-cash charge of $8,700 on
January 1, 2002 was recorded to increase the valuation allowance related to the
deferred tax asset associated with the Company's net operating losses.
Historically, the Company did not need a valuation allowance for the portion of
their net operating loss equal to the excess of tax over book amortization on
tax-

                                 Page 89 of 89
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

deductible goodwill and trademarks since the liability was expected to
reverse during the carryforward period of the net operating losses. As a result
of the adoption of SFAS 142, the timing of the reversal of this liability is
indefinite and can no longer be offset by the Company's net operating loss
carryforwards. While book amortization of tax-deductible goodwill and trademarks
ceased on January 1, 2002, the Company continues to amortize these assets for
tax purposes. As a result, the Company will have deferred tax liabilities that
will arise each quarter as the taxable temporary differences related to the
amortization of these assets will not reverse prior to the expiration period of
the Company's deductible temporary differences unless the related assets are
sold or an impairment of the assets is recorded. Accordingly, the Company also
recorded an additional $2,000 to increase the valuation allowance for the twelve
months ended December 31, 2002. The Company expects that it will record an
additional $2,000 to increase the valuation allowance during 2003.

The following information represents pro forma net loss assuming the adoption of
SFAS 142 on January 1, 2000:

<TABLE>
<CAPTION>
                                                                              For the Years Ended
                                                              ----------------------------------------------------
                                                              December 31,       December 31,      December 31,
(in thousands)                                                    2000               2001              2002
------------------------------------------------------------------------------------------------------------------

<S>                                                           <C>                <C>               <C>
Reported Net Income (loss)                                      $(62,015)          $(48,505)          $(95,444)
  Addback:
      Goodwill Amortization                                        9,728              9,682                -
      Amortization of Trademarks                                   1,311              1,311                -
      Cumulative effect of a change in accounting principle          -                  -               72,022
      Deferred provision for income taxes                            -                  -               10,700
                                                                --------           --------           --------
Adjusted Net Income                                             $(50,976)          $(37,512)          $(12,722)
                                                                ========           ========           ========
</TABLE>


The Company adopted the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by Statements of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, and No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, and as interpreted by the FASB and the Derivatives Implementation
Group through "Statement 133 Implementation Issues," (SFAS No. 133, as amended)
as of January 1, 2001. The Company has $152 million of callable senior
subordinated notes outstanding. These notes pay a fixed coupon of 12.75% and
mature on November 15, 2009. The prolonged Fed easing campaign of 2001-2002 has
brought short-term rates down to 40-year lows, greatly increasing the
opportunity cost of the notes. In order to immediately reduce funding costs, the
Company moved down the yield curve by swapping a portion of the fixed rate
12.75% Notes to floating rate starting May 2002. During December 2002, the
Company unwound the interest rate swaps. An interest rate cap on 50% of the
Company's senior secured term loans is required by the senior credit facility.
For the year ended December 31 2002, the Company recorded a realized gain of
$1.7 million on the unwinding of the interest rate swap. This gain is reflected
in Other net in the consolidated statement of operations. On November 15, 2002,
the Company entered into a one year interest rate cap agreement with a notional
of $64.8 million, which caps the LIBOR based rate, as defined, on those loans at
2.5% The interest rate cap agreement did not qualify for hedge accounting
treatment and as such the Company marks to market the contract at the end of
each period. The fair value of the interest rate cap at December 31, 2002 is
de-minimus.

                                 Page 90 of 90
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

Concentration of Credit Risk

The Company's customers include schools and other institutions. Accounts
receivable are generally unsecured and a provision for estimated doubtful
accounts is provided. There are no concentrations of business transacted with a
particular customer or supplier, nor concentrations of revenue from a particular
service or geographic area.

Segment Reporting

The Company has determined that it has one reportable segment in accordance with
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information," which is educational publishing.

Reclassifications

Certain reclassifications have been made to the prior years consolidated
financial statements to conform them to the current year presentation.

3.  ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2001 and 2002 are as follows:

                                                2001           2002
                                            -----------    -----------
  Accounts receivable-                      $    48,440    $    43,173
  Less-
        Allowance for doubtful accounts          (1,942)        (1,717)
        Allowance for returns and rebates        (2,840)        (3,083)
                                            -----------    -----------
                                            $    43,658    $    38,373
                                            ===========    ===========

4.  INVENTORIES

Inventories at December 31, 2001 and 2002 are as follows:

                                                2001           2002
                                            -----------    -----------
  Finished goods                            $    17,187    $    18,178
  Raw materials                                     612            181
  Less - allowance for obsolescence              (2,773)        (3,072)
                                            -----------    -----------
                                            $    15,026    $    15,287
                                            ===========    ===========

                                 Page 91 of 91
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

5.   OTHER CURRENT ASSETS

Other current assets at December 31, 2001 and 2002 are as follows:

                                                2001           2002
                                            -----------    -----------
  Rabbi Trust (Note 20)                     $    13,468    $     1,403
  Promotional costs                                 363            342
  Rent due from landlord                             38              -
  Other receivables                                  22             52
                                            -----------    -----------
                                            $    13,891    $     1,797
                                            ===========    ===========

6.   PURCHASED SOFTWARE

Purchased software at December 31, 2001 and 2002, are as follows:

                                                2001           2002
                                            -----------    -----------
  Purchased software                        $     7,430    $    11,763
  Less - accumulated amortization                (4,579)        (6,793)
                                             -----------    -----------
                                            $     2,851    $     4,970
                                            ===========    ===========

Amortization of purchased software and capitalized software development costs of
$1,858, $1,858 and $2,214 for 2000, 2001 and 2002, respectively, is included in
cost of goods sold and amortization of intangible assets.

7.   OTHER INTANGIBLE ASSETS, NET

<TABLE>
<CAPTION>
                                        -----------------------------------------   ----------------------------------------------
                                                      December 31, 2001                                December 31, 2002
                                        -----------------------------------------   ----------------------------------------------
                                                       Accumulated                                     Accumulated
                         Useful Lives      Gross       Amortization        Net         Gross         Amortization           Net
                         -------------  ------------  --------------   ----------   -------------   ----------------   -----------
<S>                      <C>            <C>           <C>              <C>          <C>             <C>                <C>
Customer Lists             7-9 yrs      $  62,911       $ (15,210)      $  47,701    $  62,911       $ (21,456)         $  41,455
Copyrights                 8 yrs           21,053          (4,537)         16,516       21,053          (8,139)            12,914
Product Titles             7 yrs           13,475          (8,192)          5,283       13,475         (10,256)             3,219
Trade name                 5 yrs            3,520          (2,169)          1,351        3,520          (3,049)               471
Workforce in place         3 yrs            2,980          (2,449)            531        2,980          (2,980)               -
Non-compete agreements     2 yr            77,334         (77,334)            -         77,334         (77,334)               -
Databases                  4-10 yrs           560            (471)             89          560            (551)                 9
Other                      1-5 yrs          1,199            (389)            810          677            (396)               281
                                        ---------       ---------       ---------    ---------       ---------          ---------
         Total:                         $ 183,032       $(110,751)      $  72,281    $ 182,510       $(124,161)         $  58,349
                                        =========       =========       =========    =========       =========          =========
</TABLE>

For intangible assets other than goodwill not subject to amortization, the total
carrying amount for the years ended December 31, 2001 and 2002 was $47,211 and
$42,150, respectively.

                                 Page 92 of 92
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The amortization expense for the years ended December 31, 2000, 2001 and 2002
was $27,391, $49,178 and $15,262, respectively, and is included in amortization
of goodwill and intangible assets on the consolidated statement of operations.
Amortization expense for intangible assets subject to amortization for the next
five years is expected to be as follows:

           Estimated Amortization Expense
          For the years ended December 31,
      ----------------------------------------

       2003..................      $    11,146
       2004..................            8,865
       2005..................            7,424
       2006..................            5,673
       2007..................      $     4,191

8.   PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2001 and 2002, are as follows:

<TABLE>
<CAPTION>
                                                      December 31, 2001                  December 31, 2002
                                                -------------------------------  -------------------------------
                                                     Life          Amount            Life               Amount
                                                ---------------  ---------       -------------         ---------
<S>                                               <C>            <C>                <C>                <C>
Land and buildings                                               $     634                             $       -
Machinery, equipment and computer equipment       3-10 Years        10,459          3-10 Years            10,810
Leasehold improvements                            3-15 Years         3,383          3-15 Years             2,702
Furniture and fixtures                            3-10 Years         4,157          3-10 Years             4,408
Internal use software                             5 Years            1,891          5 Years                2,265
                                                                 ---------                             ---------
         Total                                                      20,524                                20,185
Less-  accumulated depreciation and
       amortization                                                (11,309)                              (13,886)
                                                                 ---------                             ---------
       Property and equipment, net                               $   9,215                             $   6,299
                                                                 =========                             =========
</TABLE>

Depreciation expense was $2,789, $3,227 and $3,041 for the years ended December
31, 2000, 2001 and 2002, respectively.

9.   OTHER ASSETS AND INVESTMENTS

Other assets and investments at December 31, 2001 and 2002 are as follows:

                                             2001                 2002
                                           ---------          -----------
Pre-publication costs, net                 $  13,821          $    20,003
Direct response advertising costs, net         3,093                4,319
Investment in ThinkBox, Inc.                   3,063                    -
Other                                            738                  896
                                           ---------          -----------
                                           $  20,715          $    25,218
                                           =========          ===========

                                 Page 93 of 93
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The Investment in ThinkBox, Inc. was fully reserved as of December 31, 2002.

10.  OTHER ACCRUED LIABILITIES

Other accrued liabilities at December 31, 2001 and 2002 are as follows:

                                              2001                2002
                                           ---------          -----------
Rabbi Trust (Note 21)                      $  13,468          $     1,403
Royalties                                      1,549                1,500
Accrued acquisition costs                      7,851                  572
Accrued interest payable (Note 12)             4,146                3,977
Pension liability (Note 19)                    2,304                5,056
Accrued restructuring costs                        -                6,252
Taxes payable, other than income                 436                  573
Other                                          4,242                3,952
                                           ---------          -----------
                                           $  33,996          $    23,285
                                           =========          ===========

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

In connection with the recapitalization and purchase of Weekly Reader during
November 1999, the Company, Weekly Reader and Compass as co-issuers completed an
offering of $152.0 million 12 3/4% Senior Subordinated Notes due 2009 (the "Old
Notes"). In June 2000, the Old Notes were exchanged in full for $152.0 million
of new 12 3/4% Senior Subordinated Notes due 2009 (the "Notes") that have terms
that are substantially identical to the Old Notes. Interest on the Notes is
payable semi-annually, on May 15 and November 15 of each year. The Notes are
jointly, severally, fully and unconditionally guaranteed by certain subsidiaries
of the Company, including CompassLearning, Inc., a 100% wholly owned subsidiary
and Weekly Reader Corporation, a non-wholly owned subsidiary of the Company
(collectively, the "Subsidiary Guarantors").

The following tables present condensed consolidating financial information for
the years ended December 31, 2001 and 2002 for: (1) the Company on a standalone
basis, (2) Weekly Reader Corporation, a non-wholly owned subsidiary on a
standalone basis, (3) CompassLearning, Inc., a wholly owned subsidiary on a
standalone basis, (4) the non-guarantor subsidiary of the Company (ChildU,
Inc.), and (5) the Company on a consolidated basis.

Separate financial statements for CompassLearning, Inc. are not presented and it
is not filing a separate report under the Securities Exchange Act of 1934
because the Company's management has determined that the information contained
in such documents would not be material to investors.

                                 Page 94 of 94
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                             Subsidiary Guarantors
                                                        ------------------------------
                                                          Weekly                          Non-
                                               WRC        Reader      CompassLearning   Guarantor                    WRC Media Inc.
                                            Media Inc.  Corporation         Inc.       Subsidiaries    Elimination  Consolidated
                                            ----------  ------------- ---------------  ------------    -----------  ---------------
                                                                                (In thousands)
<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
Balance Sheet as of December 31, 2002
Current assets                             $   9,676      $ 119,097      $  24,674      $   1,613      $ (87,308)     $  67,752
Property and equipment, net                      -            5,409            657            233            -            6,299
Goodwill and other intangible assets, net    169,135         53,851         27,449         13,413            -          263,848
Other assets                                 105,398         41,901          6,448          1,325       (118,719)        36,353
                                           ---------      ---------      ---------      ---------      ---------      ---------
Total assets                               $ 284,209      $ 220,258      $  59,228      $  16,584      $(206,027)     $ 374,252
                                           =========      =========      =========      =========      =========      =========

Current liabilities:                       $  85,808      $  62,166      $  29,324      $  10,409      $ (87,299)     $ 100,408
Long-term debt, less current portion         147,273         98,796         20,150            -              -          266,219
Other liabilities                             20,451          2,000          3,327            -              -           25,778
Common stock subject to redemption               965            -              -              -              -              965
Redeemable preferred stock,
  plus accrued dividends                     109,966         75,000            -              -          (75,000)       109,966
Stockholders equity (deficit):               (80,254)      (146,243)         3,809          6,175         87,429       (129,084)
Interdivisional equity                           -          128,539          2,618                      (131,157)           -
                                           ---------      ---------      ---------      ---------      ---------      ---------
Total liabilities and stockholders
  equity (deficit)                         $ 284,209      $ 220,258      $  59,228      $  16,584      $(206,027)     $ 374,252
                                           =========      =========      =========      =========      =========      =========

Balance Sheet as of December 31, 2001
Current assets                             $   6,679      $ 106,376      $  31,743      $     452      $ (60,288)     $  84,962
Property and equipment, net                      -            7,541          1,397            277            -            9,215
Goodwill and other intangible assets, net    176,487        148,001         34,839         14,912            -          374,239
Other assets                                 111,554         17,786          2,618            -         (121,512)        10,446
                                           ---------      ---------      ---------      ---------      ---------      ---------
Total assets                               $ 294,720      $ 279,704      $  70,597      $  15,641      $(181,800)     $ 478,862
                                           =========      =========      =========      =========      =========      =========

Current liabilities:                       $  67,234      $  66,107      $  30,637      $   4,708      $ (60,288)     $ 108,398
Long-term debt, less current portion         146,877        101,479         25,188            -              -          273,544
Other liabilities                             11,751            -            4,197              3            -           15,951
Common stock subject to redemption             1,180            -              -              -              -            1,180
Redeemable preferred stock,
  plus accrued dividends                      92,760         75,000            -              -          (75,000)        92,760
Stockholders equity (deficit):               (25,082)       (91,421)         7,957         10,930         84,645        (12,971)
Interdivisional equity                           -          128,539          2,618                      (131,157)           -
                                           ---------      ---------      ---------      ---------      ---------      ---------
Total liabilities and stockholders
  equity (deficit)                         $ 294,720      $ 279,704      $  70,597      $  15,641      $(181,800)     $ 478,862
                                           =========      =========      =========      =========      =========      =========
</TABLE>


                                 Page 95 of 95
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                             Subsidiary Guarantors
                                                        ------------------------------
                                                          Weekly                          Non-
Statement of operations for the year           WRC        Reader      CompassLearning   Guarantor                    WRC Media Inc.
ended December 31, 2002                     Media Inc.  Corporation         Inc.       Subsidiaries    Elimination  Consolidated
                                            ----------  ------------- ---------------  ------------    -----------  ---------------
                                                                            (In thousands)
<S>                                        <C>          <C>            <C>            <C>            <C>            <C>
Revenue                                     $    --       $ 156,498       $  51,153       $   2,307       $    --         $ 209,958
Operating expenses                              4,178       126,532          55,234           4,269            --           190,213
Interest expense, net                          20,760        28,849              11            --           (19,776)         29,844
Other (income) expense                          4,109        (1,765)             (1)           --              --             2,343
Provision for income taxes                      8,822         2,101              57            --              --            10,980
Cumulative effect of accounting change           --          72,022            --              --              --            72,022
                                            ---------     ---------       ---------       ---------       ---------       ---------
Net income (loss)                           $ (37,869)    $ (71,241)      $  (4,148)      $  (1,962)      $  19,776       $ (95,444)
                                            =========     =========       =========       =========       =========       =========

Cash flow for the year
ended December 31, 2002

Cash flow provided by (used in)
  operations                                $ (21,072)    $  11,139       $   5,129       $  (2,054)      $  19,371       $  12,513
Cash flow provided by (used in)
  investing activities                           --            (524)         (3,156)         (1,489)           --            (5,169)
Cash flow provided by (used in)
  financing activities                         19,583        (8,487)         (2,363)          3,470         (19,371)         (7,168)
Cash at beginning of period                     2,643         5,691             394             191            --             8,919
                                            ---------     ---------       ---------       ---------       ---------       ---------
Cash at end of period                       $   1,154     $   7,819       $       4       $     118       $    --         $   9,095
                                            =========     =========       =========       =========       =========       =========


Statement of operations for the year
ended December 31, 2001

Revenue                                     $    --       $ 162,165       $  68,494       $     810       $    --         $ 231,469
Operating expenses                             41,345       130,693          68,354           4,023            --           244,415
Interest expense, net                          20,646        32,403              (4)             (1)        (19,725)         33,319
Other (income) expense                          1,759          (166)            (11)           --              --             1,582
Provision for income taxes                        245           281             132            --              --               658
                                            ---------     ---------       ---------       ---------       ---------       ---------
Net income (loss)                           $ (63,995)    $  (1,046)      $      23       $  (3,212)      $  19,725       $ (48,505)
                                            =========     =========       =========       =========       =========       =========

Cash flow for the year
ended December 31, 2001

Cash flow provided by (used in)
  operations                                $ (24,519)    $   5,332       $ (20,823)      $  (3,440)      $  50,549       $   7,099
Cash flow provided by (used in)
  investing activities                        (15,303)      (11,391)           (210)            (19)            122         (26,801)
Cash flow provided by (used in)
  financing activities                         42,465         8,836          21,373           3,528         (50,549)         25,653
Cash at beginning of period                      --           2,914              54             122            (122)          2,968
                                            ---------     ---------       ---------       ---------       ---------       ---------
Cash at end of period                       $   2,643     $   5,691       $     394       $     191       $    --         $   8,919
                                            =========     =========       =========       =========       =========       =========



Statement of operations for the year
ended December 31, 2000

Revenue                                     $    --       $ 154,819       $  64,028       $    --         $    --         $ 218,847
Operating expenses                             50,430       124,583          70,165            --              --           245,178
Interest expense, net                          20,714        34,293          34,430            --           (54,122)         35,315
Other (income) expense                           --            (231)            (35)           --              --              (266)
Provision for income taxes                         43           592            --              --              --               635
                                            ---------     ---------       ---------       ---------       ---------       ---------
Net income (loss)                           $ (71,187)    $  (4,418)      $ (40,532)      $    --         $  54,122       $ (62,015)
                                            =========     =========       =========       =========       =========       =========

Cash flow for the year
ended December 31, 2000

Cash flow provided by (used in)
  operations                                $ (30,071)    $  (2,052)      $ (29,384)      $    --         $  54,956       $  (6,551)
Cash flow provided by (used in)
  investing activities                           --          (1,417)         (1,569)           --                (3)         (2,989)
Cash flow provided by (used in)
  financing activities                         28,795        (7,760)         30,905            --           (54,953)         (3,013)
Cash at beginning of period                     1,276        14,143             102            --              --            15,521
                                            ---------     ---------       ---------       ---------       ---------       ---------
Cash at end of period                       $    --       $   2,914       $      54       $    --         $    --         $   2,968
                                            =========     =========       =========       =========       =========       =========
</TABLE>

12.  LONG-TERM DEBT

In connection with the recapitalization and purchase of Weekly Reader during
November 1999, the Company, Weekly Reader and Compass entered into the Senior
Subordinated Note and Senior Bank Credit Facility.

In May 2001, the Company acquired the assets of Lindy Enterprises, Inc. In
connection with this acquisition, the Senior Bank Credit Facility was amended
and restated to include an additional term A loan commitment in the amount of
$10,000. In addition, certain other terms and conditions were amended.

                                 Page 96 of 96
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

At December 31, long-term debt consists of the following:

<TABLE>
<CAPTION>
                                        As of December 31, 2001                        As of December 31, 2002
                         -------------------------------------------------------------------------------------------------------
Debt                        Face       Unamortized    Principal      Book        Face      Unamortized     Principal     Book
Instrument                  Value        Discount      Payments      Value       Value       Discount      Payments      Value
------------             ----------    -----------    ---------    ---------   ---------   -----------    -----------  ---------
<S>                      <C>           <C>            <C>          <C>         <C>         <C>            <C>          <C>
Senior Bank-
Term A (b)               $   28,675    $         -    $   3,487    $  25,188   $  25,188   $         -    $   5,038    $  20,150
Senior Bank-
Term B (b)                   98,750              -        1,000       97,750      97,750             -        1,000       96,750
Senior Bank-
New Term A
(b)                          10,000              -          100        9,900       9,900             -          133        9,767
Revolving
Credit(b)                         -              -            -            -           -             -            -           -
Senior
Subordinated
Notes (a)                   152,000          5,123            -      146,877     152,000         4,727            -      147,273
                         ----------    -----------    ---------    ---------   ---------   -----------    -----------  ---------
Total debt                  289,425          5,123        4,587      279,715     284,838         4,727        6,171      273,940
Less-  current
portion                       6,171              -            -        6,171       7,721             -            -        7,721
                         ----------    -----------    ---------    ---------   ---------   -----------    -----------  ---------
Long-term debt           $  283,254    $     5,123    $   4,587    $ 273,544   $ 277,117   $     4,727    $   6,171    $ 266,219
                         ==========    ===========    =========    =========   =========   ===========    ===========  =========
</TABLE>

(a)      In connection with the recapitalization of the Company in 1999, the
         Company, Weekly Reader and Compass were all co-issuers of 152,000 units
         consisting of $152,000 in aggregate principal amount of 12 3/4% Senior
         Subordinated Notes (the Notes) due 2009 and 205,656 shares of common
         stock. Interest on the Notes is payable semi-annually, on May 15 and
         November 15. For the year ending December 31, 2002, $19,380 of interest
         was paid on the Notes.

         Based upon an independent valuation, $148,289 was allocated to the
         value of the Notes while $3,711 was the value ascribed to the common
         stock. The Notes were issued net of a $2,096 discount, which is being
         accreted to maturity using the effective interest method.

         On or after November 15, 2004, the Company may redeem the Notes at a
         redemption price of 106.375% of the principal amount, plus accrued
         interest thereon decreasing annually to 100% in 2007 and thereafter.

         The Notes are unconditionally guaranteed by the restricted subsidiaries
         of the Company, as defined in the Credit Agreement, as amended.

(b)      The Senior Bank Credit Facilities are comprised of the $30,000
         revolving credit facility maturing in 2005, the $31,000 term loan A
         facility maturing in 2005, the $100,000 term loan B facility maturing
         in 2006 and the $10,000 new term loan A facility maturing in 2006.
         During 2000, the Company applied for and received an annually renewable
         stand-by letter of credit in the amount of $2,000 in connection with a
         real estate lease entered into by the Company. While this letter of
         credit is in effect, the Company's available borrowing under the
         revolving credit facility is reduced by $2,000. As of December 31, 2002
         there had been no drawings against this letter of credit. As of
         December 31, 2002, there were no outstanding advances under the
         revolving credit facility. The term loan A facility, the term loan B
         facility and the new term loan A facility amortize in quarterly
         installments.

                                 Page 97 of 97
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

Loans under the senior bank credit facilities bear interest at a rate per annum
equal to the following:

         1.       For the revolving credit facility and the term loan A
                  facility, the LIBO rate as defined in the credit agreement,
                  plus 3.375% or the alternate base rate as defined in the
                  credit agreement, plus 2.375% (subject to performance-based
                  step downs). As of December 31, 2001 and 2002, term loan A
                  loans outstanding had interest rates that ranged, from 5.29%
                  to 5.82% and from 4.99% to 5.15%, respectively.

         2.       For the term loan B facility and the new term loan A facility,
                  the LIBO rate plus 4.00% or the alternate base rate plus
                  3.00%. As of December 31, 2002, term loan B loans outstanding
                  had interest rates that ranged from 5.40% to 5.84%. As of
                  December 31, 2001 and 2002, the new term loan A loans
                  outstanding has interest rates that ranged from 5.91% to 6.37%
                  and from 5.40% to 5.83%, respectively.

                  In addition to paying interest on outstanding loans under the
                  Senior Bank Credit Facilities, the Company is required to pay
                  a commitment fee to the lenders associated with the revolving
                  credit facility in respect to the unused commitments
                  thereunder at a rate of 0.5% per annum (subject to
                  performance-based step downs). Commitment fees paid for unused
                  revolver for the year ended December 31, 2001 and 2002 was
                  approximately $92 and $97, respectively.

The Senior Bank Credit Facilities are subject to mandatory prepayment with:

         -        the proceeds of the incurrence of certain indebtedness

         -        the proceeds of certain asset sales or other dispositions

         -        the proceeds of issuances of certain equity offerings

         -        annually beginning in 2000, 50% of the Company's excess cash
                  flow (as defined in the credit agreement) from the prior year.

No events occurred during 2002 to cause mandatory prepayments to be required.

The borrowing agreements provide for certain restrictions, including
restrictions on asset sales, dividend payments, additional indebtedness payments
for restricted investments. In addition, the borrowing agreements provide for
the maintenance of certain financial covenants, including a limit on the
consolidated leverage ratio and maintenance of a minimum fixed charged coverage
ratio.

Maturities of long-term debt are as follows:

       2003                                                       $      7,721
       2004                                                              8,496
       2005                                                             27,730
       2006                                                             82,720
       2007                                                                  -
       Thereafter *                                                    152,000
                           Total                                  ------------
                                                                  $    278,667
                                                                  ============
*Includes unamortized discount amount of $4,727.

                                 Page 98 of 98
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

13.  RESTRUCTURING AND OTHER NON-RECURRING EXPENSES

In January 2002, the Company's board of directors approved a separate
restructuring plan (the "2002 Plan of Restructuring") and accordingly, the
Company incurred charges for restructuring, asset write-downs and other exit
costs totaling approximately $8.6 million.

The 2002 Plan of Restructuring included integration and cost reduction
initiatives comprised of closure of facilities and reduction in work force.

Pursuant to the 2002 Plan of Restructuring, 107 positions were eliminated
throughout the company. Severance and other benefit costs of approximately $3.2
million relate to the reduction of these employees from the workforce. This
workforce reduction primarily took place at CompassLearning but all four
operating units of WRC Media were impacted. Most of the workforce reductions
represented administrative and back office related employees. Approximately $1.8
million in severance and other benefit costs relating to the 2002 Plan of
Restructuring were paid as of December 31, 2002. The workforce reductions will
be substantially complete by mid-January 2003. Some benefit costs will extend
beyond the completion of the workforce reductions due to the Company's
contractual severance obligations to certain individuals that will be paid in
2003.

Lease termination costs include future obligations under long-term
non-cancelable lease agreements at facilities that were vacated following the
workforce reductions. The majority of these costs consisted of the estimated
lease costs, net of probable sublease income, associated with the cancellation
of a portion of the Company's lease at 512 Seventh Avenue in New York, N.Y.
which expires in 2015. As a result of the facilities being vacated, certain
assets were written off. All office space was vacated prior to accrual of this
expense. As of December 31, 2002, $5.4 million of the total net charge of $8.6
million has been incurred for lease termination costs and asset write downs.

Of the pre-tax restructuring and other non-recurring expenses totaling
approximately $8.6 million, $6.7 million represents non-cash charges at December
31, 2002. Approximately $1.9 million was spent in 2002 and the remaining $6.3
million is expected to be spent as follows: 2003 - $2.9 million and 2004 and
beyond - $3.4 million.

Components of the company's restructuring plans and other non-recurring
expenses, including the plans initiated in 2002, are shown in the following
table.

<TABLE>
<CAPTION>
($ in 000's)                            Balance at                                Amount             Balance at
                                     December 31, 2001        Charges            Incurred        December 31, 2002
                                    --------------------  ----------------- ------------------- ---------------------
<S>                                 <C>                   <C>               <C>                 <C>
Severance and other benefits        $                 -   $          3,150  $           (1,813) $              1,337
Lease terminations                                    -              4,956                 (41)                4,915
Asset write-downs                                     -                488                (488)                    -
                                    --------------------  ----------------- ------------------- ---------------------
Total                               $                 -   $          8,594  $           (2,342) $              6,252
                                    ====================  ================= =================== =====================
</TABLE>

                                 Page 99 of 99
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

14.  PREFERRED STOCK

15% Series B Senior Preferred Stock-

The Company has authorized the issuance of up to 20,000,000 shares of preferred
stock in one or more series as designed by the board of directors. In connection
with the recapitalization described in Note 1, the Company issued 3,000,000
shares of 15% Series B Senior Preferred Stock, due in 2011 (the "Series B
Preferred Stock") with a liquidation preference of $25.00 per share. The Series
B Preferred Stock shall accrue dividends at a rate of 15% per annum, subject to
adjustment under certain conditions.

In connection with the issuance of the Series B Preferred Stock described above,
the Company issued to the senior preferred stockholders, Preferred Stock
Warrants, which entitle the senior preferred stockholders to acquire 422,784
shares of Weekly Reader voting common stock and 1,495 shares of Compass common
stock. These warrants entitle the holders to acquire 13% of voting common stock
of Weekly Reader and Compass at an exercise price of $0.01 per share. Based upon
an independent valuation, the Company allocated the $75,000 proceeds from the
issuance of the preferred stock as follows:

        Series B Preferred Stock               $  63,249
        Weekly Reader Warrants                     9,133
        Compass Warrants                           2,618
                                               ---------
                                               $  75,000
                                               =========

The present value of the preferred stock is being accreted to maturity using the
effective interest method. Accretion expense for the years ended December 31,
2000, 2001 and 2002 amounted to $908, $919 and $932, respectively.

Prior to December 31, 2004, or such earlier dividend date as the Company may
elect, the Company will pay dividends in-kind. After December 31, 2004,
dividends will be paid in cash. Accrued preferred stock dividends for the year
ended December 31, 2001 and 2002, amounted to $14,044 and $16,274, respectively,
and are payable in additional shares of preferred stock. The Company may redeem
the preferred stock, including unpaid dividends, prior to November 17, 2002, or
after November 17, 2004, subject to certain conditions.

18% Junior Participating Cumulative Convertible Preferred Stock-

The Company has designated 750,000 shares of its 20,000,000 shares authorized of
preferred stock in the 18% Junior Participating Cumulative Convertible Preferred
Stock series (the "Junior Preferred Stock") par value $0.01 per share. In
connection with WRC's acquisition of ChildU, Inc. and its minority investment in
ThinkBox, Inc. the Company issued 343,750 shares of 18% B Preferred Stock, due
in 2011 with a liquidation preference of $40.00 per share which was based on an
appraisal in the amount of $13,750 to finance in part the ChildU acquisition and
the investment in ThinkBox. The Preferred Stock accrues dividends at a rate of
18% per annum, subject to adjustment under certain conditions. Accrued Junior
Preferred stock dividends for the year ended December 31, 2001 and 2002 amounted
to $1,663 and $2,968, respectively. The Junior Preferred Stock shall, with
respect to dividend rights and rights on liquidation, dissolution and winding
up, rank junior to the 15% Series Senior Preferred Stock due 2011 but rank
senior to WRC's common stock, par value $0.01 per share. The shares of the
Junior Preferred Stock are not redeemable.

                                Page 100 of 100
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

15.  COMMON STOCK SUBJECT TO REDEMPTION

In connection with the recapitalization of Weekly Reader in 1999 and merger with
the Company, the Company sold 68,008 shares of common stock to certain
executives at a price of $18.60 per share. During the year ended December 31,
2000, 9,408 of such shares were repurchased from two former executives for $175,
and 5,376 shares were sold to a newly hired executive for $100. During 2001 and
2002, 538 and 11,559 shares, respectively, were repurchased from former
executives for $10 and $463, respectively. Under certain conditions, the
shareholders can require the Company to repurchase the shares.

16.  INCOME TAXES

At December 31, 2002, the Company had available net operating loss carryforwards
(NOLs) of approximately $169,872. No tax benefit has been reflected in the
accompanying financial statements as the utilization of the operating loss
carryforwards is not considered more likely than not. Accordingly, this amount
has been fully offset by a valuation allowance.

The NOLs are scheduled to expire in the following years:

                                           NOL
                                       -----------
2009                                   $     4,995
2010                                        17,890
2011                                        11,267
2017                                        11,620
2018                                         2,944
2019                                        15,838
2020                                        54,042
2021                                        23,813
2022                                        27,463
                                       -----------
                                       $   169,872
                                       ===========

                                Page 101 of 101
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) net operating
loss carryforwards. The tax effects of significant items comprising the
Company's net deferred income tax assets are as follows:

<TABLE>
<CAPTION>
                                                                        2001                2002
                                                                      --------            ---------
<S>                                                                   <C>                 <C>
Deferred tax assets
    Accrued liabilities                                               $  2,917            $   2,645
    Other                                                                1,756                5,247
                                                                      --------            ---------
          Total current deferred tax assets                              4,673                7,892

    Difference between book and tax
    basis of other intangibles                                          36,740               50,400
    Net operating loss carryforward                                     48,461               64,227
    Other                                                                  327                2,122
                                                                      --------            ---------
          Total non-current deferred tax assets                         85,528              116,749
                                                                      --------            ---------

          Total deferred tax assets                                   $ 90,201            $ 124,641
                                                                      ========            =========

Deferred tax liabilities-
    Difference between book and tax basis of indefinite lived         $ (8,700)           $ (10,700)
    intangibles
    Difference between book and tax basis of fixed assets                 (955)              (2,347)
                                                                      --------            ---------

          Total deferred tax liabilities                              $ (9,655)           $ (13,047)
                                                                      ========            =========

Net deferred tax assets                                                 80,546            $ 111,594

Less: Valuation allowance                                              (80,546)            (122,294)
                                                                      --------            ---------
Net                                                                   $      -            $ (10,700)
                                                                      ========            =========
</TABLE>

In 2000, 2001 and 2002, the Company recorded income tax expense of $635, $658,
and $280, respectively, related to a provision for current state and local
taxes. In addition, in each of these years, the Company recorded a valuation
allowance equal to the deferred tax benefit arising from the Company's net
losses. Further, in 2002, the Company increased its valuation allowance in
connection with the adoption of SFAS 142 and recorded non-cash deferred income
tax expense of $10,700 as discussed below.

The Company's provision for income tax differs from the amount computed by
applying the statutory U.S. federal income tax rate of 35% primarily due to
non-deductible amortization, state and local taxes and changes in valuation
allowances.

                                Page 102 of 102
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)


At December 31, 2001 and 2002, the Company determined that the net deferred
income tax asset would not likely be realized. Accordingly, this amount has been
fully offset by a valuation allowance. To the extent the Company generates book
taxable income in future years, the income tax provision will reflect the
realization of such benefits, with the exception of benefits attributable to
acquired deferred tax assets. The recognition of such amount in future years
will be allocated to reduce the excess of the purchase price over the net assets
acquired and other non-current intangible assets.

Historically, the Company did not need a valuation allowance for the portion of
the net operating losses equal to the amount of tax-deductible goodwill and
trademark amortization expected to occur during the carryforward period of the
net operating losses based on the timing of the reversal of these taxable
temporary differences. As a result of the adoption of SFAS 142, the reversal
will not occur during the carryforward period of the net operating losses.
Therefore, the Company recorded non-cash deferred income tax expense of
approximately $8,700 on January 1, 2002 related to the adoption of SFAS 142 and
an additional $2,000 during the remainder of 2002.

17.  STOCKHOLDERS' EQUITY

Stock Options

During 1999, the Company granted options to purchase 301,724 (the "1999
Options") at $18.60 per share. The options vest as follows: 33%, in 1999, 33% in
2000 and 34% in 2001. As of December 31, 2002, no 1999 Options have been
exercised since the 1999 Options were granted. In 2000, the Company adopted the
WRC Media Inc. and Subsidiaries Year 2000 Stock Option Plan (the "Plan"). The
purpose of the Plan is to encourage and enable the officers, employees,
directors, consultants and other key persons of WRC Media Inc., and its Parents,
Subsidiaries and Affiliates, upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company.

The Plan is administered by the Board of Directors ("Board"), or by a committee
of the Board, comprised of not less than two Directors.

The exercise price per share for the Stock covered by a Stock Option is
determined by the Board at the time of grant but shall not be less than 100% of
the Fair Market Value on the date of grant in the case of Incentive Stock
Options. "Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Board. During 2000,
the Company granted options to purchase 307,523 options at $18.60 per share of
which 200,000 options were granted under the Plan and 107,523 were granted to an
executive under his employment agreement. The options covered under the Plan
vest evenly over four years from the date of grant. During 2001, there were
12,838 options at $18.60 per share and 2,500 options at $40.00 per share that
were forfeited and 17,213 options at $40.00 per share, which were granted under
the 2000 Plan. During 2002, there were 289,500 options at $40.00 per share
granted and 33,925 options at $18.60 per share forfeited.

In 2001, in conjunction with the acquisition of ChildU, Inc. (see Note 1), the
Company granted 37,500 options at $40.00 per share (the "2001 Options") to
certain key employees of ChildU, Inc. The 2001 Options vest evenly over two
years from the date of grant.

                                 Page 103 of 103
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

The Company accounts for options issued to employees under the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". As permitted by the
statement, the Company has chosen to continue to account for stock based
compensation using the intrinsic value method. Accordingly, no compensation
expense has been recognized for its stock-based compensation plan. Had the fair
value method of accounting been applied to the Company's stock plan, which
requires recognition of compensation cost using a pricing model, the net loss
would have increased by $388, $753 and $1,346, respectively for the years ended
December 31, 2000, 2001 and 2002.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.1%, 4.5% and 1.5% in 2000, 2001 and
2002; an expected dividend yield of zero percent for 2000, 2001 and 2002; and
expected term of 5 years and 4 years with no expected volatility for 2000, 2001
and 2002, respectively.

A summary of the option plan is as follows:

<TABLE>
<CAPTION>
                                             Year Ended           Year Ended          Year Ended
                                          December 31, 2000     December 31, 2001  December 31, 2002
                                       --------------------  --------------------  -----------------
                                                 Weighted              Weighted             Weighted
                                                  Average               Average              Average
                                                 Exercise              Exercise             Exercise
      Employee Stock Options            Shares     Price     Shares     Price     Shares     Price
-------------------------------------  --------  ---------  ---------  --------  ---------  --------
<S>                                    <C>       <C>        <C>        <C>       <C>        <C>
Outstanding, beginning of year          301,724  $   18.60    604,439  $  18.60    643,514  $  20.34
    Granted                             307,523      18.60     54,713     40.00    289,500     40.00
    Forfeited                            (4,808)     18.60    (15,638)    22.02    (33,925)    23.43
                                       --------             ---------            ---------
Outstanding, end of year                604,439      18.60    643,514     20.34    899,089     26.55
                                       ========             =========            =========

Options exercisable at year-end         298,778               438,595              620,062
                                       ========             =========            =========

Weighted-average fair value of
options granted during the period      $  18.60             $   40.00            $   40.00
                                       ========             =========            =========
</TABLE>

The following table summarizes information about employee stock options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                   Options Outstanding                                  Options Exercisable
                          -------------------------------------                    -----------------------------------
                                Number        Weighted Average                          Number
                            Outstanding at        Remaining                         Exercisable at
Range of Exercise Prices  December 31, 2002   Contractual Life    Exercise Price   December 31, 2002   Exercise Price
------------------------  -----------------  ------------------  ----------------  -----------------  ----------------
   <S>                              <C>           <C>              <C>                       <C>        <C>
   $18.60-$40.00                    899,089       1.5 years        $ 18.60-$40.00            620,062    $ 18.60-$40.00
========================  =================  ==================  ================  =================  ================
</TABLE>

                                 Page 104 of 104
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)


18.  RELATED PARTY TRANSACTIONS

Management Agreements

In connection with the acquisition of Weekly Reader and Compass, the Company
entered into management agreements with a significant shareholder. The
significant provisions of these management agreements are as follows-

Prior to 2000, Compass and the shareholder amended the terms of Compass
management agreement with the shareholder, which relieved Compass of its
obligation to pay management fees to the shareholder. In accordance with Weekly
Reader's management agreement, the shareholder provides to Weekly Reader
management consulting and financial advisory services. As a result of Weekly
Reader's management agreement and the amendment of Compass' management
agreement, Compass and Weekly Reader will reimburse the shareholder for
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of its services and, beginning in the first quarter of 2001, must
pay to the shareholder annual aggregate management fees for services to both
Compass and Weekly Reader totaling $950, payable quarterly.

19.  RETIREMENT PLANS

Substantially all of the Company's employees are eligible to participate in a
defined contribution plan of the Company as of January 1, 2000. Prior to 2000,
all of Weekly Reader's employees were eligible to participate in a PRIMEDIA
defined contribution plan. On January 1, 2000, all active employees of the
Company enrolled in PRIMEDIA's defined contribution plan were eligible to be
transferred to the Company's plan. The expense recognized by the Company for the
Company's plan was $753, $1,211 and $1,352 for the years ended December 31,
2000, 2001 and 2002, respectively.

A subsidiary of Weekly Reader sponsors a defined benefit pension plan (the
"American Guidance Plan") for the benefit of its employees. The benefits to be
paid under the American Guidance Plan are based on years of service and
compensation amounts for the average of the highest five consecutive plan years.
The American Guidance Plan is funded by means of contributions to the plan's
trust. The pension funding policy is consistent with the funding requirements of
U.S. Federal and other governmental laws and regulations. Plan assets consist
primarily of fixed income, equity and other short-term investments.

<TABLE>
<CAPTION>
                                                                             2000        2001       2002
                                                                          ----------  ----------  ----------
       <S>                                                                <C>         <C>         <C>
       Change in benefit obligation-
          Projected benefit obligation at beginning of year               $    8,567  $   10,270  $   11,947
              Service cost                                                       544         809         742
              Interest cost                                                      671         755         819
              Actuarial loss                                                     872         544       1,332
              Benefits paid                                                     (384)       (431)       (461)
                                                                          ----------  ----------  ----------
                 Projected benefit obligation at end of year              $   10,270  $   11,947  $   14,379
                                                                          ==========  ==========  ==========
</TABLE>

                                 Page 105 of 105
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                             2000        2001        2002
                                                                          ----------  ----------  ----------
<S>                                                                       <C>         <C>         <C>
       Change in plan assets-
          Fair value of plan assets at beginning of year                  $    8,585  $    8,218  $    7,903
              Actual return on plan assets                                       (80)       (687)     (1,284)
              Employer contribution                                               97         803       1,111
              Benefits paid                                                     (384)       (431)      (461)
                                                                          ----------  ----------  ----------
                 Fair value of plan assets at end of year                 $    8,218  $    7,903  $    7,269
                                                                          ==========  ==========  ==========

Funded status                                                             $   (2,052) $   (4,044) $   (7,110)
       Unrecognized actuarial loss                                               126       2,116       5,411
                                                                          ----------  ----------  ----------
                 Accrued pension cost                                     $   (1,926) $   (1,928) $   (1,699)
                                                                          ==========  ==========  ==========

       Components of net periodic pension expense
          Service cost                                                    $      544  $      809  $      742
          Interest cost                                                          671         755         819
          Expected return on plan assets                                        (763)       (759)       (749)
          Amortization of unrecognized net(gain)/loss                            (64)          -          70
                                                                          ----------  ----------  ----------
                 Net periodic pension expense                             $      388  $      805  $      882
                                                                          ==========  ==========  ==========

       Amounts recognized in statement of financial position-
          Prepaid benefit cost                                            $        -  $        -  $        -
          Accrued benefit liability                                           (1,926)     (2,244)     (5,056)
          Intangible asset                                                         -           -          -
          Accumulated other comprehensive income                                   -         316       3,357
                                                                          ----------  ----------  ----------
                                                                          $   (1,926) $   (1,928) $   (1,699)
                                                                          ==========  ==========  ==========

       Accumulated benefit obligation and fair value of assets-
          Accumulated benefit obligation                                  $   (8,566) $  (10,147) $  (12,325)
          Fair value of assets                                            $    8,218  $    7,903  $    7,269
       Weighted-average assumptions as of end of year
       Discount rate                                                              7.5%       7.0%       6.25%
       Expected return on plan assets                                             9.0%       9.0%        9.0%
       Rate of compensation increase                                             4.55%       4.5%        4.5%
</TABLE>

A minimum pension liability adjustment is required when the actuarial present
value of the accumulated plan benefits exceeds plan assets and accrued pension
liability. In 2000, 2001 and 2002, a minimum liability adjustment of $9, $325
and $3,041 respectively, was recorded as a component of other comprehensive loss
and reported in accumulated other comprehensive loss as a component of
stockholders' equity.

                                 Page 106 of 106
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

20.  COMMITMENTS AND CONTINGENCIES

Leases

The Company has operating leases for equipment, office and warehouse space that
include remaining noncancelable minimum rental commitments as follows:

     Twelve Months
       Ending
     December 31,
     -------------
       2003                                                          $    7,103
       2004                                                               5,816
       2005                                                               5,387
       2006                                                               5,195
       2007                                                               4,562
       Thereafter                                                        13,373
       Total minimum lease payments                                  ----------
                                                                         41,436
       Total minimum noncancelable sublease rentals                        (150)
                                                                     ----------
                                                                     $   41,286
                                                                     ==========

Rent expense, net of sublease rentals, for all operating leases was
approximately $4,341, $6,492 and $6,383 for the year ended December 31, 2000,
2001 and 2002, respectively.

Litigation

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

21.  RABBI TRUST

In 1998, as part of its acquisition of American Guidance, a subsidiary of Weekly
Reader, approximately $19,600 of the American Guidance purchase price was paid
through contributions to several Rabbi Trusts to settle American Guidance's
obligations due to employees under American Guidance's predecessor company stock
option, employee stock ownership and deferred compensation plans. Payments to
the beneficiaries of the Rabbi Trusts are taxable upon distribution from the
Rabbi Trusts with Weekly Reader receiving a corresponding deduction for income
tax purposes. The assets of the Rabbi Trusts predominantly consist of marketable
mutual fund investments that are subject to claims of general creditors of
Weekly Reader in the event of bankruptcy. Accordingly, the assets of the Rabbi
Trusts and a related liability are presented in other current assets and accrued
expenses and other current liabilities, respectively on the consolidated balance
sheets. The balance of the asset and liability as of December 31, 2001 and 2002
was approximately $13,468 and $1,403, respectively. The asset and corresponding
liability are

                                 Page 107 of 107
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)

classified in other current assets and other current liabilities. The marketable
securities in the Rabbi Trusts have been classified as trading securities and
investment income (expense) of $24, ($432) and $156 has been offset with the
related compensation expense for the same amount on the accompanying
consolidated statements of operations for the years ended December 31, 2000,
2001 and 2002, respectively. Marketable securities in the Rabbi Trust have been
recorded at fair value, based on quoted market prices, on the accompanying
consolidated balance sheets.

22.  QUARTERLY DATA (Unaudited)

<TABLE>
<CAPTION>
                                    Three Months Ended
                                    -----------------------------------------------------------------------------
                                         March 31            June 30         September 30         December 31            Year
                                    ------------------- ------------------ ------------------ ------------------- -----------------
<S>                                 <C>                 <C>                <C>                <C>                 <C>
2002
Revenues                                  $46,787            $43,939            $56,456             $62,776           $209,958
Gross profit                               33,413             31,158             41,081              45,295            150,947
Operating costs and expenses               30,995             27,509             28,651              44,047            131,202
Income / (loss) from operations             2,418              3,649             12,430               1,248             19,745
Net income / (loss)                      ($86,752)           ($5,309)            $4,561             ($7,944)          ($95,444)


2001
Revenues                                  $49,491            $51,403            $60,237             $70,338           $231,469
Gross profit                               35,272             36,849             43,683              49,983            165,787
Operating costs and expenses               45,142             42,718             46,191              44,681            178,732
Income / (loss) from operations            (9,870)            (5,869)            (2,508)              5,302            (12,945)
Net income / (loss)                      ($18,953)          ($14,824)          ($11,418)            ($3,310)          ($48,505)
</TABLE>


23.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                              2000         2001         2002
                                                           -----------  -----------  -----------
    <S>                                                    <C>          <C>          <C>
    Cash paid during the period for interest               $    33,417  $    32,063  $    27,870
                                                           ===========  ===========  ===========
    Cash paid during the year for income taxes             $       635  $       730  $       280
                                                           ===========  ===========  ===========
    Preferred stock dividends accrued                      $    12,122  $    14,044  $    19,241
                                                           ===========  ===========  ===========
    Accretion of preferred stock                           $       907  $       919  $       932
                                                           ===========  ===========  ===========
</TABLE>

                                 Page 108 of 108
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Weekly Reader Corporation.
New York, New York

We have audited the accompanying consolidated balance sheet of Weekly Reader
Corporation and subsidiaries (the "Company") a 94.9% owned subsidiary of WRC
Media Inc., as of December 31, 2002, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the Company
as of and for the years ended December 31, 2001 and 2000, prior to the addition
of the transitional disclosures relating to the goodwill and intangible assets,
as described in note 2 of the notes to the consolidated financial statement,
were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those financial statements in their report
dated February 21, 2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Weekly Reader Corporation and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in note 2 of the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets to
conform to statement of financial standards No. 142 as of January 1, 2002.

As disclosed above, the consolidated financial statements of Weekly Reader
Corporation and subsidiaries as of December 31, 2000 and 2001, and for the years
then ended were audited by other auditors who have ceased operations. As
described in note 2, these consolidated financial statements have been revised
to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142 ("Goodwill and Other Intangible Assets") (SFAS No.
142), which was adopted by the Company as of January 1, 2002. Our audit
procedures with respect to the disclosures in note 2 of the notes to the
consolidated financial statements relating to goodwill and intangible assets for
2000 and 2001 included (i) agreeing the previously reported net loss to the
previously issued financial statements and the adjustments to reported net loss
representing amortization expense recognized in those periods related to
intangible assets and goodwill that are no longer being amortized, as a result
of initially applying SFAS No. 142 to the Company's underlying records obtained
from management, and (ii) testing the mathematical accuracy of the
reconciliation of adjusted net loss to reported net loss. In our opinion, the
transitional disclosures for 2000 and 2001 in note 2 of the notes to the
consolidated financial statements relating to goodwill and intangible assets are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2000 and 2001 consolidated financial statements of the Company
other than with respect to such disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2000 and 2001 consolidated
financial statements taken as a whole.

DELOITTE & TOUCHE LLP

New York, New York
March 7, 2003

                                 Page 109 of 109
<PAGE>

Weekly Reader Corporation dismissed Arthur Andersen LLP on April 29, 2002, and
subsequently engaged Deloitte & Touche LLP as its independent auditors. The
predecessor auditors' report appearing below is a copy of Arthur Andersen LLP's
previously issued opinion dated February 21, 2002. In fiscal 2002, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142). As discussed in the
Intangible Assets and Goodwill note to the financial statements, the Company has
presented transitional disclosures for 2000 and 2001 required by SFAS No. 142.
The Arthur Andersen LLP report does not extend to these transitional
disclosures. These disclosures are reported on by Deloitte & Touche LLP as
stated in their report appearing on the previous page. Since Weekly Reader
Corporation is unable to obtain a manually signed audit report, a copy of Arthur
Andersen LLP's most recently signed and dated report has been included to
satisfy filing requirements, as permitted under Rule 2-02(e) of Regulation S-X.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Weekly Reader Corporation:

We have audited the accompanying consolidated balance sheets of Weekly Reader
Corporation (a Delaware corporation) and subsidiaries ("the Company"), a 94.9%
owned subsidiary of WRC Media Inc., as of December 31, 2000 and 2001 and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of Weekly Reader's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Weekly Reader Corporation and
Subsidiaries as of December 31, 2000 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 21, 2002

                                 Page 110 of 110
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

                                                   December 31,
                                               2001          2002
                                           ------------   ------------
              ASSETS
CURRENT ASSETS:
    Cash and cash equivalents              $      5,691   $      7,819
    Accounts receivable, net (Note 4)            24,818         22,881
    Inventories, net (Note 5)                    13,718         14,210
    Due from related party                        2,858          9,438
    Prepaid expenses                              2,702          2,957
    Other current assets (Note 6)                13,891          1,797
                                           ------------   ------------
                 Total current assets            63,678         59,102

PROPERTY AND EQUIPMENT, net (Note 7)              7,541          5,409

GOODWILL (Note 2)                               101,978         35,018

DEFERRED FINANCING COSTS, net (Note 2)              873            692

OTHER INTANGIBLE ASSETS, net (Note 8)            46,023         18,833

OTHER ASSETS AND INVESTMENTS                        737         25,033
                                           ------------   ------------
                 Total assets              $    220,830   $    144,087
                                           ============   ============

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

                                 Page 111 of 111
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                December 31,
LIABILITIES AND SHAREHOLDERS' DEFICIT                                                        2001           2002
                                                                                         -------------  ------------
<S>                                                                                      <C>            <C>
CURRENT LIABILITIES:
    Accounts payable                                                                     $     15,855   $     18,883
    Accrued expenses and other current liabilities (Note 9)                                    26,664         18,706
    Deferred revenues                                                                          18,398         20,369
    Current portion of long-term debt (Note 11)                                                 6,171          7,721
                                                                                         -------------  ------------
                 Total current liabilities                                                     67,088         65,679

DEFERRED TAX LIABILITY                                                                              -          2,000
LONG-TERM DEBT (Note 11)                                                                      273,544        266,219
                                                                                         -------------  ------------
TOTAL LIABILITIES                                                                             340,632        333,898
                                                                                         -------------  ------------

COMMITMENTS AND CONTINGENCIES (Note 16)

REDEEMABLE PREFERRED STOCK, PLUS ACCRUED DIVIDENDS (Liquidation preference of $75,000
   plus accrued dividends)                                                                     102,573       118,846
                                                                                         -------------  ------------

SHAREHOLDERS' DEFICIENCY:
    Common stock ($.01 par value, 20,000,000 shares authorized; 2,830,000 shares issued
      and outstanding)                                                                              28            28
    Additional paid-in capital                                                                   9,133         9,133
    Due from parent                                                                            (67,738)      (63,464)
    Accumulated comprehensive income                                                              (316)       (3,357)
    Accumulated deficit                                                                       (163,482)     (250,997)
                                                                                         -------------  ------------
                 Total shareholders' deficit                                                  (222,375)     (308,657)
                                                                                         -------------  ------------
                                                                                         $     220,830  $    144,087
                                                                                         =============  ============
</TABLE>

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

                                 Page 112 of 112
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                             2000          2001           2002
                                                                        ------------   ------------  ------------
<S>                                                                     <C>            <C>           <C>
 SALES, net                                                             $    154,819   $    162,165  $    156,498
 COST OF GOODS SOLD                                                           41,326         43,691        39,560
                                                                        ------------   ------------  ------------
                 Gross profit                                                113,493        118,474       116,938
                                                                        ------------   ------------  ------------

 COSTS AND EXPENSES:
    Sales and marketing                                                       27,060         29,255        28,345
    Distribution, circulation and fulfillment                                 13,019         14,350        14,614
    Editorial                                                                 10,519         10,558        10,847
    General and administrative                                                18,676         18,895        18,177
    Restructuring costs and other non-recurring expenses                           -              -         4,280
    Depreciation                                                               1,927          1,987         1,945
    Amortization of goodwill and intangible assets                            12,056         11,957         8,764
                                                                        ------------   ------------  ------------
                 Total operating costs and expenses                           83,257         87,002        86,972
                                                                        ------------   ------------  ------------
                 Income from operations                                       30,236         31,472        29,966

INTEREST EXPENSE, INCLUDING AMORTIZATION OF
  DEFERRED FINANCING COSTS                                                   (34,293)       (32,403)      (28,849)

OTHER INCOME, net                                                                231            166         1,765
                                                                        ------------   ------------  ------------
                 (Loss) income before income tax provision                    (3,826)          (765)        2,882

INCOME TAX PROVISION                                                             592            281         2,101
                                                                        ------------   ------------  ------------
                 Net (loss) income  before cumulative
                    effect of change in accounting principle                  (4,418)        (1,046)          781

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
                                                                                   -              -       (72,022)
                                                                        ------------   ------------  ------------
                 Net loss                                               $     (4,418)  $     (1,046) $    (71,241)
                                                                        ============   ============  ============
</TABLE>

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

                                 Page 113 of 113
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 2001 and 2002
(in thousands, except share data)

<TABLE>
<CAPTION>
                                         Common Stock    Additional                   Other
                                        --------------    Paid-In      Due From    Comprehensive   Accumulated   Total Stockholders'
                                        Shares   Value     Capital      Parent      Income(Loss)     Deficit        Equity (Deficit)
                                        ------   -----     -------     ---------    ------------    ------------   ----------------
<S>                                      <C>     <C>       <C>         <C>          <C>             <C>            <C>
Balance, January 1, 2000                 2,830   $  28     $ 9,133     $ (68,684)   $          -    $  (131,852)   $       (191,375)
  Other comprehensive Income (loss):
     Net loss                                -       -           -             -               -         (4,418)
     Minimum Pension Liability               -       -           -             -               9              -
           Total comprehensive loss                                                                                          (4,409)
     Preferred stock dividends               -       -           -             -               -        (12,122)            (12,122)
     Change in due from parent               -       -           -          (699)              -              -                (699)
                                        ------   -----     -------     ---------    ------------    -----------    ----------------
Balance, December 31, 2000               2,830   $  28     $ 9,133     $ (69,383)   $          9    $  (148,392)   $       (208,605)
     Other comprehensive loss:
        Net loss                             -       -           -             -               -         (1,046)
        Minimum Pension Liability            -       -           -             -            (325)             -
           Total comprehensive loss                                                                                          (1,371)
     Preferred stock dividends               -       -           -             -               -        (14,044)            (14,044)
     Change in due from parent               -       -           -         1,645               -              -               1,645
                                        ------   -----     -------     ---------    ------------    -----------    ----------------
Balance, December 31, 2001               2,830   $  28     $ 9,133     $ (67,738)   $       (316)   $  (163,482)   $       (222,375)
  Other comprehensive loss:
     Net loss                                -       -           -             -               -        (71,241)
     Minimum Pension Liability               -       -           -             -          (3,041)             -
           Total comprehensive loss                                                                                         (74,282)
     Preferred stock dividends               -       -           -             -               -         16,274              16,274
     Change in due from parent               -       -           -         4,274               -              -               4,274
                                        ------   -----     -------     ---------    ------------    -----------    ----------------

Balance, December 31, 2002               2,830   $  28     $ 9,133     $ (63,464)   $     (3,357)   $  (250,997)   $       (308,657)
                                        ======   =====     =======     =========    ============    ===========    ================
</TABLE>

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

                                Page 114 of 114
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                               2000           2001          2002
                                                                          ------------   ------------   ------------
<S>                                                                       <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                              $     (4,418)  $     (1,046)  $    (71,241)
    Adjustments to reconcile net loss to net cash used in operating
       activities-
       Cumulative effect of change in accounting                                     -              -         72,022
       Deferred income tax provision                                                 -              -          2,000
       Depreciation and amortization                                            13,983         13,944         10,709
       Loss on disposition of property and equipment                                 -            130            711
       Amortization of debt discount                                               338            345            396
       Amortization of deferred financing costs                                      -            120            181
       Other, net                                                                   11              -              -
    Changes in operating assets and liabilities-
       Decrease in accounts receivable                                             682          1,940          1,937
       (Increase) decrease in inventories                                         (172)           406           (492)
       (Increase) decrease in prepaid expenses and other assets                 (4,815)        (4,000)           907
       Increase (decrease) in accounts payable                                  (2,109)        (1,527)         3,028
       Increase (decrease) in deferred revenue                                   1,130         (1,721)         1,971
       Decrease in accrued liabilities                                          (6,682)        (3,259)       (11,001)
                                                                          ------------   ------------   ------------
                 Net cash provided by (used in) operating activities            (2,052)         5,332         11,128
                                                                          ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                          (1,417)        (3,848)        (1,102)
   Purchase of acquired business                                                     -         (7,543)             -
   Proceeds from disposition of property and equipment                               -              -            578
                                                                          ------------   ------------   ------------
                 Net cash used in investing activities                          (1,417)       (11,391)          (524)
                                                                          ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from term loans                                                          -         10,000              -
   (Increase) decrease due from parent                                            (690)           815          4,274
   (Increase) decrease due from related party                                   (4,132)         2,608         (6,580)
   Repayments of debt                                                           (2,938)        (4,587)        (6,170)
                                                                          ------------   ------------   ------------
                 Net cash provided by (used in) financing activities            (7,760)         8,836         (8,476)
                                                                          ------------   ------------   ------------
   Increase (decrease) in cash and cash equivalents                            (11,229)         2,777          2,128

CASH AND CASH EQUIVALENTS, beginning of period                                  14,143          2,914          5,691
                                                                          ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, end of period                                  $      2,914   $      5,691   $      7,819
                                                                          ============   ============   ============
</TABLE>

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

                                 Page 115 of 115
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

1.   BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Weekly Reader Corporation ("the Company or WRC") is a 94.9% owned subsidiary of
WRC MEDIA INC. ("the Parent"). On November 17, 1999, the Parent completed its
recapitalization of the Company. The consolidated financial statements include
the accounts of the Company and its subsidiaries, Lifetime Learning ("Lifetime
Learning"), World Almanac Education Group Inc. ("WAE") and its subsidiaries,
Funk & Wagnalls Yearbook Corporation and Gareth Stevens, Inc.("Gareth Stevens"),
and American Guidance Service Inc. ("American Guidance") and its subsidiary, AGS
International Sales, Inc. As a result of the recapitalization, the Parent owns
94.9% and PRIMEDIA Inc. ("PRIMEDIA") owns 5.1% of the common stock of the
Company. Before November 17, 1999, the Company, WAE and American Guidance were
wholly-owned subsidiaries of PRIMEDIA. On August 13, 1999, PRIMEDIA entered into
a Redemption, Stock Purchase and Recapitalization Agreement (as amended as of
October 26, 1999, the "Recapitalization Agreement") with the Parent. The terms
of the Recapitalization Agreement required that all of the outstanding capital
stock of WAE and American Guidance be contributed to the Company prior to the
Parent's purchase of a majority interest in the Company for a purchase price of
$395,000. The presentation of these financial statements reflects the capital
contribution made by PRIMEDIA to the Company of all the WAE and American
Guidance shares at their historical carrying values. In addition, on October 5,
1999, the authorized capital of the Company was amended to consist of 20,000,000
shares of common stock, par value $.01/share, and the Company declared a
10,000-for-one stock split effective on October 5, 1999. This amendment was
retroactively reflected on the accompanying financial statements. In connection
with the Recapitalization, the Parent issued 3,000,000 shares of 15% Series B
Preferred Stock, due 2011 with a liquidation preference of $25.00 per share,
with preferred stock warrants, which entitled the preferred shareholders to
acquire 422,874 shares of the Company's voting common stock. The assets and
liabilities of the Company have not been revalued as a result of the
Recapitalization.

On May 9, 2001, American Guidance acquired through a subsidiary all of the
operating assets of Lindy Enterprises, Inc. The transaction was accounted for as
an asset purchase. Lindy Enterprises develops curriculum-based skills assessment
and test preparation products that correlate to national and state curriculum.

Weekly Reader Corporation is a publisher of classroom periodicals and skills
books serving the Pre-Kindergarten through twelfth grade ("Pre K-12") market.
The Company's subsidiary, Lifetime Learning, creates and distributes sponsored
instructional materials primarily for use in the Pre K-12 market. WAE is a
publisher and distributor of reference and informational materials targeted to
kindergarten through twelfth grade ("K-12") students, as well as other general
reference and informational materials. American Guidance is a publisher of
individually administered testing products primarily for K-12 students and
supplemental instructional materials primarily for low-performing students in
middle and secondary schools. Substantially all of the Company's sales are in
the United States.

All material intercompany accounts and transactions have been eliminated in
consolidation.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amount of assets, liabilities, revenues and
expenses reported in the consolidated financial statements. Significant
accounting estimates used include estimates for sales returns and allowances,
bad debts and estimates for the realization of deferred income tax assets.
However, actual results may differ from these estimates.

                                 Page 116 of 116
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued two new
statements, SFAS No.141, "Business Combinations," and SFAS No.142, "Goodwill and
Other Intangible Assets". SFAS No. 141 requires that the purchase method be used
for all business combinations initiated after June 30, 2001 and prohibits the
use of the pooling of interest method. The adoption of SFAS No. 141 did not have
a material effect on WRC's results of operations or financial position. SFAS No.
142 specifies the financial accounting and reporting for acquired goodwill and
other intangible assets. Goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather be tested at least annually for
impairment. SFAS No. 142 requires that the useful lives of intangible assets
acquired on or before June 30, 2001 be reassessed and the remaining amortization
periods adjusted accordingly. Previously recognized intangible assets deemed to
have indefinite lives should be tested for impairment as well. Goodwill
recognized on or before June 30, 2001 has been assigned to various reporting
units and has been tested for impairment during the six-months ending June 30,
2002, the period in which SFAS No. 142 is initially applied in its entirety. On
January 1, 2002, WRC adopted SFAS No. 142 for its goodwill and identifiable
intangible assets. Upon adoption, WRC ceased the amortization of goodwill and
other indefinite lived intangible assets, which consist of trademarks. As
required by this statement, WRC reviewed its indefinite lived intangibles
(trademarks) for impairment as of January 1, 2002. The effect on the results of
operations for the comparative period ended December 31, 2001 and 2000 had WRC
adopted this accounting change on January 1, 2000 would have resulted in
reducing WRC's amortization expense and pre-tax losses approximately $3,364 for
each of the years ended December 31, 2000 and 2001.

WRC completed the transitional impairment tests on its goodwill and
indefinite-lived intangibles during the second quarter ended June 30, 2002. The
previous method for determining impairment prescribed by SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," utilized an undiscounted cash flow approach for the impairment assessment,
while SFAS No. 142 utilizes a fair value approach. WRC has three reporting units
with goodwill. Goodwill was tested for impairment at the reporting unit level.
The Company's measurement of fair value was based on an evaluation of future
discounted cash flows based on its 5 year operating plan for the period
2003-2007. This evaluation utilized the best information available in the
circumstances, including reasonable and supportable assumptions and projections.
The discounted cash flow evaluation considered several earnings scenarios and
the likelihood of possible outcomes. Collectively, this evaluation was
management's best estimate of projected future cash flows. The Company's
discounted cash flow evaluation used a range of discount rates that corresponds
to the Company's weighted-average cost of capital. This discount rate range
assumed was consistent with that used for investment decisions and takes into
account the specific and detailed operating plans and strategies of the WRC's
reporting units. Certain other key assumptions utilized, including changes in
revenue, operating expenses, working capital requirements and capital
expenditures including pre-publication costs, are based on reasonable estimates
related to the Company's strategic initiatives and current market conditions.
Such assumptions also are consistent with those utilized in the Company's annual
planning process. As a result, WRC recorded a transitional goodwill and
indefinite lived intangible asset impairment charge of $72,022 at its
subsidiary, American Guidance Service, Inc. This charge is reported as
cumulative effect of accounting change, as of January 1, 2002, in the Condensed
Consolidated Statement of

                                 Page 117 of 117
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)


Operations intangible asset impairment charge of $72,022 at its subsidiary,
American Guidance Service, Inc. This charge is reported as cumulative effect of
accounting change, as of January 1, 2002, in the Condensed Consolidated
Statement of Operations. WRC is required to perform impairment tests on an
annual basis, or between yearly tests under certain circumstances for goodwill
and indefinite lived intangibles. There can be no assurance that future
impairment tests will not result in a charge to earnings.

<TABLE>
<CAPTION>
                                                                        Impairment
                                               December 31, 2001        Adjustment         December 31, 2002
(in thousands)
-------------------------------------------    ------------------    ------------------    ------------------
<S>                                            <C>                   <C>                   <C>
Goodwill                                       $          101,978    $          (66,960)   $           35,018
Long Lived Assets - Trademarks                             15,018                (5,062)                9,956
                                               ------------------    ------------------    ------------------
                                               $          116,996    $          (72,022)   $           44,974
                                               ==================    ==================    ==================
</TABLE>

WRC also recorded non-cash deferred income tax expense of approximately $1,360
on January 1, 2002 and $640 during the twelve months ended December 31, 2002,
related to the adoption of SFAS 142. The non-cash charge of $1,360 on January 1,
2002 was recorded to increase the valuation allowance related to the deferred
tax asset associated with WRC's net operating losses. Historically, WRC did not
need a valuation allowance for the portion of their net operating loss equal to
the excess of tax over book amortization on tax-deductible goodwill and
trademarks since the liability was expected to reverse during the carryforward
period of the net operating losses. As a result of the adoption of SFAS 142, the
timing of the reversal of this liability is indefinite and can no longer be
offset by WRC's net operating loss carryforwards. While book amortization of
tax-deductible goodwill and trademarks ceased on January 1, 2002, WRC will
continue to amortize these assets for tax purposes. As a result, WRC will have
deferred tax liabilities that will arise each quarter because the taxable
temporary differences related to the amortization of these assets will not
reverse prior to the expiration period of WRC's deductible temporary differences
unless the related assets are sold or an impairment of the assets is recorded.
Accordingly, WRC also recorded an additional $640 to increase the valuation
allowance for the twelve months ended December 31, 2002.

The following information represents pro forma net income assuming the adoption
of SFAS 142 on January 1, 2000:

<TABLE>
<CAPTION>
                                                                     For the Years Ended
                                                    ----------------------------------------------------
                                                     December 31,         December 31,      December 31,
(in thousands)                                           2000                 2001              2002
--------------------------------------------------- ----------------    ---------------   --------------
<S>                                                 <C>                 <C>               <C>
Reported Net Income (loss)                          $         (4,418)   $        (1,046)  $      (71,241)
Addback:
    Goodwill Amortization                                      2,904              2,904                -
    Amortization of Trademarks                                   460                460                -
    Cumulative effect of a change in accounting
    principle                                                      -                  -           72,022
    Deferred provision for income taxes                                               -            2,000
                                                    ----------------    ---------------   --------------
                                                    $         (1,054)   $         2,318   $        2,781
                                                    ================    ===============   ==============
</TABLE>

                                 Page 118 of 118
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

WRC adopted the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by Statements of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, and No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, and as interpreted by the FASB and the Derivatives Implementation
Group through "Statement 133 Implementation Issues," (SFAS No. 133, as amended)
as of January 1, 2001. WRC has $152 million of callable senior subordinated
notes outstanding. These notes pay a fixed coupon of 12.75% and mature on
November 15, 2009. The prolonged Fed easing campaign of 2001-2002 has brought
short-term rates down to 40-year lows, greatly increasing the opportunity cost
of the notes. In order to immediately reduce funding costs, WRC moved down the
yield curve by swapping a portion of the fixed rate 12.75% Notes to floating
rate starting May 2002. During December 2002, WRC unwound the interest rate
swaps. An interest rate cap on 50% of WRC's senior secured term loans is
required by the senior credit facility. For the year ended December 31 2002, WRC
recorded a realized gain of $1.7 million on the unwinding of the interest rate
swap. This gain is reflected in Other, net in the consolidated statement of
operations. On November 15, 2002, the Company entered into a one year interest
rate cap agreement with a notional of $64.8 million, which caps the LIBOR based
rate, as defined, on those loans at 2.5% The interest rate cap agreement did not
qualify for hedge accounting treatment and as such the Company marks to market
the contract at the end of each period. The fair value of the interest rate cap
at December 31, 2002 is de-minimus.

In August 2001, FASB issued FAS 144 which superseded FAS 121. FAS 144 also
superseded the accounting and reporting provisions of APB 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, relating to the disposal of a segment of a business. FAS 121 did
not address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30 and, therefore, two accounting models
existed for long-lived assets to be disposed of. FAS 144 established one
accounting model for long-lived assets to be held and used, long-lived assets
(including those accounted for as a discontinued operation) to be disposed of by
sale and long-lived assets to be disposed of other than by sale. The Company
adopted FAS 144 on January 1, 2002, and it did not have a material effect on its
Consolidated Financial Statements.

In November 2002, the FASB approved FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statement No. 5,
57 and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies the
requirements for SFAS No. 5, "Accounting for Contingencies," relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. Specifically, FIN 45 requires a guarantor to recognize a liability
for the non-contingent component of certain guarantees, representing the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's fiscal
year-end. However, the disclosure provisions of FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 is not expected to have a material impact on the
Company's results of operations or financial position.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variables Interest Entities ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The Company is required to adopt the provisions of
FIN 46 for variable interest entities created after January 31, 2003. The
adoption of FIN 46 is not expected to have a material impact on the Company's
results of operations or financial position.

                                 Page 119 of 119
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Inventories

Inventories, including paper, are valued at the lower of cost or market on a
first-in, first-out ("FIFO") basis. The Company periodically evaluates the
realizability of inventories and adjusts its allowance for excess or obsolete
inventory as necessary.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of property and equipment and the amortization of
leasehold improvements are provided at rates based on the estimated useful lives
or lease terms, if shorter, using the straight-line method. Improvements are
capitalized while maintenance and repairs are expensed as incurred.

Purchase Accounting

With respect to acquisitions, the total purchase price has been allocated to
tangible and intangible assets and liabilities based on their respective fair
values. The consolidated financial statements include the operating results of
these acquisitions subsequent to their respective date of acquisition (See Note
3).

Deferred Financing Fees

Deferred financing fees are related to direct costs paid by the Company in
connection with the financing of the Lindy acquisition (see Note 1 above). These
costs are deferred and are being amortized on a straight-line basis over the
term of the related debt. Amortization expense charged to operations for the
years ended December 31, 2000, 2001 and 2002 was $0, $120 and $181,
respectively.

Revenue Recognition

Subscriptions are recorded as deferred revenue when received and recognized as
income over the term of the subscription. Sales of books, tests and other items
are generally recognized as revenue upon shipment, net of an allowance for
returns. Advertising revenues are recognized as income on the issue date, net of
provisions for rebates, adjustments and discounts.

In November 2002, the EITF reached a consensus on EITF No. 00-21, "Accounting
for Revenue Arrangements with Multiple Element Deliverables." The issue
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets. Revenue
arrangements with multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate units of
accounting based on their relative fair values. EITF 00-21 also supersedes
certain guidance set forth in Staff Accounting Bulletin Number 101 (SAB 101),
"Revenue Recognition in Financial Statements," issued by the Securities and
Exchange Commission. The final consensus is applicable to agreements entered
into in quarters beginning after June 15, 2003, with early adoption permitted.
Additionally, companies are permitted to apply the consensus guidance to all
existing arrangements as a cumulative effect of a change in accounting
principle. The adoption of EITF 00-21 is not expected to have a material impact
on the Company's consolidated financial statements.

                                 Page 120 of 120
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance and other post contract support), the Company allocates
revenue to each component of the contract based on vendor specific objective
evidence of its fair value, which is specific to the Company, or for products
not being sold separately, the price established by management. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.

Comprehensive Loss

SFAS No. 130 "Reporting Comprehensive Income," establishes standards for
reporting and displaying of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. The components of other comprehensive loss consist of pension
liability adjustments.

Expense Recognition and Direct-Response Advertising Costs

Marketing, selling, distribution, editorial, and other general and
administrative expenses are generally expensed as incurred. Certain editorial
costs relating to the American Guidance product lines are deferred and amortized
using both straight-line and accelerated methods over a period of up to ten
years. Capitalized editorial costs are recorded as prepublication costs. As of
December 31, 2001 and 2002, other assets and investments on the accompanying
balance sheets, include prepublication costs, net of amortization of $5,496 and
$9,046, of $13,821 and $20,003, respectively. Amortization of prepublication
costs, which is included in depreciation and amortization on the accompanying
consolidated statements of operations, was $1,805, $2,663 and $3,550 for the
years ended December 31, 2000, 2001 and 2002, respectively.

Advertising and subscription acquisition costs are expensed the first time the
advertising takes place, except for direct-response advertising, the primary
purpose of which is to elicit sales from customers who can be shown to have
responded specifically to the advertising and that results in probable future
economic benefits. Direct-response advertising consists of product promotional
mailings, catalogs and subscription promotions. These direct-response
advertising costs are capitalized and amortized over the estimated period of
future benefit using a ratio of current period revenues to total current and
estimated future period revenues. The amortization periods range from ten months
to thirty months subsequent to the promotional event. Amortization of
direct-response advertising costs is included in marketing and selling expenses
on the accompanying consolidated statements of operations. As of December 31,
2001 and 2002, other assets and investments on the accompanying balance sheet,
includes direct-response advertising costs of $3,093 and $4,319, respectively.

Goodwill

See Recent Accounting Pronouncements.

Concentration of Credit Risk

The Company's customers include schools and other institutions. Accounts
receivable are generally unsecured and a provision for estimated doubtful
accounts is provided. There are no concentrations of business transacted with a
particular customer or supplier, nor concentrations of revenue from a particular
service or geographic area.

                                 Page 121 of 121
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Income Taxes

The Company and its subsidiaries file their Federal income taxes as members of
the Parent's consolidated return and file their state and local income taxes on
either a separate basis or a combined basis in various jurisdictions. Income
taxes are presented in accordance with SFAS No. 109, "Accounting for Income
Taxes", using the asset and liability approach. Deferred taxes reflect the tax
consequences in future years of differences between the financial reporting and
tax bases of assets and liabilities (see Note 10).

Fair Value of Financial Instruments

The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying values of cash, accounts receivable, and
accounts payable approximate fair value based on the short-term nature of these
financial instruments.

The carrying values of the Company's Senior Bank Credit Facilities are assumed
to approximate the market value due to the variable interest rates on these
instruments. The estimated fair values of other financial instruments as of
December 31, 2002 are as follows:

                                     Carrying Amount   Face Value
                                     ----------------  ----------
12 3/4% Senior Subordinated Notes   $        147,273  $ 152,000

There is no market value information available for the preferred stock and a
reasonable estimate could not be made without incurring excessive costs.

Reclassifications

Certain reclassifications have been made to the prior years consolidated
financial statements to conform them to the current year presentation.

Segment Reporting

The Company has determined that it has one reportable segment in accordance with
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" which is educational publishing.

                                 Page 122 of 122
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

3.   ACQUISITIONS

On May 9, 2001, a subsidiary of the Company acquired the assets of Lindy
Enterprises, Inc. ("Lindy"). The total cost of the acquisition of Lindy was
$7,543 (including $1,043 of acquisition costs) and was allocated to the assets
acquired based on their estimated fair values as follows-

       Net liabilities assumed           $        -
       Property and equipment                    80
       Deferred financing fees                  993
       Copyrights                             6,420
       Goodwill                                  50
                                         ----------
                                         $    7,543
                                         ==========

The following unaudited pro forma information presents the results of operations
of the Company for the year ended December 31, 2001, as if the acquisition of
Lindy had taken place on January 1, 2001:

                                             2001
                                        ----------------
       Sales, net                       $        163,521
                                        ================
       Operating income                 $         30,294
                                        ================
       Net loss                         $         (2,229)
                                        ================

4.   ACCOUNTS RECEIVABLE, NET

Accounts receivable consist of the following-

                                                         December 31,
                                                      2001          2002
                                                  ------------  ------------
       Accounts receivable                        $     29,201  $     27,353
       Less-
          Allowance for doubtful accounts                1,543         1,389
          Allowance for returns and rebates              2,840         3,083
                                                  ------------  ------------
                                                  $     24,818  $     22,881
                                                  ============  ============

                                 Page 123 of 123
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

5.   INVENTORIES, NET

Inventories consist of the following-

                                                            December 31,
                                                         2001          2002
                                                     ------------  ------------
     Finished goods                                  $     15,976  $     17,186
     Raw materials                                            515            96
     Less- allowance for obsolescence                       2,773         3,072
                                                     ------------  ------------
                                                     $     13,718  $     14,210
                                                     ============  ============

6.   OTHER CURRENT ASSETS

Other current assets consist of the following-

                                                            December 31,
                                                         2001          2002
                                                     ------------  ------------
     Rabbi Trust                                     $    13,468   $      1,403
     Promotional costs                                       363            342
     Rent due from landlord                                   38              -
     Other receivables                                        22             52
                                                     ------------  ------------
                                                     $    13,891   $      1,797
                                                     ============  ============

7.   PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following-

<TABLE>
<CAPTION>
                                                        Range of
                                                         Lives           December 31,
                                                        (Years)        2001         2002
                                                     ------------  ------------   ---------
     <S>                                                 <C>       <C>            <C>
     Machinery, equipment and other                      3-10      $      9,301   $   7,523
     Furniture and fixtures                              5-10             3,434       3,666
     Leasehold improvements                              3-15             3,049       2,369
     Buildings and improvements                            32               634       2,209
                                                                   ------------   ---------
                                                                         16,418      15,767
     Less- accumulated depreciation and amortization                     (8,877)    (10,358)
                                                                   ------------   ---------
                                                                   $      7,541   $   5,409
                                                                   ============   =========
</TABLE>

Depreciation expense was $1,927, $1,987 and $1,945 for the years ended December
31, 2000, 2001 and 2002, respectively.

                                 Page 124 of 124
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

8.   OTHER INTANGIBLE ASSETS, net

<TABLE>
<CAPTION>
                                          ------------------------------------   --------------------------------------------------
                                                December 31, 2001                            December 31, 2002
                                          ------------------------------------   --------------------------------------------------
                            Useful                     Accumulated                                  Accumulated
                             Lives          Gross      Amortization      Net         Gross          Amortization           Net
                            ------        --------   --------------   --------   --------------   -----------------   -------------
<S>                         <C>           <C>            <C>          <C>        <C>              <C>                 <C>
Customer Lists              7-9 yrs       $ 36,748       $(33,070)    $  3,678      $ 36,748         $(34,001)         $  2,747
Copyrights                  8 yrs           17,520        (12,527)       4,993        17,520          (14,666)            2,854
Product Titles              7 yrs           22,400        (17,117)       5,283        22,400          (19,181)            3,219
Non-compete agreements      2 yrs           17,098        (17,098)        --          17,098          (17,098)             --
Databases                   4-10 yrs         5,812         (5,723)          89         5,812           (5,803)                9
Other                       2-5 yrs            264           (215)          49           264             (216)               48
                                          --------       --------     --------      --------         --------          --------
      Total:                              $ 99,842       $(85,750)    $ 14,092      $ 99,842         $(90,965)         $  8,877
                                          ========       ========     ========      ========         ========          ========
</TABLE>

For intangible assets other than goodwill not subject to amortization, the total
carrying amount for the years ended December 31, 2001 and 2002 was $15,018 and
$9,956, respectively.

The amortization expense for the years ended December 31, 2001 and 2002 was
$6,389 and $5,214, respectively, and is included in amortization of goodwill and
intangible assets on the consolidated statement of operations. Amortization
expense for intangible assets subject to amortization for the next five years is
expected to be as follows:

           Estimated Amortization Expense
          For the years ended December 31,
       ----------------------------------------

       2003..................        $3,897
       2004..................         2,087
       2005..................           646
       2006..................           104
       2007..................            13

9.   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

                                                           December 31,
                                                         2001           2002
                                                     ------------   ------------
       Rabbi Trust (see Note 15)                     $     13,468   $   1,403
       Payroll and related employee benefits                5,627       4,818
       Acquisition costs (see Note 12)                      1,434         157
       Pension liability (see Note 14)                      2,295       5,056
       Accrued restructuring costs                              -       2,770
       Royalties                                            1,236       1,397
       Accrued interest                                     1,616       1,447
       Other                                                  988       1,658
                                                     ------------   ---------
                                                     $     26,664   $  18,706
                                                     ============   =========

                                 Page 125 of 125
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

10.  INCOME TAXES

At December 31, 2002, the Company had available net operating loss carryforwards
(NOLs) of approximately $76,473. No tax benefit has been reflected in the
accompanying financial statements as the utilization of the operating loss
carryforwards is not considered more likely than not. Accordingly, this amount
has been fully offset by a valuation allowance.

The NOLs are scheduled to expire in the following years:

                                             NOL
                                       ------------
2019                                   $     2,236
2020                                        39,955
2021                                        17,552
2022                                        16,730
                                       -----------
                                       $    76,473
                                       ===========

Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred income tax assets include the Company's net operating loss
carryforwards and adjusted tax basis in excess of the historical net book value
of intangible assets.

The Company's provision for income tax differs from the amount computed by
applying the statutory U.S. federal income tax rate of 35% primarily due to
non-deductible amortization, state and local taxes and changes in valuation
allowances.

In 2000, 2001 and 2002, the Company recorded income tax expense of $ $-0-, $281,
$101, respectively, related to a provision for current state and local taxes. In
addition, in each of these years, the Company recorded a valuation allowance
equal to the deferred tax benefit arising from the Company's net losses.
Further, in 2002, the Company increased its valuation allowance in connection
with the adoption of SFAS 142 and recorded non-cash deferred income tax expense
of $2,000 as discussed below.

At December 31, 2001 and 2002, the Company determined that the net deferred
income tax asset would not likely be realized. Accordingly, this amount has been
fully offset by a valuation allowance. To the extent the Company generates book
taxable income in future years, the income tax provision will reflect the
realization of such benefits.

Historically, the Company did not need a valuation allowance for the portion of
the net operating losses equal to the amount of tax-deductible goodwill and
trademark amortization expected to occur during the carryforward period of the
net operating losses based on the timing of the reversal of these taxable
temporary differences. As a result of the adoption of SFAS 142, the reversal
will not occur during the carryforward period of the net operating losses.
Therefore, the Company recorded deferred income tax expense of approximately
$1,360 on January 1, 2002 and $640 during the remainder of 2002.

                                 Page 126 of 126
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

11.  LONG-TERM DEBT

In connection with the recapitalization and merger of the Company during
November, 1999, the Parent, the Company and CompassLearning, a wholly owned
subsidiary of the Parent, entered into the senior subordinated note and senior
bank credit facility. Since each Company is jointly and severally liable for the
borrowing, they are considered to be obligated. Accordingly, the debt and
related interest expense is reflected in the financial statements of each
entity. For the Company, a corresponding entry in the financial statements has
been recorded as Due from Parent.

In May 2001, the Company acquired the assets of Lindy Enterprises, Inc. In
connection with this acquisition, the Senior Bank Credit Facility was amended
and restated to include an additional term A loan commitment in the amount of
$10,000. In addition, certain other terms and conditions were amended.

At December 31, long-term debt consisted of the following:

<TABLE>
<CAPTION>
                               As of December 31, 2001                           As of December 31, 2002
                   ------------------------------------------------  -------------------------------------------------
Debt                Face         Unamortized   Principal      Book         Face    Unamortized   Principal   Book
Instrument          Value          Discount     Payments      Value        Value    Discount     Payments    Value
----------------   ---------   -------------   ---------   ---------   ---------  ------------  ---------- -----------
<S>                <C>         <C>             <C>           <C>         <C>      <C>           <C>         <C>
Senior Bank-Term
A (b)              $  28,675   $           -   $   3,487   $  25,188   $  25,188  $          -  $    5,038 $    20,150
Senior Bank-Term
B (b)                 98,750               -       1,000      97,750      97,750             -       1,000      96,750
Senior Bank-New
Term A (b)            10,000               -         100       9,900       9,900             -         133       9,767
Revolving Credit
(b)                        -               -           -           -           -             -           -           -
Senior
Subordinated
Notes (a)            152,000           5,123           -     146,877     152,000         4,727           -     147,273
                   ---------   -------------   ---------   ---------   ---------  ------------  ---------- -----------
Total debt           289,425           5,123       4,587     279,715     284,838         4,727       6,171     273,940
Less-  current
portion                6,171               -           -       6,171       7,721             -           -       7,721
                   ---------   -------------   ---------   ---------   ---------  ------------  ---------- -----------
Long-term debt     $ 283,254   $       5,123   $   4,587   $ 273,544   $ 277,117  $      4,727  $    6,171 $   266,219
                   =========   =============   =========   =========   =========  ============  ========== ===========
</TABLE>

(a)      In connection with the recapitalization of the Company in 1999, the
         Company, CompassLearning, Inc. and the parent were all co-issuers of
         152,000 units consisting of $152,000 in aggregate principal amount of
         12 3/4% Senior Subordinated Notes (the Notes) due 2009 and 205,656
         shares of common stock. Interest on the Notes is payable semi-annually,
         on May 15 and November 15. For the year ending December 31, 2002
         $19,380 of interest was paid on the Notes.

         Based upon an independent valuation, $148,289 was allocated to the
         value of the Notes while $3,711 was the value ascribed to the common
         stock. The Notes were issued net of a $2,096 discount, which is being
         accreted to maturity using the effective interest method.

         Prior to November 15, 2002, the Company may redeem up to 35% of the
         Notes with net cash proceeds of certain sales of equity securities at a
         price of 112.75% of the principal amount, plus accrued and unpaid
         interest.

         On or after November 15, 2004, the Company may redeem the Notes at a
         redemption price of 106.375% of the principal amount, plus accrued
         interest thereon decreasing annually to 100% in 2007 and thereafter.

                                 Page 127 of 127
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

         The Notes are unconditionally guaranteed by the subsidiaries of the
         Company.

(b)      The Senior Bank Credit Facilities are comprised of the $30,000
         revolving credit facility maturing in 2005, the $31,000 term loan A
         facility maturing in 2005, the $100,000 term loan B facility maturing
         in 2006 and the $10,000 new term loan A facility maturing in 2006.
         During 2000, the Company applied for and received an annually renewable
         stand-by letter of credit in the amount of $2,000 in connection with a
         real estate lease entered into by the Parent. While this letter of
         credit is in effect, the Company's available borrowing under the
         revolving credit facility is reduced by $2,000. As of December 31, 2002
         there had been no drawings against this letter of credit. As of
         December 31, 2002 and 2001, the revolving credit facility balance was
         $0 . The term loan A facility, the term loan B facility and the new
         term loan A facility amortize in quarterly installments.

         Loans under the senior bank credit facilities bear interest at a rate
         per annum equal to:

         1.       For the revolving credit facility and the term loan A
                  facility, the LIBO rate as defined in the credit agreement,
                  plus 3.375% or the alternate base rate as defined in the
                  credit agreement, plus 2.375% (subject to performance-based
                  step downs). As of December 31, 2002 and 2001, term loan A
                  loans outstanding had interest rates that ranged from 4.99% to
                  5.15% and from 5.285% to 5.82%, respectively..

         2.       For the term loan B facility and the new term loan A facility,
                  the LIBO rate plus 4.00% or the alternate base rate plus
                  3.00%. As of December 31, 2002, term loan B loans outstanding
                  had interest rates that ranged from 5.40% to 5.84%. As of
                  December 31, 2002 and 2001, the new term loan A loans
                  outstanding has interest rates that ranged from 5.40% to 5.83%
                  and from 5.91% to 6.37%, respectively.

                  In addition to paying interest on outstanding loans under the
                  senior bank credit facilities, the Company is required to pay
                  a commitment fee to the lenders associated with the revolving
                  credit facility in respect of the unused commitments there
                  under at a rate of 0.5% per annum (subject to
                  performance-based step downs). Commitment fees paid for unused
                  revolver for the year ended December 31, 2002 and 2001 was
                  approximately $97 and $92, respectively.

                  The senior bank credit facilities are subject to mandatory
                  prepayment with:

                  -        the proceeds of the incurrence of certain
                           indebtedness

                  -        the proceeds of certain asset sales or other
                           dispositions

                  -        the proceeds of issuances of certain equity offerings

                  -        annually beginning in 2000, 50% of the Company's
                           excess cash flow (as defined in the credit agreement)
                           from the prior year.

The borrowing agreements provide for certain restrictions, including
restrictions on asset sales, dividend payments, additional indebtedness payments
for restricted investments. In addition, the borrowing agreements provide for
the maintenance of certain financial covenants, including a limit on the
consolidated leverage ratios and maintenance of minimum fixed charged coverage
ratios.

                                 Page 128 of 128
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Maturities of long-term debt are as follows-

       2003                                                       $      7,721
       2004                                                              8,496
       2005                                                             27,730
       2006                                                             82,720
       2007                                                                  -
       Thereafter *                                                    152,000
                                                                  --------------
       Total                                                      $    278,667
                                                                  ==============

* Includes unamortized debt discount of $4,727.

12.  RESTRUCTURING AND OTHER NON-RECURRING EXPENSES

In January 2002, the Company's board of directors approved a restructuring plan
(the "2002 Plan of Restructuring") and accordingly, the Company incurred charges
for restructuring, asset write-downs and other exit costs totaling approximately
$4.3 million.

The 2002 Plan of Restructuring included integration and cost reduction
initiatives comprised of closure of facilities and reduction in work force.

Pursuant to the 2002 Plan of Restructuring, 51 positions were eliminated
throughout the Weekly Reader Corporation. Severance and other benefit costs of
approximately $1.6 million relate to the reduction of these employees from the
workforce. This workforce reduction involved each of the three operating units
of Weekly Reader Corporation. Most of the workforce reductions represented
administrative and back office related employees. Approximately $1.0 million in
severance and other benefit costs relating to the 2002 Plan of Restructuring
were paid as of December 31, 2002. The workforce reductions were completed by
December 31, 2002

Lease termination costs include future obligations under long-term
non-cancelable lease agreements at facilities that were vacated following
workforce reductions. The majority of these costs consisted of the estimated
lease costs, net of probable sublease income, associated with a portion of the
company's WAEG office lease at 512 Seventh Avenue in New York, N.Y. which
expires in 2015. As a result of the facilities being vacated, certain assets
were written off. As of December 31, 2002, $2.7 million of the total net charge
of $4.3 million has been incurred for lease termination costs and asset write
downs.

Of the pre-tax restructuring and other non-recurring expenses totaling
approximately $4.3 million, $3.3 million represents non-cash charges at December
31, 2002. Approximately $1.0 million was spent in 2002 and the remaining $2.8
million is expected to be spent as follows: 2003 - $1.1 million and 2004 and
beyond - $1.7 million.

                                 Page 129 of 129
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Components of the company's restructuring plans and other non-recurring
expenses, including the plans initiated in 2002, are shown in the following
table:

<TABLE>
<CAPTION>
$ in 000's)                            Balance at                                Amount             Balance at
                                     December 31, 2001        Charges            Incurred        December 31, 2002
                                    --------------------  ----------------- ------------------- ---------------------
<S>                                 <C>                   <C>               <C>                 <C>
Severance and other benefits        $                 -   $          1,630  $             (981) $               649
Lease terminations                                    -              2,162                 (41)                2,121
Asset write-downs                                     -                488                (488)                    -
                                    --------------------  ----------------- ------------------- ---------------------
Total                               $                 -   $          4,280  $           (1,510) $              2,770
                                    ====================  ================= =================== =====================
</TABLE>


13.  STOCKHOLDERS' EQUITY

Preferred Stock

The Company has authorized 20,000,000 shares of preferred stock in series and to
designate accordingly the dividend, voting, conversion, redemption and
liquidations rights for each series. In connection with the Re-capitalization
described in Note 1, The Company issued to its parent 3,000,000 shares of 15%
Preferred Stock is due in 2011. The Preferred stock has an aggregate liquidation
preference of $25.00 per share. The Parent holds all of the 3,000,000 shares of
preferred stock outstanding and is entitled to receive dividends at 15% per
annum, subject to adjustment under certain conditions. During the years ended
December 31, 2000, 2001 and 2002, accrued preferred stock dividends amounted to
$12,122, $14,044 and $16,274, respectively, and are payable in additional shares
of preferred stock. The Company may redeem the preferred stock, including unpaid
dividends, prior to November 17, 2002 or after November 17, 2004, subject to
certain conditions.

14.  RETIREMENT PLANS

Substantially all of the Company's employees are eligible to participate in a
defined contribution plan of the Parent as of January 1, 2000. Prior to 2000,
all of the Company's employees were eligible to participate in PRIMEDIA's
defined contribution plan. On January 1, 2000, all employees enrolled in
PRIMEDIA's defined contribution plan were transferred to the Parent's plan. The
expense recognized by the Company for the plans during the years ended December
31, 2000, 2001 and 2002, was $753, $863 and $977, respectively.

American Guidance sponsors a defined benefit pension plan (the "American
Guidance Plan") for the benefit of its employees. The allocation of the purchase
price of American Guidance included a liability of $792 related to this plan.
The benefits to be paid under the American Guidance Plan are based on years of
service and compensation amounts for the average of the highest five consecutive
plan years. The American Guidance Plan is funded by means of contributions to
the plan's trust. The pension funding policy is consistent with the funding
requirements of U.S. Federal and other governmental laws and regulations. Plan
assets consist primarily of fixed income, equity and other short-term
investments.

                                 Page 130 of 130
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

The following tables set forth the American Guidance Plan's funded status as of
December 31, 2000, 2001 and 2002, and the amounts recognized in the Company's
consolidated statements of operations and accumulated deficit from the
acquisition date through December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                                   2000                2001             2002
                                                                                ----------          ----------       ----------
<S>                                                                             <C>                 <C>               <C>
       Change in benefit obligation-
          Projected benefit obligation at beginning of year                     $    8,567          $   10,270       $   11,947
              Service cost                                                             544                 809              742
              Interest cost                                                            671                 755              819
              Actuarial loss                                                           872                 544            1,332
              Benefits paid                                                           (384)               (431)            (461)
                                                                                ----------          ----------       ----------
                 Projected benefit obligation at end of year                    $   10,270          $   11,947       $   14,379
                                                                                ==========          ==========       ==========
       Change in plan assets-
          Fair value of plan assets at beginning of year                        $    8,585          $    8,218       $    7,903
              Actual return on plan assets                                             (80)               (687)          (1,284)
              Employer contribution                                                     97                 803            1,111
              Benefits paid                                                           (384)               (431)            (461)
                                                                                ----------          ----------       ----------
                 Fair value of plan assets at end of year                       $    8,218          $    7,903       $    7,269
                                                                                ==========          ==========       ==========
Funded status                                                                   $   (2,052)         $   (4,044)      $   (7,110)
       Unrecognized actuarial loss                                                     126               2,116            5,411
                                                                                ----------          ----------       ----------
                 Accrued pension cost                                           $   (1,926)         $   (1,928)      $   (1,699)
                                                                                ==========          ==========       ==========

       Components of net periodic pension expense
          Service cost                                                          $      544          $      809       $      742
          Interest cost                                                                671                 755              819
          Expected return on plan assets                                              (763)               (759)            (749)
          Amortization of unrecognized net(gain)/loss                                  (64)                  -               70
                                                                                ----------          ----------       ----------
                 Net periodic pension expense                                   $      388          $      805       $      882
                                                                                ==========          ==========       ==========

       Amounts recognized in statement of financial position-
          Prepaid benefit cost                                                  $        -          $        -       $        -
          Accrued benefit liability                                                 (1,926)             (2,244)          (5,056)
          Intangible asset                                                               -                   -                -
          Accumulated other comprehensive income                                         -                 316            3,357
                                                                                ----------          ----------       ----------
                                                                                $   (1,926)         $   (1,928)      $   (1,699)
                                                                                ==========          ==========       ==========

       Accumulated benefit obligation and fair value of assets-
          Accumulated benefit obligation                                        $   (8,566)         $  (10,147)      $  (12,325)
          Fair value of assets                                                  $    8,218          $    7,903       $    7,269

       Weighted-average assumptions as of end of year
       Discount rate                                                                  7.5%                7.0%            6.25%
       Expected return on plan assets                                                 9.0%                9.0%             9.0%
       Rate of compensation increase                                                 4.55%                4.5%             4.5%
</TABLE>

                                 Page 131 of 131
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

A minimum pension liability adjustment is required when the actuarial present
value of the accumulated plan benefits exceeds plan assets and accrued pension
liability. In 2000, 2001 and 2002, a minimum liability adjustment of $9, $325
and $3,041 respectively, was recorded as a component of other comprehensive loss
and reported in accumulated other comprehensive loss as a component of
stockholders' equity.

15.  RABBI TRUST

In 1998, as part of its acquisition of American Guidance, a subsidiary of Weekly
Reader, approximately $19,600 of the American Guidance purchase price was paid
through contributions to several Rabbi Trusts to settle American Guidance's
obligations due to employees under American Guidance's predecessor company stock
option, employee stock ownership and deferred compensation plans. Payments to
the beneficiaries of the Rabbi Trusts are taxable upon distribution from the
Rabbi Trusts with Weekly Reader receiving a corresponding deduction for income
tax purposes. The assets of the Rabbi Trusts predominantly consist of marketable
mutual fund investments that are subject to claims of general creditors of
Weekly Reader in the event of bankruptcy. Accordingly, the assets of the Rabbi
Trusts and a related liability are presented in other current assets and accrued
expenses and other current liabilities, respectively on the consolidated balance
sheets. The balance of the asset and liability as of December 31, 2001 and 2002
was approximately $13,468 and $1,403, respectively. The asset and corresponding
liability are classified in other current assets and other current liabilities.
The marketable securities in the Rabbi Trusts have been classified as trading
securities and investment income (expense) of $24, ($432), and $156 has been
offset with the related compensation expense for the same amount on the
accompanying consolidated statements of operations for the years ended December
31, 2000, 2001 and 2002, respectively. Marketable securities in the Rabbi Trust
have been recorded at fair value, based on quoted market prices, on the
accompanying consolidated balance sheets.

16.  COMMITMENTS AND CONTINGENCIES

Commitments

The Company has operating leases for office, warehouse space and equipment that
include original or remaining non-cancelable minimum rental contracts as
follows:

       Years Ending December 31,
       -------------------------
       2003                                                      $     3,700
       2004                                                            3,700
       2005                                                            3,319
       2006                                                            3,089
       2007                                                            2,388
       Thereafter                                                     12,455
       Total minimum lease payments                              -----------
                                                                 $    28,651
                                                                 ===========

Total rent expense under operating leases was $2,383, $3,204 and $3,337 for the
years ended December 31, 2000, 2001 and 2002, respectively.

                                 Page 132 of 132
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Contingencies

The Company is involved in ordinary and routine litigation incidental to its
business. In the opinion of management, there is no pending legal proceeding
that would have a material adverse affect on the consolidated financial
statements of the Company.

17.  QUARTERLY DATA (Unaudited)

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                            -------------------------------------------------------
                                               March 31       June 30    September 30  December 31       Year
                                            --------------- ----------- ------------- -------------   -----------
<S>                                          <C>             <C>           <C>            <C>          <C>
2002
Revenues                                     $  34,008       $  30,724     $  44,672      $  47,094    $ 156,498
Gross profit                                    25,628          22,073        34,211         35,026      116,938
Operating costs and expenses                    19,708          17,846        19,837         29,581       86,972
Income / (loss) from operations                  5,920           4,227        14,374          5,445       29,966
Net income / (loss)                          ($ 74,796)      ($  2,969)    $   8,311      ($  1,787)   ($ 71,241)


2001
Revenues                                     $  35,582       $  30,709     $  45,676      $  50,198    $ 162,165
Gross profit                                    26,524          21,721        34,205         36,024      118,474
Operating costs and expenses                    21,579          18,543        22,760         24,120       87,002
Income / (loss) from operations                  4,945           3,178        11,445         11,904       31,472
Net income / (loss)                          ($  3,415)      ($  5,169)    $   3,120      $   4,418    ($  1,046)
</TABLE>

18.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                                               2000           2001          2002
                                                                          ------------   ------------   ------------
<S>                                                                       <C>            <C>            <C>
   Cash paid during the period for interest                               $     33,417   $     32,063   $     27,870
                                                                          ============   ============   ============
   Cash paid during the period for income taxes                           $        592   $        352   $        203
                                                                          ============   ============   ============
   Preferred stock dividends accrued                                      $     12,122   $     14,044   $     16,274
                                                                          ============   ============   ============
</TABLE>

                                 Page 133 of 133
<PAGE>

PART II

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to the persons who, as
of the date of this annual report, were serving or are expected to serve in the
near future as directors and executive officers of each of WRC Media, Weekly
Reader and CompassLearning, as well as those executive officers and employees of
American Guidance and World Almanac. Each director holds office until the next
annual meeting of shareholders or until his successor has been elected and
qualified.

<TABLE>
<CAPTION>
NAME                                       AGE                                 POSITION
----                                       ---                                 --------
<S>                                        <C>    <C>
Timothy C. Collins..................       46     Director, WRC Media, Weekly Reader and CompassLearning
D. Ronald Daniel....................       73     Non-Executive Chairman, WRC Media, Weekly Reader and
                                                  CompassLearning
Ralph D. Caulo......................       64     Non-Executive Vice-Chairman, WRC  Media, and Group President,
                                                  Assessment, Curriculum and Educational Technology Group
Charles L. Laurey...................       32     Director, WRC Media, Weekly Reader and CompassLearning; and
                                                  Secretary, WRC Media, Weekly Reader and CompassLearning
Peter E. Berger.....................       52     Director, WRC Media, Weekly Reader and CompassLearning
Martin E. Kenney, Jr................       55     Director, WRC Media, Weekly Reader and CompassLearning; Chief
                                                  Executive Officer, WRC Media and CompassLearning; Executive Vice
                                                  President, Weekly Reader
Robert S. Lynch.....................       46     Director, WRC Media, Weekly Reader and CompassLearning; Executive
                                                  Vice President, Chief Operating Officer WRC Media and
                                                  CompassLearning; and Treasurer, WRC Media, Weekly Reader and
                                                  CompassLearning
David M. Malcolm....................       55     Director, WRC Media, Weekly Reader and CompassLearning
David F. Burgstahler................       34     Director, WRC Media, Weekly Reader and CompassLearning
Richard Nota........................       42     Vice President, Finance, WRC Media
Robert Jackson......................       48     Group President, Reference and Periodicals Group and President of
                                                  Weekly Reader Corporation
</TABLE>

TIMOTHY C. COLLINS, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING.
Since June 2, 1999, Timothy C. Collins has served as a Director of WRC Media and
CompassLearning. Mr. Collins was named a Director of Weekly Reader as of
November 17, 1999. Mr. Collins founded Ripplewood Holdings L.L.C. in 1995 and
currently serves as its Senior Managing Director and Chief Executive Officer.
From 1991 to 1995, Mr. Collins managed the New York office of Onex Corporation,
a leveraged buy-out group headquartered in Canada. Previously, Mr. Collins was a
Vice President at Lazard Freres & Company and held various positions at Booz,
Allen & Hamilton and Cummins Engine Company. He also currently serves on the
Board of Directors of Ripplewood Holdings L.L.C., Shinsei Bank, Ltd. (formerly
The Long-Term Credit Bank of Japan, Limited), Kraton Polymers L.L.C., Niles
Parts Co., Ltd, Columbia Music Entertainment Inc., D&M Holdings, Inc., WRC

                                 Page 134 of 134
<PAGE>

Media Inc. and various other  privately held  Ripplewood  portfolio  companies.
Mr. Collins  received a master's  in  Business  Administration  from Yale
University's  School of  Management  and  Organization  and a  Bachelor's
Degree in Philosophy from DePauw University.

D. RONALD DANIEL, NON-EXECUTIVE CHAIRMAN, WRC MEDIA, WEEKLY READER AND
COMPASSLEARNING. As of November 17, 1999, Mr. Daniel was named Non-Executive
Chairman of WRC Media, Weekly Reader and CompassLearning. Mr. Daniel is a
Director of McKinsey & Company, Inc., having served as Managing Director from
1976 to 1988. He has been a management consultant for over 45 years. He serves
as the non-executive chairman of Ripplewood Holdings L.L.C., which specializes
in private equity investments and is the general partner of Ripplewood Partners,
L.P., which controls EAC III, the majority owner of WRC Media. Since September
1998, he has served as an advisory board member of IMG Chase Sports Capital,
LLC. Since October 1997, Mr. Daniel has served on the Board of Directors of Yum
Brands Inc. In addition, he serves as Treasurer of Harvard University, as a
member of Harvard University's seven-person Corporation, a member of the Harvard
University Board of Overseers, Chairman of the Harvard Management Company and
Chairman of the Board of Fellows of the Harvard Medical School.

RALPH D. CAULO, NON-EXECUTIVE VICE-CHAIRMAN, WRC MEDIA, GROUP PRESIDENT,
CURRICULUM, ASSESSMENT, AND EDUCATIONAL TECHNOLOGY GROUP. As of November 17,
1999 Mr. Caulo was named Non-Executive Vice Chairman of WRC Media. Since
December 1, 2002 Mr. Caulo has served as Group President of the Assessment,
Curriculum and Educational Technology Group. Since 1998, Mr. Caulo has served as
an outside consultant at Ripplewood Holdings L.L.C., which specializes in
private equity investments and is the general partner of Ripplewood Partners,
L.P. which controls EAC III, the majority owner of WRC Media. From 1991 to 1998,
Mr. Caulo held the dual position of Executive Vice President of Simon & Schuster
and President of its Educational Publishing Group. In this position, Mr. Caulo
oversaw one of the world's largest educational publishers and its Allyn & Bacon,
Prentice Hall, Silver Burdett Ginn, Modern Curriculum, Computer Curriculum
Corporation (CCC) and Educational Management Group (EMG) imprints. From 1989
until 1991, Mr. Caulo was President and Chief Executive Officer of Harcourt
Brace Jovanovich. He began his career at Harcourt Brace Jovanovich in sales in
1974, and then moved through marketing, editorial, development and senior
management to become President and Chief Operating Officer in 1988.

CHARLES L. LAUREY, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING AND
SECRETARY, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING. Since June 2, 1999,
Charles L. Laurey has served as a Director of WRC Media and CompassLearning and
Secretary of WRC Media. As of November 17, 1999, Mr. Laurey was named a Director
of Weekly Reader and Secretary of CompassLearning and Weekly Reader. In October
1997, he joined Ripplewood Holdings L.L.C. which is the general partner of
Ripplewood Partners, L.P. which controls EAC III, the majority owner of WRC
Media. Prior to joining Ripplewood Holdings L.L.C., Mr. Laurey worked from
August 1994 until September 1997 in Morgan Stanley & Co.'s Corporate Finance
Department in New York and in the Mergers, Acquisitions and Restructurings
Department in London, most recently as an associate. He started his career as a
strategy consultant in The Hague, The Netherlands.

PETER E. BERGER, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING. Since
2000 Mr. Berger has been Ripplewood Holdings L.L.C.'s Managing Director and
Chief Financial Officer. From 1998 to September 2000, Mr. Berger through a
private investment/advisory entity, Mediacom Ventures L.L.C. advised and
facilitated acquisition opportunities and operational improvements for media and
telecommunications businesses. From 1996-1998 Mr. Berger was Chief Financial
Officer of Ripplewood Holdings L.L.C. Prior to that Mr. Berger was a partner
with Arthur Andersen L.L.P. and was the managing partner of their Corporate
Finance practice in the Americas. At Andersen, Mr. Berger advised clients on
acquisitions, divestitures, financing, and treasury risk management and also
chaired Andersen's Fairness Opinion Committee. Mr. Berger was also a Managing
Director in Bear, Stearns & Co.'s Merger and Acquisition department. Mr. Berger
is a Director of Kepner-Tregoe Inc. and is a member of the boards of various
Ripplewood portfolio companies. Mr. Berger graduated with honors from Boston
University and has an M.B.A. from Columbia University.

                                Page 135 of 135
<PAGE>

MARTIN E. KENNEY, JR., DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING,
CHIEF EXECUTIVE OFFICER, WRC MEDIA AND COMPASSLEARNING, PRESIDENT,
COMPASSLEARNING, AND EXECUTIVE VICE PRESIDENT, WEEKLY READER. Since July 14,
1999 Martin E. Kenney, Jr. has served as a Director of WRC Media and
CompassLearning. As of November 17, 1999, Mr. Kenney was named Chief Executive
Officer of WRC Media, a Director of Weekly Reader and Executive Vice President
of Weekly Reader. He has held several executive and management positions,
including serving as Executive Vice President of the Education Publishing Group
and President of the Education Technology Group both from May 1995 to December
1998 at Simon & Schuster. From May 1994 to May 1995, he held the dual positions
of President of the Business, Training and Healthcare Group and Senior Vice
President of Marketing at Simon & Schuster. Mr. Kenney also serves as a director
of Prism eSolutions, LLC.

ROBERT S. LYNCH, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING,
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER, WRC MEDIA AND
COMPASSLEARNING, AND TREASURER, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING.
Since June 2, 1999, Robert S. Lynch has served as a Director of WRC Media and
CompassLearning. As of November 17, 1999, Mr. Lynch was named a Director of
Weekly Reader, Vice President of WRC Media and CompassLearning and Treasurer of
WRC Media, Weekly Reader and CompassLearning. On September 1, 2000, Mr. Lynch
joined WRC Media as Executive Vice President and Chief Operating Officer. Prior
to joining WRC, Mr. Lynch was from February 1997 to September 2000 a managing
director of Ripplewood Holdings L.L.C., which specializes in private equity
investments and is the general partner of Ripplewood Partners, L.P. which
controls EAC III, the majority owner of WRC Media.

DAVID M. MALCOLM, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING. As of
July 17, 2002, David M. Malcolm has served as a Director of WRC Media,  Weekly
Reader  and CompassLearning. Since January of 2001 David M. Malcolm has served
as Head of Investment Banking and a member of The Office of the CEO of SG Cowen.
Mr. Malcolm is also President of SG Capital Partners, the merchant banking
affiliate of Societe Generale.  From 1996 to 2001 he headed the Global Leveraged
Finance Group for Societe Generale.  He serves on the Board of Five Star Food
Services, Inc., the fifth largest vending food service operation in the U.S.
Additionally he serves on the Boards of American Rivers and the Eastern Chapter
of The Nature Conservancy of New York.  He is a graduate of Wesleyan University
and the Harvard Graduate School of Business Administration.

DAVID F.  BURGSTAHLER,  DIRECTOR,  WRC MEDIA,  WEEKLY READER AND
COMPASSLEARNING.  As of May 31, 2000, David F. Burgstahler has been a director
of WRC Media,  Weekly  Reader and  CompassLearning.  He is a Director of Credit
Suisse  First  Boston and a Principal  of DLJ Merchant  Banking  Partners.
Mr.  Burgstahler  joined  Credit  Suisse  First  Boston in 2000 when it merged
with  Donaldson,  Lufkin & Jenrette,  where he was a Vice  President of DLJ
Merchant  Banking  Partners.  From 1999 to 2001, he served as a Vice  President
of DLJ Merchant Banking  Partners.  From 1997 to 1999, he was an associate with
DLJ Merchant

                                Page 136 of 136
<PAGE>

Banking  Partners.  Mr.  Burgstahler also serves as a director of Von Hoffmann
Corporation, Haights Cross Communications, Inc., Focus Technologies Inc. and
McCulloch Corporation.

RICHARD NOTA, VICE PRESIDENT, FINANCE, WRC MEDIA. Since July 17, 2000, Richard
Nota has served as Vice President, Finance of WRC Media. Mr. Nota has held
several executive and management positions, including serving as Vice President,
Accounting and Taxation from December 1989 to November 1995 at Pergament Home
Centers, Inc., a retail company. From November 1995 until joining WRC Media, Mr.
Nota served as Controller at Heating Oil Partners, L.P., a retail distributor of
petroleum products.

ROBERT J. JACKSON, GROUP PRESIDENT, REFERENCE AND PERIODICAL GROUP. Robert J.
Jackson was named President of WRC Media's Reference and Periodicals Group and
President of Weekly Reader Corporation on January 1, 2002. He served as an
independent management consultant for WRC Media from July 2000 through December
31, 2001. Prior to July 2000, Mr. Jackson has held several executive and
management positions, beginning in 1974 when he joined Funk & Wagnalls
Corporation, now a subsidiary of World Almanac Education Group. He was Executive
Vice President of Weekly Reader Corporation from November 1999 through July
2000, Vice President and Chief Financial Officer of PRIMEDIA'S Supplemental
Education Group from January 1998 through November 1999 and Executive Vice
President and Chief Operating Officer of World Almanac Education Group from
November 1995 through December 1997.

                                Page 137 of 137
<PAGE>

PART III

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes, for the fiscal year ended the last day of
December 2002, all compensation paid to (i) the chief executive officer of each
registrant for fiscal year 2002, (ii) the five most highly compensated executive
officers serving at the end of December 2002 in all capacities in which they
served, including those executive officers of World Almanac and American
Guidance, who performed policy making functions for Weekly Reader and were
serving as such at the end of December 2002 in all capacities in which they
served, (iii) the three most highly compensated executive officers other than
the president of CompassLearning and Weekly Reader serving at the end of
December 2002 in all capacities in which they served and (iv) up to two
additional individuals employed by each registrant who were not serving as
executive officers at the end of December 2001 but received at least as much
compensation as the fourth most highly compensated executive officer of the
registrant for whom they were employed:

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

                                                          SUMMARY COMPENSATION TABLE                                  LONG-TERM
                                                                                                                    COMPENSATION
                                                                                  ANNUAL COMPENSATION                 AWARDS
                                                          --------------------------------------------------------  SECURITIES
                                                                                                       OTHER ANNUAL   UNDERLYING
                                                                                                       COMPENSATION    OPTIONS/
NAME AND PRINCIPAL POSITION                        YEAR    SALARY ($)     BONUS ($)(a)   401 k ($) (b)   ($) (c)     SARS (#)(d)
                                                   ----    ----------     ------------   -------------   -------     -----------
<S>                                                <C>     <C>            <C>            <C>           <C>           <C>
Martin E. Kenney, Jr.                              2002      537,404        350,000        12,500          -           324,294
Director, Chief Executive Officer WRC Media        2001      480,000        350,000        11,375          -           204,294
                                                   2000      480,000        200,000         3,168          -           204,294

Robert S. Lynch                                    2002      462,635        400,000        12,500          -           167,523
Director, Chief Operating Officer WRC Media        2001      425,000        400,000         8,500          -           107,523
                                                   2000      132,407 (e)        -             -          4,000         107,523

Richard Nota                                       2002      189,260        155,000        12,124          -            22,500
Vice President,  Finance WRC Media                 2001      175,000         60,000         4,813          -            15,000
                                                   2000       77,404 (f)        -             -          5,452          15,000

Ralph Caulo                                        2002      336,231        100,000           -            -            93,762
Vice Chairman and President, Assessment,
  Curriculum and Technology Group                  2001      350,000            -             -            -            53,762
WRC Media                                          2000      194,823            -             -            -            53,762

Robert J. Jackson                                  2002      250,885            -          12,500      92,285 (g,h)     17,168
President, Reference and Periodicals Group         2001         -               -             -       241,806 (g)        7,168
WRC Media                                          2000      153,846        181,498        13,244      66,182 (g)        7,168
</TABLE>

(a) Represents bonuses paid in 2000 and 2001.
(b) Represents the company contribution to the 401 (k) retirement savings plan.
(c) Represents other miscellaneous W-2 compensation
(d) Represents 2000, 2001 and 2002 stock option awards issued.
(e) Represents partial year from September 1 through December 31, 2000.
(f) Represents partial year from July 17, 2000 through December 31, 2000.
(g) Represents consulting fees paid.
(h) Represents auto allowance paid.


                                Page 138 of 138
<PAGE>

DIRECTOR COMPENSATION

Our directors do not receive compensation, except as officers or employees.

PART III

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                               OWNERSHIP OF STOCK

As used in the three sections below describing the beneficial ownership of WRC
Media, Weekly Reader and CompassLearning, "beneficial ownership" means the sole
or shared power to vote, or direct the voting of, a security, or the sole or
shared investment power with respect to a security. An example is the power to
dispose of, or direct the disposition of, a security. A person is deemed as of
any date to have "beneficial ownership" of any security that the person has the
right to acquire within 60 days after that date. For purposes of computing the
percentages of outstanding shares held by each person named in the three
sections below, any security that the person has the right to acquire within 60
days of the date of calculation is deemed to be outstanding, although this
security is not deemed to be outstanding for purposes of calculating the
percentage ownership of any other person.

                        BENEFICIAL OWNERSHIP OF WRC MEDIA

The following tables list, as of the date of this annual report, information
known to us regarding the beneficial ownership of WRC Media common stock by:

-        each person known by WRC Media to be the beneficial owner of more than
         5% of the outstanding WRC Media common stock;

-        each of the directors and the executive officers listed under
         "Executive Compensation;" and

-        all directors and the executive officers listed under
         "Management--Executive Compensation," as a group.

As of the date of this annual report, the total number of outstanding shares of
WRC Media common stock was 7,009,750. In addition there were 620,062 exercisable
options to purchase shares of WRC Media common stock outstanding on that date.
Except as otherwise noted, the persons named in the tables have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
The information concerning beneficial ownership is based on statements furnished
to us by the beneficial owners and assumes that 7,009,750 shares of common stock
have been issued and are outstanding.

                                Page 139 of 139
<PAGE>

                             WRC MEDIA COMMON STOCK

<TABLE>
<CAPTION>
 Common                                                                              Amount and Nature of
 Stock                        Name and Address of Beneficial Owner                 Beneficial Ownership(a)     Percent of Class (a)
 ------                       ------------------------------------                 -----------------------     -------------------
               <S>                                                                         <C>                          <C>
               EAC III
               c/o Ripplewood Holdings L.L.C.
               1 Rockefeller Plaza
               32nd Floor
               New York, NY 10020 ......................................                   5,569,067 (b)                 73.0%

               SGC Partners II LLC
               1221 Avenue of the Americas
               New York, NY 10020 ......................................                    1,694,039                    22.2%

               EAC IV, L.L.C.
               c/o Ripplewood Holdings L.L.C.
               1 Rockefeller Plaza
               32nd Floor
               New York, NY 10020 ......................................                   5,569,067 (c)                 73.0%

               Timothy C. Collins ......................................                   5,627,409 (d)                 73.7%

               Charles L. Laurey .......................................                       1,636 (e)                    *

               Robert S. Lynch .........................................                     142,899 (f)                  1.9%

               D. Ronald Daniel ........................................                   5,569,067 (g)                 73.0%

               David M. Malcolm ........................................                   1,694,039 (h)                 22.2%

               WRC MEDIA INC.
               512 Seventh Avenue
               22nd Floor
               New York, NY 10018

               Martin E. Kenney, Jr.....................................                     280,422 (i)                  3.7%

               Ralph D. Caulo ..........................................                      81,826 (j)                  1.1%

               Richard Nota ............................................                      18,501 (k)                    *

               Weekly Reader Corporation
               512 Seventh Avenue
               22nd Floor
               New York, NY 10018

               Larry J. Rutkowski ......................................                      31,435 (l)                    *

               Robert J. Jackson .......................................                      25,420 (m)                    *

               All  directors  of WRC Media and the  executive  officers
               listed under "Management" as a group                                        7,631,263 (d)-(m)            100.0%
</TABLE>

* Represents holdings of less than 1%.

(a)      Calculated excluding all shares issuable pursuant to options except, as
         to each person, the shares issuable to that person pursuant to options
         immediately exercisable or exercisable within 60 days from the date of
         this annual report.

(b)      Represents 4,870,494 shares held directly and 698,573 shares held
         indirectly through its rights granted to it under the management
         shareholder agreements entered into by some executives of WRC Media,
         Weekly Reader and CompassLearning. For a description of these
         agreements, see "Certain Relationships and Related
         Transactions--Management Shareholder Agreements." Each of EAC IV
         L.L.C., Co-Investment Partners, L.P., The Northwestern Mutual Life
         Insurance Company, Jackson National Life Insurance Company and Blue
         Ridge Investments, L.L.C., an affiliate of Bank of America, N.A. owns
         66.4%, 16.6%, 10.9%, 5.5% and 0.6%, respectively, of the membership
         interests in EAC III.

                                Page 140 of 140
<PAGE>

(c)      Represents the beneficial ownership of shares through its ownership of
         66.4% of the membership interests of EAC III and the rights granted to
         EAC III under the management shareholder agreements entered into by
         some executives of WRC Media, Weekly Reader and CompassLearning and the
         limited liability company agreement of EAC III. EAC IV L.L.C. is
         controlled by Ripplewood Partners, L.P., an affiliate of Ripplewood
         Holdings L.L.C.

(d)      Represents 58,342 shares held directly and 5,569,067 shares
         beneficially owned through Mr. Collins' position as Senior Managing
         Director and Chief Executive Officer of Ripplewood Holdings L.L.C.
         which is the general partner of Ripplewood Partners, L.P. which
         controls EAC III.

(e)      Represents shares held directly.

(f)      Represents 5,376 shares held directly and 137,523 shares issuable upon
         exercise of options granted under his employment agreement.

(g)      Represents beneficial ownership of 5,569,067 shares through Mr.
         Daniel's position as the Non-executive chairman of Ripplewood Holdings
         L.L.C., which is the general partner of Ripplewood Partners, L.P.,
         which controls EAC III.

(h)      Represents beneficial ownership of 1,694,039 shares through Mr.
         Malcolm's position as President and Chief Executive Officer of SG
         Capital partners LLC, which is the general partner of SG Merchant
         Banking Fund L.P., which controls SGC Partners II LLC.

(i)      Represents 16,128 shares held directly and 264,294 shares issuable upon
         exercise of options granted under his employment agreement.

(j)      Represents 8,064 shares held directly and 73,762 shares issuable upon
         exercise of options to be granted under Mr. Caulo's consulting
         agreements and employment with WRC Media.

(k)      Represents 5,376 shares held directly and 13,125 shares issuable upon
         exercise of options granted under a management shareholder agreement.

(l)      Represents 12,096 shares held directly and 19,339 shares issuable upon
         exercise of options granted under a management shareholder agreement.

(m)      Represents 10,752 shares held directly and 14,668 shares issuable upon
         exercise of options granted under a management shareholder agreement.

BENEFICIAL OWNERSHIP OF WEEKLY READER COMMON STOCK

The following table lists, as of the date of this annual report common stock,
which consists of Weekly Reader's Class A and Class B non-voting common stock
and Weekly Reader voting common stock, by:

-        each person known by Weekly Reader to be the beneficial owner of more
         than 5% of the outstanding Weekly Reader common stock;

-        each of the directors and the executive officers listed under
         "Management-- Executive Compensation;" and

-        all directors and the executive officers listed under "Management" as a
         group.

         As of the date of this report, no shares of Weekly Reader's class A and
         class B non-voting common stock are outstanding.

As of the date of this report, the total number of outstanding shares of Weekly
Reader voting common stock was 2,830,000. Except as otherwise noted, the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. The information concerning
beneficial ownership is based on statements furnished to us by the beneficial
owners and assumes that 2,830,000 shares of voting common stock have been issued
and are outstanding.

                                Page 141 of 141
<PAGE>

                        WEEKLY READER VOTING COMMON STOCK
<TABLE>
<CAPTION>
                                                                              Amount and Nature of        Percent
 Common Stock                       Name and Address                          Beneficial Ownership        of Class
 ------------                       ----------------                          --------------------        --------
                 <S>                                                                     <C>                  <C>

                 WRC Media
                 c/o Ripplewood Holdings L.L.C.
                 1 Rockefeller Plaza, 32nd Floor
                 New York, NY 10020.....................................                 2,685,670            85.5%**

                 PRIMEDIA, Inc.
                 745 Fifth Avenue
                 New York, NY 10151.....................................                   144,330             4.6%**

                 DLJ Merchant Banking Partners II, L.P.
                 and affiliates
                 c/o DLJ Merchant Banking Partners
                 277 Park Avenue
                 New York, NY 10172.....................................                   310,109(a)          9.9%

                 All directors and the executive  officers  listed under
                 "Management" as a group................................                         0                *
</TABLE>

*  Represents holdings of less than 1%.
**Percent of class calculated on a fully-diluted basis including warrants.

(a)      Represents ownership by DLJ Merchant Banking Partners II, L.P. of
         159,828 warrants to purchase Weekly Reader common stock; ownership by
         DLJ Merchant Banking Partners II-A, L.P. of 6,365 warrants to purchase
         Weekly Reader common stock; ownership by DLJ Offshore Partners II, C.V.
         of 7,860 warrants to purchase Weekly Reader common stock; ownership by
         DLJ Diversified Partners, L.P. of 9,344 warrants to purchase Weekly
         Reader common stock; ownership by DLJ Diversified Partners-A, L.P. of
         3,470 warrants to purchase Weekly Reader common stock; ownership by
         DLJMB Funding II, Inc. of 32,605 warrants to purchase Weekly Reader
         common stock; ownership by DLJ Millennium Partners, L.P. of 2,584
         warrants to purchase Weekly Reader common stock; ownership by DLJ
         Millennium Partners-A, L.P. of 504 warrants to purchase Weekly Reader
         common stock; ownership by DLJ EAB Partners, L.P. of 718 warrants to
         purchase Weekly Reader common stock; ownership by DLJ ESC II, L.P. of
         3,779 warrants to purchase Weekly Reader common stock; ownership by
         DLPIP II Holdings, L.P. of 4,644 warrants to purchase Weekly Reader
         common stock; ownership by DLJ First ESC, L.P. of 308 warrants to
         purchase Weekly Reader common stock; ownership by DLJ Investment
         Partners II, L.P. of 32,041 warrants to purchase Weekly Reader common
         stock; ownership by DLJ Investment Partners, L.P. of 14,238 warrants to
         purchase Weekly Reader common stock; and ownership by DLJIP II
         Holdings, L.P. of 5,460 warrants to purchase Weekly Reader common
         stock. Because these funds are under common control, each fund may be
         deemed to, for Federal

                                 Page 142 of 142
<PAGE>

         securities law purposes, beneficially own the shares underlying the
         warrants held by all the other funds.

BENEFICIAL OWNERSHIP OF COMPASSLEARNING COMMON STOCK

The following table lists, as of the date of this report, information known to
us regarding the beneficial ownership of CompassLearning common stock by:

         -        each person known by WRC Media to be the beneficial owner of
                  more than 5% of the outstanding CompassLearning common stock;

         -        each of the directors and the executive officers listed under
                  "Management--Executive Compensation," and

         -        all directors and executive officers listed under "Management"
                  as a group.

As of the date of this annual report, the total number of outstanding shares of
CompassLearning common stock was 10,000. Except as otherwise noted, the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. The information concerning
beneficial ownership is based on statements furnished to us by the beneficial
owners and assumes that 10,000 shares of common stock have been issued and are
outstanding.

                          COMPASSLEARNING COMMON STOCK
<TABLE>
<CAPTION>
                                                                             Amount and Nature of        Percent
 Common Stock                        Name and Address                        Beneficial Ownership        of Class
 ------------                        ----------------                        --------------------        --------
                 <S>                                                                       <C>               <C>
                 WRC Media
                 512 Seventh Avenue
                 22nd Floor
                 New York, NY 10018.....................................                   10,000            90.1%**

                 DLJ Merchant Banking Partners II, L.P.
                 and affiliates
                 c/o DLJ Merchant Banking Partners
                 277 Park Avenue
                 New York, NY 10172.....................................                    1,098(a)          9.9%**

                 All directors and the executive  officers  listed under
                 "Management" as a group................................                        0                *
</TABLE>

* Represents holdings of less than 1%.
**Percent of class calculated on a fully-diluted basis including warrants.

                                 Page 143 of 143
<PAGE>

(a) Represents ownership by DLJ Merchant Banking Partners II, L.P. of 566
warrants to purchase CompassLearning common stock; ownership by DLJ Merchant
Banking Partners II-A, L.P. of 23 warrants to purchase CompassLearning common
stock; ownership by DLJ Offshore Partners II, C.V. of 28 warrants to purchase
CompassLearning common stock; ownership by DLJ Diversified Partners, L.P. of 33
warrants to purchase CompassLearning common stock; ownership by DLJ Diversified
Partners-A, L.P. of 12 warrants to purchase CompassLearning common stock;
ownership by DLJMB Funding II, Inc. of 115 warrants to purchase CompassLearning
common stock; ownership by DLJ Millennium Partners, L.P. of 9 warrants to
purchase CompassLearning common stock; ownership by DLJ Millennium Partners-A,
L.P. of 2 warrants to purchase CompassLearning common stock; ownership by DLJ
EAB Partners, L.P. of 3 warrants to purchase CompassLearning common stock;
ownership by DLJ ESC II, L.P. of 13 warrants to purchase CompassLearning common
stock; ownership by DLJIP II Holdings, L.P. of 16 warrants to purchase
CompassLearning common stock; ownership by DLJ First ESC, L.P. of 1 warrant to
purchase CompassLearning common stock; ownership by DLJ Investment Partners II,
L.P. of 114 warrants to purchase CompassLearning common stock; ownership by DLJ
Investment Partners, L.P. of 50 warrants to purchase CompassLearning common
stock; and ownership by DLJIP II Holdings, L.P. of 19 warrants to purchase
CompassLearning common stock. Because these funds are under common control, each
fund may be deemed, for Federal securities law purposes, to beneficially own the
shares underlying the warrants held by all the other funds.

PART III

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

MANAGEMENT AGREEMENTS

In connection with the acquisition of CompassLearning, CompassLearning entered
into a management agreement with Ripplewood Holdings L.L.C., and after the
completion of the transactions (described in Note 1 to the Weekly Reader
Corporation and Subsidiaries Financial Statements) Weekly Reader entered into a
management agreement with Ripplewood Holdings L.L.C. The following summary of
the material provisions of these management agreements is qualified in its
entirety by reference to the management agreements as entered into or amended as
of the date of this annual report.

Under the terms of the CompassLearning management agreement with Ripplewood
Holdings L.L.C., and since the date of the acquisition of CompassLearning,
Ripplewood Holdings L.L.C. has been providing to CompassLearning management
consulting and financial advisory services, and CompassLearning has been paying
to Ripplewood Holdings L.L.C. an annual management fee of $150,000, payable in
quarterly installments, and has reimbursed Ripplewood Holdings L.L.C. for its
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of its services. On November 17, 1999, CompassLearning and
Ripplewood Holdings L.L.C. amended the terms of the CompassLearning management
agreement with

                                 Page 144 of 144
<PAGE>

Ripplewood Holdings L.L.C. to relieve CompassLearning of its
obligation to pay management fees to Ripplewood Holdings L.L.C. until 2001.

Under the terms of the Weekly Reader management agreement with Ripplewood
Holdings L.L.C., Ripplewood Holdings L.L.C. provides to Weekly Reader management
consulting and financial advisory services. As a result of the Weekly Reader
management agreement and the amendment of the CompassLearning management
agreement, CompassLearning and Weekly Reader agreed to reimburse Ripplewood
Holdings L.L.C. for its reasonable out-of-pocket costs and expenses incurred in
connection with the performance of its services and is obligated to pay to
Ripplewood Holdings L.L.C. annual aggregate management fees for services to both
CompassLearning and Weekly Reader totaling $950,000, payable quarterly.
Ripplewood Holdings L.L.C. received payments under these agreements totaling
$950,000 in 2002 for services provided in previous periods. No payment has been
made for the services provided in 2002.

Under these management agreements, Weekly Reader and CompassLearning are
obligated to indemnify, defend and hold harmless Ripplewood Holdings L.L.C., its
affiliates and each of their respective directors, stockholders, advisory
directors, officers, members, employees and agents from any damages related to
the performance by Ripplewood Holdings L.L.C. of its obligations under these
management agreements. Ripplewood Holdings L.L.C. may terminate these management
agreements at any time on five days' prior written notice to Weekly Reader or
CompassLearning, as applicable.

MANAGEMENT SHAREHOLDER AGREEMENTS

Simultaneously with the closing of the transactions described under "The
Acquisition and Recapitalization," and under the terms of their respective
employment agreements with Weekly Reader and CompassLearning certain executives
of WRC Media, Weekly Reader, and CompassLearning purchased shares of WRC Media
common stock and entered into management shareholder agreements with WRC Media
and EAC III with respect to the WRC Media common stock held by these executives.
The following summary of the material provisions of these management shareholder
agreements is qualified in its entirety by reference to the management
shareholder agreements.

VOTING AGREEMENT. Each executive who is a party to a management shareholder
agreement with WRC Media and EAC III with respect to WRC Media common stock has
granted to EAC III an irrevocable proxy to vote the WRC Media common stock held
by the executive as well as all WRC Media common stock thereafter acquired by
the executive on all matters except for any matter that would both adversely
affect and treat the executive differently from other holders of WRC common
stock. This proxy terminates upon any transfer of these shares to a third party
after or upon completion of an initial public offering of WRC Media common stock
and the expiration of any "lock-up" period agreed upon by the executives and the
underwriters in connection with the initial public offering.

                                 Page 145 of 145
<PAGE>

TRANSFER RESTRICTIONS. Each management shareholder agreement with WRC Media and
EAC III with respect to WRC Media common stock restricts the right of an
executive to transfer the WRC Media common stock the executive holds without the
prior written consent of EAC III to any person other than a permitted transferee
of the executive. With respect to each executive who is a party to a management
shareholder agreement, permitted transferees include EAC III, another executive,
the executive's spouse or lineal descendants or any trust the beneficiaries of
which include only the executive's spouse or lineal descendants. Each executive
may also transfer, without restriction, the WRC Media common stock that the
executive holds after the completion of an initial public offering of WRC Media
common stock.

1999 OPTIONS. Executives listed under "Ownership of Stock," - in Exhibits among
others, who are parties to a management shareholder agreement with WRC Media and
EAC III with respect to WRC Media common stock were also granted options to
purchase a specified number of shares of WRC Media common stock. With respect to
each of these executives, to the extent that the executive remains employed with
Weekly Reader or CompassLearning, as applicable, 33% of the options vested on
December 31, 1999, a further 33% on December 31, 2000 and the remaining 34% on
December 31, 2001.

TAG-ALONG RIGHTS. The management shareholder agreements with WRC Media and EAC
III with respect to WRC Media common stock provide that, if EAC III determines
to sell in excess of 5% of its WRC Media common stock to a third party other
than a permitted transferee and, after giving effect to the sale, EAC III will
have transferred in excess of 35% of its WRC Media common stock to a third party
other than a permitted transferee, the executives who are party to the
management shareholder agreements have the right to sell a proportionate amount
of their WRC Media common stock in the transaction at the same price per share
and on the same terms and conditions as apply to the sale of WRC Media common
stock by EAC III.

DRAG-ALONG RIGHTS. In the event that EAC III determines to sell all or any
portion in excess of 35% of its WRC Media common stock to any third party, EAC
III has the right to cause the executives who are party to the management
shareholder agreements with WRC Media and EAC III to sell a proportionate amount
of their WRC Media common stock in the transaction, all at the same price per
share and on the same terms and conditions as apply to the sale of WRC Media
common stock by EAC III.

OPTION UPON TERMINATION. In the event that the employment of an executive who is
party to a management shareholder agreement with WRC Media and EAC III with
respect to WRC Media common stock is terminated for any reason, EAC III has the
option to purchase all or any portion of the WRC Media common stock held by the
executive at fair market value as determined under the terms of the management
shareholder agreement. In addition, in the event that an executive's employment
is terminated other than for good cause, as defined in the executive's
employment agreement, or because of a notice of non-renewal given by the
executive's employer, in the event of financial hardship as determined by the
Board of Directors of WRC Media or because of death, the executive or the
executive's estate has the right to require WRC Media to purchase any or all of
the executive's WRC Media common stock, subject to exceptions and customary
limitations, including but not limited to:

                                 Page 146 of 146
<PAGE>

         -        our financial ability to finance the purchase with cash; or

         -        our ability to obtain third party financing on reasonable
                  terms.

PART III

ITEM 14  CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer of WRC Media, Weekly
Reader and CompassLearning, after conducting an evaluation, together with other
members of WRC Media, Weekly Reader and CompassLearning's management, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of a date within 90 days of the filing of this report, have
concluded that WRC Media, Weekly Reader and CompassLearning's disclosure
controls and procedures were effective to ensure that information required to be
disclosed by WRC media, Weekly Reader and CompassLearning in its reports filed
or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized, and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission (the "SEC").
There were no significant changes in WRC Media, Weekly Reader and
CompassLearning's internal controls or in other factors that could significantly
affect these controls subsequent to that evaluation, and there were no
significant deficiencies or material weaknesses in such controls requiring
corrective actions.

PART IV

ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS:
WRC Media Inc. and Subsidiaries

Independent Auditors' Report -- Deloitte & Touche LLP
Report of Independent Public Accountants -- Arthur Andersen LLP

Weekly Reader and Subsidiaries

Independent Auditors' Report -- Deloitte & Touche LLP
Report of Independent Public Accountants -- Arthur Andersen LLP

                                 Page 147 of 147
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
WRC Media Inc.
New York, New York

We have audited the consolidated financial statements of WRC Media Inc. as of
and for the year ended December 31, 2002, and have issued our report thereon
dated March 7, 2003; which report includes an explanatory paragraph as the
Company changed its method of accounting for goodwill and other intangible
assets in 2002 to conform to Statement of Financial Standards No. 142. Our audit
also included the financial statement schedules of WRC Media Inc. as of and for
the year ended December 31, 2002 listed in Item 15 (a)(2). These financial
statement schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedules, when considered in relation to the basic 2002
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein. The consolidated financial
statements and financial statement schedules of WRC Media Inc. as of December
31, 2001 and for the years ended December 31, 2000 and 2001, were audited by
other auditors who have ceased operations. Those other auditors expressed an
unqualified opinion on those consolidated financial statements and financial
schedules in their reports dated February 21, 2002.

DELOITTE & TOUCHE LLP

New York, New York
March 7, 2003

                                 Page 148 of 148
<PAGE>

WRC Media Inc. dismissed Arthur Andersen LLP on April 29, 2002, and subsequently
engaged Deloitte & Touche LLP as its independent auditors. The predecessor
auditors' report appearing below is a copy of Arthur Andersen LLP's previously
issued opinion dated February 21, 2002. In fiscal 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). As discussed in the Intangible Assets
and Goodwill note to the financial statements, the Company has presented
transitional disclosures for 2000 and 2001 required by SFAS No. 142. The Arthur
Andersen LLP report does not extend to these transitional disclosures. These
disclosures are reported on by Deloitte & Touche LLP as stated in their report
appearing on the previous page. Since WRC Media Inc. is unable to obtain a
manually signed audit report, a copy of Arthur Andersen LLP's most recently
signed and dated report has been included to satisfy filing requirements, as
permitted under Rule 2-02(e) of Regulation S-X.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To WRC Media Inc. and Subsidiaries:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of WRC Media and
Subsidiaries included in this Form 10-K and have issued our report thereon dated
February 21, 2002. Our audit was made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The accompanying
schedule is the responsibility of the Company's management and is presented for
the purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. The schedule has
been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

                                                             ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 21, 2002

                                 Page 149 of 149
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Weekly Reader Corporation
New York, New York

We have audited the consolidated financial statements of Weekly Reader
Corporation (a Delaware corporation) and subsidiaries (the "Company") a 94.9%
owned subsidiary of WRC Media Inc., as of and for the year ended December 31,
2002, and have issued our report thereon dated March 7, 2003; which report
includes an explanatory paragraph as the Company changed its method of
accounting for goodwill and other intangible assets in 2002 to conform to
Statement of Financial Standards No. 142. Our audit also included the financial
statement schedules of Weekly Reader Corporation and subsidiaries. as of and for
the year ended December 31, 2002 listed in Item 15 (a)(2). These financial
statement schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedules, when considered in relation to the basic 2002
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein. The consolidated financial
statements and financial statement schedules of Weekly Reader Corporation and
subsidiaries as of December 31, 2001 and for the years ended December 31, 2000
and 2001, were audited by other auditors who have ceased operations. Those other
auditors expressed an unqualified opinion on those consolidated financial
statements and financial schedules in their reports dated February 21, 2002.

DELOITTE & TOUCHE LLP

New York, New York
March 7, 2003

                                 Page 150 of 150
<PAGE>

WRC Media Inc. dismissed Arthur Andersen LLP on April 29, 2002, and subsequently
engaged Deloitte & Touche LLP as its independent auditors. The predecessor
auditors' report appearing below is a copy of Arthur Andersen LLP's previously
issued opinion dated February 21, 2002. In fiscal 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). As discussed in the Intangible Assets
and Goodwill note to the financial statements, the Company has presented
transitional disclosures for 2000 and 2001 required by SFAS No. 142. The Arthur
Andersen LLP report does not extend to these transitional disclosures. These
disclosures are reported on by Deloitte & Touche LLP as stated in their report
appearing on the previous page. Since WRC Media Inc. is unable to obtain a
manually signed audit report, a copy of Arthur Andersen LLP's most recently
signed and dated report has been included to satisfy filing requirements, as
permitted under Rule 2-02(e) of Regulation S-X.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Weekly Reader and Subsidiaries:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Weekly Reader and
Subsidiaries included in this Form 10-K as of December 31, 2001 and for the year
then ended and have issued our report thereon dated February 21, 2002. Our audit
was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The accompanying schedule is the
responsibility of Weekly Reader's management and is presented for the purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. The schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

                                                             ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 21, 2002

                                 Page 151 of 151
<PAGE>

(a) (2)  FINANCIAL STATEMENT SCHEDULES:

Schedule II (a) - WRC Media Inc. Valuation and Qualifying Accounts for the Years
Ended December 31, 2000, 2001 and 2002

Schedule II (b) - Weekly Reader Corporation Valuation and Qualifying Accounts
for the years ended December 31, 2000, 2001 and 2002

Schedule II (a)- Valuation and Qualifying Accounts and Reserves

SCHEDULE II (a)-WRC Media Inc.

<TABLE>
<CAPTION>
                                         Opening Balance                                       Ending Balance
                                            January 1          Expense       Write-offs          December 31
                                         ---------------    -------------   -------------    --------------------
<C>                                      <C>                <C>             <C>              <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS

2002                                         $1,942             1,116            (1,341)            $1,717
2001                                         $1,794             1,093              (945)            $1,942
2000                                         $2,276               660            (1,172)            $1,764


SALES RETURNS AND ALLOWANCES

2002                                         $2,840             3,668            (3,425)            $3,083
2001                                         $2,663             4,123            (3,946)            $2,840
2000                                         $3,604             4,522            (5,433)            $2,693


RESERVE FOR INVENTORY OBSOLESCENCE

2002                                         $2,773             1,060              (761)            $3,072
2001                                         $3,039               879            (1,145)            $2,773
2000                                         $2,794             1,064              (819)            $3,039
</TABLE>



SCHEDULE II(b) - Weekly Reader Corporation


<TABLE>
<CAPTION>
                                          Opening Balance                                         Ending Balance
                                             January 1         Expense           Write-offs         December 31
                                             ------            ------            ----------         -----------
<C>                                      <C>                <C>             <C>              <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS

2002                                         $1,543             1,187            (1,341)            $1,389
2001                                         $1,561               882              (900)            $1,543
2000                                         $1,793               579              (811)            $1,561


SALES RETURNS AND ALLOWANCES

2002                                         $2,840             3,668            (3,425)            $3,083
2001                                         $2,663             4,123            (3,946)            $2,840
2000                                         $3,574             4,522            (5,433)            $2,663


RESERVE FOR INVENTORY OBSOLESCENCE

2002                                         $2,773             1,060              (761)            $3,072
2001                                         $3,039               879            (1,145)            $2,773
2000                                         $2,794             1,064              (819)            $3,039
</TABLE>

                                 Page 152 of 152
<PAGE>

All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements or the Notes thereto.

(a) (3)  EXHIBITS

Unless indicated otherwise, information regarding EXHIBITS are incorporated by
reference from the Company's definitive registration statement filed on Form S-4
pursuant to Regulation 12B under the Securities Exchange Act of 1934,
Registration No. 333-96119.


                                 Page 153 of 153
<PAGE>

INDEX TO EXHIBITS

EXHIBIT NUMBER                         DESCRIPTION OF DOCUMENT
--------------                         -----------------------
1.1               Purchase Agreement dated November 10, 1999 among WRC Media
                  Inc., Weekly Reader Corporation and CompassLearning, Inc.
2.1               Redemption, Stock Purchase and Recapitalization Agreement
                  dated August 13, 1999 among WRC Media Inc. and Primedia Inc.
3.1               Articles of Incorporation of WRC Media Inc.
3.2               Bylaws of WRC Media Inc.
3.3               Articles of Incorporation of Weekly Reader Corporation
3.4               Bylaws of Weekly Reader Corporation
3.5               Articles of Incorporation of CompassLearning, Inc.
3.6               Bylaws of CompassLearning, Inc.
3.7               Articles of Incorporation of Lifetime Learning Systems, Inc.
3.8               Bylaws of Lifetime Learning Systems, Inc.
3.9               Articles of Incorporation of American Guidance Service, Inc.
3.10              Bylaws of American Guidance Service, Inc.
3.11              Articles of Incorporation of AGS International Sales, Inc.
3.12              Bylaws of AGS International Sales, Inc.
3.13              Articles of Incorporation of World Almanac Education Group,
                  Inc.
3.14              Bylaws of World Almanac Education Group, Inc.
3.15              Articles of Incorporation of Funk & Wagnalls Yearbook Corp.
3.16              Bylaws of Funk & Wagnalls Yearbook Corp.
3.17              Articles of Incorporation of Gareth Stevens, Inc.
3.18              Bylaws of Gareth Stevens, Inc.
3.18.1            Amendment to the Bylaws of Gareth Stevens, Inc.
4.1               Indenture dated November 17, among WRC Media Inc., Weekly
                  Reader Corporation, CompassLearning, Inc. and Bankers Trust
                  Company
4.2               Registration Rights Agreement dated November 17, 1999 among
                  WRC Media Inc., Weekly Reader Corporation, CompassLearning,
                  Inc., Primedia Reference Inc., Funk & Wagnalls Yearbook Corp.,
                  Lifetime Learning Systems, Inc., Gareth Stevens, Inc.,
                  American Guidance Service, Inc. and AGS International Sales,
                  Inc.
4.3               Amended Certificate of Designations, Preferences and Rights of
                  15% Senior Preferred Stock due 2011 and 15% Series B Senior
                  Preferred Stock due 2001 of WRC Media Inc.
4.4               WRC Media Inc. Preferred Stockholders Agreement dated November
                  17, 1999 between WRC Media Inc., Weekly Reader Corporation and
                  CompassLearning, Inc. and the preferred shareholders listed on
                  the signature pages thereto
4.5               Form of Note
4.6               Certificate of Preferred Stock
4.7               Junior Preferred Stock Agreement
4.8               Exhibit A to Preferred Stock Agreement

                                 Page 154 of 154
<PAGE>

EXHIBIT NUMBER                         DESCRIPTION OF DOCUMENT
--------------                         -----------------------

5.1               Opinion of Cravath, Swaine & Moore regarding the legality of
                  the new notes
5.2               Opinion of Leonard, Street and Deinard Professional
                  Association regarding certain Minnesota legal matters
5.3               Opinion of Foley & Lardner regarding certain Wisconsin legal
                  matters
10.1              Note Agreement, dated as of July 13, 1999, among
                  CompassLearning, Inc. (as successor by merger to EAC I Inc.),
                  The Northwestern Mutual Life Insurance Company and SGC
                  Partners II L.L.C.
10.2              Stock Purchase Agreement, dated July 13, 1999, among Software
                  Systems Corp., Sylvan Learning Systems, Inc., Pyramid
                  Ventures, Inc., GE Capital Equity Investments, Inc. and
                  CompassLearning, Inc. (as successor by merger to EAC I Inc.)
10.3              Credit Agreement dated November 17, 1999 among Weekly Reader
                  Corporation, CompassLearning, Inc., WRC Media Inc., DLJ
                  Capital Funding, Inc., Bank of America, N.A. and General
                  Electric Capital Corporation
10.4              Security and Pledge Agreement dated November 17, 1999 among
                  Weekly Reader Corporation, CompassLearning, Inc., WRC Media
                  Inc., Primedia Reference Inc., American Guidance Service Inc.,
                  Lifetime Learning Systems, Inc., AGS International Sales,
                  Inc., Funk & Wagnalls Yearbook Corp. and Gareth Stevens, Inc.
10.5              Subsidiary Guaranty dated November 17, 1999 among Primedia
                  Reference Inc., American Guidance Service Inc., Lifetime
                  Learning Systems, Inc., AGS International Sales, Inc., Funk &
                  Wagnalls Yearbook Corp. and Gareth Stevens, Inc.
10.6              Stockholders Agreement dated November 17, 1999 among Weekly
                  Reader Corporation, CompassLearning, Inc., WRC Media Inc., EAC
                  III L.L.C., Donaldson, Lufkin & Jenrette and Banc of America
                  Securities
10.7              Shareholders Agreement dated as of November 17, 1999 among WRC
                  Media, Weekly Reader Corporation and PRIMEDIA, Inc.
10.8              Employment Agreement dated as of the 17th day of November,
                  1999 among WRC Media Inc., EAC III L.L.C., CompassLearning,
                  Inc. and Martin E. Kenney, Jr.
10.9              Employment Agreement dated as of the 17th day of November,
                  1999 among Weekly Reader Corporation and Peter Bergen
10.10             Employment Agreement dated as of the 17th day of November,
                  1999 among American Guidance Service Inc. and Larry Rutkowski
10.11             Employment Agreement dated as of the 17th day of November,
                  1999 among Primedia Reference Inc. and Al De Seta
10.12             Transitional Services Agreement dated as of November 17, 1999,
                  among Primedia Inc., WRC Media Inc. and Weekly Reader
                  Corporation

                                 Page 155 of 155
<PAGE>

EXHIBIT NUMBER                        DESCRIPTION OF DOCUMENT
--------------                        -----------------------
10.13             Shareholder Agreement dated as of the 17th day of November,
                  1999 among EAC III L.L.C., Therese K. Crane and WRC Media Inc.
10.14             Shareholder Agreement dated as of the 17th day of November,
                  1999 among EAC III L.L.C., Peter Bergen, Larry Rutkowski, Al
                  De Seta, Robert Jackson, Kenneth Slivken and WRC Media Inc.
10.14.1           Shareholder Agreement dated as of January 1, 2000 among EAC
                  III L.L.C., Lester Rackoff, Sandy Maccarone, Ted Kozlowski,
                  Eric Ecker, Terry Bromberg, Gerald Adams, Linda Hein, Janice
                  Bailey, David Press, Cindy Buckosh, Robert Famighetti, Ken
                  Park and WRC Media Inc.
10.15             Shareholder Agreement dated as of the 17th day of November,
                  1999 among EAC III L.L.C., Martin Kenney and WRC Media Inc.
10.16             Preferred Stock and Warrants Subscription Agreement dated
                  November 17 between WRC Media Inc., Weekly Reader Corporation,
                  CompassLearning, Inc. and the other signatories thereto
10.17             Management Agreement dated as of November 17, 1999 among
                  Ripplewood Holdings L.L.C. and CompassLearning, Inc.
10.18             Management Agreement dated as of November 17, 1999 among
                  Ripplewood Holdings L.L.C. and Weekly Reader Corporation
10.19             ChildU Merger Agreement
10.20             Stockholder's Agreement With New WRC Media (ChildU)
                  shareholders
10.21             ChildU Escrow Agreement
10.22             Amended and Restated Credit Agreement
10.23             Lindy Asset Purchase Agreement
10.24             ThinkBox Agreement
12                Cash Interest Expense Calculation
12.1              Statement Regarding Ratios of Earnings to Fixed Charges
                  Computations
21.1              List of Subsidiaries of the Registrants
23.2              Consent of Cravath, Swaine & Moore (included in its opinion
                  filed as Exhibit 5.1)
23.2              Consent of Simba Information Inc.
23.3*             Consent of Deloitte & Touche LLP
23.4*             Consent of Deloitte & Touche LLP
25.1              Statement of Eligibility of Bankers Trust Corporation under
                  the Trust Indenture Act of 1939, as amended, on Form T-1
27.1              Financial Data Schedule--WRC Media & its subsidiaries
27.2              Financial Data Schedule--Weekly Reader Corporation &
                  subsidiaries
27.3              Financial Data Schedule--CompassLearning, Inc.
99.2              Letter of Transmittal for Tender of 12 3/4% Senior
                  Subordinated Notes Due 2009 of WRC Media Inc., Weekly Reader
                  Corporation, and CompassLearning, Inc.
99.3              Notice of Guaranteed Delivery for Tender of 12 3/4% Senior
                  Subordinated Notes Due 2009 of WRC Media Inc., Weekly Reader
                  Corporation, and CompassLearning, Inc.

                                 Page 156 of 156
<PAGE>

EXHIBIT NUMBER                        DESCRIPTION OF DOCUMENT
--------------                        -----------------------
99.5              Notice of Withdrawal of Tender of 12 3/4% Senior Subordinated
                  Notes Due 2009 of WRC Media Inc., Weekly Reader Corporation,
                  and CompassLearning, Inc.
99.7              Form of Letter to Securities Dealers, Commercial Banks, Trust
                  Companies and other Nominees for Tender of all Outstanding 12
                  3/4% Senior Subordinated Notes Due 2009 of WRC Media Inc.,
                  Weekly Reader Corporation and CompassLearning, Inc.
99.9              Form of Letter to Clients for 12 3/4% Senior Subordinated
                  Notes Due 2009 of WRC Media Inc.
99.11             Guidelines for Certification of Taxpayer Identification Number
                  on Substitute Form 99
99.12*            Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002
99.13*            Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002
99.14*            Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002

* Filed herewith.

(b)      REPORTS ON FORM 8-K

         1. Form 8-K, filed November 12, 2002, reporting operating results for
the quarter ended September 30, 2002.

         2. Form 8-K, filed November 13, 2002, reporting the transcript of an
investor conference call held November 12, 2002.

                                 Page 157 of 157
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

Dated:  March 21 2003
                                                                  WRC MEDIA INC.

                                                  By:  /s/ MARTIN E. KENNEY, JR.
                                                  ------------------------------

                                                     Name: Martin E. Kenney, Jr.
                                                 Title:  CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THIS 21ST DAY OF
MARCH, 2003.

<TABLE>
<CAPTION>
                          SIGNATURE                                                   TITLE
                          ---------                                                   ------
<S>                                                                       <C>
*
-------------------------------------------                               Director/Chief Executive Officer
Martin E. Kenney, Jr.

*
-------------------------------------------                                           Director
Timothy C. Collins

*
-------------------------------------------                                           Chairman
D. Ronald Daniel

*
-------------------------------------------                                      Director/Secretary
Charles L. Laurey

*
-------------------------------------------                                  Director/Treasurer/CFO/COO
Robert S. Lynch

*
-------------------------------------------                                           Director
David M. Malcolm

*
-------------------------------------------                                         Vice-Chairman
Ralph D. Caulo

*
-------------------------------------------                                           Director
David Burgstahler

*
-------------------------------------------                                    Vice President, Finance
Richard Nota
</TABLE>

                                 Page 158 of 158
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

Dated:  March 21, 2003

                                                       WEEKLY READER CORPORATION

                                                       By: /s/ ROBERT J. JACKSON
                                                       -------------------------

                                                         Name: Robert J. Jackson
                                                        Title:   PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THIS 21ST DAY OF
MARCH, 2003.

<TABLE>
<CAPTION>
                         SIGNATURE                                                    TITLE
                         ---------                                                    -----
<S>                                                                     <C>
*
-------------------------------------------                                         President
Robert J. Jackson

*
-------------------------------------------                                         Chairman
D. Ronald Daniel

*
-------------------------------------------                                         Director
Timothy C. Collins

*
-------------------------------------------                                    Director/Secretary
Charles L. Laurey

*
-------------------------------------------                                    Director/Treasurer
Robert S. Lynch

*
-------------------------------------------                             Director/Executive Vice President
Martin E. Kenney, Jr.

*
-------------------------------------------                                         Director
David M. Malcolm

*
-------------------------------------------                                         Director
David Burgstahler

*
-------------------------------------------                                  Vice President, Finance
Richard Nota
</TABLE>

                                 Page 159 of 159
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

Dated:  March 21, 2003

                                                           COMPASSLEARNING, INC.

                                                  By:  /s/ MARTIN E. KENNEY, JR.
                                                  ------------------------------

                                                     Name: Martin E. Kenney, Jr.
                                                Title:   CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THIS 21ST DAY OF
MARCH, 2003.

<TABLE>
<CAPTION>
                         SIGNATURE                                                    TITLE
                         ---------                                                    -----
<S>                                                                     <C>
-------------------------------------------                             Director/Chief Executive Officer
Martin E. Kenney, Jr.
*

*
-------------------------------------------                                         Director
Timothy C. Collins

-------------------------------------------                                         Director
D. Ronald Daniel

*
-------------------------------------------                                    Director/Secretary
Charles L. Laurey

*
-------------------------------------------                                    Director/Treasurer
Robert S. Lynch

*
-------------------------------------------                                         Director
David M. Malcolm

*
-------------------------------------------                                         Director
David Burgstahler
</TABLE>

                                 Page 160 of 160
<PAGE>

                    WRC MEDIA INC. AND COMPASSLEARNING, INC.

                                  CERTIFICATION

I, Martin E. Kenney, Jr., certify that:

1.       I have reviewed this annual report on Form 10-K of WRC Media Inc. and
         CompassLearning, Inc.;
2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;
3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;
4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;
         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):
         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified
         b)       for the registrant's auditors any material weaknesses in
                  internal controls; and any fraud, whether or not material,
                  that involves management or other employees who have a
                  significant role in the registrant's internal controls; and
6.       The registrant's other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 21, 2003

/s/  MARTIN E. KENNEY, JR.
---------------------------------
     Martin E. Kenney, Jr.
     Chief Executive Officer
     (Principal Executive Officer, WRC Media Inc.
      and CompassLearning, Inc.)

                                 Page 161 of 161
<PAGE>

       WRC MEDIA INC., WEEKLY READER CORPORATION AND COMPASSLEARNING, INC.

                                  CERTIFICATION

I, Robert S. Lynch, certify that:

1.       I have reviewed this annual report on Form 10-K of WRC Media Inc.,
         Weekly Reader Corporation and CompassLearning, Inc. and Subsidiaries;
2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;
3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;
4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;
         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):
         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and
6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 21, 2003

/s/  ROBERT S. LYNCH
----------------------------------------------------------
     Robert S. Lynch
     Executive Vice President, Chief Operating Officer
     (Principal Financial Officer, WRC Media Inc.,
      Weekly Reader Corporation and CompassLearning, Inc.)

                                 Page 162 of 162
<PAGE>

                                 WRC MEDIA INC.

                                  CERTIFICATION

I, Richard Nota, certify that:

1.       I have reviewed this annual report on Form 10-K of WRC Media Inc.;
2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;
3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;
4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;
         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):
         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and
6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 21, 2003

/s/  RICHARD NOTA
--------------------------------------------
     Richard Nota
     Vice President, Finance
     (Principal Accounting Officer, WRC Media Inc.)

                                 Page 163 of 163
<PAGE>

                            WEEKLY READER CORPORATION

                                  CERTIFICATION

I, Robert J. Jackson, certify that:

1.       I have reviewed this annual report on Form 10-K of Weekly Reader
         Corporation;
2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;
3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;
4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:
         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;
         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):
         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and
6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  March 21, 2003

/s/  ROBERT J. JACKSON
--------------------------------------------
     Robert J. Jackson
     President
     (Principal Executive Officer, Weekly Reader Corporation)

                                 Page 164 of 164