<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

<TABLE>
<S>                                                                   <C>
For the year ended December 31, 2003                                  Commission File No.  333-96119

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

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

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

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

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

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

     (Primary Standard Industrial Classification Number)
     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

</TABLE>

(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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
TITLE OF CLASS                              |        NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------------------------------------------------------------------------------------------
<S>                                                  <C>
12 3/4% Senior Subordinated Notes due 2009  |        NONE
15% Senior Preferred Stock due 2011         |        NONE
------------------------------------------------------------------------------------------------------
</TABLE>

         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 _ No X

         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]

<PAGE>

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 or the Company) 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- Lifetime Learning Systems, Inc., American Guidance
Service, Inc. (AGS or American Guidance) and World Almanac Education Group
(World Almanac).

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. On
May 9, 2001, WRC Media Inc. and subsidiaries completed two acquisitions. WRC
Media entered into an Agreement and Plan of Merger with ChildU, Inc. ChildU is a
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"). Lindy develops a curriculum-based skills assessment and test
preparation product that correlates to national and state curriculum. The
Company has four reporting segments: Weekly Reader, World Almanac, American
Guidance Service("AGS"), and Compass/ChildU.

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.
Weekly Reader is a leading publisher of 16 classroom periodicals which had a
2002-2003 school year circulation of 7.0 million subscribers. In addition to our
well-recognized classroom periodicals, such as Weekly Reader, Teen Newsweek and
Current Events, we also publish distinct, grade-specific workbooks. We also
custom publish instructional materials paid for by various sponsors, such as
General Motors, Six Flags Theme Parks, Inc, Kimberly-Clark, Center for Disease
Control and the Home Safety Council, which are distributed primarily to K-12
students throughout the United States. For the year ended December 31, 2003,
Weekly Reader, excluding American Guidance and World Almanac, had net revenue of
$46.3 million, representing approximately 23% of our total net revenue during
this period.

                                       1
<PAGE>

AMERICAN GUIDANCE SERVICE. AGS has been a leading publisher of individually
administered and group testing and assessment products, and supplemental
instructional materials for over 45 years. AGS's testing and assessment products
are primarily for K-12 students and its supplemental instructional materials are
primarily for low-performing students in middle and secondary schools. One or
more of AGS's testing and assessment products or supplemental instructional
materials are used in over 12,000 school districts, or approximately 80% 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. In May 2001, AGS acquired the operating
assets of Lindy. Lindy develops curriculum-based skills assessment and test
preparation products on CD-ROM that correlate to national and state curricula.
For the year ended December 31, 2003, AGS had net revenue of $56.6 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 several thousand hours of interactive
standards-based managed curriculum that inspires educators and students to
explore and achieve success, CompassLearning has been serving the Pre-K to 12
market for over 30 years and its products have been a significant part of the
learning and teaching process in more than 21,000 schools, representing
approximately 24% of all the schools in the United States. For the year ended
December 31, 2003, CompassLearning had net revenue of $42.7 million,
representing approximately 21% of our total net revenue during this period.

CHILDU. ChildU's expertise lies in the design of web-enabled courseware. Teamed
with the developers at CompassLearning, ChildU co-develops web-enabled products
for the Pre-K to 12 market. In 2002, ChildU and CompassLearning began
co-development of the new on-line product, Odyssey, which had its first release
in May 2002. 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, 2003, ChildU had
revenue of $7.9 million, representing approximately 4% 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 58% 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, The World
Almanac For Kids and nonfiction and fiction books for K-12 students under three
Gareth Stevens imprints. In addition, World Almanac publishes electronic
reference materials such as the Funk & Wagnalls Encyclopedia database and an
Internet-based version of Facts On File World News Digest, which in its print
version is World Almanac's leading subscription-based product with renewal rates
averaging approximately 86% from 1997 through 2003. World Almanac also
distributes third-party products that are targeted for K-12 students through its
World Almanac Education Library Services ("WAELS") catalogs. For the year ended
December 31, 2003 World Almanac had net revenue of $49.2 million, representing
approximately 24% of our total net revenue during this period.

                                       2
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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, Weekly Reader, which was
first published in 1929, the PEABODY PICTURE VOCABULARY TEST, which was first
published in 1929, 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. About 75% of
schools purchasing Weekly Reader periodicals re-subscribe 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.

                                       3
<PAGE>

SUBSTANTIAL ELECTRONIC DELIVERY PLATFORM. At CompassLearning, we have over 30
years of experience in developing and providing electronically delivered
supplemental instructional materials. We believe that we are well positioned to
capitalize on this market segment. One or more of CompassLearning's products
have been sold to over 21,000 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. Facts On File News Services of World
Almanac derives 60% of its revenues from on-line subscriptions and electronic
licensing.

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, 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 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.

<TABLE>
<CAPTION>
                                                                           COMPASSLEARNING /
                              WEEKLY READER        AMERICAN GUIDANCE            CHILDU              WORLD ALMANAC
<S>                       <C>                    <C>                     <C>                    <C>

PRINT AND ELECTRONIC      PERIODICALS:  16       BASIC SKILLS:           ELECTRONIC             TEACHING KITS:  Kits
INSTRUCTIONAL MATERIALS   grade or               Supplemental            COURSEWARE:  Several   developed by World
                          subject-specific       textbooks and           thousand hours of      Almanac Education
                          periodicals for        worktexts targeted      electronic             Library Services
                          Pre-K-12 students      for low-performing      courseware for         used to teach a
                          and 2 subscription     students in middle      Pre-K-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:  142     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.
</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                                           COMPASSLEARNING /
                              WEEKLY READER        AMERICAN GUIDANCE            CHILDU              WORLD ALMANAC
<S>                       <C>                    <C>                     <C>                    <C>
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 ACADEMIC
                                                 TESTS:  Classroom
                                                 testing, which offers
                                                 reliable reading and
                                                 math diagnostics for
                                                 individual students
                                                 and aggregate data
                                                 for tracking yearly
                                                 progress at the
                                                 school and district
                                                 levels.

LIBRARY MATERIALS                  N/A                    N/A                     N/A           K-12 REFERENCE AND
                                                                                                OTHER INFORMATIONAL
                                                                                                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>

WEEKLY READER

Weekly Reader has five primary product lines: elementary school periodicals;
middle and secondary school periodicals; sponsored instructional materials
published by its subsidiary, Lifetime Learning Systems, Inc.; educational
workbooks and licensing.

In addition, Weekly Reader licenses the content for commercial use by third
parties such as Houghton Mifflin, Holt Rinehart and Winston, EBSCO and The Gale
Group and also sells advertising space in its publications.

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 six 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.

Subscriptions to Weekly Reader elementary school periodicals in the 2002-2003
school year represented approximately 37% 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 2003 for average circulation for
the 2002-03 school year and issue nearest filing date for 2003-04 school year,
Weekly Reader's periodicals had the highest total circulation of elementary
school periodicals in the 2002-2003 school year, totaling approximately 5.3
million subscriptions.

                                       5
<PAGE>

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 2004
presidential primary elections, corporate corruption and the Middle 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 Educational publication. These include Current
Events, Teen Newsweek, Current Science, Writing, Read, Current Health 1 and 2,
Career World and Know Your World Extra with between 6 and 26 issues published
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.

Weekly Reader's middle and secondary school periodical subscriptions in the
2002-2003 school year represented approximately 46% of all middle and secondary
school periodical subscriptions circulated that year by the two 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 2002-2003 school year with approximately 1.7 million
subscriptions. In 2002 and 2003 approximately 75% middle and secondary schools
have renewed a subscription for the following year. To target the growing sixth
to eighth 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.

LIFETIME LEARNING SYSTEMS. Lifetime Learning Systems 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 multiple media education materials over the
years including: posters, teacher's guides and reproducible student activities
and additional audio, CD and video material.

Sponsors of Lifetime Learning Systems, Inc. projects have included corporate
sponsors such as General Motors, Kimberly Clark, Gillette and the New York Stock
Exchange as well as not-for-profit sponsors such as the Center for Disease
Control, Florida Department of Citrus and The Home Safety Council.

                                       6
<PAGE>

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 about 142 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 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.

LICENSING. Weekly Reader 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 term of the license agreement. Weekly Reader continues to sell
"Weekly Reader Editor's Choice" book selections licensed from trade book
publishers on the QVC Shopping Network Channel generating some of the largest
one-day sales totals in Weekly Reader's history.

AGS

AGS has two principal product lines: testing and assessment products; and core
curriculum 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. Three 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.

                                       7
<PAGE>

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 five main areas for growing our product line:

o  Revisions - Many of our top-selling tests and curriculum are on schedule to
   be revised over the next 5 years.

o  New Product - AGS annually increases its new product offering through
   internal development.

o  Acquisitions - AGS historically has pursued acquisitions to enhance and
   supplement its internal development efforts.

o  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 during the fall of 2003,
   and we have added key reading assessments that will position us well to
   capture Reading First, federally funded reading initiative, dollars.

o  New Markets - AGS will seek new segments with the education industry in which
   to participate where it can leverage core capabilities in new ways that
   supports entry into growing education markets.

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.

                                       8
<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 12% of AGS's net revenue for the year ended December 31, 2003 was
from sales of testing and assessment products, curriculum and supplemental
instructional materials in which the end users were not K-12 schools.

AGS also publishes a 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.

The CompassLearning solutions are focused on the following: comprehensive
assessment that diagnoses individual students based on state/national standards;
comprehensive curriculum in reading, mathematics, science and social studies
that is prescribed to each student based on our assessment system diagnosis or
based on teachers' assessment; learning management system that allows teachers
to track student performance and intervene as and when necessary and
administrators to track teacher/student progress; parent involvement through
access to the system allowing them to view student performance and progress at
school and being more involved; and professional development for teachers to
integrate this type of a system into their classroom.

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, mathematics, science, social studies 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.

                                       9
<PAGE>

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 emulated 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.

CompassLearning provides professional development services and technical support
services. CompassLearning has a team of 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.

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 or $80 if included in a bundle 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
price is $1,230 per day. 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 $3,990 per year. After
the expiration of any service contract, services can be purchased on an ongoing
basis.

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 1999, the Library Journal ranked us as the number two best
reference source of the millennium (after Merriam-Webster's Third International
Dictionary. We believe The World Almanac(R) and Book Of Facts provide 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.

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 112,000 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 twelve catalogs. The
catalogs also include The World Almanac(R) 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 2.3 million catalogs
in 2003. World Almanac Education Library Services also publishes a small amount
of proprietary teaching kits, including kits covering research skills, map
skills and Language Arts skills, which include items such as lesson plans for
books we believe are appropriate for classroom use to encourage multiple-copy
sales.

                                       10
<PAGE>

GARETH STEVENS, INC. Gareth Stevens, Inc. publishes nonfiction and fiction books
for K-12 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. 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.

Its core product, Facts On File World News Digest, is a highly respected
publication used by libraries as a comprehensive index of world events dating
back to 1940 in both the print and 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 $960, which is discounted for
public and school libraries. The print edition of Facts On File World News
Digest sold over 2,400 subscriptions in 2003 and continues to meet with great
acceptance, as evidenced by renewal rates averaging approximately 86% from 1997
through 2003. Subscriptions to the print edition have gradually declined 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 $1,695 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. In 2003, we
launched Facts For Learning, an elementary school reference and research
product. FACTS.com subscriptions are sold primarily through telemarketing.

                                       11
<PAGE>

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 40,000 for the general yearbook and
13,000 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 82% for the
general yearbook and 78% for the science yearbook from 1997 through 2003.

PRODUCT AND CONTENT DEVELOPMENT

WEEKLY READER. Weekly Reader has a team 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 scope of work
considered, however, the average contract takes approximately three to four
months from concept to distribution.

Weekly Reader's periodicals are written by a combination of staff and freelance
writers. Our staff of editors, writers and designers determines the subject
matter for the particular edition after which the content is primarily 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.

                                       12
<PAGE>

Weekly Reader's skills books are typically written by freelance writers at the
direction of Weekly Reader's editors. Lifetime Learning Systems, Inc.'s programs
are developed in a variety of multiple media 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.

Prior to distribution, whether created internally or externally, all of Weekly
Reader and Lifetime Learning Systems' products are reviewed by a senior editor
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.

                                       13
<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 about 57 employees. Product development expertise consists
of software engineers, programmers, quality assurance analysts, technical
writers, instructional designers, and project managers. Their co-development
efforts focus on three primary objectives: delivering a Pre-K through 12
web-enabled curricula; developing a state-of-the-art instructional management
system; and creating a national-standards-based assessment product.

CompassLearning and ChildU are leveraging off-shore software and content
development resources to reduce cost and expedite delivery. This initiative has
helped the Company increase productivity significantly.

WORLD ALMANAC. World Almanac has a 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; in the case of the Facts On File
New Services products, develops the content of these products; in the case of
Gareth Stevens, editorial and creative staff work with outside work for-hire
editors and licensors to develop content as well as develop content internally.

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. In 2003, we launched Facts For
Learning, an elementary school reference and research product. Also, in 2003 our
Facts On File archives available through the Internet were updated back to 1940.

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.

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.

                                       14
<PAGE>

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 80% 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 21,000 K-12
schools, representing approximately 19% of all schools in the United States.

In 2003, 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 58% of the
approximately 130,000 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 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/ChildU and World Almanac, including
their primary distribution channels.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                        COMPASSLEARNING/
                        WEEKLY READER           AMERICAN GUIDANCE            CHIDLU             WORLD ALMANAC
<S>                     <C>                     <C>                     <C>                     <C>

Primary Method of       Direct Mail             Direct Sales Force       Direct Sales Force     Direct Mail: World
Sales and Marketing                             (field and telesales)                           Almanac Education
                                                                                                Library Services and
                                                                                                Funk & Wagnalls
                                                                                                Telemarketing:
                                                                                                Gareth Stevens,
                                                                                                Inc., World Almanac
                                                                                                Library Services and
                                                                                                Facts On File News
                                                                                                Services Retail
                                                                                                Marketing: World
                                                                                                Almanac Books

Number of Mailings in   Total mail quantity               N/A                     N/A           World Almanac
2003                    of 9.0 million pieces                                                   Education Library
                                                                                                Services generally
                                                                                                mails four times a
                                                                                                year; Yearbook mail
                                                                                                campaigns once a year

Number of Schools/      Over 114,000 schools;   233,000 customer                  N/A           Approximately
Teachers/Libraries in   3.70 million teachers   locations                                       112,000 schools,
Database                                                                                        16,300 school
                                                                                                districts, 15,900
                                                                                                public libraries,
                                                                                                3,900 academic
                                                                                                libraries

Estimated Number of     Over 55,000 schools     Over 12,000 school        Over 21,000 schools   Over 76,000 school
Schools/School                                  districts                                       and public libraries
Districts/Libraries                                                                             have purchased
with our products                                                                               products from World
                                                                                                Almanac
</TABLE>

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 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 3.7 million individual teachers and
administrators and approximately 114,000 schools over the past five years as
well as various demographic factors in each locale. In 2003, Weekly Reader
mailed over 0.7 million catalogs and 9.0 million direct mail pieces primarily to
teachers as well as to school and school district-level administrators.

World Almanac also uses direct mail to generate sales. 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 6.0 million direct mail pieces in 2003, and
including 2.3 million catalogs.

AGS printed and mailed more than 2.0 million promotional materials and catalogs
in 2003, aimed at developing customer leads, spurring direct-response sales and
building overall marketplace awareness of its brand and products.

                                       16
<PAGE>

World Almanac's Funk & Wagnalls primarily markets its yearbooks to former
subscribers of its previously published print format encyclopedia using direct
mail.

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. World Almanac Education Library Services and
Facts On File News Services utilize this marketing technique to a significant
extent, while CompassLearning and Weekly Reader 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 49% 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 prospects derived from a variety of sources
including rented lists, 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 increased its telemarketing
capacity to promote its products.

Weekly Reader's internal telemarketing group consists of seven individuals,
targeting new subscribers. Weekly Reader also conducts telemarketing campaigns,
to assist in the generation of renewal sales.

DIRECT SALES FORCES. AGS, 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.

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.

                                       17
<PAGE>

CompassLearning maintains a direct sales force of 52 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 small dedicated field
based marketing and sales representatives who make presentations directly to
potential corporate, trade association and not-for-profit organization clients.
These representatives are covering the largest DMA (Designated Market Areas) in
the United States. 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 76% 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 36% of its products through its network
of wholesalers to libraries.

INTERNET WEB SITES. Weekly Reader, AGS, 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, 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 $6.8 million in
web site sales, including orders initiated with an Internet effort code and
actual online orders, in 2003.

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 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
its 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.

                                       18
<PAGE>

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 nine 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, price, reputation, and customer service.

In the elementary school periodicals market, we believe we have a competitive
advantage over both our competitors with respect to grade appropriate content
that has close ties to school curriculum.

In the secondary school periodicals market, our competitive strengths include
content that has strong educational value and ties to school curriculum.

In skills books we compete with many large and small publishers, primarily on
the basis of: subject matter expertise and price.

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' core competencies, which we believe give us a
significant competitive advantage over our smaller competitors, include: the
Weekly Reader brand recognition with our corporate sponsors; multiple media
product development offerings; and broad distribution capabilities through both
its own and Weekly Reader's distribution channels.

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.

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.

                                       19
<PAGE>

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: Plato Learning/Lightspan; NCS Learn; and Riverdeep.

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. Our new
Odyssey product recently won excellence awards from Technology and Learning
magazine and is ahead of most of our competitors in its architecture,
flexibility and curriculum depth/breadth.

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.

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.

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
Britannica 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 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.

                                       20
<PAGE>

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.

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
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,
where needed. 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.

                                       21
<PAGE>

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 any liability for environmental
claims will not have a material adverse effect on our financial condition or
results of operations.

EMPLOYEES

At December 31, 2003, we had a total of approximately 904 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.

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. In 2003,
the Company entered into an agreement to sublease approximately 11,000 square
feet of excess space in its headquarters location. The Company also leases an
aggregate of approximately 420,000 square feet of office, warehouse and mixed
use space in 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.

                                       22
<PAGE>

As previously disclosed in our Form 8-K filed with the SEC on December 15, 2003,
the SEC is conducting a preliminary inquiry concerning the Company and has
requested that the Company voluntarily provide the SEC with various documents
and information, and that certain officers and employees of the Company
voluntarily give testimony or be interviewed. The Company is cooperating fully
with the SEC inquiry, and has continued to provide all documents, information
and testimony requested by the SEC, and has arranged all interviews requested by
the SEC with Company employees. The Company cannot predict the final outcome of
this inquiry at this time.

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 Selected Historical Financial Information for the periods set forth in this
Item 6 has been revised to reflect the restatement. For a discussion of the
restatement of our financials for 2001 through 2003, see "Item 8. Consolidated
Financial Statements--WRC Media Inc. and Subsidiaries--Note 24. Restatement."

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 subsidiaries as of and
for the years ended December 31, 2000, 2001, 2002 and 2003. 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 and for the year ended December 31, 2000 and 2001,
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, 2002 and 2003 and for the years ended December 31, 2001, 2002 and
2003, which are included elsewhere in this 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 report.

                                       23
<PAGE>
ITEM 6  SELECTED FINANCIAL DATA -- WRC MEDIA, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                             Period from
                                                            May 14, 1999 -              Year Ended December 31,
                                                             December 31,   --------------------------------------------------------
                                                                1999            2000           2001           2002          2003
------------------------------------------------------------------------------------------------------------------------------------
                                                             (As Restated   (As Restated       (As            (As           (As
                                                            and Unaudited)  and Unaudited)   Restated)      Restated)     Restated)
<S>                                                         <C>             <C>               <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
REVENUE, NET                                                    $ 50,570        $ 217,743     $ 226,897      $ 207,873    $ 202,703
GROSS PROFIT                                                      34,468          151,366       162,151        147,920      146,258
SALES AND MARKETING                                               14,030           49,002        55,107         48,588       47,201
RESEARCH AND DEVELOPMENT                                           3,861            4,708         5,989          1,728        1,424
GENERAL AND ADMINISTRATIVE EXPENSES (a)                            8,904           51,371        54,138         50,793       50,370
OTHER OPERATING COSTS:
  RESTRUCTURING COSTS AND OTHER NON-RECURRING EXPENSE (b)                               -             -          8,594        1,018
  AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
  AND DEPRECIATION (c)                                             5,334           71,005        62,445         19,718       19,826
  WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT (d)             9,000            2,250             -              -            -
INCOME (LOSS) FROM OPERATIONS                                     (6,661)         (26,970)      (15,528)        18,499       26,419
INTEREST EXPENSE                                                   7,902           35,450        33,455         30,061       29,349
NET LOSS                                                         (18,422)         (62,789)      (51,224)       (22,085)      (7,434)
BALANCE SHEET DATA:
 (END OF YEAR)
WORKING DEFICIT                                                   (9,990)         (26,525)      (19,552)       (34,550)     (34,495)
TOTAL ASSETS                                                     573,138          503,443       467,130        438,636      420,207
LONG TERM OBLIGATIONS (Long term debt, including current
  portion and Redeemable preferred stock)                        341,324          351,944       373,171        384,712      402,103
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                             108,352           32,352       (17,834)       (60,126)     (85,731)
OTHER DATA:
  CAPITAL EXPENDITURES, including pre-publication costs              700            9,198        11,194         11,146       10,408
</TABLE>

----------
a) General and administrative expenses comprise distribution, circulation and
   fulfillment, editorial and general and administrative expenses.

b) For the years ended December 31, 2002 and 2003, $8,594 and $1,018 of
   restructuring costs and other non-recurring expenses were recorded in
   connection with the Company's 2002 Plan of Restructuring, respectively. The
   major 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.
   For the year ended December 31, 2003, an additional $826 of restructuring
   costs was recognized, consisting of $605 in lease costs adjustment due to
   updating assumptions used in determining the fair value of remaining lease
   obligations associated with facilities vacated in 2002 and additional
   severance in the amount of $221 related to an executive severed in 2002. As
   well, $192 of due diligence and other costs related to an acquisition that
   was not completed and is not expected to be completed in the foreseeable
   future are included in this expense.

c) Includes depreciation of fixed assets, amortization of prepublication costs,
   goodwill, and other intangibles.

d) WRC Media and its subsidiaries ("WRC") wrote off purchased in-process
   research and development on July 14, 1999 after its purchase of
   CompassLearning. WRC also wrote off $2,250 of in-process R&D related to a
   next generation reading system deemed not to be technologically feasible in
   fiscal 2000.


                                       24
<PAGE>

             SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
                                 WEEKLY READER

The Selected Historical Financial Information for the periods set forth in this
Item 6 has been revised to reflect the restatement. For a discussion of the
restatement of our financials for 2001 through 2003, see "Item 8. Consolidated
Financial Statements--Weekly Reader Corporation and Subsidiaries--Note 20.
Restatement."

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, 2003. The selected historical
consolidated financial information presented below is derived from the
historical consolidated financial statements of Weekly Reader as of December 31,
1999, 2000 and 2001 and for the years ended December 31, 1999 and 2000, which
are not included in this annual report, as well as the historical consolidated
financial statements of Weekly Reader as of December 31, 2002 and 2003 and for
the years ended December 31, 2001, 2002 and 2003 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>
ITEM 6  SELECTED FINANCIAL DATA -- WEEKLY READER CORPORATION AND SUBSIDIARIES
                                                                                    Year Ended December 31,
----------------------------------------------------------------------------------------------------------------------------------
                                                                1999           2000          2001          2002         2003
----------------------------------------------------------------------------------------------------------------------------------
                                                             (As Restated   (As Restated  (As Restated) (As Restated)(As Restated)
Statement of Operations Data:                                and Unaudited) and Unaudited)
<S>                                                          <C>            <C>            <C>          <C>          <C>
REVENUE NET (b)                                               $ 148,287      $ 154,873     $ 158,480    $ 155,055    $ 152,110
GROSS PROFIT (c)                                                108,076        113,642       117,583      116,408      114,371
SALES AND MARKETING                                              24,316         27,183        29,478       28,179       28,241
GENERAL AND ADMINISTRATIVE EXPENSES (d,e,f)                      45,374         42,214        45,026       43,513       44,002
OTHER OPERATING COSTS:
    RESTRUCTURING COSTS AND OTHER NON-RECURRING EXPENSES (g)          -              -             -        4,280         (516)
    AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
      AND DEPRECIATION (h)                                       14,500          8,812        10,749        9,221       10,794
INCOME FROM OPERATIONS                                           23,886         35,433        32,330       31,215       31,850
INTERCOMPANY INTEREST EXPENSE                                    10,133              -             -            -            -
INTEREST EXPENSE, NET                                             4,690         34,293        32,267       28,877       28,091
NET INCOME (LOSS)                                                 4,034            779          (852)        (898)       2,451
BALANCE SHEET DATA:
   (END OF YEAR)
     WORKING CAPITAL (DEFICIT)                                      218         (2,376)       (5,575)      (8,762)      (3,043)
     TOTAL ASSETS                                               237,186        227,377       229,150      226,084      222,756
     LONG TERM OBLIGATIONS (Long term debt and
        Redeemable preferred stock)                             352,962        362,676       382,984      393,592      410,038
     TOTAL STOCKHOLDERS' DEFICIT                               (190,530)      (202,392)     (215,872)    (231,226)    (240,958)
OTHER DATA:
     CAPITAL EXPENDITURES (including prepublication costs)        5,870          7,613        10,966       10,834        9,576
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(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.

(b)  For the year ended December 31, 1999, $440 of sales were 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)  General and administrative expenses comprise distribution, circulation and
     fulfillment, editorial and general and administrative expenses.

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

(f)  Includes through November 17, 1999, cost for (1) amounts allocated as
     corporate overhead to Weekly Reader by PRIMEDIA and its other operating
     companies, such as, executive management costs, salaries and fringe
     benefits for legal, financial, 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.

                                       25
<PAGE>

(g)  For the years ended December 31, 2002 and 2003 $4,280 and ($516) of
     restructuring costs and other non-recurring expense were recorded in
     connection with the Company's 2002 Plan of Restructuring. The major 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. For the year ended December 31, 2003, an adjustment of
     $516 was recognized relating to updating assumptions used in determining
     the fair value of remaining lease obligations associated with facilities
     vacated in 2002.

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


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, 2003 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, 2001, 2002 and 2003. You should
read the following discussion in conjunction with the Consolidated Financial
Statements of WRC Media and its subsidiaries 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, the
terms "we," "our," and "us" refer to WRC Media and its subsidiaries. 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 expectations will be achieved. These forward-looking
statements are subject to risks, uncertainties and assumptions about us.

In connection with the audit of our 2003 consolidated financial statements and
the reaudit of our 2001 consolidated financial statements, we have restated our
previously audited consolidated balance sheets as of December 31, 2001, 2002 and
2003, and the related statements of operations, stockholders' deficit, and cash
flows for the years ended December 31, 2001, 2002 and 2003 (the "restatement").
The restatement also included adjustments that affected periods prior to 2001.
The impact of the restatement on periods prior to 2001 was reflected as an
adjustment to beginning accumulated deficit as of January 1, 2001.

On March 31, 2004, the Company filed a Form 8-K that included its consolidated
financial statements for December 31, 2002 and 2003, which had been restated to
correct certain accounting errors (the "Initial Restatement"). At that time, the
Company announced that the reaudit of its 2001 financial statements was in
progress and that completion of the reaudit could result in additional
restatements to its financial statements. Subsequent to the Initial Restatement,
the reaudit of the Company's 2001 financial statements was completed and
identified additional errors that impacted the Company's consolidated financial
statements for 2001, 2002 and 2003. Accordingly, the Company has restated its
previously reported 2002 and 2003 financial statements and its 2001 financial
statements for the correction of these additional errors (the "Further
Restatement"). The Company believed that upon furnishing its audited 2003
financial statements to the holders of its 12 3/4% senior subordinated notes and
filing such statements with the SEC in the Company's March 31, 2004 Form 8-K
that it was in compliance with the indentures information requirements. The
report of Deloitte & Touche LLP included in the Form 8-K contained an
explanatory paragraph regarding the Company's ability to continue as going
concern due to the possibility that the trustee or noteholders might assert a
breach under the indenture to furnish audited financial statements for 2001 and
potentially attempt to accelerate the payment of the notes. The filing of this
Annual Report on Form 10-K and the completion of the reaudit of our 2001
financial statements obviates the possibility of any potential breach of the
indenture.

The Initial Restatement primarily relates to (i) correction of errors made in
the application of GAAP and (ii) correction of certain of the Company's
historical accounting policies to conform to accounting principles generally
accepted in the United States ("GAAP"). Described below are the matters for
which the Company has restated its consolidated financial statements for 2001
and 2002 in connection with the Initial Restatement.

                                       26
<PAGE>

o    Software and Services Sale. In December 2002, the Company recorded a $1,860
     receivable of revenue from the sale of educational software and services to
     a school district. Of this amount, $1,169 was recognized as revenue during
     the fiscal quarter ended December 31, 2002, and $691 was recorded as a
     deferred revenue liability as of December 31, 2002. Accrued sales
     commissions of $342 also were recorded. In the first quarter of 2003, this
     $1,169 of revenue previously recognized in December 2002 was offset by
     recording a new bad debt reserve of $920 and by retaining an excess of $250
     in the Company's allowance for doubtful accounts, which excess amount would
     have otherwise been reversed. The Company has concluded that the sale did
     not meet the criteria under GAAP for revenue recognition for the year ended
     December 31, 2002, and that it incorrectly recorded the related bad debt
     reserve and retained the excess allowance for doubtful accounts in 2003.
     The Company has corrected these errors by reversing these transactions. The
     net effect for the year ended December 31, 2002 was to increase net loss by
     approximately $827. In addition, total assets decreased by approximately
     $1,860 and total liabilities decreased by $1,033, including a decrease in
     deferred revenue of $691 as of December 31, 2002.

o    ChildU Goodwill Reduction. The Company's subsidiary, ChildU, Inc., was
     acquired in 2001. In connection with such acquisition, the Company issued
     shares of its common stock to the holders of notes issued by ChildU. The
     Company has determined that the value assigned to these shares when the
     Company recorded the purchase price for this acquisition in its historical
     financial statements for 2001 exceeded the fair market value of these
     shares. Accordingly, the Company has restated its financial statements to
     record correctly the fair market value of these shares, which had the
     effect of reducing goodwill and additional paid-in capital, by
     approximately $3,419 as of December 31, 2001. In addition, the Company
     allocated primarily all of the purchase price to goodwill, and had assigned
     that goodwill an estimated life of 40 years. The asset acquired was
     software technology and not goodwill. The Company has restated its
     financial statements to record the software technology and to amortize such
     acquired technology over its estimated useful life of five years, which had
     the effect of increasing intangibles amortization expense by $976 and
     $1,672 in 2001 and 2002, respectively. The Company also incorrectly charged
     certain severance costs against acquisition reserves, and accordingly has
     restated the 2001 and 2002 financial statements to correct for such errors.
     The net effect of such adjustments was to increase net loss by $708 and
     $1,092 for the year ended December 31, 2001 and 2002, respectively.

Following the determination to restate the Company's financial statements for
2001 and 2002 for the matters described above, the Company also determined that
it would correct for certain errors made in the application of GAAP that had not
previously been corrected because in each such case it believed that the amount
of any such error was not material to its consolidated financial statements.
These matters are described below.

o    CompassLearning/Weekly Reader Goodwill Reduction. In connection with the
     acquisitions of CompassLearning, and Weekly Reader in 1999, the Company
     also recorded certain other reserves for a planned restructuring related to
     the acquisitions. The Company recorded reserves of $5,538 related to
     estimated liabilities it believed it had assumed at the date of such
     acquisitions. The Company also recorded a reserve of $1,705 related to an
     estimated liability associated with the rationalization of the shipping
     schedule of the Weekly Reader magazine in 2000. The Company concluded that
     the purchase reserves associated with these estimated liabilities, and the
     elements of the restructuring plan that had not yet been completed should
     be reversed in 2001. The excess purchase reserves associated with fiscal
     year 2000 activity specifically, the $1,350 of costs incurred to evaluate
     CompassLearning's software in order to determine a future growth strategy;
     $2,250 of in-process R&D related to a Next-generation reading system deemed
     not be technologically feasible;

                                       27
<PAGE>

     $1,800 of recruiting and consulting costs incurred to transition the
     companies acquired to a standalone public company and $150 for other
     estimated liabilities assumed were reversed against goodwill and charged to
     accumulated deficit as of January 1, 2001 as the Company determined that
     the reversal of the excess purchase reserves and corresponding reduction in
     goodwill should have been recorded in 2000. The Company also reversed the
     $1,705 reserve, and reduced goodwill in a corresponding amount, because the
     Company determined that such reserve had been incorrectly recorded in 2000.
     The Company has determined that the reversal of the excess purchase
     reserves and corresponding reduction of goodwill should have been recorded
     in 2000 rather than 2001 and that the reversal of the $1,705 reserve and
     corresponding reduction in goodwill should have been recorded in 2000
     rather than 2002. Accordingly, the Company has restated its 2001 and 2002
     financial statements to correct these errors. The net effect of the
     adjustments as of January 1, 2001 increased the accumulated deficit by
     $5,961 and increased net loss by $706 in 2001.

o    Barter Transaction. In connection with a failed licensing barter
     transaction for which it had incorrectly recorded revenue in 2001, the
     Company had increased operating costs and expenses for 2001 by the amount
     of the revenue recorded, instead of reversing such net revenue amount, as
     required by GAAP. The Company has restated its financial statements for
     2001 to correct this error, with the net effect being to reduce net revenue
     and operating costs and expenses by $1,500 for the year ended December 31,
     2001, with no impact on the Company's net loss.

o    CompassLearning Minimum Purchase Guarantee. In connection with the
     acquisition of CompassLearning, the Company entered into a minimum purchase
     guarantee agreement with the seller of CompassLearning. In 2001, the
     Company incorrectly recorded as revenue amounts that the seller was
     required to purchase under the agreement, which the seller did not
     purchase. In its historical financial statements for 2001, the Company also
     recorded an intangible asset in an amount equal to the amount of revenue
     incorrectly recorded. In 2002 and 2003, amortization of $527 and $235,
     respectively, of this intangible was recorded against gross sales as
     purchases were actually made. Recording this intangible asset and the
     related amortization did not conform to GAAP. The Company has restated its
     financial statements to reverse this transaction, with the net effect being
     to increase the Company's net loss by $762 for the year ended December 31,
     2001 and decrease the Company's net loss in 2002 by $527.

o    Distributor Sales. Historically the Company recognized revenue under a
     distribution contract between its subsidiary, World Almanac Education
     Group, and a distributor at the time that the Company shipped our products
     to the distributor rather than at the time those products were resold by
     the distributor. The Company also recorded distribution fees under this
     contract as operating costs and expenses, based on its understanding of the
     distribution contract. The Company has determined to recognize revenue only
     at the time the distributor ships these products to its customer. In
     addition, the Company should have recorded distributions fees as a
     reduction of revenue, rather than as a separate operating cost and expense
     item. The Company has restated its financial statements which increased its
     net loss by $164 for the fiscal year ended December 31, 2001, decreased its
     net loss and increased net assets by $168 for the year ended December 31,
     2002.

                                       28
<PAGE>

o    Rent. The Company has two leases that have "free rent" incentives at the
     commencement of the leases and also contain rent escalation clauses (which
     clauses provide for rent increases over time) for which it was required
     under GAAP to record the average rent expense ratably over the lease term.
     In its historical 2001 financial statements, however, the Company recorded
     the rent expense from these leases as it was paid. In its historical 2002
     financial statements, the Company began correctly recording the average
     rent expense for these leases, but it calculated the average rent using the
     remainder of the lease term instead of the entire lease term. The Company
     has restated its financial statements to correct these errors. As a result,
     rent expense increased in 2001 because the average rent to be paid over the
     lease terms was greater than the actual rent paid in 2001 and rent expense
     decreased in 2002 and 2003 because of the longer lease terms used to
     calculate the average rent. In 2001, the Company also incorrectly
     capitalized some rent expense prior to its occupancy of a certain leased
     premise as a prepaid rent asset and amortized it, rather than recording it
     as an expense, as required by GAAP. The Company has restated its financial
     statements to correct these errors, with the net effect being to increase
     its net loss by $1,005, for the year ended December 31, 2001, to decrease
     its net loss by $412 and increase total assets by $352 for the year ended
     December 31, 2002.

o    Intercompany Sales. Certain sales between two subsidiaries of World Almanac
     were recorded in 2001 as revenue for one subsidiary and as a corresponding
     operating cost and expense for the other subsidiary, rather than being
     eliminated, as required by GAAP. The Company has restated its financial
     statements for 2001 to eliminate these intercompany sales. As a result of
     this correction, revenue decreased by $795 for the year ended December 31,
     2001 with a corresponding decrease in operating costs and expenses, and no
     impact on the Company's net loss for the year then ended.

o    Common Stock Warrants. During 1999, the Company issued warrants to purchase
     its common stock to purchasers of certain debt securities and a lender
     under a term loan facility. The Company incorrectly recorded the fair value
     of the warrants, as a liability due to a related party. The Company has
     restated its 2001 and 2002 financial statements to correctly record the
     fair value of the warrants as additional paid-in capital. As a result of
     this correction, liabilities decreased by $2,160 and additional paid-in
     capital increased by a corresponding amount.

o    Other. The Company has made a number of other corrections, including
     adjustments relating to various accruals such as compensation and fringe
     benefit costs, deferred revenue, legal costs and other immaterial items.

In connection with the reaudit of the Company's 2001 consolidated financial
statements, management determined that it had incorrectly accounted for the
following items, which comprise the Further Restatement: (i) intangible assets
acquired in 1999 in connection with the Company's acquisition of Weekly Reader
Corporation; (ii) acquisition reserves for acquisitions in 1999; (iii) its
adoption of SFAS 142 and the preparation of its transitional impairment analysis
(iv) deferred tax liabilities recognized upon adoption of SFAS 142; (v) Senior
Preferred Stock dividends, and (vi) a number of other immaterial items which the
Company has corrected including various accruals such as compensation and fringe
benefit costs, severance and consulting costs and legal costs in 2001, 2002 and
2003.

Described below are the matters for which the Company has restated its
consolidated financial statements for 2001, 2002 and 2003 in connection with the
Further Restatement.

                                       29
<PAGE>

o    WRC Media Goodwill and Intangible Assets. In connection with the reaudit of
     the Company's 2001 consolidated financial statements, the Company has
     reconsidered the assumptions used to determine the estimated fair value and
     economic lives of the intangible assets acquired in connection with the
     1999 acquisition and recapitalization of Weekly Reader Corporation by WRC
     Media Inc ("the 1999 Intangible Assets"). The Company has determined that
     the original basis for estimating the fair value and economic lives of the
     intangible assets was a valuation report that the former owners of Weekly
     Reader Corporation had provided to WRC Media at the time of the 1999
     acquisition. Accordingly, in 2004, the Company engaged a valuation
     consulting firm to assist management in assessing the fair values and
     economic lives of the 1999 Intangible Assets as of the acquisition date. As
     a result, certain estimated fair values and economic lives of the 1999
     Intangible Assets have been revised. Accordingly, the Company has restated
     its financial statements to correctly state the estimated fair value and
     economic lives of the 1999 Intangible Assets acquired as of November 17,
     1999. This had the effect of increasing goodwill by $36,238 and decreasing
     other intangible assets, in the aggregate, by the same amount. Other
     intangible assets include Copyrights, Customer lists and Trademarks.
     Copyrights increased by $4,733 and their estimated useful life was amended
     from 10 years to approximately 20 years, Customer lists decreased by
     $13,680 and their estimated useful life decreased from 10 years to
     approximately 8.5 years and Trademarks decreased by $27,291 and their
     estimated useful life decreased from 40 years to approximately 39 years, as
     of January 1, 2001. In addition, the Company has restated its financial
     statements to correct amortization expense for goodwill and other
     intangible assets, which had the effect of reducing accumulated deficit as
     of January 1, 2001 by $6,294, and reducing amortization expense of
     intangible assets by $3,410 in 2001, $2,305 in 2002 and $1,499 in 2003.

o    CompassLearning/Weekly Reader Additional Goodwill Reduction. As discussed
     above the Company recorded certain reserves for a planned restructuring in
     connection with the acquisitions of CompassLearning and Weekly Reader
     Corporation. In connection with the reaudit of its 2001 consolidated
     financial statements, the Company determined that it had incorrectly
     recorded reserves of $3,106 related to estimated liabilities it believed it
     had assumed at the date of such acquisitions. The Company concluded that
     the acquisition reserves associated with these liabilities should have been
     reversed in 1999. The estimated liabilities associated with the excess
     reserves included $1,522 of debt issuance costs, $1,157 of severance and
     consulting fees, primarily attributable to employees or consultants hired
     subsequent to the acquisition date, $362 of leasehold improvements for
     space to be occupied by employees of World Almanac Group and other
     administrative costs of $65. The Company determined that goodwill and the
     related acquisition reserves should be reduced by $3,106. The Company
     restated its 2001, 2002 and 2003 financial statements to correct for these
     errors. The net effect of such adjustments was to increase the accumulated
     deficit as of January 1, 2001 by $224 and to increase net loss by $1,425,
     $240 and $214 for the years ended December 31, 2001, 2002 and 2003,
     respectively.

                                       30
<PAGE>

o    Goodwill and Long-lived Intangible Asset Impairment. On January 1, 2002,
     the Company adopted SFAS 142 for its goodwill and 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. ("AGS") a subsidiary of Weekly Reader Corporation. This charge was
     reported as a cumulative effect of accounting change, as of January 1,
     2002, in the Consolidated Statements of Operations. In connection with the
     reconsideration of the assumptions used to determine the estimated fair
     value and economic lives of the 1999 Intangible Assets discussed above, the
     Company updated its transitional impairment analysis and determined that it
     had incorrectly calculated the fair value of its reporting units.
     Accordingly, the impairment charge of $72,022 at AGS was incorrect and not
     required. Upon adoption, the Company ceased amortization of goodwill and
     indefinite lived intangible assets, which primarily consist of trademarks.
     As required by SFAS No. 142, the Company reviewed its indefinite lived
     intangibles (goodwill and trademarks) for impairment as of January 1, 2002.
     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. The Company has restated its 2002 and 2003 financial
     statements to correct for this error. The net effect of such adjustment was
     to decrease the net loss by $72,022 for the year ended December 31, 2002.

o    Deferred Tax Liabilities. The Company recognized non-cash deferred income
     tax expense and a deferred tax liability of approximately $8,700 on January
     1, 2002 in connection with its adoption of SFAS 142. The deferred tax
     liability relates to the excess of tax over book amortization of
     tax-deductible goodwill and trademarks since the timing of the reversal of
     this liability is indefinite, unless the related assets are sold or an
     impairment of the assets is recorded, and can no longer be offset by the
     Company's net operating loss carry-forwards, which expire within a
     statutory period. During each of 2002 and 2003, the Company recorded
     additional deferred income tax expense of $2,000.

     The non-cash deferred income tax expense recorded on January 1, 2002
     has been reduced to $5,200; a decrease of $3,500. The non-cash income tax
     expense recorded during the years ended December 31, 2002 and 2003
     increased by $700 from $2,000 to $2,700 and by $900 from $2,000 to $2,900,
     respectively. These restatements are principally due to reversal of
     the impairment charges and the revision of the estimated fair values and
     economic lives of the 1999 Intangible Assets as discussed above.

o    15% Senior Preferred Stock due 2011. In 1999, the Company issued
     3,000,000 shares of 15% Senior Preferred Stock due in 2011. The Senior
     Preferred Stock accrues dividends at a rate of 15% per annum. The
     Certificate of designation provides that the Senior Preferred Stock was
     subject to a default or penalty dividend of 0.5% in the event the Senior
     Preferred Stock was not registered with the Securities and Exchange
     Commission by dates specified in the Certificate of Designation. The Senior
     Preferred Stock was not registered by such dates and, therefore, the
     penalty dividend was applicable from August of 2000 through November 17,
     2001. While the Company believes that no penalty dividend is due for
     subsequent periods, the preferred shareholders may disagree with that
     conclusion. The Company had not previously recorded this penalty dividend.
     The recording of the penalty dividends (and required compounding in
     subsequent periods) resulted in the Company increasing accrued dividends on
     Senior Preferred Stock by $505, $110 and $128 during the years ended
     December 31, 2001, 2002 and 2003, respectively.

o    Other. In connection with the reaudit of the Company's 2001 financial
     statements, the Company has made a number of other corrections to the 2001,
     2002 and 2003 financial statements, which collectively were immaterial
     including adjustments relating to various accruals such as compensation and
     fringe benefit costs, advertising and promotional expense, and other
     immaterial items.

After giving effect to the Initial Restatement and the Further Restatement, the
Company believes it was and is in compliance with the financial covenants in its
credit facility for all of the reporting periods affected, other than the fourth
quarter of 2003, for which the lenders under the credit facility granted the
Company a waiver.

The effect of the Initial and Further Restatements for years prior to 2001 was
to increase accumulated deficit by $56 from $95,893 to $95,949 at January 1,
2001, decrease total assets by $1,021 from $504,464 to $503,443 at January 1,
2001, increase goodwill by $26,160 from $229,498 to $255,658 at January 1,
2001 and increase additional paid in capital by $2,160 at January 1, 2001.

Summarized below are the significant effects of the restatement, including the
Initial Restatement and the Further Restatement:

                                       31
<PAGE>


<TABLE>
<CAPTION>
                                                                                            December 31, 2003
                                                          ---------------     --------------------------------------------------
                                                           As Previously
                                                             Reported in                Further
                                                          March 31, 2004              Restatement
                                                             Form 8-K (1)              Adjustments                  As Restated
                                                          ---------------     ---------------------   --------------------------
<S>                                                       <C>                        <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents                            $        1,432                              $                   1,432
     Accounts receivable, net                                     30,027                                                 30,027
     Inventories, net                                             16,652                                                 16,652
     Prepaid expenses                                              3,367                                                  3,367
     Other current assets                                          1,889                                                  1,889
                                                          ---------------     ---------------------   --------------------------

       Total current assets                                       53,367                         -                       53,367

Property and equipment, net                                        5,526      $                266                        5,792
Capitalized software, net                                          7,293                                                  7,293
Goodwill                                                         143,149                    98,175                      241,324
Deferred financing costs, net                                      4,939                       736                        5,675
Other intangible assets, net                                      92,610                   (15,750)                      76,860
Other assets and investments                                      30,448                      (552)                      29,896
                                                          ---------------     ---------------------   --------------------------

       Total assets                                       $      337,332      $             82,875    $                 420,207
                                                          ===============     =====================   ==========================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                     $       16,963                              $                  16,963
     Accrued payroll, commissions and benefits                     9,356                                                  9,356
     Current portion of deferred revenue                          35,900                                                 35,900
     Other accrued liabilities                                    17,166                                                 17,166
     Current portion of long-term debt                             8,477                                                  8,477
                                                          ---------------     ---------------------   --------------------------

       Total current liabilities                                  87,862                         -                       87,862

Deferred revenue, net of current portion                             959                                                    959
Deferred tax liabilities                                          12,700      $             (1,900)                      10,800
Long-term debt                                                   262,925                                                262,925
                                                          ---------------     ---------------------   --------------------------

       Total liabilities                                         364,446                    (1,900)                     362,546
                                                          ---------------     ---------------------   --------------------------

Commitments and contingencies
15% redeemable senior preferred stock                            129,767                       934                      130,701
                                                          ---------------     ---------------------   --------------------------
Warrants on common stock of subsidiaries                          11,751                                                 11,751
                                                          ---------------     ---------------------   --------------------------
Common stock subject to redemption                                   940                                                    940
                                                          ---------------     ---------------------   --------------------------

Stockholders' deficit:
     Common stock                                                     70                                                     70
     18% convertible preferred stock                              21,919                                                 21,919
     Additional paid-in capital                                  131,753                         -                      131,753
     Accumulated other comprehensive loss                         (1,899)                                                (1,899)
     Accumulated deficit                                        (321,415)                   83,841                     (237,574)
                                                          ---------------     ---------------------   --------------------------

       Total stockholders' deficit                              (169,572)                   83,841                      (85,731)
                                                          ---------------     ---------------------   --------------------------

       Total liabilities and stockholders' deficit        $      337,332      $             82,875    $                 420,207
                                                          ===============     =====================   ==========================
</TABLE>


(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.


                                       32
<PAGE>


<TABLE>
<CAPTION>
                                                                                Year Ended December 31, 2003
                                                                  -----------------------------------------------------
                                                                   As Previously
                                                                    Reported in         Further
                                                                   March 31, 2004     Restatement
                                                                    Form 8-K (1)      Adjustments        As Restated
                                                                  ----------------  ----------------    ---------------
<S>                                                               <C>               <C>                 <C>
Revenue, net                                                      $       202,704   $            (1)    $      202,703

Cost of goods sold                                                         56,401                44             56,445
                                                                  ----------------  ----------------    ---------------

     Gross profit                                                         146,303               (45)           146,258
                                                                  ----------------  ----------------    ---------------

Costs and expenses:
     Sales and marketing                                                   47,201                 -             47,201
     Research and development                                               1,424                 -              1,424
     Distribution, circulation and fulfillment                             14,626                 -             14,626
     Editorial                                                             10,365                 -             10,365
     General and administrative                                            25,679              (300)            25,379
     Restructuring costs and other non-recurring expenses                   1,018                 -              1,018
     Depreciation                                                           2,256                24              2,280
     Amortization of intangible assets                                     19,045            (1,499)            17,546
                                                                  ----------------  ----------------    ---------------

     Total operating costs and expenses                                   121,614            (1,775)           119,839
                                                                  ----------------  ----------------    ---------------

     Income from operations                                                24,689             1,730             26,419

Interest expense, including amortization
   of deferred financing costs                                            (29,159)             (190)           (29,349)
Other income (expense), net                                                (1,153)             (300)            (1,453)
                                                                  ----------------  ----------------    ---------------

     Loss before income tax provision                                      (5,623)            1,240             (4,383)

Income tax provision                                                        2,151               900              3,051
                                                                  ----------------  ----------------    ---------------

     Net loss                                                     $        (7,774)  $           340     $       (7,434)
                                                                  ================  ================    ===============
</TABLE>

(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                                              December 31, 2002
                                                     ----------------------------------------------------------------
                                                                                                          As
                                                      As Previously         Initial              Previously Restated
                                                       Reported in        Restatement              in March 31, 2004
                                                     2002 Form 10-K       Adjustments                Form 8-K (1)
                                                     ----------------  -------------------       --------------------
<S>                                                  <C>               <C>                       <C>
ASSETS
Current Assets:
     Cash and cash equivalents                       $        9,095                            $           9,095
     Accounts receivable, net                                38,373    $            (2,226)               36,147
     Inventories, net                                        15,287                    158                15,445
     Prepaid expenses                                         3,200                   (265)                2,935
     Other current assets                                     1,797                                        1,797
                                                     ---------------   --------------------    ------------------
       Total current assets                                  67,752                 (2,333)               65,419

Property and equipment, net                                   6,299                                        6,299
Capitalized software, net                                     4,970                                        4,970
Goodwill                                                    163,349                (20,200)              143,149
Deferred financing costs, net                                 6,165                                        6,165
Other intangible assets, net                                100,499                  5,437               105,936
Other assets and investments                                 25,218                   (292)               24,926
                                                     ---------------   --------------------    ------------------
       Total assets                                  $      374,252    $           (17,388)    $         356,864
                                                     ===============   ====================    ==================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                $       20,869                            $          20,869
     Accrued payroll, commissions and benefits                8,693    $                (5)                8,688
     Current portion of deferred revenue                     39,840                   (421)               39,419
     Other accrued liabilities                               23,285                     32                23,317
     Current portion of long-term debt                        7,721                                        7,721
                                                     ---------------   --------------------    ------------------
       Total current liabilities                            100,408                   (394)              100,014

Deferred revenue, net of current portion                      1,167                   (163)                1,004
Deferred tax liabilities                                     10,700                                       10,700
Due to related party                                          2,160                 (2,160)                   --
Long-term debt                                              266,219                                      266,219
                                                     ---------------   --------------------    ------------------
       Total liabilities                                    380,654                 (2,717)              377,937
                                                     ---------------   --------------------    ------------------

Commitments and contingencies
   15% redeemable senior preferred stock                    109,966                                      109,966
                                                     ---------------   --------------------    ------------------
Warrants on common stock of subsidiaries                     11,751                                       11,751
                                                     ---------------   --------------------    ------------------
Common stock subject to redemption                              965                                          965
                                                     ---------------   --------------------    ------------------

Stockholders' deficit:
     Common stock                                                70                                           70
     18% convertible preferred stock                         18,381                                       18,381
     Additional paid-in capital                             132,464                 (1,011)              131,453
     Accumulated other comprehensive loss                    (3,357)                                      (3,357)
     Accumulated deficit                                   (276,642)               (13,660)             (290,302)
                                                     ---------------   --------------------    ------------------
       Total stockholders' deficit                         (129,084)               (14,671)             (143,755)
                                                     ---------------   --------------------    ------------------
       Total liabilities and stockholders' deficit   $      374,252    $           (17,388)    $         356,864
                                                     ===============   ====================    ==================

<CAPTION>
                                                             December 31, 2002
                                                      -------------------------------


                                                         Further
                                                       Restatement
                                                       Adjustments        As Restated
                                                     --------------      -------------
<S>                                                  <C>                 <C>
ASSETS
Current Assets:
     Cash and cash equivalents                                           $       9,095
     Accounts receivable, net                                   182             36,329
     Inventories, net                                                           15,445
     Prepaid expenses                                                            2,935
     Other current assets                                                        1,797
                                                     ----------------    --------------
       Total current assets                                      182            65,601

Property and equipment, net                                      290             6,589
Capitalized software, net                                                        4,970
Goodwill                                                      98,175           241,324
Deferred financing costs, net                                    926             7,091
Other intangible assets, net                                 (17,249)           88,687
Other assets and investments                                    (552)           24,374
                                                     ----------------    --------------
       Total assets                                  $        81,772     $     438,636
                                                     ================    ==============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                $           (44)    $      20,825
     Accrued payroll, commissions and benefits                    --             8,688
     Current portion of deferred revenue                         181            39,600
     Other accrued liabilities                                    --            23,317
     Current portion of long-term debt                            --             7,721
                                                     ----------------    --------------
       Total current liabilities                                 137           100,151

Deferred revenue, net of current portion                                         1,004
Deferred tax liabilities                                      (2,800)            7,900
Due to related party                                              --                --
Long-term debt                                                                 266,219
                                                     ----------------    --------------
       Total liabilities                                      (2,663)          375,274
                                                     ----------------    --------------

Commitments and contingencies
   15% redeemable senior preferred stock                         806           110,772
                                                     ----------------    --------------
Warrants on common stock of subsidiaries                                        11,751
                                                     ----------------    --------------
Common stock subject to redemption                                                 965
                                                     ----------------    --------------

Stockholders' deficit:
     Common stock                                                                   70
     18% convertible preferred stock                                            18,381
     Additional paid-in capital                                   --           131,453
     Accumulated other comprehensive loss                                       (3,357)
     Accumulated deficit                                      83,629          (206,673)
                                                     ----------------    --------------
       Total stockholders' deficit                            83,629           (60,126)
                                                     ----------------    --------------
       Total liabilities and stockholders' deficit   $        81,772     $     438,636
                                                     ================    ==============
</TABLE>


(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.

                                       34
<PAGE>


<TABLE>
<CAPTION>
                                                                                     Year Ended December 31, 2002
                                                                  -----------------------------------------------------------------
                                                                                             As
                                                                  As                         Previously
                                                                  Previously                 Restated in
                                                                  Reported in  Initial       March 31,     Further
                                                                  2002         Restatement   2004 Form     Restatement   As
                                                                  Form 10-K    Adjustments   8-K (1)       Adjustments   Restated
                                                                  ----------   -----------  ------------  ------------ ------------
<S>                                                               <C>          <C>          <C>           <C>          <C>
Revenue, net                                                      $ 209,958    $   (2,127)  $   207,831   $        42  $   207,873

Cost of goods sold                                                   59,011           911        59,922            31       59,953
                                                                  ----------   -----------  ------------  ------------ ------------

     Gross profit                                                   150,947        (3,038)      147,909            11      147,920
                                                                  ----------   -----------  ------------  ------------ ------------

Costs and expenses:
     Sales and marketing                                             49,096          (342)       48,754          (166)      48,588
     Research and development                                         1,728             -         1,728             -        1,728
     Distribution, circulation and fulfillment                       14,614          (602)       14,012             -       14,012
     Editorial                                                       10,847             -        10,847             -       10,847
     General and administrative                                      24,470           874        25,344           590       25,934
     Restructuring costs and other non-recurring expenses             8,594             -         8,594             -        8,594
     Depreciation                                                     3,041             -         3,041            24        3,065
     Amortization of intangible assets                               18,812           146        18,958        (2,305)      16,653
                                                                  ----------   -----------  ------------  ------------ ------------

     Total operating costs and expenses                             131,202            76       131,278        (1,857)     129,421
                                                                  ----------   -----------  ------------  ------------ ------------

     Income from operations                                          19,745        (3,114)       16,631         1,868       18,499

Interest expense, including amortization
   of deferred financing costs                                      (29,844)            -       (29,844)         (217)     (30,061)
Loss on investment                                                   (3,064)            -        (3,064)            -       (3,064)
Other income (expense), net                                             721             -           721             -          721
                                                                  ----------   -----------  ------------  ------------ ------------

     Loss before income tax provision and cumulative
        effect of change in accounting principle                    (12,442)       (3,114)      (15,556)        1,651      (13,905)

Income tax provision                                                 10,980             -        10,980        (2,800)       8,180
                                                                  ----------   -----------  ------------  ------------ ------------

     Loss before cumulative effect of change
        in accounting principle                                     (23,422)       (3,114)      (26,536)        4,451      (22,085)

Cumulative effect of change in accounting principle,
   net of tax                                                       (72,022)            -       (72,022)       72,022            -
                                                                  ----------   -----------  ------------  ------------ ------------

     Net loss                                                     $ (95,444)   $   (3,114)  $   (98,558)  $    76,473  $   (22,085)
                                                                  ==========   ===========  ============  ============ ============
</TABLE>

(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.


                                       35
<PAGE>

<TABLE>
<CAPTION>
                                                                                     December 31, 2001
                                                           --------------------------------------------------------------------

                                                                                      Initial and
                                                              As Previously           Further
                                                               Reported in            Restatement
                                                              2002 Form 10-K          Adjustments             As Restated
                                                           -------------------    ---------------------    --------------------
<S>                                                        <C>                    <C>                      <C>
ASSETS
Current Assets:
     Cash and cash equivalents                             $            8,919                              $             8,919
     Accounts receivable, net                                          43,658     $               (177)                 43,481
     Inventories, net                                                  15,026                       15                  15,041
     Prepaid expenses                                                   3,468                   (1,359)                  2,109
     Other current assets                                              13,891                                           13,891
                                                           -------------------    ---------------------    --------------------

       Total current assets                                            84,962                   (1,521)                 83,441

Property and equipment, net                                             9,215                      314                   9,529
Capitalized software, net                                               2,851                                            2,851
Goodwill                                                              234,982                    6,342                 241,324
Deferred financing costs, net                                           6,645                    1,142                   7,787
Other intangible assets, net                                          119,492                  (17,985)                101,507
Other assets and investments                                           20,715                      (24)                 20,691
                                                           -------------------    ---------------------    --------------------

       Total assets                                        $          478,862     $            (11,732)    $           467,130
                                                           ===================    =====================    ====================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                      $           18,180     $                232     $            18,412
     Accrued payroll, commissions and benefits                         11,305                     (375)                 10,930
     Current portion of deferred revenue                               39,070                      110                  39,180
     Other accrued liabilities                                         33,996                   (5,696)                 28,300
     Current portion of long-term debt                                  6,171                                            6,171
                                                           -------------------    ---------------------    --------------------

       Total current liabilities                                      108,722                   (5,729)                102,993

Deferred revenue, net of current portion                                2,040                                            2,040
Due to related party                                                    2,160                   (2,160)                      -
Long-term debt                                                        273,544                                          273,544
                                                           -------------------    ---------------------    --------------------

       Total liabilities                                              386,466                   (7,889)                378,577
                                                           -------------------    ---------------------    --------------------

Commitments and contingencies
15% redeemable senior preferred stock                                  92,760                      696                  93,456
Warrants on common stock of subsidiaries                               11,751                                           11,751
                                                           -------------------    ---------------------    --------------------
Common stock subject to redemption                                      1,180                                            1,180
                                                           -------------------    ---------------------    --------------------
Stockholders' deficit:
     Common stock                                                          70                                               70
     18% convertible preferred stock                                   15,413                                           15,413
     Additional paid-in capital                                       132,562                   (1,259)                131,303
     Accumulated comprehensive loss                                      (316)                       -                    (316)
     Accumulated deficit                                             (161,024)                  (3,280)               (164,304)
                                                           -------------------    ---------------------    --------------------

       Total stockholders' deficit                                    (13,295)                  (4,539)                (17,834)
                                                           -------------------    ---------------------    --------------------

       Total liabilities and stockholders' deficit         $          478,862     $            (11,732)    $           467,130
                                                           ===================    =====================    ====================

</TABLE>

                                       36

<PAGE>

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31, 2001
                                                                  --------------------------------------------------------
                                                                                             Initial and
                                                                   As Previously                 Further
                                                                    Reported in              Restatement
                                                                   2002 Form 10-K            Adjustments      As Restated
                                                                  ---------------   ----------------------   --------------
<S>                                                               <C>               <C>                      <C>
Revenue, net                                                      $      231,469    $              (4,572)   $     226,897

Cost of goods sold                                                        65,682                     (936)          64,746
                                                                  ---------------   ----------------------   --------------

     Gross profit                                                        165,787                   (3,636)         162,151
                                                                  ---------------   ----------------------   --------------

Costs and expenses:
     Sales and marketing                                                  54,658                      449           55,107
     Research and development                                              5,751                      238            5,989
     Distribution, circulation and fulfillment                            14,350                     (651)          13,699
     Editorial                                                            10,558                      120           10,678
     General and administrative                                           26,431                    3,330           29,761
     Restructuring costs and other non-recurring expenses                      -                        -                -
     Depreciation                                                          3,227                       24            3,251
     Amortization of intangible assets                                    63,757                   (4,563)          59,194
                                                                  ---------------   ----------------------   --------------

     Total operating costs and expenses                                  178,732                   (1,053)         177,679
                                                                  ---------------   ----------------------   --------------

     Loss from operations                                                (12,945)                  (2,583)         (15,528)

Interest expense, including amortization
   of deferred financing costs                                           (33,319)                    (136)         (33,455)
Loss on investment                                                          (875)                       -             (875)
Other income (expense), net                                                 (708)                       -             (708)
                                                                  ---------------   ----------------------   --------------

     Loss before income tax provision                                    (47,847)                  (2,719)         (50,566)

Income tax provision                                                         658                        -              658
                                                                  ---------------   ----------------------   --------------

     Net loss                                                     $      (48,505)   $              (2,719)   $     (51,224)
                                                                  ===============   ======================   ==============
</TABLE>




                                       37
<PAGE>

Below is the restated balance sheet for Weekly Reader Corporation as of December
31, 2001. For a further discussion of the Weekly Reader restatements see "Item
8. Consolidated Financial Statements -- Weekly Reader Corporation and
Subsidiaries -- Note 20. Restatements.


<TABLE>
<CAPTION>
                                                                                       December 31, 2001
                                                                 -------------------------------------------------------------
                                                                   As Previously    Initial and Further
                                                                    Reported in         Restatement
                                                                  2002 Form 10-K        Adjustments           As Restated
                                                                 ----------------  ---------------------  --------------------
<S>                                                              <C>               <C>                    <C>
ASSETS
Current Assets:
     Cash and cash equivalents                                   $        5,691                           $        5,691
     Accounts receivable, net                                            24,818    $        (177)                 24,641
     Inventories, net                                                    13,718               15                  13,733
     Due from related party                                               2,858              244                   3,102
     Prepaid expenses                                                     2,702           (1,126)                  1,576
     Other current assets                                                13,891                                   13,891
                                                                 ----------------  ---------------------  --------------------
       Total current assets                                              63,678           (1,044)                 62,634

Property and equipment, net                                               7,541              314                   7,855
Goodwill                                                                101,978                                  101,978
Deferred financing costs, net                                               873                                      873
Other intangible assets, net                                             46,023           (7,655)                 38,368
Other assets and investments                                                737           16,705                  17,442
                                                                 ----------------  ---------------------  --------------------
       Total assets                                              $      220,830    $       8,320          $      229,150
                                                                 ================  =====================  ====================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                            $       15,855    $         232          $       16,087
     Deferred revenue                                                    18,398              110                  18,508
     Accrued expenses and other current liabilities                      26,664              779                  27,443
     Current portion of long-term debt                                    6,171                                    6,171
                                                                 ----------------  ---------------------  --------------------
       Total current liabilities                                         67,088            1,121                  68,209

Long-term debt                                                          273,544                -                 273,544
                                                                 ----------------  ---------------------  --------------------
       Total liabilities                                                340,632            1,120                 341,753
                                                                 ----------------  ---------------------  --------------------

Commitments and contingencies
15% redeemable senior preferred stock,
(Liquidation preference of $137,702)                                    102,573              696                 103,269
                                                                 ----------------  ---------------------  --------------------


Stockholders' deficit:
     Common stock                                                            28                                       28
     Additional paid-in capital                                           9,133                                    9,133
     Due from parent                                                    (67,738)             964                 (66,774)
     Accumulated other comprehensive loss                                  (316)                                    (316)
     Accumulated deficit                                               (163,482)           5,539                (157,943)
                                                                 ----------------  ---------------------  --------------------
       Total stockholders' deficit                                     (222,375)           6,503                (215,872)
                                                                 ----------------  ---------------------  --------------------
       Total liabilities and stockholders' deficit               $      220,830    $       8,319          $      229,150
                                                                 ================  =====================  ====================
</TABLE>


                                       38
<PAGE>

See "Item 8. Consolidated Financial Statements--WRC Media Inc. and
Subsidiaries--Note 24. Restatements" and "Item 8. Consolidated Financial
Statements--Weekly Reader Corporation and Subsidiaries--Note 20. Restatements."

The Company has not amended its Annual Reports on Form 10-K or Quarterly Reports
on Form 10-Q for periods affected by the restatement and the financial
statements and related financial information contained in such reports should no
longer be relied upon.

Throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations, all referenced amounts for prior periods and prior period
comparisons reflect the balances and amounts on a restated basis.

OVERVIEW

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


                                       39
<PAGE>

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

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

o    More federal funds will now flow through states;

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

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

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

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

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


                                       40
<PAGE>

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

Our operations are conducted primarily through the following five operating
subsidiaries: Weekly Reader; American Guidance; World Almanac; CompassLearning
and ChildU.

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, 2003 was $7.9 million representing about
4% of WRC Media's total revenues.

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 materially from
these estimates, which would affect our reported results from operations. The
following is a description of what we believe to be the critical accounting
policies and estimates used in the preparation of our consolidated financial
statements.

REVENUE RECOGNITION

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

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

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

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

                                       41
<PAGE>

     o    EDUCATIONAL SOFTWARE AND RELATED PRODUCTS AND SERVICES - Software
          revenues are recognized in accordance with the provisions of Statement
          of Position (SOP) 97-2, Software Revenue Recognition, as amended by
          SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
          Respect to Certain Transactions. Under SOP 97-2, we recognize revenue
          for hardware and software sales upon shipment of the product, provided
          collection of the receivable is probable, payment is due within one
          year and the fee is fixed or determinable. If an acceptance period is
          required, revenues are recognized upon the earlier of customer
          acceptance or the expiration of the acceptance period. If significant
          post-delivery obligations exist revenues are deferred until no
          significant obligations remain. Revenue from service contracts,
          instruction and user training is recognized as the services are
          performed and post-contract support is recognized ratably 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 undelivered 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 recognition set
          forth above are met. Certain of the Company's customers are subject to
          fiscal funding requirements. If the funding requirements are subject
          to governmental approval, the likelihood of cancellation is assessed.
          If the likelihood of cancellation is assessed as remote, revenue is
          recognized. If the likelihood of cancellation is assessed as other
          than remote, revenue is deferred. If the funding requirements are
          subject to non-governmental approval, revenue is deferred and
          recognized in accordance with the remaining provisions of SOP 97-2.
          The Company also enters into lease financing arrangements for its
          software products and services. These leases are immediately assigned
          to a third-party with no recourse to the Company. The Company retains
          no risk in these arrangements and has no history of granting
          concessions related to the arrangements. Accordingly, the Company
          recognizes revenue upon delivery of its products and services under
          these lease arrangements.

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

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

PRE-PUBLICATION COSTS

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


                                       42
<PAGE>

DIRECT-RESPONSE ADVERTISING COSTS

Advertising and subscription acquisition costs are expensed the first time the
advertising takes place, except for direct-response advertising, the primary
purpose of which is to elicit sales from customers who can be shown to have
responded specifically to the advertising and that 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
in the Company's consolidated statement of operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

RESERVE FOR SALES RETURNS

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS

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


                                       43
<PAGE>

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

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

VALUATION OF EQUITY INSTRUMENTS

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

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

SOFTWARE DEVELOPMENT COSTS

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

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

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



                                       44
<PAGE>

VALUATION OF DEFERRED TAX ASSETS

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

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company's contractual obligations and commercial commitments as of December
31, 2003 are as follows:

CONTRACTUAL OBLIGATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------

       Contractual                                Less than                                               After
       Obligations                Total            1 year           2-3 years         4-5 years          5 years
--------------------------    --------------    --------------    --------------    --------------    ---------------
<S>                           <C>               <C>               <C>               <C>               <C>

Lines of Credit               $       5,000                       $       5,000

Senior Bank Credit                  118,678     $      13,477           105,201
Facilities

Senior Subordinated                 152,000                 -                 -                       $      152,000
Notes

Operating Leases                     33,934             5,990            10,423     $       6,958             10,563

Employment
Obligations                           4,952             4,216               736                 -                  -

Other Long-Term
Obligations                         142,452                 -                 -                 -            142,452
                              --------------    --------------    --------------    --------------    ---------------

Total Contractual
Cash Obligations              $     457,016     $      23,683     $     121,360     $       6,958     $      305,015
                              ==============    ==============    ==============    ==============    ===============

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

                                       45
<PAGE>

COMMERCIAL COMMITMENTS


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------

          Other                   Total                      Amount of Commitment Expiration Per Period
                                                ---------------------------------------------------------------------
       Commercial                Amounts          Less than                                               After
       Commitments              Committed          1 year           2-3 years         4-5 years          5 years
--------------------------    --------------    --------------    --------------    --------------    ---------------
<S>                           <C>               <C>               <C>               <C>               <C>
Lines of Credit               $      28,000                       $      28,000

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

Total Contractual
Cash Obligations              $      30,000                       $      28,000                       $        2,000
                              ==============    ==============    ==============    ==============    ===============

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


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

All payment obligations under the Second-Lien Facility are secured by a
second-priority lien on the collateral securing the First-Lien Facility;
provided that all obligations under the Second-Lien Facility will rank equally
in right of payment with all payment obligations under the First-Lien Facility
and will not otherwise be subordinated in any respect to the First-Lien
Facility. The final maturity of the Second-Lien Facility will be March, 2009.

In connection with entering into the Second-Lien Facility, we entered into an
amendment and restatement of our First-Lien Facility, which now consists solely
of a $30,000 revolving credit facility. The First-Lien Facility, as amended and
restated, has a maturity of December 29, 2008.

REVENUES

For the year ended December 31, 2003, WRC Media and its subsidiaries had net
revenue of $202.7 million. On a separate company basis, for the year ended
December 31, 2003, Weekly Reader (excluding American Guidance and World Almanac)
had net revenue of $46.3 million, American Guidance had net revenue of $56.6
million, World Almanac had net revenue of $49.2 million, CompassLearning had net
revenue of $42.7 million and ChildU had net revenue of $7.9 million.

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 associations or
not-for-profit sponsors and are distributed for free primarily to K-12 students.



                                       46
<PAGE>

American Guidance derives revenues from two product lines: testing and
assessment products; and core-curriculum 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 core-curriculum supplemental
instructional materials 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.

CompassLearning's revenues are derived from its: software products; professional
development services; technical support services; and hardware sales.

Software products consist of electronic courseware, management system and
assessment tools derived on a school's platform of choice including LAN, WAN and
Internet access.

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 58% of technical support and approximately 19% of
professional development contract dollars for the year ended December 31, 2003
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 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,
Gateway 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.


                                       47
<PAGE>

OPERATING COSTS AND EXPENSES

For Weekly Reader, operating costs and expenses are comprised primarily of: cost
of goods sold; sales and marketing; distribution, circulation and fulfillment;
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, binding costs, freight and royalty costs. Sales and marketing expenses
are typically for employees and direct marketing costs including: postage;
paper; printing; advertising; mailing list rental fees; and telemarketing costs.

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

Weekly Reader's editorial costs consist of expenses incurred for employees as
well as third-party contractors, such as development houses and freelancers, net
of capitalization.

General and administrative expenses consist primarily of: salaries and fringe
benefits for executives as well as for finance, information technology,
purchasing, facilities and human resources employees and related departmental
costs; information technology expenses, other than salaries; and real estate
expenses. General and administrative expenses also include corporate overhead
expense including 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 third-party costs.

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, sales commissions and travel and entertainment 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. Beginning 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, 2003 capitalized software development costs associated with
the Odyssey on-line software product approximated $4.8 million.



                                       48
<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 - WRC
MEDIA INC. AND SUBSIDIARIES

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

In analyzing WRC Media's results for the years ended December 31, 2001, 2002 and
2003, the seasonal nature of WRC Media's business should be considered. As a
result of seasonality, approximately 20% of WRC Media's publication and related
service revenues usually occur in its first quarter, 20% in its second quarter,
and 60% in the third and fourth quarters combined. However, unlike this revenue
stream, many of WRC Media's expenses are incurred evenly throughout the year.

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


<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                              2002                         2003
                                                                ---------------------------  ---------------------------
                                                                  Amount   % of Net Revenue   Amount    % of Net Revenue
                                                                ---------  ----------------  ---------  ----------------
<S>                                                             <C>        <C>               <C>        <C>
                                                                                  (Dollars in millions)

Revenue, net                                                    $  207.9            100.0%   $  202.7            100.0%
Cost of goods sold                                                  60.0             28.9%       56.4             27.8%
                                                                ---------  ----------------  ---------  ----------------
Gross profit                                                       147.9             71.1%      146.3             72.2%
Costs and expenses:
      Sales and marketing                                           48.6             23.4%       47.2             23.3%
      Research and development                                       1.7              0.8%        1.4              0.7%
      Distribution, circulation and fulfillment                     14.0              6.7%       14.6              7.2%
      Editorial                                                     10.9              5.2%       10.4              5.1%
      General and administrative                                    25.9             12.5%       25.4             12.5%
      Restructuring costs and other non-recurring expenses           8.6              4.2%        1.0              0.5%
      Depreciation                                                   3.1              1.6%        2.3              1.1%
      Amortization of intangible assets                             16.6              8.0%       17.5              8.6%
                                                                ---------  ----------------  ---------  ----------------
                Total costs and expenses                           129.4             62.2%      119.8             59.1%
                                                                ---------  ----------------  ---------  ----------------

Income from operations                                              18.5              8.9%       26.5             13.1%
                                                                ---------  ----------------  ---------  ----------------
Interest expense, including amortization
   of deferred financing costs                                     (30.0)           (14.4%)     (29.3)           (14.5%)
Loss on investment                                                  (3.1)            (1.5%)         -              0.0%
Other income (expense), net                                          0.7              0.3%       (1.5)            (0.7%)
                                                                ---------  ----------------  ---------  ----------------
Loss before income tax provision                                   (13.9)            (6.7%)      (4.3)            (2.1%)
Income tax provision                                                 8.2              3.9%        3.1              1.6%
                                                                ---------  ----------------  ---------  ----------------
Net loss                                                        $  (22.1)           (10.6%)  $   (7.4)            (3.7%)
                                                                =========  ================  =========  ================

      Adjusted EBITDA (a)                                       $   46.7             22.5%   $   48.6             24.0%
                                                                =========  ================  =========  ================
</TABLE>

(a)  Adjusted EBITDA represents (loss) before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $8.6 million for the year ended December 31, 2002
     and restructuring costs and other non-recurring expenses of $1.0 million
     for the year ended December 31, 2003. Adjusted EBITDA data is a non-GAAP
     measure and is included in our discussion because we believe that this
     information may be considered by investors as an additional basis on which
     to evaluate WRC Media's performance. Because all companies do not calculate
     Adjusted EBITDA identically, the presentation of Adjusted EBITDA in this
     report is not necessarily comparable to similarly titled measures of other
     companies. Adjusted EBITDA is not intended to represent cash flow from
     operating activities and should not be considered an alternative to net
     income or loss (as determined in conformity with GAAP) as an indicator of
     our operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance based on their Adjusted EBITDA
     results. We also use Adjusted EBITDA to evaluate management performance.
     Adjusted EBITDA may not be available for our discretionary use as there are
     requirements to repay debt, among other payments.

                                       49
<PAGE>

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

Revenue, net. For the year ended December 31, 2003, net revenue decreased $5.2
million, or 2.5%, to $202.7 million from $207.9 million in 2002. This decrease
was primarily due to a decrease in net revenue at CompassLearning of $7.9
million, or 15.6%, to $42.7 million from $50.6 million in 2002 combined with a
decrease in net revenue at Weekly Reader of $2.9 million, or 1.9%, to $152.1
million from $155.0 million in 2002. These revenue decreases were partially
offset by net revenue at ChildU. ChildU net revenue increased by $5.6 million,
or 243.5%, to $7.9 million from $2.3 million in 2002. This increase in revenue
was driven by more schools choosing web-enabled products primarily resulting
from more schools having internet connectivity than in prior years.

The decrease in net revenue at Weekly Reader was primarily due to (1) a decrease
in net revenue at World Almanac of $3.1 million, or 5.9% to $49.2 million from
$52.3 million in 2002 primarily as a result of lower net revenue of $1.7 million
or 7.4% at WAE Library Services and $1.3 million or 8.2%, at Gareth Stevens, due
in part to state budget deficits, which have directly impacted the catalog
channel at WAE Library Services and the telemarketing and wholesale channel
sales at Gareth Stevens; (2) a decrease in net revenue at AGS of $1.3 million,
or 2.2%, to $56.6 from $57.9 million in 2002. Curriculum revenue decreased $2.8
million, or 8.7%, to $29.3 million from $32.1 million in 2002.
Textbooks/workbooks revenue decreased $1.1 million, or 4.6%, from 2002 primarily
due to several large one-time Literature textbook orders in 2002 that were not
repeated in 2003 and current market conditions. Test Prep revenue was down $0.7
million, or 20.2% from 2002, due to current market conditions and there was a
decline in Backlist Curriculum of $1.0 million, or 22.3% from 2002 because these
older product lines have not had any recent investment in product development.
This decline in Curriculum revenue was partially offset by higher Assessment
revenue of $1.5 million, or 6.1%, driven by an increase in GRADE (Group Reading
Assessment and Diagnostic Evaluation) of $1.9 million, or 232.5%, and an
increase of $0.5 million, or 24.2%, in PPVT (Picture Peabody Vocabulary Test)
revenue partially offset by a decrease of $0.9 million or 3.8%, on all other
assessments. The decreases in revenue at World Almanac and AGS were partially
offset by (3) an increase in net revenue at Weekly Reader, excluding World
Almanac and AGS, of $1.5 million, or 3.3%, to $46.3 million from $44.8 million
in 2002. This increase was primarily attributable to higher revenue at Lifetime
Learning Systems, Inc., a subsidiary of Weekly Reader as a result of increased
sponsored supplemental educational material shipments of $2.5 million, or 42.8%;
increased licensing revenue of $0.5 million, or 11.8%, due to higher net revenue
from the QVC Shopping Network Channel; partially offset by a decline in
periodical circulation revenue of $1.5 million, or 4.4%, due to the challenging
K-12 funding environment.

For the twelve months ended December 31, 2003, CompassLearning net revenue
decreased $7.9 million or 15.6% to $42.7 million from $50.6 million in 2002.
This decrease was primarily due to (1) a decrease in software revenue of $5.6
million, or 21.5%, to $20.5 million from $26.1 million in 2002, (2) a decrease
in service revenue from technical support of $1.1 million, or 8.1%, to $12.4
million from $13.5 million in 2002, (3) a decrease in professional development
revenue of $0.7 million, or 7.1%, to $9.1 million from $9.8 million in 2002 and
(4) a decrease in hardware revenue of $0.5 million, or 41.7%, to $0.7 million
from $1.2 million in 2002. Together with ChildU, total revenue from sales of
educational software products was $28.4 million each year.


                                       50
<PAGE>

The K-12 funding environment continues to be impacted by growing state budget
deficits, which have been causing reductions in state and local educational
spending, including spending on supplemental educational materials. While we
believe WRC Media will benefit from the provisions in the Federal No Child Left
Behind Act (the "NCLB Act"), most of the increase in Federal educational funding
in 2003 was offset by lower state and local education funding in 2003. Although
we expect that Federal educational funding will increase in 2004 as a result of
the NCLB Act, we do not believe this funding improvement will be sufficient to
offset cuts in state and local education funding. These cuts and delayed
purchases have negatively affected our top-line net revenue and may continue to
affect our top-line performance at least through the first half of fiscal year
2004. The uncertainty in the current operating environment makes it difficult to
forecast future results.

Gross profit. For the year ended December 31, 2003, gross profit decreased by
$1.6 million or 1.1%, to $146.3 million from $147.9 million in 2002. This
decrease was due to the revenue decrease discussed above. At CompassLearning
gross profit decreased $4.8 million, or 16.0%, to $25.2 million from $30.0
million in 2002 driven by lower software revenue. Gross margin at
CompassLearning as a percent of revenue decreased slightly to 59.0% in 2003 from
59.3% in 2002. At ChildU, gross profit increased $5.2 million, or 346.7%, to
$6.7 million from $1.5 million in 2002 primarily due to the higher revenue
discussed above. Gross profit at Weekly Reader decreased $2.0 million or 1.7% to
$114.4 million for the year ended December 31, 2003 from $116.4 million in 2002
primarily as a result of (1) a decrease in gross profit at World Almanac of $2.4
million, or 6.7%, to $33.4 million from $35.8 million in 2002. Gross profit at
World Almanac as a percent of revenue decreased to 67.9% from 68.5% in 2002
mainly due to a change in product mix; (2) a decrease in gross profit at AGS of
$0.6 million, or 1.4% to $43.5 million from $44.1 million in 2002 driven by the
AGS volume decrease described above partially offset by an increase in gross
profit as a percent of revenue to 76.9% from 76.2% partially offset by (3) an
increase in gross profit at Weekly Reader, excluding AGS and World Almanac of
$1.0 million, or 2.7%, to $37.5 million from $36.5 million in 2002. Gross profit
as a percent of revenue decreased slightly at Weekly Reader, excluding World
Almanac and AGS, to 81.0% in 2003 for 81.5% in 2002. Overall, WRC Media
consolidated gross profit as a percent of revenue increased slightly to 72.2%
for the year ended December 31, 2003 from 71.1% in 2002 mainly due to the change
in sales mix discussed above.

Costs and expenses. For the year ended December 31, 2003, operating costs and
expenses decreased by $9.6 million, or 7.4%, to $119.8 million from $129.4
million in 2002. Costs and expenses as a percentage of net revenue decreased to
59.1% from 62.2% in 2002. The decrease was attributable to (i) $7.6 million or
88.4% decrease in restructuring and other non-recurring charges; (ii) lower
sales and marketing expense of $1.4 million or 2.9% due in part to the lower
revenue discussed above resulting in lower variable sales and marketing expenses
such as sales commissions; (iii) lower depreciation of $0.8 million; and (iv)
lower general and administrative expenses of $0.5 million. The decrease in
general and administrative expenses was primarily due to a reduction of rent
expense of $1.8 million resulting from consolidation of facilities and a $1.8
million reduction of fixed overhead costs, primarily compensation costs, offset
by employee severance costs of $1.5 million for a senior executive, higher
professional fees of $0.9 million primarily related to legal matters, a SEC
inquiry and increased audit fees and higher recruiting fees of $0.5 million
related to personnel changes. These decreases were partially offset by higher
amortization of intangibles of $0.9 million.

Interest expense, including amortization of deferred financing costs. For the
year ended December 31, 2003, interest expense decreased by $0.7 million, or
2.3%, to $29.3 million from $30.0 million in 2002 and interest expense as a
percentage of net revenue increased slightly to 14.5% from 14.4% in 2002.

                                       51
<PAGE>

Loss on investments. During the year ended December 31, 2002 the Company
recorded a loss on investment of $3.1 million. The loss in 2002 related to
equity losses attributable to WRC Media's minority investment in ThinkBox, Inc.
There were no losses on investments during the 2003 period.

Other income (expense), net. For the year ended December 31, 2003, other income
(expense), net decreased $2.2 million or 314.3% to $1.5 million expense from
$0.7 income 2002. This decrease was primarily driven by a $1.7 million gain from
hedging transactions in the 2002 period.

Income tax provision. For the year ended December 31, 2003, the provision for
income taxes decreased by $5.1 million or 62.2% to an income tax provision of
$3.1 million from a provision for income taxes of $8.2 million for the same
period in 2002. The Company recorded non-cash deferred income tax expense of
$5.2 million on January 1, 2002 and $2.7 and $2.9 million during the years ended
December 31, 2002 and December 31, 2003, respectively, which would not have been
required prior to the adoption of SFAS 142, "Goodwill and Other Intangible
Assets". The non-cash charge of $5.2 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, book 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.

Adjusted EBITDA. For the year ended December 31, 2003, Adjusted EBITDA increased
$1.9 million, or 4.1%, to $48.6 million from $46.7 million for the same period
in 2002. This increase is primarily attributable to the factors described above.
Adjusted EBITDA represents (loss) before interest expense, taxes, depreciation,
amortization and other (income) charges including restructuring costs of $8.6
million for the year ended December 31, 2002 and restructuring costs and other
non-recurring expenses of $1.0 million for the year ended December 31, 2003.
Adjusted EBITDA data is a non-GAAP measure and is included in our discussion
because we believe that this information may be considered by investors as an
additional basis on which to evaluate WRC Media's performance. Because all
companies do not calculate Adjusted EBITDA identically, the presentation of
Adjusted EBITDA in this report is not necessarily comparable to similarly titled
measures of other companies. Adjusted EBITDA is not intended to represent cash
flow from operating activities and should not be considered an alternative to
net income or loss (as determined in conformity with GAAP) as an indicator of
our operating performance or to cash flow as a measure of liquidity. It is
presented herein as we use it, in addition to operating income, to evaluate and
measure each business unit's performance based on their Adjusted EBITDA results.
We also use Adjusted EBITDA to evaluate management performance. Adjusted EBITDA
may not be available for our discretionary use as there are requirements to
repay debt, among other payments. The reconciliation of Adjusted EBITDA to net
loss is as follows:

                                       52
<PAGE>

                                                        Year ended December 31,
Adjusted EBITDA reconciliation to Net Loss                 2002          2003
                                                        ----------    ---------

      Net Loss                                          $ (22,085)    $ (7,434)
      Non-cash expenses                                         -          300
      Depreciation and amortization of intangibles**       21,932       22,295
      Income taxes                                          8,180        3,051
      Interest expense                                     30,061       29,349
      Restructuring costs                                   8,594          826
      Non-recurring expenses                                    -          192
                                                        ----------    ---------
Adjusted EBITDA                                         $  46,682     $ 48,579
                                                        ==========    =========

** Amount includes amortization of capitalized software costs of $2,214 and
   $2,468 for 2002 and 2003, respectively which are included in costs of sales
   in the consolidated statements of operations.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 - WRC
MEDIA INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                        2001                                2002
                                                         ----------------------------------  ----------------------------------
                                                           Amount       % of Net Revenue       Amount       % of Net Revenue
                                                         ------------  --------------------  ------------  --------------------
<S>                                                      <C>           <C>                   <C>           <C>
                                                                                 (Dollars in millions)

Revenue, net                                             $     226.9                100.0%   $     207.9                100.0%
Cost of goods sold                                              64.8                 28.6%          60.0                 28.9%
                                                         ------------  --------------------  ------------  --------------------
Gross profit                                                   162.1                 71.4%         147.9                 71.1%
Costs and expenses:
      Sales and marketing                                       55.1                 24.3%          48.6                 23.4%
      Research and development                                   6.0                  2.6%           1.7                  0.8%
      Distribution, circulation and fulfillment                 13.7                  6.0%          14.0                  6.7%
      Editorial                                                 10.7                  4.7%          10.9                  5.2%
      General and administrative                                29.8                 13.1%          25.9                 12.5%
      Restructuring costs                                          -                  0.0%           8.6                  4.2%
      Depreciation                                               3.2                  1.4%           3.1                  1.6%
      Amortization of intangible assets                         59.2                 27.7%          16.6                  8.0%
                                                         ------------  --------------------  ------------  --------------------
                Total costs and expenses                       177.7                 78.3%         129.4                 62.2%
                                                         ------------  --------------------  ------------  --------------------

(Loss) income from operations                                  (15.6)                (6.9%)         18.5                  8.9%
                                                         ------------  --------------------  ------------  --------------------
Interest expense, including amortization
   of deferred financing costs                                 (33.4)               (14.7%)        (30.0)               (14.4%)
Loss on investments                                             (0.9)                (0.4%)         (3.1)                (1.5%)
Other income (expense), net                                     (0.7)                (0.3%)          0.7                  0.3%
                                                         ------------  --------------------  ------------  --------------------
Loss before income tax provision                               (50.6)               (22.3%)        (13.9)                (6.7%)

Income tax provision                                             0.6                  0.3%           8.2                  3.9%
                                                         ------------  --------------------  ------------  --------------------
Net loss                                                 $     (51.2)               (22.6%)  $     (22.1)               (10.6%)
                                                         ============  ====================  ============  ====================

      Adjusted EBITDA (a)                                $      47.2                 20.8%   $      46.7                 22.5%
                                                         ============  ====================  ============  ====================
</TABLE>

(a)  Adjusted EBITDA represents loss before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $8.6 million for the year ended December 31, 2002.
     Adjusted EBITDA data is a non-GAAP measure and is included in our
     discussion because we believe that this information may be considered by
     investors as an additional basis on which to evaluate WRC Media's
     performance. Because all companies do not calculate Adjusted EBITDA
     identically, the presentation of Adjusted EBITDA in this report is not
     necessarily comparable to similarly titled measures of other companies.
     Adjusted EBITDA is not intended to represent cash flow from operating
     activities and should not be considered an alternative to net income or
     loss (as determined in conformity with GAAP) as an indicator of our
     operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance based on their Adjusted EBITDA
     results. We also use Adjusted EBITDA to evaluate management performance.
     Adjusted EBITDA may not be available for our discretionary use as there are
     requirements to repay debt, among other payments.

                                       53
<PAGE>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Revenue, net. For the year ended December 31, 2002, net revenue decreased $19.0
million, or 8.4%, to $207.9 million from $226.9 million in 2001. This decrease
was primarily due to a decrease in net revenue at CompassLearning of $17.0
million, or 25.1%, to $50.6 million from $67.6 million in 2001 combined with a
decrease in net revenue at Weekly Reader of $3.5 million, or 2.2%, to $155.0
million from $158.5 million in 2001. These net revenue decreases were partially
offset by increased net revenue at ChildU of $1.5 million, or 187.5%, to $2.3
million from $0.8 million in 2001. This increase in net revenue was driven by
more schools choosing web-enabled products over LAN/WAN delivered software.

The decrease in net revenue at Weekly Reader was primarily due to (i) a decrease
in net revenue at World Almanac of $3.0 million, or 5.4% to $52.3 million from
$55.3 million in 2001 primarily as a result of lower revenue at WAE Library
Services of $3.7 million, or 14.1%, partially offset by higher revenue at Gareth
Stevens of $1.2 million, or 8.2%, from 2001. The lower revenue at WAE Library
Services was primarily due to lower revenue of $2.6 million from its Main
catalog as a result of the challenging K-12 funding environment impacted by
growing state budget deficits. The revenue increase at Gareth Stevens was due to
by higher revenue in its wholesale channels from the sale of its World Almanac
Library and Weekly Reader Early Learning Library imprints; (ii) a decrease in
net revenue at Weekly Reader, not including World Almanac and AGS, of $1.6
million, or 3.4%, to $44.8 million from $46.4 million in 2001. The decrease was
primarily attributable to lower custom publishing shipments of $1.2 million, or
17.2%, at its Lifetime Learning Inc. subsidiary; lower periodical revenue of
$1.2 million, or 3.5%, resulting from the planned restructuring of the
periodical shipping schedule and lower circulation; and lower skills books
revenue of $0.2 million, or 11.9%. These decreases at Weekly Reader were
partially offset by higher licensing revenue of $1.1 million, or 36.9%, due
primarily to higher revenue through QVC Shopping Network Channel. The revenue
decreases at World Almanac and Weekly Reader were partially offset by (iii) an
increase in net revenue at AGS of $1.1 million, or 1.9%, to $57.9 million from
$56.8 million in 2001. AGS Assessment net revenue increased $0.4 million, or
1.6%, from 2001 primarily as a result of a revenue increase of $0.5 million, or
132.7%, of GRADE (Group Reading Assessment and Diagnostic Evaluation).
Curriculum net revenue increased $0.7 million, or 2.1%, from 2001 as a result of
a $1.7 million, or 7.7%, increase in Textbook/Worktext revenue from 2001 due to
the release of several new and revised textbooks in Math, English and Reading ,
further penetration of Science textbooks and several large, one-time Literature
textbook orders. The increase in Textbook/Workbook revenue was partially offset
by a market driven decline in Test Prep of $0.5 million or 15.0%, and a decline
of $0.5 million, or 10.0%, of Backlist Curriculum revenue from 2001.

CompassLearning net revenue decreased $17.0 million, or 25.1%, to $50.6 million
from $67.6 million in 2001. This decrease was primarily due to (i) a decrease in
software revenue of $13.0 million, or 33.2%, to $26.1 million from $39.1 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, (ii) a
decrease in hardware revenue of $1.2 million, or 50.0%, to $1.2 million from
$2.4 million in 2001, (iii) a decrease in service revenue from technical support
of $1.2 million, or 8.2%, to $13.5 million from $14.7 million 2001, and (iv) a
decrease in professional development revenue of $1.6 million, or 14.0%, to $9.8
million from $11.4 million in 2001.


                                       54
<PAGE>

Gross profit. For the year ended December 31, 2002, gross profit decreased by
$14.2 million or 8.8%, to $147.9 million from $162.1 million in 2001. This
decrease was due to the net revenue decrease discussed above. The decrease in
gross profit was primarily due to a decrease of $14.1 million, or 32.0%, at
CompassLearning to $30.0 million from $44.1 million. Gross profit as a percent
of revenue at CompassLearning decreased to 59.3% from 65.2% in 2001 driven by
fixed cost of sales components applied to a lower revenue base. Gross profit
increased at Child U by $1.1 million to $1.5 million from $0.4 million in 2001
due to the higher revenue discussed above. Gross profit at Weekly Reader
decreased $1.2 million, or 1.2%, to $116.4 million from $117.6 million in 2001
primarily as a result of (i) a decrease in gross profit at World Almanac of $1.6
million, or 4.3%, to $35.8 million from $37.4 million in 2001. Gross profit at
World Almanac as a percent of revenue increased to 68.5% from 67.6% in 2001
mainly due to a change in product mix partially related to an increase in sales
of product sold through the internet. (ii) a decrease in gross profit of $0.8
million, or 2.1%, at Weekly Reader, not including AGS and World Almanac, to
$36.5 million from $37.3 million in 2001. Gross profit at Weekly Reader as a
percent of revenue increased to 81.5% from 80.4% due to lower paper costs.(iii)
partially offset by an increase in gross profit at AGS of $1.2 million, or 2.8%,
to 44.1 million from 42.9 million in 2001. Gross profit at AGS as a percent of
sales increased to 76.2% from 75.5% due to a shift in sales mix. Overall, gross
profit as a percent of net revenue decreased slightly to 71.1% from 71.4% in
2001.

Costs and expenses. For the year ended December 31, 2002, costs and expenses
decreased by $48.3 million, or 27.2%, to $129.4 million from $177.7 million in
2001. This decrease was primarily the result of (i) $42.6 million or 72.0%
decrease in amortization of intangible assets due to the adoption of SFAS No.
142 (ii) $6.5 million or 11.8% decrease in sales and marketing expense due in
part to the lower net revenue discussed above resulting in lower variable sales
and marketing expenses such as sales commissions of $7.1 million at
CompassLearning and a decrease of $1.0 million at Weekly Reader resulting from
amortizing direct response advertising expenditures over a longer period of time
to more accurately match these expenses with revenues generated from these
expenditures; partially offset by an increase in sales and marketing expenses of
$ 2.1 million at ChildU to launch the new web-enabled product line ; (iii) $4.3
million or 71.7% decrease in research and development expense primarily at
CompassLearning and Child U resulting from capitalization of specific product
development costs associated with products introduced to the market or under
development in 2002; and (iv) $3.9 million or 13.1% decrease in general and
administrative expense primarily driven by the work force reduction implemented
in 2002; partially offset by (v) $8.6 million of restructuring costs recorded in
2002. 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 $8.6
million.

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 equity losses on its minority investment in
ThinkBox, Inc. The Company has recognized equity losses related to its
investment in ThinkBox equal to the value of its investment at December 31,
2002.

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 $30.0 million from $33.4 million in 2001 as a result of lower interest
rates on the Company's long-term debt. Interest expense as a percentage of sales
decreased slightly to 14.4% from 14.7% in 2001.

Other income (expense), net. For the year ended December 31, 2002, other income
(expense), net increased $1.4 million or 200.0% to $0.7 million in income from
$0.7 expense in 2001. This increase was primarily driven by a $1.7 million gain
from hedging transactions in the 2002 period.


                                       55
<PAGE>

Income tax provision. For the year ended December 31, 2002, the provision for
income taxes increased by $7.6 million to an income tax provision of $8.2
million from a provision for income taxes of $0.6 million in 2001. The Company
recorded non-cash deferred income tax expense of $5.2 million on January 1, 2002
and $2.7 million during the year ended December 31, 2002, which would not have
been required prior to the adoption of SFAS 142. The non-cash charge of $5.2
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, book 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.

Adjusted EBITDA. For the year ended December 31, 2002, Adjusted EBITDA decreased
$0.5 million, or 1.1% to $46.7 million from $47.2 million from the same period
in 2002. Adjusted EBITDA represents (loss) before interest expense, taxes,
depreciation, amortization and other (income) charges including restructuring
costs of $8.6 million for the year ended December 31, 2002. Adjusted EBITDA data
is a non-GAAP measure and is included in our discussion because we believe that
this information may be considered by investors as an additional basis on which
to evaluate WRC Media's performance. Because all companies do not calculate
Adjusted EBITDA identically, the presentation of Adjusted EBITDA in this report
is not necessarily comparable to similarly titled measures of other companies.
Adjusted EBITDA is not intended to represent cash flow from operating activities
and should not be considered an alternative to net income or loss (as determined
in conformity with GAAP) as an indicator of our operating performance or to cash
flow as a measure of liquidity. It is presented herein as we use it, in addition
to operating income, to evaluate and measure each business unit's performance
based on their Adjusted EBITDA results. We also use Adjusted EBITDA to evaluate
management performance. Adjusted EBITDA may not be available for our
discretionary use as there are requirements to repay debt, among other payments.
The reconciliation of Adjusted EBITDA to net loss is as follows:

                                                      Year Ended December 31,
Adjusted EBITDA reconciliation to Net Loss               2001         2002
                                                      ----------    ---------

  Net Loss                                            $ (51,224)    $(22,085)
                                                              -
  Depreciation and amortization of intangibles**         64,303       21,932
  Income taxes                                              658        8,180
  Interest expense                                       33,455       30,061
  Restructuring costs                                         -        8,594
                                                      ---------    ---------
Adjusted EBITDA                                        $ 47,192     $ 46,682
                                                      =========    =========

** Amount includes amortization of capitalized software costs of $1,858 and
   $2,214 for 2001 and 2002, respectively which are included in costs of sales
   in the consolidated statements of operations.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 -- 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.

                                       56
<PAGE>
<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                              2002                           2003
                                                                ------------------------------  ------------------------------
                                                                     Amount   % of Net Revenue       Amount   % of Net Revenue
                                                                ------------  ----------------  ------------  ----------------
<S>                                                             <C>           <C>               <C>           <C>
                                                                                    (Dollars in millions)

Revenue, net                                                    $     155.0            100.0%   $     152.1            100.0%
Cost of goods sold                                                     38.6             24.9%          37.7             24.8%
                                                                ------------  ----------------  ------------  ----------------
Gross profit                                                          116.4             75.1%         114.4             75.2%
Costs and expenses:
      Sales and marketing                                              28.1             18.1%          28.3             18.7%
      Distribution, circulation and fulfillment                        14.0              9.0%          14.6              9.6%
      Editorial                                                        10.9              7.0%          10.4              6.8%
      General and administrative                                       18.6             12.0%          19.0             12.5%
      Restructuring costs                                               4.3              2.8%          (0.5)            (0.3%)
      Depreciation                                                      2.0              1.3%           1.7              1.1%
      Amortization of intangible assets                                 7.2              4.6%           9.1              6.0%
                                                                ------------  ----------------  ------------  ----------------
                Total costs and expenses                               85.1             54.9%          82.6             54.3%
                                                                ------------  ----------------  ------------  ----------------

Income from operations                                                 31.3             20.2%          31.8             20.9%

Interest expense                                                      (28.9)           (18.6%)        (28.1)           (18.5%)
Other income (expense), net                                             0.9              0.6%          (0.7)            (0.5%)
                                                                ------------  ----------------  ------------  ----------------

Income before income tax provision                                      3.3              2.1%           3.0              2.0%
Income tax provision                                                    4.2              2.7%           0.6              0.4%
                                                                ------------  ----------------  ------------  ----------------
Net income (loss)                                                     $(0.9)            (0.6%)  $       2.4              1.6%
                                                                ============  ================  ============  ================

      Adjusted EBITDA(a)                                        $      45.7             29.5%   $      41.4             27.2%
                                                                ============  ================  ============  ================
</TABLE>

(a)  Adjusted EBITDA represents income before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $4.3 million for the year ended December 31, 2002
     and of ($0.5) million for the year ended December 31, 2003. Adjusted EBITDA
     data is a non-GAAP measure and is included in our discussion because we
     believe that this information may be considered by investors as an
     additional basis on which to evaluate WRC Media's performance. Because all
     companies do not calculate Adjusted EBITDA identically, the presentation of
     Adjusted EBITDA in this report is not necessarily comparable to similarly
     titled measures of other companies. Adjusted EBITDA is not intended to
     represent cash flow from operating activities and should not be considered
     an alternative to net income or loss (as determined in conformity with
     GAAP) as an indicator of our operating performance or to cash flow as a
     measure of liquidity. It is presented herein as we use it, in addition to
     operating income, to evaluate and measure each business unit's performance
     based on their Adjusted EBITDA results. We also use Adjusted EBITDA to
     evaluate management performance. Adjusted EBITDA may not be available for
     our discretionary use as there are requirements to repay debt, among other
     payments.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

Revenue, net. For the year ended December 31, 2003, net revenue decreased $2.9
million, or 1.9%, to $152.1 million from $155.0 million in 2002. The decrease in
sales at Weekly Reader was primarily due to a decrease in sales at World Almanac
of $2.9 million, or 5.5% to $49.4 million from $52.3 million in 2002, a decrease
in sales at AGS of $1.3 million, or 2.2%, to $56.6 from $57.9 million in 2002,
partially offset by an increase in sales at Weekly Reader, not including World
Almanac and AGS, of $1.3 million, or 2.9%, to $46.1 million from $44.8 million
in 2002.

                                       57
<PAGE>

The decrease in net revenue at Weekly Reader was primarily due to (1) a decrease
in net revenue at World Almanac of $3.1 million, or 5.9%, to $49.2 million from
$52.3 million in 2002 primarily as a result of lower net revenue of $1.7 million
or 7.4% at WAE Library Services and $1.3 million or 8.2%, at Gareth Stevens, due
in part to state budget deficits, which have directly impacted the catalog
channel at WAE Library Services and the telemarketing and wholesale channel
sales at Gareth Stevens; (2) a decrease in net revenue at AGS of $1.3 million,
or 2.2%, to $56.6 from $57.9 million in 2002. Curriculum revenue decreased $2.8
million, or 8.7%, to $29.3 million from $32.1 million in 2002.
Textbooks/workbooks revenue decreased $1.1 million, or 4.6%, from 2002 primarily
due to several large one-time Literature textbook orders in 2002 that were not
repeated in 2003 and current market conditions. Test Prep revenue was down $0.7
million, or 20.2% from 2002, due to the weak education funding environment and
there was a decline in Backlist Curriculum of $1.0 million, or 22.3% from 2002
because these older product lines have not had any recent investment in product
development. This decline in Curriculum revenue was partially offset by higher
Assessment revenue of $1.5 million, or 6.1%, driven by an increase in GRADE
(Group Reading Assessment and Diagnostic Evaluation) of $1.9 million, or 232.5%,
and an increase of $0.5 million, or 24.2%, in PPVT (Picture Peabody Vocabulary
Test) revenue partially offset by a decrease of $0.9 million or 3.8%, on all
other assessments. The decreases in revenue at World Almanac and AGS were
partially offset by (3) an increase in net revenue at Weekly Reader, excluding
World Almanac and AGS, of $1.5 million, or 3.3%, to $46.3 million from $44.8
million in 2002. This increase was primarily attributable to higher revenue at
Lifetime Learning Systems, Inc., a subsidiary of Weekly Reader as a result of
increased sponsored supplemental educational material shipments of $2.5 million,
or 42.8%; increased licensing revenue of $0.5 million, or 11.8%, due to higher
net revenue from the QVC Shopping Network Channel; partially offset by a decline
in periodical circulation revenue of $1.5 million, or 4.4%, due to the
challenging K-12 funding environment.

The K-12 funding environment continues to be impacted by growing state budget
deficits, which have been causing reductions in state and local educational
spending, including spending on supplemental educational materials. While we
believe WRC Media will benefit from the provisions in the Federal No Child Left
Behind Act (the "NCLB Act"), most of the increase in Federal educational funding
in 2003 was offset by lower state and local education funding in 2003. Although
we expect that Federal educational funding will increase in 2004 as a result of
the NCLB Act, we do not believe this funding improvement will be sufficient to
offset cuts in state and local education funding. These cuts and delayed
purchases have negatively affected our top-line net revenue and may continue to
affect our top-line performance at least through the first half of fiscal year
2004. The uncertainty in the current operating environment makes it difficult to
forecast future results.

Gross profit. For the year ended December 31, 2003 gross profit at Weekly Reader
decreased $2.0 million or 1.7% to $114.4 million from $116.4 million in 2002
primarily as a result of (1) a decrease in gross profit at World Almanac of $2.4
million, or 6.7%, to $33.4 million from $35.8 million in 2002. Gross profit at
World Almanac as a percent of revenue decreased to 67.9% from 68.5% in 2002
mainly due to a change in product mix; (2) a decrease in gross profit at AGS of
$0.6 million, or 1.4% to $43.5 million from $44.1 million in 2002 driven by the
AGS volume decrease described above partially offset by an increase in gross
profit as a percent of revenue to 76.9% from 76.2% partially offset by (3) an
increase in gross profit at Weekly Reader, excluding AGS and World Almanac of
$1.0 million, or 2.7%, to $37.5 million from $36.5 million in 2002. Gross profit
as a percent of revenue decreased slightly at Weekly Reader, excluding World
Almanac and AGS, to 81.0% in 2003 for 81.5% in 2002. Gross profit as a
percentage of sales increased slightly to 75.2% for the year ended December 31,
2003 from 75.1% in 2002 for Weekly Reader Corporation and Subsidiaries.

Costs and expenses. For the year ended December 31, 2003, operating costs and
expenses decreased $2.5 million, or 2.9%, to $82.6 million from $85.1 million in
2002. Cost and expenses as a percentage of net revenue decreased to 54.3% from
54.9% in 2002. This decrease in costs and expenses was primarily driven by; (i)
a decrease in restructuring costs of $4.8 million or 111.6%; (ii) a decrease in
editorial costs of $0.5 million or 4.6%; partially offset by (iii) a increase in
general and administrative costs of $0.4 million or 2.2%; (iv) an increase in
amortization of intangible assets of $1.9 million or 26.4%; and (v) an increase
in distribution, circulation and fulfillment costs of $0.6 million or 4.3%.
Restructuring costs decreased due to $4.3 million in expense recorded in 2002
related to the "2002 Plan of Restructuring" compared to the $0.5 million in
reduction in expense related to adjustments for updated assumptions of the
original plan primarily for lease termination costs. The increase in general and
administrative expenses primarily related to a separation reserve of $1.1
million for a senior executive, higher professional fees of $0.2 million due to
legal matters, a SEC inquiry and increased audit fees, and higher recruiting
fees of $0.4 million related to management changes offset by a reduction of rent
expense of $0.4 million through consolidation of facilities and $0.6 million
reduction of fixed overhead costs. The increase in amortization of intangible
assets primarily relates to increased investment in pre-publication costs
related to ongoing investment in product development.


                                       58
<PAGE>

Interest expense. For the year ended December 31, 2003, interest expense
decreased by $0.8 million, or 2.8%, to $28.1 million from $28.9 million for the
same period in 2002. Interest expense as a percentage of net revenue decreased
to 18.5% from 18.6% for the same period in 2002.

Income tax provision. For the year ended December 31, 2003, the provision for
income taxes decreased by $3.6 million, or 85.7%, to $0.6 million from $4.2
million for the same period in 2002. Weekly Reader recorded non-cash deferred
income tax expense of approximately $3.5 million on January 1, 2002 related to
the adoption of SFAS 142. The non-cash charge of $3.5 million on January 1, 2002
was recorded to increase the valuation allowance related to the deferred tax
asset associated with Weekly Reader's net operating losses. Historically, Weekly
Reader did not need a valuation allowance for the portion of its 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 Weekly Reader's net operating loss carryforwards. While book
amortization of tax-deductible goodwill and trademarks ceased on January 1,
2002, Weekly Reader will continue to amortize these assets for tax purposes. As
a result, Weekly Reader 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 Weekly Reader's
deductible temporary differences unless the related assets are sold or an
impairment of the assets is recorded.

Adjusted EBITDA. For the year ended December 31, 2003, Adjusted EBITDA decreased
$4.3 million, or 9.4%, to $41.4 million from $45.7 million for the same period
in 2002 This decrease is primarily attributable to the factors described above.
Adjusted EBITDA represents income (loss) before interest expense, taxes,
depreciation, amortization and other (income) charges including restructuring
costs of $4.3 million for the year ended December 31, 2002 and a restructuring
adjustment of ($0.5) million for the year ended December 31, 2003. Adjusted
EBITDA data is a non-GAAP measure and is included in our discussion because we
believe that this information may be considered by investors as an additional
basis on which to evaluate WRC Media's performance. Because all companies do not
calculate Adjusted EBITDA identically, the presentation of Adjusted EBITDA in
this report is not necessarily comparable to similarly titled measures of other
companies. Adjusted EBITDA is not intended to represent cash flow from operating
activities and should not be considered an alternative to net income or loss (as
determined in conformity with GAAP) as an indicator of our operating performance
or to cash flow as a measure of liquidity. It is presented herein as we use it,
in addition to operating income, to evaluate and measure each business unit's
performance based on their Adjusted EBITDA results. We also use Adjusted EBITDA
to evaluate management performance. Adjusted EBITDA may not be available for our
discretionary use as there are requirements to repay debt, among other payments.
The reconciliation of Adjusted EBITDA to net income is as follows:

                                       59
<PAGE>

                                                     Year Ended December 31,
Adjusted EBITDA reconciliation to Net Income            2002         2003
                                                     ---------    ---------

      Net income (loss)                              $   (898)    $  2,451
      Depreciation and amortization of intangibles      9,221       10,794
      Income taxes                                      4,201          612
      Interest expense                                 28,877       28,091
      Restructuring costs                               4,280         (516)
                                                     ---------    ---------
Adjusted EBITDA                                      $ 45,681     $ 41,432
                                                     =========    =========

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>
                                                                                   Year Ended December 31,
                                                                           2001                                2002
                                                            ----------------------------------  ----------------------------------
                                                               Amount       % of Net Revenue       Amount       % of Net Revenue
                                                            ------------  --------------------  ------------  --------------------
<S>                                                         <C>           <C>                   <C>           <C>
                                                                                    (Dollars in millions)

Revenue, net                                                $     158.5                100.0%   $     155.0                100.0%
Cost of goods sold                                                 40.9                 25.8%          38.6                 24.9%
                                                            ------------  --------------------  ------------  --------------------
Gross profit                                                      117.6                 74.2%         116.4                 75.1%
Costs and expenses:
      Sales and marketing                                          29.5                 18.6%          28.1                 18.1%
      Distribution, circulation and fulfillment                    13.7                  8.6%          14.0                  9.0%
      Editorial                                                    10.7                  6.8%          10.9                  7.0%
      General and administrative                                   20.6                 13.0%          18.6                 12.0%
      Restructuring costs                                             -                  0.0%           4.3                  2.8%
      Depreciation                                                  2.0                  1.3%           2.0                  1.3%
      Amortization of intangible assets                             8.8                  5.6%           7.2                  4.6%
                                                            ------------  --------------------  ------------  --------------------
                Total costs and expenses                           85.3                 53.8%          85.1                 54.9%
                                                            ------------  --------------------  ------------  --------------------

Income from operations                                             32.3                 20.4%          31.3                 20.2%

Interest expense                                                  (32.3)               (20.4%)        (28.9)               (18.6%)
Other income, net                                                  (0.6)                (0.4%)          0.9                  0.6%
                                                            ------------  --------------------  ------------  --------------------

(Loss) income before income tax provision                          (0.6)                (0.4%)          3.3                  2.1%
Income tax provision                                                0.3                  0.2%           4.2                  2.7%
                                                            ------------  --------------------  ------------  --------------------
Net (loss) income                                           $      (0.9)                (0.6%)  $      (0.9)                (0.6%)
                                                            ============  ====================  ============  ====================

      Adjusted EBITDA (a)                                   $      42.4                 26.8%   $      45.7                 29.5%
                                                            ============  ====================  ============  ====================
</TABLE>

(a)  Adjusted EBITDA represents income (loss) before interest expense, taxes,
     depreciation, amortization and other (income) charges including
     restructuring costs of $4.3 million for the year ended December 31, 2002.
     Adjusted EBITDA data is a non-GAAP measure and is included in our
     discussion because we believe that this information may be considered by
     investors as an additional basis on which to evaluate WRC Media's
     performance. Because all companies do not calculate Adjusted EBITDA
     identically, the presentation of Adjusted EBITDA in this report is not
     necessarily comparable to similarly titled measures of other companies.
     Adjusted EBITDA is not intended to represent cash flow from operating
     activities and should not be considered an alternative to net income or
     loss (as determined in conformity with GAAP) as an indicator of our
     operating performance or to cash flow as a measure of liquidity. It is
     presented herein as we use it, in addition to operating income, to evaluate
     and measure each business unit's performance based on their Adjusted EBITDA
     results. We also use Adjusted EBITDA to evaluate management performance.
     Adjusted EBITDA may not be available for our discretionary use as there are
     requirements to repay debt, among other payments.

                                       60
<PAGE>

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

Revenue, net. For the year ended December 31, 2002, net revenue decreased $3.5
million, or 2.2%, to $155.0 million from $158.5 million in 2001. The decrease in
net revenue at Weekly Reader was primarily due to a decrease in net revenue at
World Almanac of $3.0 million, or 5.4% to $52.3 million from $55.3 million in
2001, a decrease in net revenue at Weekly Reader, not including World Almanac
and AGS, of $1.6 million, or 3.4%, to $44.8 million from $46.4 million in 2001,
partially offset by an increase in net revenue at AGS of $1.1 million, or 1.9%,
to $57.9 from $56.8 million in 2001.

The decrease in net revenue at Weekly Reader was primarily due to (i) a decrease
in net revenue at World Almanac of $3.0 million, or 5.4% to $52.3 million from
$55.3 million in 2001 primarily as a result of lower revenue at WAE Library
Services of $3.7 million, or 14.1%, partially offset by higher revenue at Gareth
Stevens of $1.2 million, or 8.2%, from 2001. The lower revenue at WAE Library
Services was primarily due to lower revenue of $2.6 million from its Main
catalog as a result of the challenging K-12 funding environment impacted by
growing state budget deficits. The revenue increase at Gareth Stevens was due to
by higher revenue in its wholesale channels from the sale of its World Almanac
Library and Weekly Reader Early Learning Library imprints; (ii) a decrease in
net revenue at Weekly Reader, not including World Almanac and AGS, of $1.6
million, or 3.4%, to $44.8 million from $46.4 million in 2001. The decrease was
primarily attributable to lower custom publishing shipments of $1.2 million, or
17.2%, at its Lifetime Learning Inc. subsidiary; lower periodical revenue of
$1.2 million, or 3.5%, resulting from the planned restructuring of the
periodical shipping schedule and lower circulation; and lower skills books
revenue of $0.2 million, or 11.9%. These decreases at Weekly Reader were
partially offset by higher licensing revenue of $1.1 million, or 36.9%, due
primarily to higher revenue through QVC Shopping Network Channel. The revenue
decreases at World Almanac and Weekly Reader were partially offset by (iii) an
increase in net revenue at AGS of $1.1 million, or 1.9%, to $57.9 million from
$56.8 million in 2001. AGS Assessment net revenue increased $0.4 million, or
1.6%, from 2001 primarily as a result of a revenue increase of $0.5 million or
132.7% of GRADE (Group Reading Assessment and Diagnostic Evaluation). Curriculum
net revenue increased $0.7 million, or 2.1%, from 2001 as a result of a $1.7
million, or 7.7%, increase in Textbook/Worktext revenue from 2001 due to the
release of several new and revised textbooks in Math, English and Reading ,
further penetration of Science textbooks and several large, one-time Literature
textbook orders. The increase in Textbook/Workbook revenue was partially offset
by a market driven decline in Test Prep of $0.5 million or 15.0%, and a decline
of $0.5 million, or 10.0%, of Backlist Curriculum revenue from 2001.

Gross profit. Gross profit at Weekly Reader decreased $1.2 million, or 1.0%, to
$116.4 million from $117.6 million in 2001 primarily as a result of (i) a
decrease in gross profit at World Almanac of $1.6 million, or 4.3%, to $35.8
million from $37.4 million in 2001. Gross profit at World Almanac as a percent
of revenue increased to 68.5% from 67.6% in 2001 mainly due to a change in
product mix partially related to an increase in sales of product sold through
the internet. (ii) a decrease in gross profit of $0.8 million, or 2.1%, at
Weekly Reader, excluding AGS and World Almanac, to $36.5 million from $37.3
million in 2001. Gross profit at Weekly Reader as a percent of revenue increased
to 81.5% from 80.4% due to lower paper costs.(iii) partially offset by an
increase in gross profit at AGS of $1.2 million, or 2.8%, to 44.1 million from
42.9 million in 2001. Gross profit at AGS as a percent of sales increased to
76.2% from 75.5% due to a shift in sales mix. Gross profit as a percentage of
net revenue at Weekly Reader Corporation and Subsidiaries increased to 75.1%
from 74.2% in 2001 driven by a more profitable sales mix and lower paper costs.


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<PAGE>

Costs and expenses. For the year ended December 31, 2002, costs and expenses
decreased $0.2 million, or 0.2%, to $85.1 million from $85.3 million in 2001
primarily due to (i) lower amortization of goodwill and intangible assets of
$1.6 million or 18.2% to $ 7.2 million from $8.8 million in 2001 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, (ii) a $1.4
million or 4.7% decrease in sales and marketing expense resulting primarily from
a decrease of $1.0 million at Weekly Reader resulting from amortizing direct
response advertising expenditures over a longer period of time to more
accurately match these expenses with revenues generated from these expenditures,
(iii) a $2.0 million or 9.7% decrease in general and administrative expense,
primarily driven by the work force reduction implemented in 2002 partially
offset by (iv) $4.3 million increase in restructuring costs recorded during the
year ended December 31, 2002.

Interest expense. For the year ended December 31, 2002, interest expense
decreased by $3.4 million, or 10.5%, to $28.9 million from $32.3 million in
2001, as a result of lower interest rates on the Company's long-term debt.
Interest expense as a percentage of sales decreased to 18.6% from 20.4% for the
same period in 2001.

Other income, net. For the year ended December 31, 2002, other income, net
increased $1.5 million to $0.9 million in income from $0.6 million expense in
2001. This increase was primarily driven by a $1.7 million gain from a hedging
transaction in the 2002 period.

Income tax provision. For the year ended December 31, 2002, the provision for
income taxes increased by $3.9 million to an income tax provision of $4.2
million from a provision for income taxes of $0.3 million in 2001. The Company
recorded non-cash deferred income tax expense of $3.5 million on January 1, 2002
and $0.6 million during the year ended December 31, 2002, which would not have
been required prior to the adoption of SFAS 142. The non-cash charge of $3.5
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, book amortization of goodwill 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.

Adjusted EBITDA. For the year ended December 31, 2002, Adjusted EBITDA increased
$3.3 million, or 7.8%, to $45.7 million from $42.4 million in 2001. This
decrease is primarily attributable to the factors described above.. Adjusted
EBITDA represents income (loss) before interest expense, taxes, depreciation,
amortization and other (income) charges including restructuring costs of $4.3
million for the year ended December 31, 2002. Adjusted EBITDA data is a non-GAAP
measure and is included in our discussion because we believe that this
information may be considered by investors as an additional basis on which to
evaluate Weekly Reader's performance. Because all companies do not calculate
Adjusted EBITDA identically, the presentation of Adjusted EBITDA in this report
is not necessarily comparable to similarly titled measures of other companies.
Adjusted EBITDA is not intended to represent cash flow from operating activities
and should not be considered an alternative to net income or loss (as determined
in conformity with GAAP) as an indicator of our operating performance or to cash
flow as a measure of liquidity. It is presented herein as we use it, in addition
to operating income, to evaluate and measure each business unit's performance
based on their Adjusted EBITDA results. We also use Adjusted EBITDA to evaluate
management performance. Adjusted EBITDA may not be available for our
discretionary use as there are requirements to repay debt, among other payments.
The reconciliation of Adjusted EBITDA our net loss is as follows:

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<PAGE>

                                                       Year Ended December 31,
Adjusted EBITDA reconciliation to Net Loss               2001          2002
                                                      ----------    ----------

      Net loss                                         $   (852)     $   (898)
      Depreciation and amortization of intangibles       10,745         9,221
      Income taxes                                          281         4,201
      Interest expense                                   32,267        28,877
      Restructuring costs                                     -         4,280
                                                      ----------    ----------
Adjusted EBITDA                                        $ 42,441      $ 45,681
                                                      ==========    ==========

LIQUIDITY AND CAPITAL RESOURCES

General

At December 31, 2003 WRC Media's sources of cash were its (1) operating
subsidiaries, Weekly Reader, CompassLearning and ChildU, and (2) a $30.0 million
revolving credit facility, of which the Company had agreed as of December 30,
2003, to borrow no more than $26.0 million. As of December 31, 2003, $5.0
million of the revolving credit facility had been drawn down at an interest rate
that approximated 6.5%. Additionally, the Company has a stand-by letter of
credit, renewable annually, in the amount of $2.0 million, which serves as
security for a real estate lease entered into by the Company. While this letter
of credit is in effect, it reduces available borrowing under the revolving
credit facility by $2.0 million. At December 31, 2003, the Company had $19.0 of
credit available under the revolving credit facility.

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

Prior to the refinancing discussed below, our senior secured credit agreement
(the "First-Lien Facility") consisted of a $30.0 million revolving credit
facility with a maturity of November 17, 2005, of which we had agreed as of
December 30, 2003 not to borrow more than $26.0 million, a $31.0 million
amortizing term loan A facility with a maturity of November 17, 2005, a $100.0
million amortizing term loan B facility with a maturity of November 17, 2006 and
a $10.0 million amortizing additional term loan A facility with a maturity of
November 17, 2006. As of December 31, 2003, there were $118.7 million in
aggregate principal amount of term loans outstanding under the First-Lien
Facility. The terms of our First-Lien Facility required us on an ongoing basis
to meet certain financial covenants, including a maximum leverage ratio covenant
and a minimum fixed charge coverage ratio covenant. Compliance with these
covenants was measured as of the last day of each fiscal quarter. Each ratio
became more stringent periodically during the fiscal year ended December 31,
2003 and through March 31, 2004. With respect to the fourth quarter ended
December 31, 2003, we were required to have a leverage ratio no greater than
5.00:1.0 and a fixed charge coverage ratio no less than 1.10:1.0 and thereafter
beginning with the quarter ending March 31, 2004, we were required to have a
leverage ratio no greater than 4.00:1.0 and a fixed charge ratio no less than
1.50:1.0. We were not in compliance with these covenants as of December 31,
2003. For the year ended December 31, 2003, our leverage ratio was 5.73:1 and
our fixed charge coverage ratio was 1.05:1. We successfully reached an agreement
with our senior lenders under which they would continue to make available to the
Company additional borrowings under the Company's revolving credit facility
through March 31, 2004. Under the agreement, the lenders waived through March
31, 2004 WRC Media's failure to comply with certain financial covenants as of
December 31, 2003, and WRC Media agreed to limit borrowings, including currently
outstanding borrowings and letters of credit, under its revolving credit
facility to $26.0 million out of the $30.0 million facility.


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<PAGE>

After giving effect to the restatement described in "Item 8. Consolidated
Financial Statements--WRC Media Inc. and Subsidiaries--Note 24. Restatement," we
were and are in compliance with the financial covenants under the First-Lien
Facility as then in effect for all of the reporting periods affected, other than
the fourth quarter of 2003, for which the lenders under the First-Lien Facility
granted us a waiver.

On March 29, 2004, we refinanced all of our term loans under the First-Lien
Facility with a $145.0 million senior, second-priority lien secured financing
that was provided to the Company pursuant to a term loan facility (the
"Second-Lien Facility"). The proceeds of the Second-Lien Facility were used (i)
to refinance in full all term loans outstanding under the First-Lien Facility,
(ii) to pay fees and expenses related to the Second-Lien Facility and all
transactions contemplated in connection therewith and (iii) for general
corporate purposes of the Company, including paying down $15.0 million of
borrowings under its revolving credit facility.

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

The Second-Lien Facility has one financial covenant, a maximum senior leverage
ratio of Senior Secured Debt to trailing four quarter EBITDA (as defined
therein) not to exceed 4.25:1.00 for any fiscal quarter, except the fiscal
quarter ended June 30, 2005 for which the senior leverage ratio shall not exceed
4.50:1.00, in each case to be tested on the last day of each fiscal quarter and
computed for the Company and its consolidated subsidiaries.

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

The First-Lien Facility, as amended and restated, has a maturity of December 29,
2008, and has one financial covenant, a senior leverage ratio of Senior Secured
Debt to trailing four quarter EBITDA (as defined therein) not to exceed
4.00:1.00 for any fiscal quarter, except the fiscal quarter ended June 30, 2005
for which the senior leverage ratio may not exceed 4.25:1.00, in each case to be
tested on the last day of the fiscal quarter and computed for the Company and
its consolidated subsidiaries. Interest on revolving loan borrowings under the
First-Lien Facility will bear interest at a rate per annum equal to the LIBO
rate as defined in the First-Lien Facility plus 3.5% or the alternate base rate
as defined in the First-Lien Facility plus 2.5%. After giving effect to the
refinancing, $8.0 million was outstanding under our First-Lien Facility. The
credit agreement for our First-Lien Facility is secured by liens on
substantially all of our assets, and the credit agreement for our Second-Lien
Facility is secured by second-priority liens on all the assets securing the
First-Lien Facility.


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<PAGE>

Liquidity, Working Capital and Capital Resources

As of December 31, 2003, WRC Media and its subsidiaries had negative working
capital of $34.5 million. WRC Media's cash and cash equivalents were
approximately $1.4 million at December 31, 2003. WRC Media and its subsidiaries'
operations provided approximately $1.7 million in cash for the year ended
December 31, 2003. WRC Media and its subsidiaries' principal uses of cash are
for debt service, working capital and expenses relating to potential
acquisitions.

WRC Media and its subsidiaries' investing activities for the year ended December
31, 2003, included investments in software development of approximately $4.8
million and capital expenditures of approximately $1.6 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, 2003,
financing activities used net cash of $3.0 million, which primarily resulted
from net borrowings of $5.0 million under the revolving credit facility which
was offset by $8.0 million repayment of the senior secured term loans. The
senior second-priority secured term loans under our Second-Lien Facility, which
refinanced all the senior secured term loans under our First-Lien Facility, do
not amortize and we do not expect our financing activities going forward to
include regular periodic retirement of term loans prior to maturity.

Derivative Financial Instruments

The Company uses derivative financial instruments to reduce its exposure to
interest rate volatility. In 2003, the Company used interest rate swaps and caps
to reduce exposure to interest rate changes. At December 31, 2003, Weekly Reader
had one outstanding derivative financial instrument in place, an interest rate
cap on 50% of its senior secured term loans as required by the First-Lien
Facility as then in effect. Our amended and restated First-Lien Facility and our
Second-Lien Facility require us to obtain interest rate protection that, when
taken together with the aggregate principal amount of our indebtedness subject
to a fixed interest rate, will result in at least 50% of our total indebtedness
being either fixed, hedged or capped for the duration of the applicable
facility. On November 15, 2003, we entered into financial instruments with a
notional value of $61.0 million, which terminates on November 15, 2004 and
requires us to pay a floating rate of interest based on the three-month LIBO
rate as defined in that arrangement with a cap rate of 2.5%. The fair value of
this interest rate cap as of December 31, 2003 was de-minimus.

Seasonality

Operating results have varied and are expected to continue to vary from quarter
to quarter as a result of seasonal patterns. Weekly Reader and CompassLearning's
net revenue are significantly affected by the school year. Weekly Reader's net
revenue in the third, and to a lesser extent the fourth, quarters are generally
the strongest as products are shipped for delivery during the school year.
CompassLearning's net revenues were historically strongest in the second
quarter, and to a lesser extent the fourth quarter. However, due to tight
funding environment in the last couple of years, the trend is shifting towards
the fourth quarter being the strongest, followed by the second quarter. The
strength in the second quarter is generally attributed to the end of the school
fiscal year (June 30th) and the need for the schools to spend the money prior to
year end. In addition, by purchasing in the second quarter, schools are able to
have the software products purchased and installed over the summer and ready to
train teachers when they return from summer vacation. However, due to budget
cuts, schools do not have excess money by the end of their fiscal year resulting
in lower sales for CompassLearning in our second fiscal quarter.
CompassLearning's fourth quarter revenue is strong as a result of sales patterns
driven by new school year money being appropriated and funded, CompassLearning's
commissioned sales force seeking to meet year-end sales goals as well as schools
purchasing software to be installed in time to take advantage of it during the
second half of the school year.


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<PAGE>

Inflation

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

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
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 were effective for
financial statements of periods ending after December 15, 2002. The Company
adopted the disclosure provisions of FIN 45 effective December 31, 2002. The
recognition provisions of FIN 45 regarding a guarantor's obligation must be
applied to guarantees issued after December 31, 2002. The adoption of the
recognition provisions of FIN 45, effective January 1, 2003, did not have a
significant effect on the Company's consolidated financial position or results
of operations.

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. In December 2003, the FASB issued FIN No. 46
(Revised) ("FIN 46R") to address certain FIN 46 implementation issues. This
interpretation requires that the assets, liabilities, and results of activities
of a Variable Interest Entity ("VIE") be consolidated into the financial
statements of the enterprise that the primary beneficiary of the VIE. FIN 46R
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. This interpretation is effective no later
than the end of the first interim or reporting period ending after March 15,
2004, except for those VIE's that are considered to be special purpose entities,
for which the effective date is no later than the end of the first interim or
annual reporting period ending after December 15, 2003. The adoption of FIN 46R
will not have an impact on the Company's consolidated financial position or
results of operations.


                                       66
<PAGE>

Statement of Financial Accounting Standards ("SFAS") No. 143 "Accounting for
Asset Retirement Obligations"("SFAS 143"), became effective for us on January 1,
2003. SFAS No. 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The adoption of SFAS 143 did not have any
impact on the Company's consolidated financial position or results of
operations.

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

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement will become effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective for the Company at the beginning of the first interim period
beginning after December 15, 2003. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of the statement will require the Company to
reclassify its 15% Senior Preferred Stock from the mezzanine section of the
balance sheet to other long-term liabilities. Future dividend payments for the
15% Senior Preferred Stock will be recorded to interest expense in the
consolidated statement of operations. The adoption of this statement did not
result in any adjustment to the book value of the Company's 15% Senior Preferred
Stock as of January 1, 2004 as book value approximated fair value at such date.

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


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<PAGE>

Factors That May Affect The 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 SEC filings and otherwise. The Company cautions readers that results
predicted by forward-looking statements, including, without limitation, those
relating to the Company's future business prospects, revenues, working capital,
liquidity, capital needs, interest costs and income, are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements, due to factors including
the following and other risks and factors identified from time to time in the
Company's filings with the SEC:

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

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

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

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

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

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

Competition from other supplemental education materials companies;

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

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

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

The preliminary SEC inquiry we previously disclosed in our Form 8-K filed with
the SEC on December 15, 2003, is ongoing, and we cannot predict the final
outcome of the inquiry at this time;

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

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


                                       68
<PAGE>

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 were subject to market risk exposure related to changes in interest rates on
our $118.7 million (as of December 31, 2003) senior secured term loans under our
First-Lien Facility and we will continue to be subject to market risk on our
$145.0 million (as of March 29, 2004) Second-Lien Facility. Interest on
revolving loan borrowings under our First-Lien Facility maturing in December
2008 will bear interest at a rate per annum equal to the LIBO rate as defined in
the First-Lien Facility plus 3.5% or the alternate base rate as defined in the
First-Lien Facility plus 2.5%. Interest on the term loans under our Second-Lien
Facility maturing in March 2009 will bear interest at a rate per annum equal to
the LIBO rate as defined in the Second-Lien Facility plus 5.0% or the alternate
base rate as defined in the Second-Lien Facility plus 4.0%. A 1% increase in
interest rates would result in an increase in our annual interest costs of
approximately $1.45 million.

The First-Lien Facility and the Second-Lien Facility require us to obtain
interest rate protection that, when taken together with the aggregate principal
amount of the Company's indebtedness subject to a fixed interest rate, will
result in at least 50% of our total indebtedness being either fixed, hedged or
capped for the duration of the applicable facility. On November 15, 2003, we
entered into an arrangement with a notional value of $60.1 million, which
terminates on November 15, 2004 and requires us to pay a floating rate of
interest based on the three-month LIBO rate as defined in that arrangement with
a cap rate of 2.5%. The fair value of the interest rate cap as of December 31,
2003 was de-minimus.


                                       69
<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):
Report of Independent Registered Public Accounting
       Firm--Deloitte & Touche LLP                                         71
Consolidated Balance Sheets as of December 31, 2002
       and 2003 (as restated)                                              72
Consolidated Statements of Operations for the Years
       Ended December 31, 2001, 2002 and 2003 (as restated)                74
Consolidated Statements of Stockholders' Deficit for the Years
       Ended December 31, 2001, 2002 and 2003 (as restated)                75
Consolidated Statements of Cash Flows for the Years
       Ended December 31, 2001, 2002 and 2003 (as restated)                76
Notes to Consolidated Financial Statements (as restated)                   77

WEEKLY READER CORPORATION AND SUBSIDIARIES
(CO-ISSUER OF SENIOR SUBORDINATED NOTES):
Report of Independent Registered Public Accounting
       Firm--Deloitte & Touche LLP                                        118
Consolidated Balance Sheets as of December 31, 2002
       and 2003 (as restated)                                             119
Consolidated Statements of Operations for the Years Ended
       December 31, 2001, 2002 and 2003 (as restated)                     121
Consolidated Statements of Stockholders' Deficit for the Years Ended
       December 31, 2001, 2002 and 2003 (as restated)                     122
Consolidated Statements of Cash Flows for the Years Ended
       December 31, 2001, 2002 and 2003 (as restated)                     123
Notes to Consolidated Financial Statements (as restated)                  124







                                       70
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of WRC Media Inc.
and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in the index at
Item 15. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, such consolidated financial statements present fairly, in all
material respects, the financial position of WRC Media Inc. and subsidiaries as
of December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.

As discussed in Notes 2 and 7 of the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142 as of
January 1, 2002.

As discussed in Note 24, the accompanying consolidated financial statements have
been restated.




DELOITTE & TOUCHE LLP
New York, New York
June 15, 2004






                                       71
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                              2002          2003
                                                                          ------------   ------------
                                                                          (As Restated   (As Restated
                                                                          See Note 24)   See Note 24)
<S>                                                                       <C>            <C>
                                     ASSETS
                                     ------

CURRENT ASSETS:
     Cash and cash equivalents                                             $  9,095       $  1,432
     Accounts receivable (net of allowances for doubtful accounts
         and sales returns of $3,116 and $2,519, respectively)               36,329         30,027
     Inventories, net                                                        15,445         16,652
     Prepaid expenses                                                         2,935          3,367
     Other current assets (including restricted assets
         of $1,403 and $1,006, respectively)                                  1,797          1,889
                                                                           --------       --------

       Total current assets                                                  65,601         53,367

PROPERTY AND EQUIPMENT, net                                                   6,589          5,792
CAPITALIZED SOFTWARE, net                                                     4,970          7,293
GOODWILL                                                                    241,324        241,324
DEFERRED FINANCING COSTS, net                                                 7,091          5,675
OTHER INTANGIBLE ASSETS, net                                                 88,687         76,860
OTHER ASSETS AND INVESTMENTS                                                 24,374         29,896
                                                                           --------       --------

       Total assets                                                        $438,636       $420,207
                                                                           ========       ========

</TABLE>

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





                                       72
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)
(amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                    2002          2003
                                                                                ------------   ------------
                                                                                (As Restated   (As Restated
                                                                                See Note 24)    See Note 24)
<S>                                                                             <C>            <C>
                     LIABILITIES AND STOCKHOLDERS' DEFICIT
                     -------------------------------------
CURRENT LIABILITIES:
     Accounts payable                                                            $  20,825       $  16,963
     Accrued payroll, commissions and benefits                                       8,688           9,356
     Current portion of deferred revenue                                            39,600          35,900
     Other accrued liabilities                                                      23,317          17,166
     Current portion of long-term debt                                               7,721           8,477
                                                                                 ---------       ---------

       Total current liabilities                                                   100,151          87,862

DEFERRED REVENUE, net of current portion                                             1,004             959
DEFERRED TAX LIABILITIES                                                             7,900          10,800
LONG-TERM DEBT                                                                     266,219         262,925
                                                                                 ---------       ---------

       Total liabilities                                                           375,274         362,546
                                                                                 ---------       ---------

COMMITMENTS AND CONTINGENCIES
15% SENIOR PREFERRED STOCK,
     including accrued dividends and accretion of warrant value
     (3,000,000 and 5,508,080 shares outstanding, respectively)
     (Liquidation preference of $138,637)                                          110,772         130,701
                                                                                 ---------       ---------

WARRANTS ON COMMON STOCK OF SUBSIDIARIES                                            11,751          11,751
                                                                                 ---------       ---------

COMMON STOCK SUBJECT TO REDEMPTION                                                     965             940
                                                                                 ---------       ---------

STOCKHOLDERS' DEFICIT:
     Common stock, ($.01 par value, 20,000,000 shares authorized;
     7,009,750 outstanding in 2002 and 7,008,406 outstanding in 2003)                   70              70
     18% convertible preferred stock, ($.01 par value, 750,000 shares
     authorized, 459,525 outstanding in 2002 and 547,980 outstanding in 2003)       18,381          21,919
     Additional paid-in capital                                                    131,453         131,753
     Accumulated other comprehensive loss                                           (3,357)         (1,899)
     Accumulated deficit                                                          (206,673)       (237,574)
                                                                                 ---------       ---------

       Total stockholders' deficit                                                 (60,126)        (85,731)
                                                                                 ---------       ---------

       Total liabilities and stockholders' deficit                               $ 438,636       $ 420,207
                                                                                 =========       =========

</TABLE>


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





                                       73
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands)

<TABLE>
<CAPTION>
                                                                          2001            2002             2003
                                                                     -------------    ------------     ------------
                                                                      (As Restated    (As Restated     (As Restated
                                                                      See Note 24)     See Note 24)     See Note 24)
<S>                                                                   <C>              <C>              <C>
REVENUE, net                                                          $ 226,897        $ 207,873        $ 202,703

COST OF GOODS SOLD                                                       64,746           59,953           56,445
                                                                      ---------        ---------        ---------
     Gross profit                                                       162,151          147,920          146,258
                                                                      ---------        ---------        ---------
COSTS AND EXPENSES:
     Sales and marketing                                                 55,107           48,588           47,201
     Research and development                                             5,989            1,728            1,424
     Distribution, circulation and fulfillment                           13,699           14,012           14,626
     Editorial                                                           10,678           10,847           10,365
     General and administrative                                          29,761           25,934           25,379
     Restructuring costs and other non-recurring expenses                     -            8,594            1,018
     Depreciation                                                         3,251            3,065            2,280
     Amortization of goodwill and intangible assets                      59,194           16,653           17,546
                                                                      ---------        ---------        ---------

     Total operating costs and expenses                                 177,679          129,421          119,839
                                                                      ---------        ---------        ---------

     Income (loss) from operations                                      (15,528)          18,499           26,419

INTEREST EXPENSE, INCLUDING AMORTIZATION
   OF DEFERRED FINANCING COSTS                                          (33,455)         (30,061)         (29,349)
LOSS ON INVESTMENT                                                         (875)          (3,064)               -
OTHER INCOME (EXPENSE), net                                                (708)             721           (1,453)
                                                                      ---------        ---------        ---------

     Loss before income tax provision                                   (50,566)         (13,905)          (4,383)

INCOME TAX PROVISION                                                        658            8,180            3,051
                                                                      ---------        ---------        ---------

     Net loss                                                         $ (51,224)       $ (22,085)       $  (7,434)
                                                                      =========        =========        =========
</TABLE>

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







                                       74
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                                                                         Other
                                                                      Common Stock      Additional   Comprehensive
                                                                    ---------------      Paid-In        Income        Accumulated
                                                                    Shares     Value     Capital        (Loss)          Deficit
                                                                    ------    ------    ---------    -------------    ------------
<S>                                                               <C>         <C>       <C>          <C>              <C>
Balance January 1, 2001 (as restated, see Note 24)                   6,851    $   69    $ 128,223       $       9      $ (95,949)
     Other comprehensive loss:
         Net loss (as restated, see Note 24)                             -         -            -               -        (51,224)
         Minimum pension liability                                       -         -            -            (325)             -
        Total comprehensive loss
     Acquisition of common stock subject
        to redemption - 538 shares at $18.60 per share                  (1)        -            -               -              -
     Senior preferred stock dividends (as restated, see Note 24)         -         -            -               -        (14,549)
     Accretion of senior preferred stock                                 -         -            -               -           (919)
     Issuance of convertible preferred stock-343,750 shares at
        $40.00 per share                                                 -         -            -               -              -
     Dividends on convertible preferred stock                            -         -            -               -         (1,663)
     Issuance of common stock in connection with acquisition-
        162,500 shares at $18.96 per share (as restated,
        see Note 24)                                                   163         1        3,080               -              -
                                                                 ---------    ------    ---------       ---------      ---------
Balance December 31, 2001 (as restated, see Note 24)                 7,013    $   70    $ 131,303       $    (316)     $(164,304)
     Other comprehensive loss:
         Net loss (as restated, see Note 24)                             -         -            -               -        (22,085)
         Minimum pension liability                                       -         -            -          (3,041)             -
        Total comprehensive loss
     Senior preferred stock dividends (as restated, see Note 24)         -         -            -               -        (16,384)
     Accretion of senior preferred stock                                 -         -            -               -           (932)
     Dividends on convertible preferred stock                            -         -            -               -         (2,968)
     Issuance of common stock for services-8,064 shares
        at $18.60 per share                                              8         -          150               -              -
     Acquisition of common stock subject to redemption-
        11,559 shares at $40.00 per share                              (11)        -            -               -              -
                                                                 ---------    ------    ---------       ---------      ---------
Balance December 31, 2002 (as restated, see Note 24)                 7,010    $   70    $ 131,453       $  (3,357)     $(206,673)

     Other comprehensive loss:
         Net loss (as restated, see Note 24)                             -         -            -               -         (7,434)
         Minimum pension liability                                       -         -            -           1,458              -
        Total comprehensive loss                                         -         -            -               -              -
     Senior preferred stock dividends (as restated, see Note 24)         -         -            -               -        (18,982)
     Accretion of senior preferred stock                                 -         -            -               -           (947)
     Dividends on convertible preferred stock                            -         -            -               -         (3,538)
     Management fees forgiven by principal shareholder                   -         -          300               -              -
     Common stock repurchase -1,344 shares at $18.60 per share          (2)        -            -               -              -
                                                                 ---------    ------    ---------       ---------      ---------
Balance December 31, 2003 (as restated, see Note 24)                 7,008    $   70    $ 131,753       $  (1,899)     $(237,574)
                                                                 =========    ======    =========       =========      =========
<CAPTION>




                                                                      Junior Preferred Stock   Total Stockholders'
                                                                       Shares       Value        Equity (Deficit)
                                                                   ---------   -----------     --------------------
<S>                                                                <C>          <C>             <C>
Balance January 1, 2001 (as restated, see Note 24)                         -         $ -         $  32,352
     Other comprehensive loss:
         Net loss (as restated, see Note 24)                               -           -
         Minimum pension liability                                         -           -
        Total comprehensive loss                                                                   (51,549)
     Acquisition of common stock subject
        to redemption - 538 shares at $18.60 per share                     -           -                 -
     Senior preferred stock dividends (as restated, see Note 24)           -           -           (14,549)
     Accretion of senior preferred stock                                   -           -              (919)
     Issuance of convertible preferred stock-343,750 shares at
        $40.00 per share                                                 344      13,750            13,750
     Dividends on convertible preferred stock                             42       1,663                 -
     Issuance of common stock in connection with acquisition-
        162,500 shares at $18.96 per share (as restated,
        see Note 24)                                                       -           -             3,081
                                                                   ---------   ---------         ---------
Balance December 31, 2001 (as restated, see Note 24)                     386   $  15,413         $ (17,834)
     Other comprehensive loss:
         Net loss (as restated, see Note 24)                               -           -
         Minimum pension liability                                         -           -
        Total comprehensive loss                                                                   (25,126)
     Senior preferred stock dividends (as restated, see Note 24)           -           -           (16,384)
     Accretion of senior preferred stock                                   -           -              (932)
     Dividends on convertible preferred stock                             74       2,968                 -
     Issuance of common stock for services-8,064 shares
        at $18.60 per share                                                -           -               150
     Acquisition of common stock subject to redemption-
        11,559 shares at $40.00 per share                                  -           -                 -
                                                                   ---------   ---------         ---------
Balance December 31, 2002 (as restated, see Note 24)                     460   $  18,381         $ (60,126)

     Other comprehensive loss:
         Net loss (as restated, see Note 24)                               -           -
         Minimum pension liability                                         -           -
        Total comprehensive loss                                           -           -            (5,976)
     Senior preferred stock dividends (as restated, see Note 24)           -           -           (18,982)
     Accretion of senior preferred stock                                   -           -              (947)
     Dividends on convertible preferred stock                             88       3,538                 -
     Management fees forgiven by principal shareholder                     -           -               300
     Common stock repurchase -1,344 shares at $18.60 per share             -           -                 -
                                                                   ---------   ---------         ---------
Balance December 31, 2003 (as restated, see Note 24)                     548   $  21,919         $ (85,731)
                                                                   =========   =========         =========

</TABLE>


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




                                       75
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands)

<TABLE>
<CAPTION>
                                                                                             2001         2002           2003
                                                                                        -------------  -------------   ------------
                                                                                         (As Restated   (As Restated   (As Restated
                                                                                         See Note 24)   See Note 24)   See Note 24)
<S>                                                                                         <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                                                    $(51,224)     $(22,085)     $ (7,434)

Adjustments to reconcile net loss to net cash provided by operating activities:
     Deferred income tax provision                                                                 -         7,900         2,900
     Depreciation and amortization                                                            64,303        21,932        22,295
     Loss on investment                                                                          875         3,064             -
     Write-off of acquisition costs                                                                -            49             -
     Issuance of common stock for services                                                         -           150             -
     Management fees forgiven by principal shareholder                                             -             -           300
     Loss on disposition and write-off of property and equipment                                 130           711           105
     Accretion of debt discount                                                                  345           396           451
     Amortization of deferred financing costs                                                  1,286         1,381         1,436
     Changes in operating assets and liabilities:
            Accounts receivable                                                                 (417)        7,152         6,302
            Inventories                                                                         (341)         (404)       (1,207)
            Prepaid expenses and other current assets                                          4,869        11,268          (524)
            Other noncurrent assets                                                           (8,127)      (10,629)      (11,242)
            Accounts payable                                                                  (1,404)        2,413        (3,862)
            Due to related party                                                                (786)            -             -
            Deferred revenue                                                                   2,894          (613)       (3,745)
            Accrued liabilities                                                               (5,815)      (10,269)       (4,025)
                                                                                            --------      --------      --------

                    Net cash provided by operating activities                                  6,588        12,416         1,750
                                                                                            --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisitions, net of cash acquired                                        (10,781)            -             -
     Purchase of property and equipment                                                       (4,077)       (1,414)       (1,592)
     Capitalized software                                                                          -        (4,333)       (4,791)
     Proceeds from disposition of property & equipment                                             -           578             4
     Investments in affiliates                                                                (3,939)            -             -
                                                                                            --------      --------      --------

                    Net cash used in investing activities                                    (18,797)       (5,169)       (6,379)
                                                                                            --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from revolving line of credit                                                   28,000        33,000        34,000
     Repayments of revolving line of credit                                                  (28,000)      (33,000)      (29,000)
     Retirement of senior bank debt                                                           (4,587)       (6,171)       (7,989)
     Deferred financing fees                                                                    (993)         (685)          (20)
     Proceeds from term loans                                                                 10,000             -             -
     Proceeds from issuance of convertible preferred stock                                    13,750             -             -
     Purchase of common stock subject to redemption                                              (10)         (215)          (25)
                                                                                            --------      --------      --------

                    Net cash provided by (used in) financing activities                       18,160        (7,071)       (3,034)
                                                                                            --------      --------      --------

Increase (decrease) in cash and cash equivalents                                               5,951           176        (7,663)

CASH AND CASH EQUIVALENTS, beginning of year                                                   2,968         8,919         9,095
                                                                                            --------      --------      --------

CASH AND CASH EQUIVALENTS, end of year                                                      $  8,919      $  9,095      $  1,432
                                                                                            ========      ========      ========


</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.



                                       76
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.   DESCRIPTION OF BUSINESS

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

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

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

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

On May 9, 2001, WRC Media entered into an Agreement and Plan of Merger with
ChildU. Contemporaneously, the Company issued $13.75 million of 18% Junior
Participating Cumulative Convertible Preferred Stock. The proceeds funded the
operating losses of ChildU and WRC Media's investment in ThinkBox, Inc.,
described below.

Concurrent with the ChildU acquisition, on May 9, 2001, a subsidiary of the
Company acquired the assets of Lindy Enterprises, Inc. ("Lindy").

On May 18, 2001, WRC Media made a strategic investment in ThinkBox Inc., a
creator of Internet-delivered education programs for the school and home
markets. This investment is accounted for under the equity method of accounting.
The Company recorded equity losses equal to the carrying value of its investment
of ThinkBox during the year ended December 31, 2002.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly- and majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") 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 materially from those
estimates. Significant accounting estimates used in the preparation of the
Company's consolidated financial statements include the fair value of derivative
instruments, the fair value of equity securities underlying stock-based
compensation, estimates used in calculating the allowance for doubtful accounts
and sales returns the realizability of deferred tax assets, the carrying values
of goodwill, intangible assets and long-lived assets and depreciation and
amortization.

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 the carrying value as necessary.





                                       77
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


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, 2003 are as follows:

<TABLE>
<CAPTION>

                                                   Fair Value         Carrying Amount         Face Value
                                                   ----------         ---------------         ----------
<C>  <C>                                              <C>                   <C>                  <C>
12 3/4%    Senior Subordinated Notes                  $149,720              $147,724             $152,000

</TABLE>

The carrying value of the Company's 15% Senior Preferred Stock approximates its
fair value at December 31, 2003. There is no market value information available
for the Company's 18% convertible preferred stock and the warrants to purchase
common shares of the Company's subsidiaries and a reasonable estimate could not
be made without incurring excessive costs.

The fair value at December 31, 2003 of the Company's outstanding interest rate
cap agreement was de-minimus (Note 13).

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.

Cash and Cash Equivalents

Management considers all highly liquid instruments purchased with an original
maturity of 90 days or less to be cash equivalents.

Software Development Costs

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

Research and development costs are charged to expense when incurred.
Additionally, the Company capitalizes acquired and developed technologies that
meet the provisions of SFAS 86. The establishment of technological feasibility
and the ongoing assessment of the recoverability of these costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, anticipated future gross product revenues,
estimated economic product lives and changes in software and hardware
technology. Software development costs are amortized on a straight-line basis
over the expected life of the product. 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. Software amortization is included in Cost of Goods Sold on the
accompanying consolidated statements of operations. Amortization included in
Cost of Goods Sold for the years ended December 31, 2001, 2002 and 2003 was
$1,858, $2,214, and $2,468, respectively.





                                       78
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



The Company capitalizes the costs of acquiring, developing and testing software
to meet the Company's internal needs. Under the provisions of SOP 98-1, the
Company capitalizes costs associated with software developed or obtained for
internal use when both the preliminary project stage is completed and management
has authorized further funding for the project which it deems probable will be
completed and used to perform the function intended. Capitalized cots include
only (1) external direct costs of materials and services consumed in developing
or obtaining internal-use software, (2) payroll and payroll-related costs for
employees who are directly associated with and devote time to the internal -use
software project and (3) interest costs incurred while developing internal-use
software. Capitalization of such costs ceases no later than the point at which
the project is substantially complete and ready for its intended use. Software
development costs are amortized using a straight-line method over a five-year
period. Amortization of software development costs for internal use software
amounted to $393, $436 and $440 for the years ended December 31, 2001, 2002 and
2003, respectively. Costs associated with the purchase and developments of
software for internal use have been capitalized in the amounts of $382 and $127
during the years ended December 31, 2002 and 2003, respectively.

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 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 142, the Company ceased amortizing
goodwill and indefinite lived intangible assets.

The Company tests goodwill for impairment, at least annually in the fourth
quarter, and uses 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 are also tested at least annually for impairment using a fair value
approach.

Long-Lived Assets

Long-lived assets of the Company, including amortizable intangibles, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Management also
reevaluates the periods of amortization of long-lived assets to determine
whether events and circumstances warrant revised estimates of useful lives. When
such events or changes in circumstances occur, the Company tests for impairment
by comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from use of the asset and its
eventual disposition. If the sum of the expected undiscounted future cash flows
is less than the carrying amount of the asset, the Company would recognize an
impairment loss. The amount of the impairment loss will be determined by
comparing the carrying value of the long-lived asset to the present value of the
net future operating cash flows to be generated by the asset.

Deferred Financing Fees

Deferred financing fees are related to direct costs paid by the Company in
connection with its financing agreements. These costs are deferred and are
amortized on a straight-line basis over the term of the related debt.
Amortization of deferred financing fees charged to operations for the years
ended December 31, 2001, 2002 and 2003 was $1,286, $1,381 and $1,436,
respectively.





                                       79
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


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 the respective 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. Advertising revenues are recognized as income on the issue date, net of
provisions for rebates. Revenues on sales of books to certain distributors are
recognized when the Company's products are sold by the distributors to their
customers, net of an allowance for returns. Consigned inventory associated with
sales to distributors is not significant at December 31, 2002 and 2003.

In November 2002, the Emerging Issues Task Force ("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 SEC.
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 did not have a significant impact on the Company's
consolidated financial statements.

For contracts with multiple obligations (e.g., deliverable and undeliverable
products, and other post contract support), the Company allocates revenue to
each component of the contract based on objective evidence of its fair value or
for products not yet being sold separately, the price established by management
for the item when it will be sold separately. 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 periodical subscriptions when the issue is shipped and
available to the subscribers.

The Company recognizes revenues from the sale of its software products in
accordance with the provisions of SOP 97-2, Software Revenue Recognition, as
amended by SOP 98-9, Software Revenue Recognition, with Respect to Certain
Transactions. Under SOP 97-2, the Company recognizes revenue for 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 for which
it has been paid. The Company also enters into lease financing arrangements for
its software products and services. These leases are immediately assigned to a
third-party with no recourse to the Company. The Company retains no risk in
these arrangements and has no history of granting concessions related to the
arrangements. Accordingly, the Company recognizes revenue upon delivery of its
products and services under these lease arrangements.

                                       80
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


In addition, SOP 97-2 generally requires that revenue from software arrangements
involving multiple elements be allocated among each element of the arrangement
based on the relative fair values of the elements, such as software licenses,
post-contract customer support, installation or training. Furthermore, SOP 97-2
requires that revenue be recognized as each element is delivered and the Company
has no significant performance obligations remaining. The Company's multiple
element arrangements generally consist of a software license, training and
post-contract support. Software revenues in such multiple element arrangements
are recognized based on the residual method. The Company allocates the aggregate
revenue from multiple element arrangements to each element based on vendor
specific objective evidence. The Company has established vendor specific
objective evidence for training and post contract support as it sells both
training and post-contract customer support independent of multiple element
agreements. Customers are charged standard prices for the training and
post-contract customer support and these prices do not vary significantly from
customer to customer.

If the Company enters into a multiple element agreement where vendor specific
objective evidence of fair value for each element of the arrangement does not
exist, all revenue from the arrangement is deferred until all elements of the
arrangement are delivered.

Comprehensive Loss

SFAS 130 "Reporting Comprehensive Income," established 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 primarily of minimum pension
liability adjustments.

Income Taxes

The Company accounts for income taxes in accordance with SFAS 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 17).

Prepublication 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 periods ranging from three
to ten years. Capitalized editorial costs are recorded as prepublication costs.
As of December 31, 2002 and 2003, other assets and investments in the
accompanying consolidated balance sheets, include prepublication costs (net of
accumulated amortization) of $19,119 and $22,215, respectively. Accumulated
amortization of prepublication costs at December 31, 2002 and 2003 was $9,378
and $15,098, respectively. Amortization of prepublication costs, which is
included in depreciation and amortization on the accompanying consolidated
statements of operations, was $2,662, $3,882 and $5,720 for the years ended
December 31, 2001, 2002 and 2003, 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,
2002 and 2003, other assets and investments on the accompanying balance sheets,
include direct-response advertising costs, (net of amortization) of $4,319 and
$5,761, respectively. Accumulated amortization of direct-response advertising


                                       81
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


costs at December 31, 2002 and 2003 was $3,641 and $8,219, respectively.
Amortization of direct-response advertising costs, which is included in
marketing and selling on the accompanying consolidated statements of operations,
was $8,945, $7,430 and $6,606 for the years ended December 31, 2001, 2002 and
2003, respectively.

Stock-Based Compensation

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

At December 31, 2001, 2002 and 2003, the Company has one stock-based employee
compensation plan, which is described more fully in Note 18. During 2001, 2002
and 2003 the Company recorded stock-based employee compensation of $0, $248 and
$288 related to the repurchase by the Company of redeemable common stock from
certain terminated employees.

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

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                              ---------------------------------------------------
                                                                   2001            2002                  2003
                                                              -------------   ---------------        ------------
<S>                                                           <C>             <C>                    <C>
Net loss, as reported                                         $    (51,224)   $       (22,085)       $     (7,434)
Add: Stock-based employee compensation                                   -                248                 288
Deduct:  Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects                                            (308)              (431)               (423)
                                                              -------------   ---------------        ------------
Pro forma net loss                                            $    (51,532)   $       (22,268)       $     (7,569)
                                                              =============   ===============        ============
</TABLE>

The Company has outstanding stock options issued to certain of its executives
that are required to be accounted for as variable options. During 2001, 2002 and
2003, no compensation expense was recognized for these options as the fair
market value of the Company's common stock, as estimated by the Company's Board
of Directors, was less than the exercise price of these options.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143 "Accounting for
Asset Retirement Obligations" ("SFAS 143") which requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss upon settlement. The standard
was effective for the Company beginning January 1, 2003. The adoption of SFAS
143 did not have any impact on the Company's consolidated financial position or
results of operations.


                                       82
<PAGE>



In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). 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






                                       83
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


liability for the fair value of the obligations undertaken in issuing the
guarantee. The disclosure provisions of FIN 45 were effective for financial
statements of periods ending after December 15, 2002. The Company adopted the
disclosure provisions of FIN 45 effective December 31, 2002. The recognition
provisions of FIN 45 regarding a guarantor's obligation must be applied to
guarantees issued after December 31, 2002. The adoption of the recognition
provisions of FIN 45, effective January 1, 2003, did not have a significant
effect on the Company's consolidated financial position or results of
operations.

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. In December 2003, the FASB issued FIN No. 46
(Revised) ("FIN 46R") to address certain FIN 46 implementation issues. This
interpretation requires that the assets, liabilities, and results of activities
of a Variable Interest Entity ("VIE") be consolidated into the financial
statements of the enterprise that is the primary beneficiary of the VIE. FIN 46R
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. This interpretation is effective no later
than the end of the first interim or reporting period ending after March 15,
2004, except for those VIE's that are considered to be special purpose entities,
for which the effective date is no later than the end of the first interim or
annual reporting period ending after December 15, 2003. The adoption of FIN 46R
will not have an impact on the Company's consolidated financial position or
results of operations.

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

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement will become effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective for the Company at the beginning of the first interim period
beginning after December 15, 2003. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of this statement will require the Company to
reclassify its 15% Senior Preferred Stock from the mezzanine section of the
balance sheet to long-term liabilities. Future dividend payments for the Senior
Preferred Stock will be recorded as interest expense in the consolidated
statement of operations. The adoption of this statement did not result in any
adjustment to the book value of its Senior Preferred Stock as of January 1, 2004
as book value approximated fair value at such date.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106." It requires additional disclosures to those
in the original Statement 132 about the assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
post-retirement plans. The majority of the provisions of this statement apply to
financial statements issued for fiscal years ending after December 15, 2003. The
Company adopted such disclosure provisions (see Note 20).



                                       84
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER 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 Information

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

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

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


<TABLE>
<CAPTION>

                                                  Weekly      World                 Compass /
                                                  Reader     Almanac      AGS         ChildU     Corporate   Eliminations   Total
                                                  ------     -------    -------       ------     ---------   ------------   -----
<S>                                              <C>         <C>        <C>         <C>          <C>           <C>         <C>
2003
--------------------------------------------
Net Revenue                                      46,269      49,189      56,652       50,593            -             -    202,703
Income from operations                            9,002       7,360      14,225       (1,235)      (2,933)            -     26,419
Depreciation and amortization                       702       2,264       7,781        7,785        3,763             -     22,295
Restructuring and other non-recurring items           -          21         (41)       1,054          (16)            -      1,018
Assets                                           57,282      99,116     183,183       56,304      249,690      (225,368)   420,207
Capital expenditures                                273         141         335          833           10             -      1,592

2002
--------------------------------------------
Net Revenue                                      44,794      52,385      57,876       52,818            -             -    207,873
Income from operatins                             9,129      11,138      14,032       (8,801)      (6,999)            -     18,499
Depreciation and amortization                       848       1,622       6,661        8,994        3,807             -     21,932
Restructuring and other non-recurring items         214         691         496        4,314        2,879                    8,594
Assets                                           60,350      92,916     166,842       62,842      259,140      (203,454)   438,636
Capital expenditures                                456         184         440          312           22                    1,414

2001
--------------------------------------------
Net Revenue                                      46,353      55,303      56,824       68,417            -             -    226,897
Income from operations                            8,593      12,312      12,579       (6,076)     (42,936)                 (15,528)
Depreciation and amortization                     1,375       1,873       7,453       12,418       41,184                   64,303
Assets                                           55,757      82,442     158,184       74,524      275,405      (179,182)   467,130
Capital expenditures                                156       2,053         884          229          755                    4,077

</TABLE>

3. ACQUISITIONS

On May 9, 2001, WRC Media Inc. and subsidiaries completed two acquisitions (the
"2001 acquisitions"). WRC Media entered into an Agreement and Plan of Merger
with ChildU and acquired the net assets of Lindy. ChildU was acquired to
accelerate the Company's entry into the Internet-based on-line curriculum market
and provided a scalable laboratory to support an Internet strategy and
additional on line development capabilities. The Lindy acquisition was made to
expand and enhance the current American Guidance Service ("AGS") offering of
state specific test preparation materials; using the Lindy software engine,
individual state tests could be marketed to those states with specific testing
programs. In addition, the Lindy software engine is being utilized to adapt the
current AGS product lines for electronic versions and product extensions. This
allows current AGS content to be leveraged through the use of electronic
delivery.

ChildU was incorporated on June 1, 1999 and is a 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 common stock. No shares of WRC Media
common stock were issued pursuant to these contingent rights which expired on
December 31, 2001. Concurrent with the merger, WRC Media and all holders of
ChildU's Group One Notes entered into an exchange agreement pursuant to which
WRC Media exchanged 162,500 shares of WRC Media common stock for the outstanding
Group One Notes of ChildU. The basis for determining the fair value of the WRC
Media common stock issued was determined by the Company's Board of Directors.
Following the merger, WRC Media agreed to provide funding to ChildU for up to
$5,872 of ChildU's existing or committed obligations and liabilities. WRC Media
also issued $13.75 million of 18% Junior Participating Cumulative Convertible
Preferred Stock, the proceeds of which were to fund the operating losses of
ChildU and WRC Media's investment in ThinkBox(TM).

The total cost of the acquisition of ChildU was $8,383 which was comprised of
the following:

       Cash paid                                   $    4,852
       Common stock issued                              3,081
       Transaction costs                                  450
                                                   ----------
                  Total purchase price             $    8,383
                                                   ==========


                                       85
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


The fair value of the assets acquired and the liabilities assumed of ChildU were
as follows:

       Current assets                                        $      207
       Property and equipment                                       309
       Other assets                                                   7
       Software technology                                        8,384
       Assumed liabilities                                         (524)
                                                             ----------
                                                             $    8,383
                                                             ==========

Concurrent with the ChildU acquisition, on May 9, 2001, a subsidiary of the
Company acquired the assets of 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 $6,050 in cash and
was allocated to the assets acquired based on their estimated fair values as
follows-


       Property and equipment                                $       80
       Software technology                                        6,420
       Goodwill                                                      50
       Assumed liabilities                                         (500)
                                                             ----------
                                                             $    6,050
                                                             ==========

The results of operations of ChildU and Lindy have been reflected in WRC Media's
consolidated results of operations from their date of acquisition, May 9, 2001.
Pro forma results of operations for these acquired entities have not been
presented as they are not material to the consolidated results of operations of
the Company.

4.   ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2002 and 2003 are as follows:

                                                        2002           2003
                                                    ----------     -----------

       Accounts receivable                          $    39,445    $    32,546
       Less:
          Allowance for doubtful accounts                (1,467)        (1,750)
          Allowance for sales returns                    (1,649)          (769)
                                                    -----------    -----------
                                                    $    36,329    $    30,027
                                                    ===========    ===========

5.   INVENTORIES

Inventories at December 31, 2002 and 2003 are as follows:

                                                        2002           2003
                                                    ----------     -----------

     Finished goods                                 $    15,264    $    16,533
     Raw materials                                          181            119
                                                    -----------    -----------
                                                    $    15,445    $    16,652
                                                    ===========    ===========



                                       86
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


6.   CAPITALIZED SOFTWARE

Capitalized software at December 31, 2002 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                   Life           2002           2003
                                                ---------     ------------   ------------
<S>                                             <C>           <C>            <C>
       Capitalized software                     2-4 Years     $     11,763   $     16,554
       Less - accumulated amortization                              (6,793)        (9,261)
                                                              ------------   ------------
                                                              $      4,970   $      7,293
                                                              ============   ============
</TABLE>

7. GOODWILL

On January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible
Assets." 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 Company's reporting units.

Certain other key assumptions utilized, including changes in revenue, operating
expenses, working capital requirements and capital expenditures including
prepublication costs, are based on assumptions related to the Company's
strategic initiatives and current market conditions. Such assumptions also are
consistent with those utilized in the Company's annual planning process. The
Company's transition analysis indicated that there was no impairment of goodwill
and indefinite lived intangible assets as of January 1, 2002. 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.

The Company performed its annual impairment tests for 2002 and 2003. No
impairment of goodwill and indefinite lived intangibles was required. There have
been no changes in the carrying value of the Company's goodwill and indefinite
lived intangibles during the years ended December 31, 2002 and 2003.

<TABLE>
<CAPTION>
                                                              December 31,          December 31,
                                                                  2002                  2003
                                                              ------------          ------------
<S>                                                            <C>                   <C>
Goodwill                                                       $   241,324           $   241,324
Long Lived Assets - Trademarks and Copyrights                       23,772                23,772
                                                               -----------           -----------
                                                               $   265,096           $   265,096
                                                               ===========           ===========
</TABLE>

The Company recorded non-cash deferred income tax expense of approximately
$5,200 on January 1, 2002, for taxable temporary differences that will not
reverse prior to expiration of the Company's net operating loss carryforward
periods. The non-cash charge of $5,200 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 its 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

                                       87
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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 long lived assets 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 $2,700 and $2,900 to increase deferred tax liabilities for the years
ended December 31, 2002 and 2003, respectively. The Company expects that it will
record an additional $2,800 to increase the deferred tax liabilities during
2004.

The following information presents the Company's pro forma net loss as of SFAS
142 had been applicable to all periods presented:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
(in thousands)                                     2001              2002             2003
                                               -----------         -----------      ----------
<S>                                            <C>                 <C>              <C>
Reported net loss                              $   (51,224)        $   (22,085)     $   (7,434)
     Addback:
       Goodwill amortization                        10,317                   -               -
       Amortization of trademarks                      628                   -               -
       Deferred Income Tax Expense                  (2,700)              5,200               -
                                               -----------         -----------      ----------
Adjusted net loss                              $   (42,979)        $   (16,885)     $   (7,434)
                                               ===========         ===========      ==========
</TABLE>

8.   OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                                            ----------------------------------------------------
                                                                             December 31, 2002
                                                            ----------------------------------------------------
                                                                                Accumulated
                                          Useful Lives          Gross          Amortization            Net
                                          --------------    ---------------   ----------------    --------------
<S>                                       <C>                     <C>               <C>                <C>
Customer Lists                            6-15 yrs          $       48,600      $     (19,108)    $      29,492
Copyrights                                10-20 yrs                 30,800             (4,894)           25,906
Software                                  3-5 yrs                   14,789             (6,215)            8,574
Trademark                                 4-10 yrs                   3,720             (3,112)              608
Distributor relationships                 6 yrs                        700               (365)              335
                                                            ---------------   ----------------    --------------
                               Total:                       $       98,609    $       (33,694)    $      64,915
                                                            ===============   ================    ==============


                                                            ----------------------------------------------------
                                                                             December 31, 2003
                                                            ----------------------------------------------------
                                                                                 Accumulated
                                          Useful Lives          Gross           Amortization           Net
                                          --------------    --------------     ----------------   --------------

Customer Lists                            6-15 yrs          $      48,600      $       (24,948)   $      23,652
Copyrights                                10-20 yrs                30,800               (6,462)          24,338
Software                                  3-5 yrs                  14,789              (10,027)           4,762
Trademark                                 4-10 yrs                  3,720               (3,602)             118
Distributor relationships                 6 yrs                       700                 (482)             218
                                                            --------------     ----------------   --------------
                               Total:                       $      98,609      $        (45,521)  $       53,088
                                                            ==============     ================   ==============

</TABLE>

Included in other intangible assets, are trademarks and copyrights not subject
to amortization, for which the total carrying amount at December 31, 2002 and
2003 was $23,772.

Amortization of intangibles for the years ended December 31, 2001, 2002 and 2003
was $46,214, $12,771 and 11,827, respectively, and is included in amortization
of intangible assets on the consolidated statements of operations. In 2001,
amortization of intangibles included $33,444 of amortization for a non-compete
agreement with the former owner of Weekly Reader.

                                       88
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


The estimated amortization expense for intangible assets subject to amortization
for the next five years is as follows:

2004..................................................      $   9,931
2005..................................................          9,197
2006..................................................          6,843
2007..................................................          4,600
2008..................................................          3,461
Thereafter............................................      $  19,056

9.   PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2002 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                 Life               2002              2003
                                                               ----------      -----------       -----------
<S>                                                            <C>             <C>               <C>
Machinery, equipment and computer equipment                    3-10 Years      $    10,810       $    10,628
Leasehold improvements                                         3-15 Years            3,064             3,528
Furniture and fixtures                                         3-10 Years            4,408             4,112
Internal use software                                          5 Years               2,265             2,392
                                                                               -----------       -----------
         Total                                                                      20,547            20,660
Less-  accumulated depreciation and amortization                                   (13,958)          (14,868)
       Property and equipment, net                                             -----------       -----------
                                                                               $     6,589       $     5,792
                                                                               ===========       ===========
</TABLE>

Depreciation expense for the years ended December 31, 2001, 2002 and 2003 was
$3,251, $3,065 and $2,280, respectively.

10.  OTHER ASSETS AND INVESTMENTS

Other assets and investments at December 31, 2002 and 2003 are as follows:

                                                            2002          2003
                                                           -------       -------

Prepublication costs, net                                  $19,119       $22,215
Direct response advertising costs, net                       4,319         5,761
Other                                                          936         1,920
                                                           -------       -------
                                                           $24,374       $29,896
                                                           =======       =======

During the years ended December 31, 2001 and 2002, the Company had an investment
in ThinkBox, Inc., which was accounted for using the equity method. During 2001
and 2002 the Company recognized equity method losses of $875 and $3,064,
respectively, related to its investment in ThinkBox.

                                       89
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


11.  OTHER ACCRUED LIABILITIES

Other accrued liabilities at December 31, 2002 and 2003 are as follows:

                                                           2002           2003
                                                          -------        -------

Rabbi Trust (Note 22)                                     $ 1,403        $ 1,006
Royalties                                                   1,500          1,264
Accrued interest payable (Note 13)                          3,869          3,113
Pension liability (Note 20)                                 5,056          3,987
Accrued restructuring costs                                 6,253          3,275
Taxes payable, other than income                              573            369
Management fees                                               950            650
Other                                                       3,713          3,502
                                                          -------        -------
                                                          $23,317        $17,166
                                                          =======        =======


12. NOTES OFFERING AND GUARANTOR FINANCIAL INFORMATION

In connection with the recapitalization and purchase of Weekly Reader during
November 1999, the Company, Weekly Reader and CompassLearning as co-issuers
completed an offering of $152,000 of 12 3/4% Senior Subordinated Notes due 2009
(the "Old Notes"). In June 2000, the Old Notes were exchanged in full for
$152,000 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., wholly-owned
subsidiary and Weekly Reader Corporation, a (94.9%) owned subsidiary of the
Company (collectively, the "Subsidiary Guarantors").

The following tables present condensed consolidating financial information for
WRC Media and the subsidiary guarantors as of December 31, 2002 and 2003 and for
the years ended December 31, 2001, 2002 and 2003 including: (1) WRC Media, (2)
Weekly Reader Corporation, a majority owned subsidiary, (3) CompassLearning,
Inc., a wholly-owned subsidiary, (4) ChildU, Inc., a wholly-owned subsidiary,
and (5) the Company on a consolidated basis.



                                       90
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                                                 SUBSIDIARY GUARANTORS
                                                                                 ---------------------------------------------------
                                                                                    WEEKLY READER                  COMPASSLEARNING
                                                         WRC MEDIA INC.              CORPORATION                         INC.
                                                      ------------------          --------------------         ---------------------
                                                                                                                   (IN THOUSANDS)
<S>                                                   <C>                          <C>                          <C>
Balance Sheet as of December 31, 2003
Assets:
Current assets                                        $        11,295              $        54,310              $        11,556
Property and equipment, net                                        --                        4,665                          975
Goodwill and other intangible assets, net                     156,433                      133,558                       24,144
Other assets                                                  105,088                       30,223                        4,929
                                                      ---------------              ---------------              ---------------
Total assets                                          $       272,816              $       222,756              $        41,604
                                                      ===============              ===============              ===============
Liabilities and stockholders' deficit:
Current liabilities                                   $       106,558              $        57,353              $        25,740
Long-term debt, less current portion                          147,724                      262,925                       13,532
Other liabilities                                               6,000                        4,800                          959
Warrants on common stock of subsidiaries                       11,751                           --                           --
Common stock subject to redemption                                940                           --                           --
Redeemable preferred stock, plus accrued dividends            130,701                      138,636                           --
Stockholders' equity (deficit)                               (130,858)                    (240,958)                       1,373
                                                      ---------------              ---------------              ---------------
Total liabilities and stockholders' equity (deficit)  $       272,816              $       222,756              $        41,604
                                                      ===============              ===============              ===============

BALANCE SHEET AS OF DECEMBER 31, 2002
Current assets                                        $        11,364              $        58,577              $        22,249
Property and equipment, net                                        --                        5,699                          657
Goodwill and other intangible assets, net                     160,149                      136,927                       27,214
Other assets                                                  106,324                       24,881                        3,830
                                                      ---------------              ---------------              ---------------
Total assets                                          $       277,837              $       226,084              $        53,950
                                                      ===============              ===============              ===============
Liabilities and stockholders' deficit:
Current liabilities                                   $        85,625              $        67,339              $        28,393
Long-term debt, less current portion                          147,273                      266,219                       20,150
Other liabilities                                               3,800                        4,100                        1,004
Warrants on common stock of subsidiaries                       11,751                           --                           --
Common stock subject to redemption                                965                           --                           --
Redeemable preferred stock, plus accrued dividends            110,772                      119,652                           --
Stockholders' equity (deficit)                                (82,349)                    (231,226)                       4,403
                                                      ---------------              ---------------              ---------------
Total liabilities and stockholders' equity (deficit)  $       277,837              $       226,084              $        53,950
                                                      ===============              ===============              ===============




                                                        SUBSIDIARY GUARANTORS
                                                      --------------------------
                                                                                                                WRC MEDIA INC.
                                                          CHILDU                    ELIMINATIONS                 CONSOLIDATED
                                                      ---------------            -----------------             ---------------

Balance Sheet as of December 31, 2003
Assets:
Current assets                                        $         7,950              $       (31,744)             $        53,367
Property and equipment, net                                       152                           --                        5,792
Goodwill and other intangible assets, net                       4,049                           --                      318,184
Other assets                                                    2,549                      (99,925)                      42,864
                                                      ---------------              ---------------              ---------------
Total assets                                          $        14,700              $      (131,669)             $       420,207
                                                      ===============              ===============              ===============

Liabilities and stockholders' deficit:
Current liabilities                                   $        14,441              $      (116,230)             $        87,862
Long-term debt, less current portion                               --                     (161,256)                     262,925
Other liabilities                                                  --                           --                       11,759
Warrants on common stock of subsidiaries                           --                           --                       11,751
Common stock subject to redemption                                 --                           --                          940
Redeemable preferred stock, plus accrued dividends                 --                     (138,636)                     130,701
Stockholders' equity (deficit)                                    259                      284,453                      (85,731)
                                                      ---------------              ---------------              ---------------
Total liabilities and stockholders' equity (deficit)  $        14,700              $      (131,669)             $       420,207
                                                      ===============              ===============              ===============

BALANCE SHEET AS OF DECEMBER 31, 2002
Current assets                                        $         1,613              $       (28,202)             $        65,601
Property and equipment, net                                       233                           --                        6,589
Goodwill and other intangible assets, net                       5,721                           --                      330,011
Other assets                                                    1,325                      (99,925)                      36,435
                                                      ---------------              ---------------              ---------------
Total assets                                          $         8,892              $      (128,127)             $       438,636
                                                      ===============              ===============              ===============
Liabilities and stockholders' deficit:
Current liabilities                                   $        10,331              $       (91,537)             $       100,151
Long-term debt, less current portion                               --                     (167,423)                     266,219
Other liabilities                                                  --                           --                        8,904
Warrants on common stock of subsidiaries                           --                           --                       11,751
Common stock subject to redemption                                 --                           --                          965
Redeemable preferred stock, plus accrued dividends                 --                     (119,652)                     110,772
Stockholders' equity (deficit)                                 (1,439)                     250,485                      (60,126)
                                                      ---------------              ---------------              ---------------
Total liabilities and stockholders' equity (deficit)  $         8,892              $      (128,127)             $       438,636
                                                      ===============              ===============              ===============
</TABLE>



                                       91
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                              SUBSIDIARY GUARANTORS
                                                                                    ------------------------------------------
                                                                                     WEEKLY READER             COMPASSLEARNING
                                                                 WRC MEDIA INC.        CORPORATION                   INC.
                                                                ---------------     ---------------            ---------------
Statements of operations for year                                                                 (In thousands)
ended December 31, 2003
<S>                                                             <C>                 <C>                        <C>
Revenue, net                                                    $            --     $       152,110            $        42,742
Operating costs and expenses                                              4,196             120,260                     45,695
Interest expense, net                                                    21,087              28,091                          2
Other (income) expense                                                    1,237                 696                         --
Provision for income taxes                                                2,360                 612                         79
                                                                ---------------     ---------------            ---------------
Net income (loss)                                               $       (28,880)    $         2,451            $        (3,034)
                                                                ===============     ===============            ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2003

Cash flow provided by (used in) operations                      $       (21,257)    $        (6,101)            $         4,573
Cash flow used in investing activities                                       --                (755)                     (3,840)
Cash flow provided by (used in) financing activities                     20,203                 304                        (733)
Cash and cash equivalents at beginning of year                            1,154               7,819                           4
                                                                ---------------     ---------------             ---------------
Cash and cash equivalents at end of year                        $           100     $         1,267             $             4
                                                                ===============     ===============             ===============

<CAPTION>

                                                           SUBSIDIARY GUARANTORS
                                                           ---------------------
                                                                                                             WRC MEDIA INC.
                                                                   CHILDU              ELIMINATIONS           CONSOLIDATED
                                                              ---------------        ---------------        ---------------
Statements of operations for year                              (In thousands)
ended December 31, 2003
<S>                                                          <C>                    <C>                    <C>
Revenue, net                                                  $         7,851        $            --        $       202,703
Operating costs and expenses                                            6,133                     --                176,284
Interest expense, net                                                      --                (19,831)                29,349
Other (income) expense                                                     20                   (500)                 1,453
Provision for income taxes                                                 --                     --                  3,051
                                                              ---------------        ---------------        ---------------
Net income (loss)                                             $         1,698        $        20,331        $        (7,434)
                                                              ===============        ===============        ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2003

Cash flow provided by (used in) operations                    $         4,358        $        20,177        $         1,750
Cash flow used in investing activities                                 (1,784)                    --                 (6,379)
Cash flow provided by (used in) financing activities                   (2,631)               (20,177)                (3,034)
Cash and cash equivalents at beginning of year                            118                     --                  9,095
                                                              ---------------        ---------------        ---------------
Cash and cash equivalents at end of year                      $            61        $            --        $         1,432
                                                              ===============        ===============        ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                              SUBSIDIARY GUARANTORS
                                                                                    ------------------------------------------
                                                                                     WEEKLY READER             COMPASSLEARNING
                                                                 WRC MEDIA INC.        CORPORATION                   INC.
                                                                ---------------     ---------------            ---------------
Statements of operations for year                                                                 (In thousands)
ended December 31, 2002
<S>                                                             <C>                 <C>                        <C>
Revenue, net                                                    $            --     $       155,055             $        50,511
Operating costs and expenses                                              3,917             123,840                      54,310
Interest expense, net                                                    20,949              28,877                          11
Other (income) expense                                                    4,109                (965)                         (1)
Provision for income taxes                                                3,922               4,201                          57
                                                                ---------------     ---------------             ---------------
Net income (loss)                                               $       (32,897)    $          (898)            $        (3,866)
                                                                ===============     ===============             ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2002

Cash flow provided by (used in) operations                      $       (21,050)    $        11,006             $         5,129
Cash flow used in investing activities                                       --                (524)                     (3,156)
Cash flow provided by (used in) financing activities                     19,561              (8,354)                     (2,363)
Cash and cash equivalents at beginning of year                            2,643               5,691                         394
                                                                ---------------     ---------------             ---------------
Cash and cash equivalents at end of year                        $         1,154     $         7,819             $             4
                                                                ===============     ===============             ===============

<CAPTION>

                                                           SUBSIDIARY GUARANTORS
                                                           ---------------------
                                                                                                             WRC MEDIA INC.
                                                                   CHILDU              ELIMINATIONS           CONSOLIDATED
                                                              ---------------        ---------------        ---------------
Statements of operations for year                              (In thousands)
ended December 31, 2002
<S>                                                          <C>                    <C>                    <C>
Revenue, net                                                  $         2,307        $            --        $       207,873
Operating costs and expenses                                            7,307                     --                189,374
Interest expense, net                                                      --                (19,776)                30,061
Other (income) expense                                                     --                   (800)                 2,343
Provision for income taxes                                                 --                     --                  8,180
                                                              ---------------        ---------------        ---------------
Net income (loss)                                             $        (5,000)       $        20,576        $       (22,085)
                                                              ===============        ===============        ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2002

Cash flow provided by (used in) operations                    $        (2,054)       $        19,385        $        12,416
Cash flow used in investing activities                                 (1,489)                    --                 (5,169)
Cash flow provided by (used in) financing activities                    3,470                (19,385)                (7,071)
Cash and cash equivalents at beginning of year                            191                     --                  8,919
                                                              ---------------        ---------------        ---------------
Cash and cash equivalents at end of year                      $           118        $            --        $         9,095
                                                              ===============        ===============        ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                              SUBSIDIARY GUARANTORS
                                                                                    ------------------------------------------
                                                                                     WEEKLY READER             COMPASSLEARNING
                                                                 WRC MEDIA INC.        CORPORATION                   INC.
                                                                ---------------     ---------------            ---------------
Statements of operations for year                                                                 (In thousands)
ended December 31, 2001
<S>                                                             <C>                 <C>                        <C>
Revenue, net                                                    $            --     $       158,480             $        67,607
Operating costs and expenses                                             41,783             126,150                      69,312
Interest expense, net                                                    20,812              32,267                          (4)
Other (income) expense                                                    1,760                 634                         (11)
Provision for income taxes                                                  245                 281                         132
                                                                ---------------     ---------------             ---------------
Net income (loss)                                               $       (64,600)    $          (852)            $        (1,822)
                                                                ===============     ===============             ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2001

Cash flow provided by (used in) operations                      $       (24,786)    $         4,479             $        11,051
Cash flow used in investing activities                                   (8,670)             (9,899)                       (209)
Cash flow provided by (used in) financing activities                     36,099               8,197                     (10,502)
Cash and cash equivalents at beginning of year                               --               2,914                          54
                                                                ---------------     ---------------             ---------------
Cash and cash equivalents at end of year                        $         2,643     $         5,691             $           394
                                                                ===============     ===============             ===============

<CAPTION>

                                                           SUBSIDIARY GUARANTORS
                                                           ---------------------
                                                                                                             WRC MEDIA INC.
                                                                   CHILDU              ELIMINATIONS           CONSOLIDATED
                                                              ---------------        ---------------        ---------------
Statements of operations for year                              (In thousands)
ended December 31, 2001
<S>                                                          <C>                    <C>                    <C>
Revenue, net                                                  $           810        $            --        $       226,897
Operating costs and expenses                                            5,180                     --                242,425
Interest expense, net                                                      (1)               (19,619)                33,455
Other (income) expense                                                     --                   (800)                 1,583
Provision for income taxes                                                 --                     --                    658
                                                              ---------------        ---------------        ---------------
Net income (loss)                                             $        (4,369)       $        20,419        $       (51,224)
                                                              ===============        ===============        ===============

CASH FLOW FOR THE YEAR
ENDED DECEMBER 31, 2001

Cash flow provided by (used in) operations                    $          (526)       $        16,370        $         6,588
Cash flow used in investing activities                                    (19)                    --                (18,797)
Cash flow provided by (used in) financing activities                      736                (16,370)                18,160
Cash and cash equivalents at beginning of year                             --                     --                  2,968
                                                              ---------------        ---------------        ---------------
Cash and cash equivalents at end of year                      $           191        $            --        $         8,919
                                                              ===============        ===============        ===============
</TABLE>

13.  LONG-TERM DEBT

In connection with the recapitalization and purchase of Weekly Reader during
November 1999, the Company, Weekly Reader and CompassLearning 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.

                                       92
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


At December 31, 2002 and 2003, long-term debt consists of the following:

<TABLE>
<CAPTION>
                                         2002                                             2003
                   ----------------------------------------------    ------------------------------------------------
Debt                            Unamortized   Principal   Carrying      Face       Unamortized   Principal   Carrying
Instrument          Face Value    Discount     Payments     Value       Value      Discount      Payments     Value
                    ----------   ----------   ---------   ---------    --------    -----------  ----------  ----------
<S>                 <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Senior Bank-
Term A (b)          $ 25,188     $     --     $  5,038     $ 20,150     $ 20,150     $     --     $  6,618     $ 13,532

Senior Bank-
Term B (b)            97,750           --        1,000       96,750       96,750           --        1,216       95,534
Senior Bank-
New Term A (b)
                       9,900           --          133        9,767        9,767           --          155        9,612
Revolving Credit
(b)                       --           --           --           --        5,000           --           --        5,000
Senior
Subordinated
Notes (a)            152,000        4,727           --      147,273      152,000        4,276           --      147,724
                    --------     --------     --------     --------     --------     --------     --------     --------
Total debt           284,838        4,727        6,171      273,940      283,667        4,276        7,989      271,402
Less- current
portion                7,721           --           --        7,721        8,477           --           --        8,477
                    --------     --------     --------     --------     --------     --------     --------     --------
Long-term debt      $277,117     $  4,727     $  6,171     $266,219     $275,190     $  4,276     $  7,989     $262,925
                    ========     ========     ========     ========     ========     ========     ========     ========
</TABLE>


(a)  In connection with the recapitalization of the Company in 1999, the
     Company, Weekly Reader and CompassLearning 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. During each year ended December 31, 2001, 2002 and 2003,
     $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 $5,807 discount, which is being accreted through
     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 (Weekly Reader, CompassLearning and ChildU), 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, 2003 there had been no drawings against this letter of credit.
     As of December 31, 2003, there was a $5,000 outstanding balance 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.

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, 2002 and 2003, term loan
     A loans outstanding had interest rates that ranged, from 4.99% to 5.15% and
     from 4.57% to 6.38%, 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 and 2003, term loan B loans outstanding had interest rates that ranged
     from 5.40% to 5.84% and from 5.19% to 7.00%, respectively. As of December
     31, 2002 and 2003, the new term loan A loans outstanding has interest rates
     that ranged from 5.40% to 5.83% and from 5.19% to 7.0%, respectively.



                                       93
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


     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
     commitments for the year ended December 31, 2001, 2002 and 2003 were
     approximately $92, $97 and $81, respectively.

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

     o   the proceeds of the incurrence of certain indebtedness

     o   the proceeds of certain asset sales or other dispositions

     o   the proceeds of issuances of certain equity offerings

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

In 2003, the Company made an additional payment of $282 on the principal of all
Senior Bank Credit Facilities allocated on a pro-rata basis related to the 2002
excess cash flow calculation.

The Senior Bank Credit Facilities and the Senior Subordinated Notes provide for
certain restrictions, including restrictions on asset sales, dividend payments,
and additional indebtedness payments for restricted investments. In addition,
the Senior Bank Credit Facilities 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.

Each ratio became more stringent periodically during the fiscal year ended
December 31, 2003 and through March 31, 2004. With respect to the fourth quarter
ended December 31, 2003, the Company was required to have a leverage ratio no
greater than 5.00:1.0 and a fixed charge coverage ratio no less than 1.10:1.0
and thereafter beginning with the quarter ending March 31, 2004, the Company was
required to have a leverage ratio no greater than 4.00:1.0 and a fixed charge
ratio no less than 1.50:1.0. The Company was not in compliance with these
covenants as of December 31, 2003. The Company reached an agreement with its
senior lenders under which they would continue to make available to the Company
additional borrowings under the Company's revolving credit facility through
March 31, 2004. Under the agreement, the lenders waived through March 31, 2004
WRC Media's compliance with certain financial covenants as of December 31, 2003,
and WRC Media agreed to limit borrowings, including currently outstanding
borrowings and letters of credit, under its revolving credit facility to $26,000
out of the $30,000 facility. On March 29, 2004, the Company amended its existing
Senior Bank Credit Facilities (the "First-Lien Facility") and entered into a
$145,000 Second Priority Senior Credit Facility (the "Second-Lien Facility").
The Company used the proceeds of the financing to refinance in full all term
loans outstanding under the Company's First-Lien Facility, to pay fees and
expenses related to the Second-Lien Facility and for general corporate purposes
of the Company. See Note 26 for additional information.

Maturities of long-term debt, including unamortized discount and after
consideration of the refinancing discussed in Note 26, are as follows:

       2004                              $     13,477
       2005                                    27,668
       2006                                    82,533
       2007                                         -
       2008                                         -
       Thereafter                             152,000
                                         ------------
                  Total                  $    275,678
                                         ============



                                       94
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


In May of 2002, the Company entered into interest rate swap, which swapped a
portion of the fixed rate 12.75% notes for a floating rate. During December of
2002, the Company unwound the interest rate swap. The Company realized a gain of
$1,720, on this swap which is included in other income (expense) in the
consolidated statement of operations.

Pursuant to the terms of the Amended and Restated Credit Agreement, the Company
is required to enter into and maintain interest rate protection agreements
(interest rate swaps, caps, collars or similar agreements) in a notional amount
equal to at least 50% of the aggregate principal amount of the senior secured
term loans. On November 15, 2001 the Company entered into a one-year interest
rate cap agreement with a notional principal amount of $67,142 which caps the
LIBOR based rate, as defined, on those loans at 3.0%. This interest rate cap
agreement expired on November 15, 2002.

On November 15, 2002, the Company entered into a six-month and one-year interest
rate cap agreement with a notional principal amount of $50,000 and $14,800,
respectively, which caps the LIBOR based rate, as defined, on those loans at
2.5%. The interest rate protection agreement did not qualify for hedge
accounting treatment and as such the Company marks to market the contract at the
end of each period. This interest rate cap agreement expired on November 15,
2003. On November 15, 2003, the Company entered into a new one-year interest
rate cap agreement with a notional principal amount of $61,000, with
substantially the same terms as the 2002 agreement. The fair value of the new
interest rate cap at December 31, 2003 was de-minimus.

14. RESTRUCTURING AND OTHER NON-RECURRING EXPENSES

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supercedes 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)". SFAS 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. SFAS 146 also establishes that fair value is the objective for initial
measurement of the liability. The Company adopted SFAS 146 in December 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 $8,594.

The 2002 Plan of Restructuring included integration and cost reduction
initiatives comprised of closure of facilities and a 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
$3,200 relate to the elimination of these employees from the workforce. This
workforce reduction primarily took place at CompassLearning but all operating
units of WRC Media were impacted. Most of the workforce reductions represented
administrative and back office related employees. The workforce reductions were
substantially completed by January of 2003. Some benefit costs extended beyond
the completion of the workforce reductions due to the Company's contractual
severance obligations to certain individuals that were 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.




                                       95
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


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

<TABLE>
<CAPTION>
                                          Balance at                              Payments            Balance at
                                       January 1, 2002          Charges           Incurred        December 31, 2002
                                        -------------          --------           --------        -----------------

<S>                                     <C>                    <C>                <C>                 <C>
Severance and other benefits            $         --           $ 3,150            $(1,812)            $ 1,338
Lease terminations                                --             4,956                (41)              4,915
Asset write-downs                                 --               488               (488)                 --
                                        ------------           -------            -------             -------
Total                                   $         --           $ 8,594            $(2,341)            $ 6,253
                                        ============           =======            =======             =======
</TABLE>

During the year ended December 31, 2003, the Company reviewed its restructuring
reserve established in 2002 and increased the reserve for severance in the
amount of $221 primarily related to an executive severed in 2002 and $605 for
lease terminations resulting from the updating of the assumptions used in
determining the fair value of the remaining lease obligations associated with
facilities vacated during 2002.

Components of the Company's 2002 restructuring plan, are shown in the following
table for 2003.

<TABLE>
<CAPTION>
                                          Balance at                              Payments            Balance at
                                      December 31, 2002         Charges           Incurred        December 31, 2003
                                      -----------------        ---------          --------        ------------------

<S>                                     <C>                    <C>                <C>                  <C>
Severance and other benefits            $      1,338           $     221          $ (1,527)            $       32
Lease terminations                             4,915                 605            (2,277)                 3,243
                                        ------------           ---------          --------             ----------
Total                                   $      6,253           $     826          $ (3,804)            $    3,275
                                        ============           =========          ========             ==========
</TABLE>

The restructuring reserve of $3,275 at December 31, 2003 is expected to be paid
as follows: in the year 2004--$1,653, 2005 and beyond--$1,622. The restructuring
reserve is included in other accrued liabilities in the consolidated balance
sheet.

During the year ended December 31, 2003 the Company incurred $192 of due
diligence and other costs related to an acquisition that was not completed and
is not expected to be completed in the foreseeable future. These non-recurring
costs have been included in the consolidated statements of operations in
Restructuring costs and other non-recurring expenses.

15.    PREFERRED STOCK

15% 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 designated by the Board of Directors. In 1999,
the Company issued 3,000,000 shares of 15% Senior Preferred Stock, due in 2011
(the "Senior Preferred Stock") with a liquidation preference of $25.00 per
share. The Senior Preferred Stock has no voting rights, except under certain
circumstances, and shall accrue dividends at a rate of 15% per annum, subject to
adjustment if the Company fails to redeem all outstanding shares of such
preferred stock in connection with a mandatory redemption or change of control.



                                       96
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


In connection with the issuance of the Senior Preferred Stock described above,
the subsidiaries of WRC Media issued to the senior preferred stockholders,
Preferred Stock Warrants, which entitle the senior preferred stockholders to
acquire 422,874 shares of Weekly Reader voting common stock and 1,495 shares of
CompassLearning common stock. These warrants entitle the holders to acquire 13%
of voting common stock of Weekly Reader and CompassLearning at an exercise price
of $0.01 per share and contain a cashless exercise provision. The warrants were
immediately exercisable and expire on November 17, 2011. The Company allocated
the $75,000 proceeds from the issuance of the preferred stock, based on the fair
value of the securities, as follows:


        Senior Preferred Stock                         $  63,249
        Weekly Reader Warrants                             9,133
        CompassLearning Warrants                           2,618
                                                       ---------
                                                       $  75,000
                                                       =========


The Senior Preferred Stock is being accreted to its redemption value using the
effective interest method. Accretion for the years ended December 31, 2001, 2002
and 2003 amounted to $919, $932 and $947, 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 or will continue to be paid in-kind at the option
of the Company. To the extent the Company elects to continue to pay dividends
in-kind after December 31, 2004 for four consecutive quarters or for six
quarters in total, the preferred shareholders obtain a board of director's seat.
If the Company pays the arrearage, the preferred shareholders will lose the
board of director's seat. Accrued Senior Preferred Stock dividends for the years
ended December 31, 2001, 2002 and 2003, amounted to $14,549, $16,384 and
$18,982, respectively, and are payable in additional shares of Senior Preferred
Stock. Such accrued dividends reflect penalty dividends of 0.5% for periods
prior to November 17, 2001. While the Company believes that no penalty dividend
is due for subsequent periods, the preferred shareholders may disagree with the
Company's conclusion. The Company may redeem the Senior Preferred Stock,
including unpaid dividends, prior to November 17, 2002, or after November 17,
2004, subject to certain conditions. The Company is required to redeem, to the
extent it has funds legally available, all outstanding shares of the Senior
Preferred Stock on November 17, 2011.

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 Media's acquisition of ChildU, Inc. in 2001 and its minority
investment in ThinkBox, Inc. the Company issued 343,750 shares of the Junior
Preferred Stock at $40.00 per share to finance in part the ChildU acquisition
and the investment in ThinkBox. The Junior Preferred Stock has a liquidation
preference of $40.00 per share and accrues dividends at a rate of 18% per annum,
subject to adjustment under certain conditions. Accrued Junior Preferred stock
dividends for the years ended December 31, 2002 and 2003 amounted to $2,968 and
$3,538, respectively. The Junior Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution and winding up, rank junior to the
15% Senior Preferred Stock due 2011 but rank senior to WRC's common stock, par
value $0.01 per share. The holders of the Junior Preferred Stock shall be
entitled to vote upon any matter submitted to a vote of the holders the
Company's common stock and shall have one vote for each share of Junior
Preferred Stock held. Each share of Junior Preferred is convertible, at any time
at the option of the holder into an equal number of shares of the Company's
common stock. The Junior Preferred Stock is also subject to conversion, at the
Company's option, upon the consummation of an initial public offering by the
Company of its common stock. The shares of the Junior Preferred Stock are not
redeemable.




                                       97
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


16.    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,
2002, 11,559, common shares were repurchased from a former executive for $463.
The excess of the repurchase price of these shares over the issuance price in
the amount of $248, in 2002 was recognized as compensation expense. Upon
termination of employment, for other than cause, the executives can require the
Company to repurchase the shares.

17.    INCOME TAXES

At December 31, 2003, the Company had available net operating loss carryforwards
(NOLs) of approximately $198,403. 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               14,006
               2017               11,620
               2018                2,944
               2019               15,924
               2020               53,957
               2021               23,813
               2022               34,217
               2023               19,037
                                --------
                                $198,403
                                ========

In 2001, 2002 and 2003, the Company recorded income tax expense of $658, $280,
and $151 respectively, related to a provision for current state, local and
foreign taxes.

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
state and local taxes and changes in valuation allowances as detailed below:

<TABLE>
<CAPTION>
                                                                          2001          2002          2003
                                                                       ---------     ---------     ---------
<S>                                                                    <C>            <C>           <C>
Tax benefit at federal statutory rate                                  $(17,695)      $(4,867)      $(1,534)
State/Local taxes, net of federal impact                                 (1,118)        1,822        (2,239)
Non-deductible amortization & impairments                                 1,556             -             -
Amortization of tax basis goodwill in excess of book basis               (1,755)       (1,755)       (1,755)
Change in Valuation allowance                                            21,512        12,088        12,156
Change in composite state tax rates                                                                  (1,267)
Other, net                                                               (1,841)          892        (2,310)
                                                                       ---------     ---------     ---------
Income tax provision                                                   $    658       $ 8,180       $ 3,051
                                                                       =========     =========     =========

</TABLE>

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>
                                                                         2002                2003
                                                                     ---------             ---------
<S>                                                                    <C>                   <C>
Deferred tax assets
   Accrued liabilities                                                $ 2,645               $ 1,578
   Other                                                                6,567                 4,650
                                                                     ---------             ---------
       Total current deferred tax assets                                9,212                 6,228

   Difference between book and tax basis of indefinite lived
     intangibles                                                        1,695                 1,491
   Difference between book and tax basis of other intangibles           8,300                16,100
   Net operating loss carryforward                                     64,227                76,281
Other                                                                   4,288                 3,557
                                                                     ---------             ---------
       Total non-current deferred tax assets                           78,510                97,429
                                                                     ---------             ---------

         Total deferred tax assets                                     87,722               103,657
</TABLE>

                                       98
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                         2002                2003
                                                                     ---------             ---------
<S>                                                                    <C>                   <C>
Deferred tax liabilities
   Difference between book and tax basis of indefinite lived         $ (7,900)             $(10,800)
   intangibles
   Difference between book and tax basis of fixed assets               (3,067)               (3,197)
                                                                     ---------             ---------
          Total deferred tax liabilities                              (10,967)              (13,997)
                                                                     ---------             ---------
  Total net deferred tax assets                                        76,755                89,660
                                                                     ---------             ---------
Less: Valuation allowance                                             (84,655)             (100,460)
                                                                     ---------             ---------
Net                                                                  $ (7,900)             $(10,800)
                                                                     =========             =========
</TABLE>


Management has determined that the Company is not likely to realize the income
tax benefit of its net deferred tax assets. To the extent the Company generates
income in future years, the tax provision will reflect the realization of such
benefits, with the exception of benefits attributable to acquired deferred tax
assets. The recognition of such amount in future years will be allocated to
reduce the excess of the purchase price over the net assets acquired and other
non-current intangible assets.

As a result of the adoption of SFAS 142 in 2002, the Company continues to record
a valuation allowance in excess of its net deferred tax assets, to the extent
the difference between the book and tax basis of indefinite lived intangible
assets is not expected to reverse during the net operating loss carryforward
period. The Company recorded non-cash deferred income tax expense of
approximately $5,200 on January 1, 2002 related to the adoption of SFAS 142.

With the adoption of SFAS 142, the Company no longer amortizes the book basis in
the indefinite lived intangibles but continues to amortize these intangibles for
tax purposes. In 2002 and 2003 the Company recorded additional non cash-deferred
income tax expenses of $2,700 and $2,900, respectively, related to the increase
in its net deferred tax liability for the tax effect on the net increase in the
difference between the book and tax basis in the indefinite lived intangible
assets.

                                       99
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


18.  STOCKHOLDERS' DEFICIT

Warrants

In connection with debt instruments issued to fund the acquisition of
CompassLearning in 1999, the Company issued warrants to purchase 108,003 shares
of its common stock. The warrants have an exercise price of $0.01 per share and
contain a cashless exercise provision. The fair value of the warrants in the
amount of $2,160 has been recorded as a debt discount and additional paid-in
capital. The warrants were exercisable upon issuance and expire in July 2009.

Stock Options

During 1999, the Company granted options to purchase 301,724 (the "1999
Options") at $18.60 per share, which vested as follows: 33%, in 1999, 33% in
2000 and 34% in 2001. Certain of these options contain a cashless exercise
provision which require the Company to account for such options using variable
plan accounting. Additionally, in 2002, the Company granted certain of its
executives, options to purchase 220,000 shares of common stock at $40.00 per
share. Such options also contain a cashless exercise provision. During 2002 and
2003, no compensation expense was recognized for these options as the fair
market value of the Company's common stock, as estimated by the Company's Board
of Directors, was less than the exercise price of the options.

During 2003, a terminated employee exercised options to purchase 13,456 shares
of common stock. The Company immediately repurchased such shares at a price of
$40.00 per share pursuant to the employee's termination agreement. The
difference between the $40.00 per share repurchase price and the exercise price
of the options, in the aggregate amount of $288, was recorded as compensation
expense in the consolidated statement of operations during 2003.

In 2000, the Company adopted the WRC Media Inc. and Subsidiaries Year 2000 Stock
Option Plan (the "Plan") under which 319,463 shares of common stock have been
made available for issuance. 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 common 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 common stock determined in good faith by the Board. During
2000, the Company granted options to purchase 107,523 shares at $18.60 per share
to an executive under his employment agreement that were not covered by the
Plan. Those options contain a cashless exercise provision and are subject to
variable plan accounting. No compensation expense was recognized for these
options during 2001, 2002 and 2003. The options covered under the Plan vest
ratably over four years from the date of grant.

In 2001, in conjunction with the acquisition of ChildU, Inc. (see Note 1), the
Company granted 35,000 options at $40.00 per share (the "2001 Options") to
certain key employees of ChildU, Inc. The 2001 Options vest ratably over two
years from the date of grant.



                                       100
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


A summary of the Company's option activity is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended                Year Ended                      Year Ended
                                                 December 31, 2001           December 31, 2002             December 31, 2003
                                              ------------------------     ----------------------       ------------------------
                                                          Weighted                     Weighted                      Weighted
                                                           Average                     Average                       Average
     Employee Stock Options                   Shares    Exercise Price     Shares   Exercise Price      Shares    Exercise Price
     ----------------------                   ------    --------------     ------   --------------      ------    --------------
<S>                                           <C>          <C>            <C>          <C>              <C>          <C>
Outstanding, beginning of year                548,254      $ 18.60        608,601      $ 21.34          878,901      $  27.47

Granted                                        77,913        40.00        289,500        40.00           35,000         18.60
Exercised                                           -                                     -             (13,456)        18.60
Forfeited                                     (17,566)       18.60        (19,200)       21.94           (2,475)        31.57
                                              -------                     -------                       -------
Outstanding, end of year                      608,601        21.34        878,901        27.47          897,970         27.25
                                              =======                     =======                       =======

Options exercisable at year-end               394,226                     572,762                       741,096
                                              =======                     =======                       =======

Options available for grant at year-end        53,795                      39,073                         5,745
                                              =======                     =======                       =======

Options subject to variable accounting        395,076                     615,076                       607,370
                                              =======                     =======                       =======

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

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 4.50%, 3.75% and 3.3% in 2001, 2002 and
2003; no expected dividend yield for 2001, 2002 and 2003; and expected life of 5
years with no expected volatility for 2001, 2002 and 2003, respectively.

The following table summarizes information about employee stock options
outstanding at December 31, 2003:

<TABLE>
<CAPTION>
                                  Options Outstanding                                     Options Exercisable
                          ------------------------------------                    ----------------------------------
                                Number        Weighted Average                          Number
                            Outstanding at        Remaining                         Exercisable at
 Exercise Price           December 31, 2003   Contractual Life    Exercise Price   December 31, 2003   Exercise Price
-----------------         -----------------   ----------------    --------------   -----------------   --------------

<S>                        <C>                    <C>                  <C>              <C>                <C>
   $18.60                  535,057                6.3 years            $18.60           501,994            $18.60
   $40.00                  362,913                7.8 years            $40.00           239,102            $40.00
</TABLE>

19.  RELATED PARTY TRANSACTIONS

Management Agreements

In connection with the acquisition of Weekly Reader and CompassLearning, the
Company entered into management agreements with its principal shareholder.


                                      101
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


In accordance with Weekly Reader's management agreement, the shareholder
provides Weekly Reader management consulting and financial advisory services. As
a result of Weekly Reader's management agreement and the amendment of
CompassLearning's management agreement, CompassLearning and Weekly Reader
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, began paying, in quarterly installments, the
shareholder annual aggregate management fees for services to both
CompassLearning and Weekly Reader of $950. The agreements have no stated term,
but can be terminated by the shareholder upon five days notice. In June 2003,
the shareholder waived the payment of $300 in management fees for 2003. The
waived amount has been recorded as a capital contribution. During the years
ended December 31, 2001, 2002 and 2003, the Company recognized expenses for such
management fees in each year of $950. At December 31, 2002 and 2003, other
accrued liabilities include approximately $950 and $650 of accrued management
fees, respectively.

20.  RETIREMENT PLANS

Substantially all of the Company's employees are eligible to participate in a
defined contribution plan of the Company. Pursuant to the provisions of the
Plan, the Company is obligated to match 33% of the employee's contribution to
the Plan up to the first 6% of the employee's compensation. The expense
recognized by the Company for the Company's contributions to the plan was
$1,247, $1,352 and $1,303 for the years ended December 31, 2001, 2002 and 2003,
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.

The net pension expense for the American Guidance Plan and the reconciliation of
the funded status of the Plan at December 31, 2002 and 2003 and the accrued
obligation in the consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
                                                                        2002             2003
                                                                     ----------        ----------
<S>                                                                  <C>               <C>
       Change in benefit obligation:
         Projected benefit obligation, beginning of year             $   11,947        $   14,379
              Service cost                                                  742               916
              Interest cost                                                 819               883
              Actuarial loss                                              1,332              (109)
              Benefits paid                                                (461)             (570)
                                                                     ----------        ----------
         Projected benefit obligation, end of year                   $   14,379        $   15,499
                                                                     ==========        ==========

       Change in plan assets:
         Fair value of plan assets, beginning of year                $    7,903        $    7,269
              Actual return on plan assets                               (1,284)            1,928
              Employer contributions                                      1,111             1,029
              Benefits paid                                                (461)             (570)
                                                                     ----------        ----------
         Fair value of plan assets, end of year                      $    7,269        $    9,656
                                                                     ==========        ==========

       Funded status at December 31,
         Plan assets less than benefit obligation                    $   (7,110)       $   (5,842)
         Unrecognized actuarial loss                                      5,411             3,754
                                                                     ----------        ----------
              Accrued pension cost                                   $   (1,699)       $   (2,088)
                                                                     ==========        ==========
</TABLE>





                                      102
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                        2002             2003
                                                                     ----------        ---------
<S>                                                                  <C>               <C>
       Amounts recognized in consolidated balance sheets:
          Accrued benefit liability                                  $   (5,056)       $  (3,987)
          Accumulated other comprehensive loss                            3,357            1,899
                                                                     ----------        ---------
                                                                     $   (1,699)       $  (2,088)
                                                                     ==========        ==========

       Components of net periodic benefit cost:
         Service cost                                                $      742        $     916
         Interest cost                                                      819              883
         Expected return on plan assets                                    (749)            (675)
         Amortization of unrecognized net actuarial loss                     70              294
                                                                     ----------        ---------
       Net periodic benefit cost                                     $      882        $   1,418
                                                                     ==========        ==========

       Accumulated benefit obligation and fair value of assets:
         Accumulated benefit obligation                              $  (12,325)       $  (13,644)
         Fair value of assets                                        $    7,269        $    9,656

       Weighted-average assumptions as of end of year
       Discount rate                                                       6.25%             6.25%
       Expected return on plan assets                                      9.0%              9.0%
       Rate of compensation increase                                       4.5%              3.5%

</TABLE>

The Company developed the expected long-term rate of return on assets assumption
by considering the current level of expected returns on risk free investments
(primarily government bonds) the historical level of the risk premium associated
with other asset classes in which the portfolio is invested and the expectation
for future returns on each asset class. The expected return for each asset class
was weighted based on the aggregate target asset allocation to develop the
expected long-term rate of return on assets assumption for the portfolio. The
Company reviews the expected rate of return on an annual basis and revises it as
appropriate.

The American Guidance Plan investment objective is a heavily weighted equity
portfolio with an emphasis on long-term growth. Assets held include
high-quality, well-capitalized stocks of established companies and were
allocated 83% to equity securities and 17% to fixed income securities in 2002
and 87% to equity securities and 13% fixed income securities in 2003:

                                                2002                2003
                                                ----                ----

Asset Category:
    Equity Securities                           83.0%              87.0%
    Debt Securities                             14.0%              11.0%
    Other                                        3.0%               2.0%
                                               -----              -----
         Total                                 100.0%             100.0%
                                               =====              =====

The Company expects to contribute $2,254 to the American Guidance Plan in 2004.




                                      103
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WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


The following benefit payments, which reflect future service, as appropriate,
are to be paid by the American Guidance Plan during the next five years:

Pension Benefits

2004..................................    $     613
2005..................................          635
2006..................................          655
2007..................................          659
2008..................................          707

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 2001, 2002 and 2003, a minimum liability adjustment of ($325),
($3,041) and $1,458 respectively, was recorded as a component of other
comprehensive loss and reported in accumulated other comprehensive loss as a
component of stockholders' deficit.

21.  COMMITMENTS AND CONTINGENCIES

Leases

The Company has non-cancelable operating leases for equipment, office and
warehouse space that include future minimum rental commitments as follows:

<TABLE>
<CAPTION>
                                                    Lease                      Sublease                    Net
Year Ending December 31,                         Commitments                   Rentals                 Commitments
                                                 -----------                   -------                 -----------

<S>                                               <C>                        <C>                        <C>
2004                                              $  6,338                   $   (348)                  $  5,990
2005                                                 5,731                       (348)                     5,383
2006                                                 5,392                       (352)                     5,040
2007                                                 4,738                       (359)                     4,379
2008                                                 2,938                       (359)                     2,579
Thereafter                                          10,804                       (241)                    10,563
                                                  --------                   --------                   --------
                         Total                    $ 35,941                   $ (2,007)                  $ 33,934
                                                  ========                   ========                   ========
</TABLE>


Rent expense, net of sublease rentals, for all operating leases was
approximately $4,753, $5,137 and $4,385 for the years ended December 31, 2001,
2002 and 2003, 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.

SEC Inquiry

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

15% Senior Preferred Stock due 2011

In 1999, the Company issued 3,000,000 shares of 15% Senior Preferred Stock due
in 2011 with a liquidation preference of $25.00 per share. The Senior Preferred
Stock shall accrue dividends at a rate of 15% per annum, subject to adjustment
if the Company fails to redeem all outstanding shares of such Preferred Stock in
connection with a mandatory redemption or change of control. Preferred Stock
dividends for the years ended December 31, 2001, 2002 and 2003, amounted to
$14,549, $16,384 and $18,982, respectively, and are payable in additional shares
of Senior Preferred Stock. Such accrued dividends reflect penalty dividends of
0.5% for periods prior to November 17, 2001. While the Company believes that no
penalty dividend is due for subsequent periods, the preferred shareholders may
disagree with that conclusion.


                                      104
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


22.  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
liabilities, respectively on the consolidated balance sheets. The balance of
liability as of December 31, 2002 and 2003 were approximately $1,403 and $1,006,
respectively. The marketable securities in the Rabbi Trusts have been classified
as trading securities and investment income of ($432), $156 and $55 has been
offset by compensation expense for the same amount on the accompanying
consolidated statements of operations for the years ended December 31, 2001,
2002 and 2003, respectively. Marketable securities in the Rabbi Trust have been
recorded at fair value, based on quoted market prices, on the accompanying
consolidated balance sheets.

23.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                              2001                  2002                 2003
                                                            ---------            ---------            -----------
<S>                                                         <C>                  <C>                  <C>
Cash paid during the period for interest                    $   32,063           $   27,870           $    27,779
Cash paid during the year for income taxes                  $      730           $      280           $       285
Non-cash investing activities:
    Common stock issued in connection
       with acquisitions                                    $    3,081           $        -           $         -
Non-cash financing activities:
    Preferred stock dividends accrued                       $   16,212           $   19,352           $    22,520
    Accretion of preferred stock                            $      919           $      932           $       947
</TABLE>

24.  RESTATEMENT

In connection with the audit of the Company's 2003 consolidated financial
statements and the reaudit of its 2001 consolidated financial statements, the
Company has restated its previously audited consolidated balance sheets as of
December 31, 2001, 2002 and 2003, and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2001, 2002
and 2003 (the "restatement"). The restatement also included adjustments that
affected periods prior to 2001. The impact of the restatement on periods prior
to 2001 was reflected as an adjustment to beginning accumulated deficit as of
January 1, 2001.

On March 31, 2004, the Company filed a Form 8-K that included its consolidated
financial statements as of and for the years ended December 31, 2002 and 2003,
which had been restated to correct certain accounting errors (the "Initial
Restatement"). At that time, the Company announced that the reaudit of its 2001
financial statements was in progress and that completion of the reaudit could
result in additional restatements to its financial statements. Subsequent to the
Initial Restatement, the reaudit of the Company's 2001 consolidated financial
statements was completed and identified additional errors that impacted the
Company's financial statements for 2001, 2002 and 2003. Accordingly, the Company
has restated its previously reported 2002 and 2003 financial statements and its
2001 financial statements for the correction of these additional errors (the
"Further Restatement").

In connection with the Initial Restatement, management had restated its
financial statements because it had incorrectly accounted for (i) the revenue
recognition of a software and services sale in December 2002; (ii) the purchase
price related to the ChildU acquisition in 2001; (iii) the reversal of a barter
transaction; (iv) restructuring reserves for acquisitions in 1999; (v) revenue
recognition for a guaranteed minimum purchase transaction in 2002; (vi) revenue
recognition for distributor sales in 2001 and 2002; (vii) rent expense


                                      105
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


in 2001 and 2002; (viii) common stock warrants; and (ix) a number of other items
including various accruals such as compensation and fringe benefit costs,
deferred revenue and legal costs in 2001 and 2002.

Described below are the matters for which the Company has restated its
consolidated financial statements for 2001 and 2002 in connection with the
Initial Restatement.

     o   Software and Services Sale. In December 2002, the Company recorded a
         $1,860 receivable of revenue from the sale of educational software and
         services to a school district. Of this amount, $1,169 was recognized as
         revenue during the fiscal quarter ended December 31, 2002, and $691 was
         recorded as a deferred revenue liability as of December 31, 2002.
         Accrued sales commissions of $342 also were recorded. In the first
         quarter of 2003, this $1,169 of revenue previously recognized in
         December 2002 was offset by recording a new bad debt reserve of $920
         and by retaining an excess of $250 in the Company's allowance for
         doubtful accounts, which excess amount would have otherwise been
         reversed. The Company has concluded that the sale did not meet the
         criteria under GAAP for revenue recognition for the year ended December
         31, 2002, and that it incorrectly recorded the related bad debt reserve
         and retained the excess allowance for doubtful accounts in 2003. The
         Company has corrected these errors by reversing these transactions. The
         net effect for the year ended December 31, 2002 was to increase net
         loss by approximately $827. In addition, total assets decreased by
         approximately $1,860 and total liabilities decreased by $1,033,
         including a decrease in deferred revenue of $691 as of December 31,
         2002.

     o   ChildU Goodwill Reduction. The Company's subsidiary, ChildU, Inc., was
         acquired in 2001. In connection with such acquisition, the Company
         issued shares of its common stock to the holders of notes issued by
         ChildU. The Company has determined that the value assigned to these
         shares when the Company recorded the purchase price for this
         acquisition in its historical financial statements for 2001 exceeded
         the fair market value of these shares. Accordingly, the Company has
         restated its financial statements to record correctly the fair market
         value of these shares, which had the effect of reducing the purchase
         price for ChildU, goodwill and additional paid-in capital, by
         approximately $3,419 as of December 31, 2001. In addition, the Company
         allocated the primarily all of the purchase price to goodwill, and had
         assigned that goodwill an estimated life of 40 years. The asset
         acquired was software technology and not goodwill. The Company has
         restated its financial statements to record the software technology and
         to amortize such acquired technology over its estimated useful life of
         five years, which had the effect of increasing intangibles amortization
         expense by $976 and $1,672 in 2001 and 2002, respectively. The Company
         also incorrectly charged certain severance costs against acquisition
         reserves, and accordingly has restated the 2001 and 2002 financial
         statements to correct for such errors. The net effect of such
         adjustment was to increase net loss by $708 and $1,092 for the years
         ended December 31, 2001 and 2002, respectively.

Following the determination to restate the Company's financial statements for
2001 and 2002 for the matters described above, the Company also determined that
it would correct for certain errors made in the application of GAAP that had not
previously been corrected because in each such case it believed that the amount
of any such error was not material to its consolidated financial statements.
These matters are described below.

     o   CompassLearning/Weekly Reader Goodwill Reduction. In connection with
         the acquisitions of CompassLearning and Weekly Reader in 1999, the
         Company also recorded certain other reserves for a planned
         restructuring related to the acquisitions. The Company recorded
         reserves of $5,538 related to estimated liabilities it believed it had
         assumed at the date of such acquisitions. The Company also recorded a
         reserve of $1,705 related to an estimated liability associated with
         the rationalization of the shipping schedule of the Weekly Reader
         magazine in 2000. The Company concluded that the purchase reserves
         associated with these estimated liabilities, and the elements of the
         restructuring plan that had not yet been completed should be reversed
         in 2001. The excess purchase reserves associated with fiscal year 2000
         activity; specifically, the $1,350 of costs incurred to evaluate
         CompassLearning's software in order to determine a future growth
         strategy; $2,250 of in-process R&D related to a Next-generation
         reading system deemed not be technologically feasible; $1,800 of
         recruiting




                                      106
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


         and consulting costs incurred to transition the companies acquired to a
         standalone public company and $150 for other estimated liabilities
         assumed were reversed against goodwill and charged to accumulated
         deficit as of January 1, 2001 as the Company determined that the
         reversal of the excess purchase reserves and corresponding reduction in
         goodwill should have been recorded in 2000. The Company also reversed
         the $1,705 reserve, and reduced goodwill in a corresponding amount,
         because the Company determined that such reserve had been incorrectly
         recorded in 2000. The Company has determined that the reversal of the
         excess purchase reserves and corresponding reduction of goodwill should
         have been recorded in 2000 rather than 2001 and that the reversal of
         the $1,705 reserve and corresponding reduction in goodwill should have
         been recorded in 2000 rather than 2002. Accordingly, the Company has
         restated its 2001 and 2002 financial statements to correct these
         errors. The net effect of the adjustments as of January 1, 2001
         increased the accumulated deficit by $5,961 and increased net loss by
         $706 in 2001.

     o   Barter Transaction. In connection with a failed licensing barter
         transaction for which the Company had incorrectly recorded revenue in
         2001, the Company had increased operating costs and expenses for 2001
         by the amount of the revenue recorded, instead of reversing such net
         revenue amount, as required by GAAP. The Company restated its financial
         statements for 2001 to correct this error, with the net effect being to
         reduce net revenue and operating costs and expenses by $1,500 for the
         year ended December 31, 2001, with no impact on the Company's net loss.

     o   CompassLearning Minimum Purchase Guarantee. In connection with the
         acquisition of CompassLearning, the Company entered into a minimum
         purchase guarantee agreement with the seller of CompassLearning. In
         2001, the Company incorrectly recorded as revenue amounts that the
         seller was required to purchase under the agreement, which the seller
         did not purchase. In its historical financial statements for 2001, the
         Company also recorded an intangible asset in an amount equal to the
         amount of revenue incorrectly recorded. In 2002 and 2003, amortization
         of $527 and $235, respectively, of this intangible was recorded against
         gross sales as purchases were actually made. Recording this intangible
         asset and the related amortization did not conform to GAAP. The Company
         has restated its financial statements to reverse this transaction, with
         the net effect being to increase the Company's net loss by $762 for the
         year ended December 31, 2001 and decrease the Company's net loss in
         2002 by $527.

     o   Distributor Sales. Historically the Company recognized revenue under a
         distribution contract between its subsidiary, World Almanac Education
         Group, and a distributor at the time that the Company shipped our
         products to the distributor rather than at the time those products were
         resold by the distributor. The Company also recorded distribution fees
         under this contract as operating costs and expenses, based on its
         understanding of the distribution contract. The Company has determined
         to recognize revenue only at the time the distributor ships these
         products to its customer. In addition, the Company should have recorded
         distributions fees as a reduction of revenue, rather than as a separate
         operating cost and expense item. The Company has restated its financial
         statements which increased its net loss by $164 for the fiscal year
         ended December 31, 2001 and decreased its net loss and increased net
         assets by $168 for the year ended December 31, 2002.

     o   Rent. The Company has two leases that have "free rent" incentives at
         the commencement of the leases and also contain rent escalation clauses
         (which clauses provide for rent increases over time) for which it was
         required under GAAP to record the average rent expense ratably over the
         lease term. In its historical 2001 financial statements, however, the
         Company recorded the rent expense from these leases as it was paid. In
         its historical 2002 financial statements, the Company began correctly
         recording the average rent expense for these leases, but it calculated
         the average rent using the remainder of the lease term instead of the
         entire lease term. The Company has restated its financial statements to
         correct these errors. As a result, rent expense increased in 2001
         because the average rent to be paid over the lease terms was greater
         than the actual rent paid in 2001 and rent expense decreased in 2002
         because of the longer lease terms used to calculate the average rent.
         In 2001, the Company also incorrectly capitalized some rent expense
         prior to its occupancy of a certain leased premise as a prepaid rent
         asset and amortized it, rather than recording it as an expense, as
         required by GAAP. The Company has restated its financial statements to
         correct these errors, with the net effect being to increase net loss by
         $1,005, for the year ended December 31, 2001, to decrease its net loss
         by $412 and increase total assets by $352 for the year ended December
         31, 2002.



                                      107
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


     o   Intercompany Sales. Certain sales between two subsidiaries of World
         Almanac were recorded in 2001 as revenue for one subsidiary and as a
         corresponding operating cost and expense for the other subsidiary,
         rather than being eliminated, as required by GAAP. The Company has
         restated its financial statements for 2001 to eliminate these
         intercompany sales. As a result of this correction, revenue decreased
         by $795 for the year ended December 31, 2001 with a corresponding
         decrease in operating costs and expenses, and no impact on the
         Company's net loss for the year then ended.

     o   Common Stock Warrants. During 1999, the Company issued warrants to
         purchase its common stock to purchasers of certain debt securities and
         a lender under a term loan facility. The Company incorrectly recorded
         the fair value of the warrants, as a liability due to a related party.
         The Company has restated its 2001 and 2002 financial statements to
         correctly record the fair value of the warrants as additional paid-in
         capital. As a result of this correction, liabilities decreased by
         $2,160 and additional paid-in capital increased by corresponding
         amount.

     o   Other. The Company has made a number of other corrections,
         including adjustments relating to various accruals such as compensation
         and fringe benefit costs, deferred revenue, legal costs and other
         immaterial items.

In connection with the reaudit of the Company's 2001 consolidated financial
statements, management determined that it had incorrectly accounted for the
following items, which comprise the Further Restatement: (i) intangible assets
acquired in 1999 in connection with the Company's acquisition of Weekly Reader
Corporation; (ii) acquisition reserves for acquisitions in 1999; (iii) its
adoption of SFAS 142 and the preparation of its transitional impairment
analysis; (iv) deferred tax liabilities recognized upon the adoption of SFAS
142; (v) Senior Preferred Stock Dividends and (vi) a number of other items which
had been previously identified and collectively determined to be immaterial but
which the Company has now decided to correct including various accruals such as
compensation and fringe benefit costs, severance and consulting costs and legal
costs in 2001, 2002 and 2003. In addition, the Company corrected certain errors
in its disclosures regarding stock options granted to its employees.

Described below are the matters for which the Company has restated its
consolidated financial statements for 2001, 2002 and 2003 in connection with the
Further Restatement.

     o   WRC Media Goodwill and Intangible Assets. In connection with the
         reaudit of the Company's 2001 consolidated financial statements, the
         Company reconsidered the assumptions used to determine the estimated
         fair value and economic lives of the intangible assets acquired in
         connection with the 1999 acquisition and recapitalization of Weekly
         Reader Corporation by WRC Media Inc. (the "1999 Intangible Assets").
         The Company has determined that the original basis for estimating the
         fair value and economic lives of the intangible assets was a valuation
         report that the former owners of Weekly Reader Corporation had provided
         to WRC Media at the time of the 1999 acquisition. Accordingly, in 2004,
         the Company engaged a valuation consulting firm to assist management in
         assessing the fair values and economic lives of the 1999 Intangible
         Assets as of the acquisition date. As a result, certain estimated fair
         values and economic lives of the 1999 Intangible Assets have been
         revised. Accordingly, the Company has restated its financial statements
         to correctly state the estimated fair value and economic lives of the
         1999 Intangible Assets acquired as of November 17, 1999. This had the
         effect of increasing goodwill by $36,238 and decreasing other
         intangibles in the aggregate by the same amount. Other intangible
         assets include Copyrights, Customer lists and Trademarks. Copyrights
         increased by $4,733 and their estimated useful life was amended from 10
         years to approximately 20 years, Customer lists decreased by $13,680
         and their estimated useful life decreased from 10 years to
         approximately 8.5 years and Trademarks decreased by $27,291 and their
         estimated useful life decreased from 40 years to approximately 39
         years. In addition, the Company has restated its financial statements
         to correct amortization expense for goodwill and other intangible
         assets, which had the effect of reducing accumulated deficit as of
         January 1, 2001 by $6,294, and reducing amortization expense of
         intangible assets by $3,410 in 2001, $2,305 in 2002 and $1,499 in 2003.

                                      108
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



     o   CompassLearning/Weekly Reader Additional Goodwill Reduction. As
         discussed above the Company recorded certain reserves for a planned
         restructuring in connection with the acquisitions of CompassLearning
         and Weekly Reader Corporation. In connection with the reaudit of its
         2001 consolidated financial statements the Company determined that it
         had incorrectly recorded reserves of $3,106 related to estimated
         liabilities it believed it had assumed at the date of such
         acquisitions. The Company concluded that the acquisition reserves
         associated with these liabilities should have been reversed in 1999.
         The estimated liabilities associated with the excess reserves included
         $1,522 of debt issuance costs, $1,157 of severance and consulting fees,
         primarily attributable to employees or consultants hired subsequent to
         the acquisition date, $362 of leasehold improvements for space to be
         occupied by employees of World Almanac Group and other administrative
         costs of $65. The Company determined that goodwill and the related
         acquisition reserves should be reduced by $3,106. The Company has
         restated its 2001, 2002 and 2003 financial statements to correct for
         these errors. The net effect of such adjustments was to increase the
         accumulated deficit as of January 1, 2001 by $224 and to increase
         net loss by $1,425, $240 and $214 for the years ended December 31,
         2001, 2002 and 2003, respectively.

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

o        Deferred Tax Liabilities. The Company recognized non-cash deferred
         income tax expense and a deferred tax liability of approximately $8,700
         on January 1, 2002, in connection with its adoption of SFAS 142. The
         deferred tax liability relates to the excess of tax over book
         amortization of tax-deductible goodwill and trademarks since the timing
         of the reversal of this liability is indefinite, unless the related
         assets are sold or an impairment of the assets is recorded, and can no
         longer be offset by the Company's net operating loss carry-forwards,
         which expire within a statutory period. During each of 2002 and 2003,
         the Company recorded additional deferred tax expense of $2,000.

         The non-cash deferred income tax expense recorded on January 1, 2002
         has been reduced to $5,200; a decrease of $3,500. The non-cash income
         tax expense recorded during the years ended December 31, 2002 and 2003
         increased by $700 from $2,000 to $2,700 and by $900 from $2,000 to
         $2,900, respectively. These restatements are principally due to the
         reversal of the impairment charges and the revision of estimated fair
         value and economic lives of the 1999 Intangible Assets discussed above.

     o   15% Senior Preferred Stock due 2011. In 1999, the Company issued
         3,000,000 shares of 15% Senior Preferred Stock due in 2011. The Senior
         Preferred Stock accrues dividends at a rate of 15% per annum. The
         Certificate of Designation provides that the Senior Preferred Stock was
         subject to a default or penalty dividend of 0.5% in the event of
         certain registration defaults. A penalty dividend was applicable from
         mid-August of 2000 through November 17, 2001. While the Company
         believes that no penalty dividend is due for subsequent periods, the
         preferred shareholders may disagree with that conclusion. The Company
         had not previously recorded this penalty dividend. The recording of the
         penalty dividends (and required compounding in subsequent periods)
         resulted in the Company increasing accrued dividends on Senior
         Preferred Stock by $505, $110 and $128 during the years ended December
         31, 2001, 2002 and 2003, respectively.

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

     o   Other. In connection with the reaudit of the Company's 2001 financial
         statements, the Company has made a number of other corrections to the
         2001, 2002 and 2003 financial statements, which collectively were
         immaterial, including adjustments relating to various accruals such as
         compensation and fringe benefit costs, advertising promotional expense,
         and other immaterial items.

                                      109
<PAGE>

WRC MEDIA INC.
         AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


After giving effect to the Initial Restatement and the Further Restatement, the
Company believes it was and is in compliance with the financial covenants in its
credit facility for all of the reporting periods affected, other than the fourth
quarter of 2003, for which the lenders under the credit facility granted the
Company a waiver (see Note 13).

The effect of the restatements for years prior to 2001, was to increase
accumulated deficit by $56 from $95,893 to $95,949 at January 1, 2001, decrease
total assets by $1,021 from $504,464 to $503,443 at January 1, 2001, increase
goodwill by $26,160 from $229,498 to $255,658 at January 1, 2001 and increase
additional paid in capital by $2,160 at January 1, 2001.



                                      110
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                      December 31, 2003
                                                         ---------------------------------------------------------------------------
                                                              As Previously
                                                               Reported in                 Further
                                                              March 31, 2004             Restatement
                                                               Form 8-K (1)              Adjustments             As Restated
                                                         -------------------         ----------------         ----------------
<S>                                                          <C>                      <C>
ASSETS
Current Assets:
Cash and cash equivalents                                    $         1,432                                  $         1,432
Accounts receivable, net                                              30,027                                           30,027
Inventories, net                                                      16,652                                           16,652
Prepaid expenses                                                       3,367                                            3,367
Other current assets                                                   1,889                                            1,889
                                                             ---------------          -----------------       ---------------

Total current assets                                                  53,367                       --                  53,367

Property and equipment, net                                            5,526          $           266                   5,792
Capitalized software, net                                              7,293                       --                   7,293
Goodwill                                                             143,149                   98,175                 241,324
Deferred financing costs, net                                          4,939                      736                   5,675
Other intangible assets, net                                          92,610                  (15,750)                 76,860
Other assets and investments                                          30,448                     (552)                 29,896
                                                              ---------------         ---------------         ---------------

Total assets                                                 $       337,332          $        82,875         $       420,207
                                                             ===============          ===============         ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable                                             $        16,963                                  $        16,963
Accrued payroll, commissions and benefits                              9,356                                            9,356
Current portion of deferred revenue                                   35,900                                           35,900
Other accrued liabilities                                             17,166                                           17,166
Current portion of long-term debt                                      8,477                                            8,477
                                                             ---------------          ---------------         ---------------

Total current liabilities                                             87,862                       --                  87,862

Deferred revenue, net of current portion                                 959                                              959
Deferred tax liabilities                                              12,700          $        (1,900)                 10,800
Long-term debt                                                       262,925                                          262,925
                                                             ---------------          ---------------         ---------------

Total liabilities                                                    364,446                   (1,900)                362,546
                                                             ---------------          ---------------         ---------------

Commitments and contingencies
15% redeemable senior preferred stock                                129,767                      934                 130,701
                                                             ---------------          ---------------         ---------------
Warrants on common stock of subsidiaries                              11,751                       --                  11,751
                                                             ---------------          ---------------         ---------------
Common stock subject to redemption                                       940                       --                     940
                                                             ---------------          ---------------         ---------------

Stockholders' deficit:
Common stock                                                              70                                               70
18% convertible preferred stock                                       21,919                       --                  21,919
Additional paid-in capital                                           131,753                       --                 131,753
Accumulated other comprehensive loss                                  (1,899)                      --                  (1,899)
Accumulated deficit                                                 (321,415)                  83,841                (237,574)
                                                             ---------------          ---------------         ---------------

Total stockholders' deficit                                         (169,572)                  83,841                 (85,731)
                                                             ---------------          ---------------         ---------------

Total liabilities and stockholders' deficit                  $       337,332          $        82,875         $       420,207
                                                             ===============          ===============         ===============
</TABLE>


(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.

                                      111
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                        Year Ended December 31, 2003
                                                             -----------------------------------------------------------------------
                                                                  As Previously
                                                                   Reported in            Further
                                                                  March 31, 2004          Restatement
                                                                   Form 8-K (1)           Adjustments                 As Restated
                                                             -------------------        ----------------          ------------------
<S>                                                              <C>                    <C>                       <C>
Revenue, net                                                     $       202,704        $            (1)          $       202,703

Cost of goods sold                                                        56,401                     44                    56,445
                                                                 ---------------        ---------------           ---------------

Gross profit                                                             146,303                    (45)                  146,258
                                                                 ---------------        ---------------           ---------------

Costs and expenses:
Sales and marketing                                                       47,201                     --                    47,201
Research and development                                                   1,424                     --                     1,424
Distribution, circulation and fulfillment                                 14,626                     --                    14,626
Editorial                                                                 10,365                     --                    10,365
General and administrative                                                25,679                   (300)                   25,379
Restructuring costs and other non-recurring expenses                       1,018                     --                     1,018
Depreciation                                                               2,256                     24                     2,280
Amortization of intangible assets                                         19,045                 (1,499)                   17,546
                                                                 ---------------        ---------------           ---------------

Total operating costs and expenses                                       121,614                 (1,775)                  119,839
                                                                 ---------------        ---------------           ---------------

Income from operations                                                    24,689                  1,730                    26,419

Interest expense, including amortization
of deferred financing costs                                              (29,159)                  (190)                  (29,349)
Other income (expense), net                                               (1,153)                  (300)                   (1,453)
                                                                 ---------------        ---------------           ---------------

Loss before income tax provision                                          (5,623)                 1,240                    (4,383)

Income tax provision                                                       2,151                    900                     3,051
                                                                 ---------------        ---------------           ---------------

Net loss                                                         $        (7,774)       $           340           $        (7,434)
                                                                 ===============        ===============           ===============
</TABLE>

(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.



                                      112
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                                          December 31, 2002
                                                         ---------------------------------------------------------------------------
                                                                                                                        As
                                                               As Previously             Initial               Previously Restated
                                                                Reported in            Restatement              in March 31, 2004
                                                              2002 Form 10-K           Adjustments                 Form 8-K (1)
                                                         ---------------------       ----------------         ----------------------
ASSETS
Current Assets:
<S>                                                           <C>                     <C>                     <C>
Cash and cash equivalents                                     $         9,095                                   $         9,095
Accounts receivable, net                                               38,373         $        (2,226)                   36,147
Inventories, net                                                       15,287                     158                    15,445
Prepaid expenses                                                        3,200                    (265)                    2,935
Other current assets                                                    1,797                                             1,797
                                                              ---------------         ---------------           ---------------
Total current assets                                                   67,752                  (2,333)                   65,419

Property and equipment, net                                             6,299                                             6,299
Capitalized software, net                                               4,970                                             4,970
Goodwill                                                              163,349                 (20,200)                  143,149
Deferred financing costs, net                                           6,165                                             6,165
Other intangible assets, net                                          100,499                   5,437                   105,936
Other assets and investments                                           25,218                    (292)                   24,926
                                                              ---------------         ---------------           ---------------
Total assets                                                  $       374,252         $       (17,388)          $       356,864
                                                              ===============         ===============           ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable                                              $        20,869                                   $        20,869
Accrued payroll, commissions and benefits                               8,693                      (5)                    8,688
Current portion of deferred revenue                                    39,840                    (421)                   39,419
Other accrued liabilities                                              23,285                      32                    23,317
Current portion of long-term debt                                       7,721                                             7,721
                                                              ---------------         ---------------           ---------------
Total current liabilities                                             100,408                    (394)                  100,014

Deferred revenue, net of current portion                                1,167                    (163)                    1,004
Deferred tax liabilities                                               10,700                                            10,700
Due to related party                                                    2,160                  (2,160)                       --
Long-term debt                                                        266,219                                           266,219
                                                              ---------------         ---------------           ---------------
Total liabilities                                                     380,654                  (2,717)                  377,937
                                                              ---------------         ---------------           ---------------

Commitments and contingencies
15% redeemable senior preferred stock                                 109,966                                           109,966
                                                              ---------------         ---------------           ---------------
Warrants on common stock of subsidiaries                               11,751                                            11,751
                                                              ---------------         ---------------           ---------------
Common stock subject to redemption                                        965                                               965
                                                              ---------------         ---------------           ---------------

Stockholders' deficit:
Common stock                                                               70                                                70
18% convertible preferred stock                                        18,381                                            18,381
Additional paid-in capital                                            132,464                  (1,011)                  131,453
Accumulated other comprehensive loss                                   (3,357)                                           (3,357)
Accumulated deficit                                                  (276,642)                (13,660)                 (290,302)
                                                              ---------------         ---------------           ---------------
Total stockholders' deficit                                          (129,084)                (14,671)                 (143,755)
                                                              ---------------         ---------------           ---------------
Total liabilities and stockholders' deficit                   $       374,252         $       (17,388)          $       356,864
                                                              ===============         ===============           ===============

<PAGE>
<CAPTION>
                                                                          December 31, 2002
                                                        -----------------------------------------------

                                                                Further
                                                              Restatement
                                                              Adjustments                  As Restated
                                                        --------------------          -----------------
<S>                                                           <C>                        <C>
ASSETS
Current Assets:
Cash and cash equivalents                                                                $         9,095
Accounts receivable, net                                      $           182                     36,329
Inventories, net                                                                                  15,445
Prepaid expenses                                                                                   2,935
Other current assets                                                                               1,797
                                                              ---------------            ---------------
Total current assets                                                      182                     65,601

Property and equipment, net                                               290                      6,589
Capitalized software, net                                                                          4,970
Goodwill                                                               98,175                    241,324
Deferred financing costs, net                                             926                      7,091
Other intangible assets, net                                          (17,249)                    88,687
Other assets and investments                                             (552)                    24,374
                                                              ---------------            ---------------
Total assets                                                  $        81,772            $       438,636
                                                              ===============            ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable                                              $           (44)           $        20,825
Accrued payroll, commissions and benefits                                  --                      8,688
Current portion of deferred revenue                                       181                     39,600
Other accrued liabilities                                                  --                     23,317
Current portion of long-term debt                                          --                      7,721
                                                              ---------------            ---------------
Total current liabilities                                                 137                    100,151

Deferred revenue, net of current portion                                                           1,004
Deferred tax liabilities                                               (2,800)                     7,900
Due to related party                                                       --                         --
Long-term debt                                                                                   266,219
                                                              ---------------            ---------------
Total liabilities                                                      (2,663)                   375,274
                                                              ---------------            ---------------

Commitments and contingencies
15% redeemable senior preferred stock                                     806                    110,772
                                                              ---------------            ---------------
Warrants on common stock of subsidiaries                                                          11,751
                                                              ---------------            ---------------
Common stock subject to redemption                                                                   965
                                                              ---------------            ---------------

Stockholders' deficit:
Common stock                                                                                          70
18% convertible preferred stock                                                                   18,381
Additional paid-in capital                                                 --                    131,453
Accumulated other comprehensive loss                                                              (3,357)
Accumulated deficit                                                    83,629                   (206,673)
                                                              ---------------            ---------------
Total stockholders' deficit                                            83,629                    (60,126)
                                                              ---------------            ---------------
Total liabilities and stockholders' deficit                   $        81,772            $       438,636
                                                              ===============            ===============
</TABLE>

(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commissionon March 31, 2004.


                                      113
<PAGE>

                         WRC MEDIA INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2002
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                           Year Ended December 31, 2002
                                                             -----------------------------------------------------------
                                                                                                            As
                                                              As Previously         Initial         Previously Restated
                                                               Reported in        Restatement        in March 31, 2004
                                                             2002 Form 10-K       Adjustments          Form 8-K (1)
                                                             --------------   -------------------  --------------------
<S>                                                          <C>              <C>                  <C>
Revenue, net                                                 $     209,958    $         (2,127)      $       207,831

Cost of goods sold                                                  59,011                 911                59,922
                                                             --------------   -----------------      ----------------

     Gross profit                                                  150,947              (3,038)              147,909
                                                             --------------   -----------------      ----------------

Costs and expenses:
     Sales and marketing                                            49,096                (342)               48,754
     Research and development                                        1,728                  --                 1,728
     Distribution, circulation and fulfillment                      14,614                (602)               14,012
     Editorial                                                      10,847                  --                10,847
     General and administrative                                     24,470                 874                25,344
     Restructuring costs and other non-recurring expenses            8,594                  --                 8,594
     Depreciation                                                    3,041                  --                 3,041
     Amortization of intangible assets                              18,812                 146                18,958
                                                             --------------   -----------------      ----------------

     Total operating costs and expenses                            131,202                  76               131,278
                                                             --------------   -----------------      ----------------

     Income from operations                                         19,745              (3,114)               16,631

Interest expense, including amortization
   of deferred financing costs                                     (29,844)                 --               (29,844)
Loss on investment                                                  (3,064)                 --                (3,064)
Other income (expense), net                                            721                  --                   721
                                                             --------------   -----------------      ----------------

     Loss before income tax provision and cumulative
        effect of change in accounting principle                   (12,442)             (3,114)              (15,556)

Income tax provision                                                10,980                  --                10,980
                                                             --------------   -----------------      ----------------

     Loss before cumulative effect of change
        in accounting principle                                    (23,422)             (3,114)              (26,536)

Cumulative effect of change in accounting principle,
   net of tax                                                      (72,022)                 --               (72,022)
                                                             --------------   -----------------      ----------------

     Net loss                                                    $ (95,444)           $ (3,114)            $ (98,558)
                                                             ==============   =================      ================

<CAPTION>
                                                                Year Ended December 31, 2002
                                                             --------------------------------
                                                                  Further
                                                                Restatement
                                                                Adjustments     As Restated
                                                                -------------  --------------
<S>                                                             <C>            <C>
Revenue, net                                                     $       42    $    207,873

Cost of goods sold                                                       31          59,953
                                                                 ------------  -------------

     Gross profit                                                        11         147,920
                                                                 ------------  -------------

Costs and expenses:
     Sales and marketing                                               (166)         48,588
     Research and development                                            --           1,728
     Distribution, circulation and fulfillment                           --          14,012
     Editorial                                                           --          10,847
     General and administrative                                         590          25,934
     Restructuring costs and other non-recurring expenses                --           8,594
     Depreciation                                                        24           3,065
     Amortization of intangible assets                               (2,305)         16,653
                                                                 ------------  -------------

     Total operating costs and expenses                              (1,857)        129,421
                                                                 ------------  -------------

     Income from operations                                           1,868          18,499

Interest expense, including amortization
   of deferred financing costs                                         (217)        (30,061)
Loss on investment                                                       --          (3,064)
Other income (expense), net                                              --             721
                                                                 ------------  -------------

     Loss before income tax provision and cumulative
        effect of change in accounting principle                      1,651         (13,905)

Income tax provision                                                 (2,800)          8,180
                                                                 ------------  -------------

     Loss before cumulative effect of change
        in accounting principle                                       4,451         (22,085)

Cumulative effect of change in accounting principle,
   net of tax                                                        72,022              --
                                                                 ------------  -------------

     Net loss                                                    $   76,473    $    (22,085)
                                                                 ============  =============
</TABLE>

(1) As originally reported in WRC Media Inc.'s Form 8-K as filed with the
Securities and Exchange Commission on March 31, 2004.

                                      114
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31, 2001
                                                             ---------------------------------------------------------------------
                                                                                             Initial
                                                                   As Previously            and Further
                                                                    Reported in             Restatement
                                                                  2002 Form 10-K            Adjustments            As Restated
                                                             --------------------     ----------------------  --------------------
<S>                                                           <C>                     <C>                     <C>
Revenue, net                                                  $           231,469     $            (4,572)    $           226,897

Cost of goods sold                                                         65,682                    (936)                 64,746
                                                              -------------------     -------------------     -------------------

  Gross profit                                                            165,787                  (3,636)                162,151
                                                              -------------------     -------------------     -------------------

Costs and expenses:
  Sales and marketing                                                      54,658                     449                  55,107
  Research and development                                                  5,751                     238                   5,989
  Distribution, circulation and fulfillment                                14,350                    (651)                 13,699
  Editorial                                                                10,558                     120                  10,678
  General and administrative                                               26,431                   3,330                  29,761
  Restructuring costs and other non-recurring expenses                         --                      --                      --
  Depreciation                                                              3,227                      24                   3,251
  Amortization of intangible assets                                        63,757                  (4,563)                 59,194
                                                              -------------------     -------------------     -------------------

Total operating costs and expenses                                        178,732                  (1,053)                177,679
                                                              -------------------     -------------------     -------------------

Loss from operations                                                      (12,945)                 (2,583)                (15,528)

Interest expense, including amortization
 of deferred financing costs                                              (33,319)                   (136)                (33,455)
Loss on investment                                                           (875)                     --                    (875)
Other income (expense), net                                                  (708)                     --                    (708)
                                                              -------------------     -------------------     -------------------

  Loss before income tax provision                                        (47,847)                 (2,719)                (50,566)

Income tax provision                                                          658                      --                     658
                                                              -------------------     -------------------     -------------------

Net loss                                                      $           (48,505)    $            (2,719)    $           (51,224)
                                                              ===================     ===================     ===================
</TABLE>

25. QUARTERLY DATA (UNAUDITED)

The following is a summary of the unaudited selected quarterly results for which
all adjustments necessary for presentation of each period were included. As
discussed in Note 24, the results of operations for the years ended December 31,
2002 and 2003 and for the quarterly periods in the years ended December 31, 2002
and 2003 have been restated.

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                        ---------------------------------------------------------------------------------
                                              March 31                   March 31                      March 31
                                        ----------------------  ---------------------------   ---------------------------
                                           (as originally        (as previously restated           (as restated for
                                             reported in            in March 31, 2004            further restatement
                                             Form 10-Q)                  Form 8-K)                   adjustments)

<S>                                       <C>                     <C>                         <C>
2003
Revenues                                  $        46,977         $        47,220             $        47,038
Gross profit                                       34,243                  34,163                      33,765
Operating costs and expenses                       30,730                  29,926                      29,342
Income / (loss) from operations                     3,513                   4,237                       4,423
Net income / (loss)                                (4,388)                 (3,664)                     (3,753)


2002
Revenues                                  $        46,787         $        46,974             $        47,016
Gross profit                                       33,413                  33,079                      33,090
Operating costs and expenses                       30,995                  32,408                      32,395
Income / (loss) from operations                     2,418                     671                         695
Net income / (loss)                               (86,752)                (88,499)                    (13,186)


                                                                          Three Months Ended
                                        ----------------------------------------------------------------------------------
                                               June 30                    June 30                       June 30
                                        -----------------------  ---------------------------  ----------------------------
                                            (as originally        (as previously restated          (as restated for
                                             reported in             in March 31, 2004            further restatement
                                              Form 10-Q)                  Form 8-K)                   adjustments)
2003
Revenues                                  $        43,493         $        43,960             $        44,141
Gross profit                                       30,951                  31,133                      31,057
Operating costs and expenses                       27,631                  28,211                      27,328
Income / (loss) from operations                     3,320                   2,922                       3,729
Net income / (loss)                                (4,710)                 (5,108)                     (4,874)


2002
Revenues                                  $        43,939         $        44,562             $        44,562
Gross profit                                       31,158                  31,287                      31,287
Operating costs and expenses                       27,509                  30,067                      29,363
Income / (loss) from operations                     3,649                   1,220                       1,924
Net income / (loss)                                (5,309)                 (7,738)                     (7,264)
</TABLE>


                                      115
<PAGE>

WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                        ----------------------------------------------------------------------------------
                                            September 30               September 30                  September 30
                                        ----------------------  ---------------------------   ---------------------------
                                           (as originally        (as previously restated           (as restated for
                                             reported in            in March 31, 2004            further restatement
                                             Form 10-Q)                  Form 8-K)                   adjustments)
2003
<S>                                         <C>                   <C>                           <C>
Revenues                                    $       55,322        $       55,387                $       55,387
Gross profit                                        40,608                40,401                        40,585
Operating costs and expenses                        28,827                28,754                        28,570
Income / (loss) from operations                     11,781                11,647                        12,015
Net income / (loss)                                  3,579                 3,445                         3,541


2002
Revenues                                    $       56,456        $       56,549                $       56,549
Gross profit                                        41,081                40,681                        40,681
Operating costs and expenses                        28,651                29,219                        28,649
Income / (loss) from operations                     12,430                11,462                        12,032
Net income / (loss)                                  4,561                 3,593                         3,935


                                                                             Three Months Ended
                                         -----------------------------------------------------------------------------------
                                              December 31                December 31                   December 31
                                         -----------------------  ---------------------------  ----------------------------
                                             (as originally        (as previously restated          (as restated for
                                              reported in             in March 31, 2004            further restatement
                                               Form 10-Q)                  Form 8-K)                   adjustments)
2003
Revenues                                    $       57,015          $       56,137              $       56,137
Gross profit                                        41,381                  40,604                      40,851
Operating costs and expenses                        35,452                  34,721                      34,599
Income / (loss) from operations                      5,929                   5,883                       6,252
Net income / (loss)                                 (2,293)                 (2,447)                     (2,348)


2002
Revenues                                    $       62,776          $       59,746              $       59,746
Gross profit                                        45,295                  42,860                      42,862
Operating costs and expenses                        44,047                  39,582                      39,014
Income / (loss) from operations                      1,248                   3,278                       3,848
Net income / (loss)                                 (7,944)                 (5,914)                     (5,570)

</TABLE>


26.  SUBSEQUENT EVENT

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

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

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

     o   the proceeds of the incurrence of certain indebtedness

     o   the proceeds of certain asset sales or other dispositions

     o   change in control

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

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

The First-Lien Facility, as amended and restated, has a maturity of December 29,
2008, and has one financial covenant, a senior leverage ratio of Senior Secured
Debt to trailing four quarter EBITDA (as defined therein) not to exceed
4.00:1.00 for any fiscal quarter, except the fiscal quarter ended June 30, 2005
for which the senior leverage ratio may not exceed 4.25:1.00, in each case to be
tested on the last day of the fiscal quarter and computed for the Company and



                                      116
<PAGE>


WRC MEDIA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


its consolidated subsidiaries. Interest on revolving loan borrowings under the
First-Lien Facility will bear interest at a rate per annum equal to the LIBO
rate as defined in the First-Lien Facility plus 3.5% or the alternate base rate
as defined in the First-Lien Facility plus 2.5%.

As a result of the refinancing, the Company will write-off the remaining
balances of deferred financing fees associated with the First-Lien Facility of
approximately $1,914 in 2004.

In connection with the refinancing, the Company incurred costs and expenses,
primarily investment banking and legal fees of approximately $6,138. These
amounts will recorded as deferred financing fees in 2004 and will be amortized
over the term of the Second-Lien Facility using the effective interest method.


                                      117
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Weekly Reader
Corporation and subsidiaries (the "Company"), a 94.9% owned subsidiary of WRC
Media Inc., as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended December 31, 2003. Our audits also included the
financial statement schedule listed in the index at Item 15. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, such consolidated financial statements present fairly, in all
material respects, the financial position of Weekly Reader Corporation and
subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.

As discussed in Notes 2 and 7 of the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142 as of
January 1, 2002.

As discussed in Note 20, the accompanying consolidated financial statements have
been restated.



DELOITTE & TOUCHE LLP

New York, New York
June 15, 2004


                                      118
<PAGE>


WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                         December 31,
                                ASSETS                                                       2002                      2003
                                ------                                               ---------------------     ---------------------
                                                                                         (As Restated              (As Restated
                                                                                         See Note 20)              See Note 20)
<S>                                                                                  <C>                         <C>
CURRENT ASSETS:
  Cash                                                                                $         7,819             $         1,267
  Accounts receivable (net of allowance for doubtful
  accounts and sales returns of $3,038 and $2,179 respectively)                                22,447                      20,880
  Inventories, net                                                                             14,368                      15,890
  Due from related party                                                                        9,454                      11,502
  Prepaid expenses                                                                              2,692                       2,882
  Other current assets (including restricted assets of $1,403 and
    $1,006, respectively)                                                                       1,797                       1,889
                                                                                      ---------------             ---------------
   Total current assets                                                                        58,577                      54,310

PROPERTY AND EQUIPMENT, net                                                                     5,699                       4,665
GOODWILL                                                                                      101,978                     101,978
DEFERRED FINANCING COSTS, net                                                                     692                         512
OTHER INTANGIBLE ASSETS, net                                                                   34,949                      31,580
OTHER ASSETS AND INVESTMENTS                                                                   24,189                      29,711
                                                                                      ---------------             ---------------

   Total assets                                                                       $       226,084             $       222,756
                                                                                      ===============             ===============

</TABLE>

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


                                      119
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)
(amounts in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                                      December 31,
                 LIABILITIES AND STOCKHOLDERS' DEFICIT                                     2002                       2003
                 -------------------------------------                               ----------------            ----------------
                                                                                         (As Restated              (As Restated
                                                                                         See Note 20)              See Note 20)
<S>                                                                                  <C>                         <C>
CURRENT LIABILITIES:
  Accounts payable                                                                    $        18,839             $        15,446
  Accrued expenses and other current liabilities                                               20,122                      15,865
  Deferred revenue                                                                             20,657                      17,565
  Current portion of long-term debt                                                             7,721                       8,477
                                                                                      ---------------             ---------------
   Total current liabilities                                                                   67,339                      57,353

DEFERRED TAX LIABILITIES                                                                        4,100                       4,800
LONG-TERM DEBT                                                                                266,219                     262,925
                                                                                      ---------------             ---------------
   Total liabilities                                                                          337,658                     325,078
                                                                                      ---------------             ---------------

COMMITMENTS AND CONTINGENCIES
15% REDEEMABLE SENIOR PREFERRED STOCK,
     including accrued dividends and accretion of warrant value
     (3,000,000 and 5,508,080 shares outstanding, respectively)
     (Liquidation preference of $138,637)                                                     119,652                    138,636
                                                                                      ---------------            ---------------

STOCKHOLDERS' DEFICIT:
  Common stock, ($.01 par value, 20,000,000 shares authorized;
  2,830,000 shares outstanding in 2002 and 2003)                                                   28                         28
  Additional paid-in capital                                                                    9,133                      9,133
  Due from parent                                                                             (61,805)                   (56,464)
  Accumulated other comprehensive loss                                                         (3,357)                    (1,899)
  Accumulated deficit                                                                        (175,225)                  (191,756)
                                                                                      ---------------            ---------------

   Total stockholders' deficit                                                               (231,226)                  (240,958)
                                                                                      ---------------            ---------------

   Total liabilities and stockholders' deficit                                        $       226,084            $       222,756
                                                                                      ===============            ===============
</TABLE>

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


                                      120
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands)


<TABLE>
<CAPTION>
                                                                         2001                   2002                  2003
                                                                  ------------------     -----------------     ------------------
                                                                    (As Restated           (As Restated          (As Restated
                                                                    See Note 20)           See Note 20)          See Note 20)
<S>                                                                <C>                   <C>                   <C>

REVENUE, net                                                        $       158,480       $       155,055       $       152,110

COST OF GOODS SOLD                                                           40,897                38,647                37,739
                                                                    ---------------       ---------------       ---------------

  Gross profit                                                              117,583               116,408               114,371
                                                                    ---------------       ---------------       ---------------

COSTS AND EXPENSES:
  Sales and marketing                                                        29,478                28,179                28,241
  Distribution, circulation and fulfillment                                  13,699                14,012                14,626
  Editorial                                                                  10,678                10,847                10,365
  General and administrative                                                 20,649                18,654                19,011
  Restructuring costs                                                            --                 4,280                  (516)
  Depreciation                                                                2,011                 1,969                 1,706
  Amortization of intangible assets                                           8,738                 7,252                 9,088
                                                                    ---------------       ---------------       ---------------

  Total operating costs and expenses                                         85,253                85,193                82,521
                                                                    ---------------       ---------------       ---------------

  Income from operations                                                     32,330                31,215                31,850

INTEREST EXPENSE, INCLUDING AMORTIZATION OF
DEFERRED FINANCING COSTS                                                    (32,267)              (28,877)              (28,091)
OTHER INCOME (EXPENSE), net                                                    (634)                  965                  (696)
                                                                    ---------------       ---------------       ---------------

  Income (loss) before income tax provision                                    (571)                3,303                 3,063

INCOME TAX PROVISION                                                            281                 4,201                   612
                                                                    ---------------       ---------------       ---------------

  Net (loss) income                                                 $          (852)      $          (898)      $         2,451
                                                                    ===============       ===============       ===============
</TABLE>

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


                                      121
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands)

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                             Common Stock   Additional      Due          Other
                                             -------------    Paid-In      From      Comprehensive  Accumulated  Total Stockholders'
                                             Shares  Value    Capital     Parent     Income (loss)    Deficit          Deficit
                                             ------  -----  ---------  ----------    ------------  -----------  -------------------
<S>                                          <C>     <C>    <C>        <C>           <C>           <C>          <C>
Balance, January  1, 2001 (as restated,
  see Note 20)                                2,830   $ 28   $ 9,133   $ (69,021)    $         9   $ (142,542)  $         (202,393)
     Other comprehensive (loss):
     Net loss (as restated,
       see Note 20)                               -      -         -           -               -         (852)
     Minimum pension liability                    -      -         -           -            (325)           -
        Total comprehensive loss                  -      -         -           -               -            -               (1,177)
     Preferred stock dividends
       (as restated, see Note 20)                 -      -         -           -               -      (14,549)             (14,549)
     Change in due from parent (as restated,
       see Note 20)                               -      -         -       2,247               -            -                2,247
                                             ------  -----  ---------  ----------    ------------  -----------  -------------------
Balance, December 31, 2001 (as restated,
  see Note 20)                                2,830   $ 28   $ 9,133   $ (66,774)    $      (316)  $ (157,943)  $         (215,872)
     Other comprehensive Income (loss):
     Net income (as restated,
       see Note 20)                               -      -         -           -               -         (898)
     Minimum pension liability                    -      -         -           -          (3,041)           -
        Total comprehensive loss                                                                                            (3,939)
     Preferred stock dividends
        (as restated, see Note 20)                -      -         -           -               -      (16,384)             (16,384)
     Change in due from parent (as restated,
        see Note 20)                              -      -         -       4,969               -            -                4,969
                                             ------  -----  ---------  ----------    ------------  -----------  -------------------
Balance, December 31, 2002 (as restated,
  see Note 20)                                2,830   $ 28   $ 9,133   $ (61,805)    $    (3,357)  $ (175,225)  $         (231,226)
                                             ======  =====  =========  ==========    ============  ===========  ===================
     Other comprehensive Income (loss):
     Net income (as restated,
       see Note 20)                               -      -         -           -               -        2,451
     Minimum pension liability                    -      -         -           -           1,458            -
        Total comprehensive income                                                                                           3,909
     Preferred stock dividends
        (as restated, see Note 20)                -      -         -           -               -      (18,982)             (18,982)
     Change in due from parent (as restated,
       see Note 20)                               -      -         -       5,341               -            -                5,341
                                             ------  -----  ---------  ----------    ------------  -----------  -------------------
Balance, December 31, 2003 (as restated,
  see Note 20)                                2,830   $ 28   $ 9,133   $ (56,464)    $    (1,899)  $ (191,756)  $         (240,958)
                                             ======  =====  =========  ==========    ============  ===========  ===================
</TABLE>

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

                                      122
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(amounts in thousands)

<TABLE>
<CAPTION>
                                                                             2001                 2002                 2003
                                                                       -----------------    -----------------    -----------------
                                                                         (As Restated         (As Restated         (As Restated
                                                                         See Note 20)         See Note 20)         See Note 20)
<S>                                                                    <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income                                                      $           (852)    $           (898)    $          2,451

Adjustments to reconcile net (loss) income to net cash
used in operating activities:
     Deferred income tax provision                                                    -                4,100                  700
     Depreciation and amortization                                               10,745                9,221               10,794
     Write-off of acquisition costs                                                   -                   49                    -
     Amortization of deferred financing costs                                       120                  181                  180
     Loss on dispositions of property and equipment                                 130                  711                   84
     Amortization of debt discount                                                  345                  396                  451
     Changes in operating assets and liabilities:
             Accounts receivable                                                  2,171                2,194                1,567
             Inventories                                                            486                 (635)              (1,522)
             Prepaid expenses and other assets                                   (2,788)                 349              (11,524)
             Accounts payable                                                    (1,295)               2,752               (3,393)
             Deferred revenue                                                    (1,611)               2,149               (3,092)
             Accrued expenses and other liabilities                              (2,972)              (9,563)              (2,797)
                                                                       -----------------    -----------------    -----------------

                Net cash provided by (used in) operating activities               4,479               11,006               (6,101)
                                                                       -----------------    -----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisitions, net of cash acquired                            (6,050)                   -                    -
     Purchase of property and equipment                                          (3,849)              (1,102)                (759)
     Proceeds from disposition of property and equipment                              -                  578                    4
                                                                       -----------------    -----------------    -----------------

                Net cash used in investing activities                            (9,899)                (524)                (755)
                                                                       -----------------    -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from revolving line of credit                                      28,000               33,000               34,000
     Repayments of revolving line of credit                                     (28,000)             (33,000)             (29,000)
     Retirement of senior bank debt                                              (4,587)              (6,171)              (7,989)
     Deferred financing fees                                                       (993)                   -                    -
     Proceeds from term loans                                                    10,000                    -                    -
     Due from parent, net                                                         1,530                5,133                5,341
     Due from related party                                                       2,247               (7,316)              (2,048)
                                                                       -----------------    -----------------    -----------------

                Net cash provided by (used in) financing activities               8,197               (8,354)                 304
                                                                       -----------------    -----------------    -----------------

Increase (decrease) in cash and cash equivalents                                  2,777                2,128               (6,552)

CASH AND CASH EQUIVALENTS, beginning of year                                      2,914                5,691                7,819
                                                                       -----------------    -----------------    -----------------

CASH AND CASH EQUIVALENTS, end of year                                 $          5,691     $          7,819     $          1,267
                                                                       =================    =================    =================
</TABLE>

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

                                      123
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


1. DESCRIPTION OF BUSINESS

The consolidated financial statements of Weekly Reader Corporation ("WRC")
include the accounts of WRC and its subsidiary, Lifetime Learning System, Inc.
("Lifetime Learning"), World Almanac Education Group ("WAE") and its
subsidiaries, Funk & Wagnalls Yearbook Corporation and Gareth Stevens, Inc.
("Gareth Stevens"), and American Guidance and its subsidiary, AGS International
Sales, Inc. (all are collectively referred to as "Weekly Reader" or the
"Company"). At December 31, 2002 and 2003, WRC Media Inc. (the "Parent") owns
94.9% and PRIMEDIA, Inc. owns 5.1% of the common stock of Weekly Reader. On May
9, 2001 American Guidance acquired through a subsidiary all of the operating
assets of Lindy Enterprises, Inc. ("Lindy") for approximately $6,050. The
transaction was accounted for as an asset purchase. Lindy develops
curriculum-based skills assessment and test preparation products that correlate
to national and state curriculum.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly- and majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the amount of assets, liabilities,
revenues and expenses reported in the consolidated financial statements. Actual
results could differ from these estimates. Significant accounting estimates used
include estimates for sales returns and allowances, bad debts, the carrying
value of goodwill, intangible assets, the realizability of deferred tax assets
depreciation and amortization.

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 the carrying value as necessary.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.
Improvements are capitalized while maintenance and repairs are expensed as
incurred.

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 were deferred and are being amortized on a straight-line basis over the
term of the related debt. Amortization of deferred financing costs charged to
operations for the years ended December 31, 2001, 2002 and 2003 were $120, $181
and $180, 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. Revenues on sales of books to
certain distributors are recognized when the Company's products are sold by
them to their customers, net of an allowance for returns. Consigned inventory
associated with sales to distributors is not significant at December 31, 2002
and 2003.


                                      124
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)

In November 2002, the Emerging Issues Task Force ("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 did not have a material impact
on the Company's consolidated financial statements.

For contracts with multiple obligations (e.g., deliverable and undeliverable
products, and other post contract support), the Company allocates revenue to
each component of the contract based on objective evidence of its fair value, or
for products not yet being sold separately, the price established by management
for the item when it will be sold separately. 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 periodical subscriptions when the issue is shipped and
available to the subscribers.

Comprehensive Loss

SFAS 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 primarily of minimum pension
liability adjustments.

Prepublication 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 periods ranging from three
to ten years. Capitalized editorial costs are recorded as other assets. As of
December 31, 2002 and 2003, other assets and investments in the accompanying
consolidated balance sheets, include prepublication costs (net of accumulated
amortization) of $19,119 and $22,215, respectively. Accumulated amortization of
prepublication costs at December 31, 2002 and 2003 was $9,378 and $15,098,
respectively. Amortization of prepublication costs, which is included in
depreciation and amortization in the accompanying consolidated statements of
operations, was $2,662, $3,882 and $5,720 for the years ended December 31, 2001,
2002 and 2003, 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
in the accompanying consolidated statements of operations. As of December 31,
2002 and 2003, other assets and investments on the accompanying balance sheet,
include direct-response advertising costs, (net of amortization) of $4,319 and
$5,761, respectively. Accumulated amortization of direct-response advertising
costs at December 31, 2002 and 2003 was $3,641 and $8,219, respectively.
Amortization of direct-response advertising costs, which is included in
marketing and selling on the accompanying consolidated statements of operations,
was $8,945, $7,430 and $6,606 for the years ended December 31, 2001, 2002 and
2003, respectively.


                                      125
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)

Capitalized Software Costs

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

Goodwill and Indefinite Lived Intangibles

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 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 142, the Company ceased amortizing
goodwill and indefinite lived intangible assets.

The Company tests goodwill for impairment, at least annually, and uses 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 are also tested at least
annually for impairment using a fair value approach.

Long-Lived Assets

Long-lived assets of the Company, including amortizable intangibles, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Management also
reevaluates the periods of amortization of long-lived assets to determine
whether events and circumstances warrant revised estimates of useful lives. When
such events or changes in circumstances occur, the Company tests for impairment
by comparing the carrying value of the long-lived asset to the estimated
undiscounted future cash flows expected to result from use of the asset and its
eventual disposition. If the sum of the expected undiscounted future cash flows
is less than the carrying amount of the asset, the Company would recognize an
impairment loss. The amount of the impairment loss will be determined by
comparing the carrying value of the long-lived asset to the present value of the
net future operating cash flows to be generated by the asset.

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.


                                      126
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts 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 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 12). A valuation is required to
offset any net deferred tax assets if, based on the available evidence, it is
more likely than not that some or all of the deferred tax asset will not be
realized.

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, 2003 are as follows:

<TABLE>
<CAPTION>
                                            Fair Value           Carrying Amount          Face Value
                                            ----------           ---------------          ----------
<S>                                         <C>                  <C>                      <C>
12 3/4 % Senior Subordinated Notes           $149,720               $147,724               $152,000

</TABLE>

The carrying value of the Company's 15% Senior Preferred Stock approximates its
fair value at December 31, 2003. The fair value at December 31, 2003 of the
Company's outstanding interest rate cap agreement was de-minimus (Note 13).

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.

Cash and Cash Equivalents

Management considers all highly liquid instruments purchased with an original
maturity of 90 days or less to be cash equivalents.

                                      127
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


Recent Accounting Pronouncements

In August 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 143 "Accounting for Asset Retirement Obligations" ("SFAS 143")
which requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The standard was effective for the Company beginning January 1,
2003. The adoption of SFAS 143 did not have any impact on the Company's
consolidated financial position or results of operations.

In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
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 were effective for
financial statements of periods ending after December 15, 2002. The Company
adopted the disclosure provisions of FIN 45 effective December 31, 2002.

The recognition provisions of FIN 45 regarding a guarantor's obligation must be
applied to guarantees issued after December 31, 2002. The adoption of the
recognition provisions of FIN 45, effective January 1, 2003, did not have a
significant effect on the Company's consolidated financial position or results
of operations.

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. In December 2003, the FASB issued FIN No. 46
(Revised) ("FIN 46R") to address certain FIN 46 implementation issues. This
interpretation requires that the assets, liabilities, and results of activities
of a Variable Interest Entity ("VIE") be consolidated into the financial
statements of the enterprise that is the primary beneficiary of the VIE. FIN 46R
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. This interpretation is effective no later
than the end of the first interim or reporting period ending after March 15,
2004, except for those VIE's that are considered to be special purpose entities,
for which the effective date is no later than the end of the first interim or
annual reporting period ending after December 15, 2003. The adoption of FIN 46R
will not have an impact on the Company's consolidated financial position or
results of operations.

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

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement will become effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective for the Company at the beginning of the first interim period
beginning after December 15, 2003. For financial instruments created before the
issuance date of this statement and still existing at the beginning of the
interim period of adoption, transition shall be achieved by reporting the
cumulative effect of a change in an accounting principle by initially measuring
the financial instruments at fair value or other measurement attribute required
by this statement. The adoption of this statement will require the Company to
reclassify its 15% Senior Preferred Stock from the mezzanine section of the
balance sheet to long-term liabilities. Future dividends payments for the Senior
Preferred Stock will be recorded as interest expense in the Consolidated
Statement of Operations. The adoption of this statement did not result in any
adjustment to the book value of its Senior Preferred Stock as of January 1, 2004
as book value approximated fair value at January 1, 2004.


                                      128
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


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

Segment Information

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

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

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

<TABLE>
<CAPTION>

                                                             Weekly      World
                                                             Reader     Almanac       AGS      Corporate    Eliminations     Total
                                                             ------     -------    ---------   ---------    ------------     -----
<S>                                                          <C>        <C>        <C>         <C>          <C>            <C>
2003
-------------------------------------------
Net Revenue                                                  46,269      49,189      56,652            -            -      152,110
Income from operations                                        9,002       7,360      14,225        1,263            -       31,850
Depreciation and amortization                                   702       2,264       7,781           47            -       10,794
Restructuring and other non-recurring items                       -          21         (41)        (496)           -         (516)
Assets                                                       57,282      99,116     183,183      (23,126)     (93,699)     222,756
Capital expenditures                                            273         141         335           10                       759

2002
-------------------------------------------
Net Revenue                                                  44,794      52,385      57,876            -            -      155,055
Income from operations                                        9,127      11,138      14,032       (3,082)           -       31,215
Depreciation and amortization                                   848       1,622       6,661           90            -        9,221
Restructuring and other non-recurring items                     214         691         496        2,879                     4,280
Assets                                                       60,350      92,916     166,842      (18,697)     (75,327)     226,084
Capital expenditures                                            456         184         440           22                     1,102

2001
-------------------------------------------
Net Revenue                                                  46,353      55,303      56,824            -            -      158,480
Income from operations                                        8,593      12,312      12,579       (1,154)           -       32,330
Depreciation and amortization                                 1,375       1,873       7,453           44            -       10,745
Assets                                                       55,757      82,442     158,184       (9,431)     (57,802)     229,150
Capital expenditures                                            156       2,053         884          756            -        3,849

</TABLE>

3. ACQUISITIONS

On May 9, 2001, the Company acquired the assets of Lindy. Lindy develops a
curriculum-based skills assessment and test preparation product that correlates
to national and state curriculum. The Lindy acquisition was made to expand and
enhance the current AGS offering of state specific test preparation materials;
using the Lindy software engine, individual state tests could be marketed to
those states with specific testing programs. In addition, the Lindy software
engine is to be utilized to adapt the current American Guidance Service ("AGS")
product lines for electronic versions and product extensions. This allows
current AGS content to be leveraged through the use of electronic delivery. The
total cost of the acquisition of Lindy was $6,050 in cash and was allocated to
the assets acquired based on their estimated fair values as follows-


       Property and equipment                             $       80
       Software technology                                     6,420
       Goodwill                                                   50
       Assumed liabilities                                      (500)
                                                          ----------
                                                          $    6,050
                                                          ==========

The results of operations of Lindy have been reflected in the Company's
consolidated results of operations from its date of acquisition, May 9, 2001.
Pro forma results of operations for Lindy have not been presented as they are
not material to the consolidated results of operations of the Company.

4.     ACCOUNTS RECEIVABLE,

Accounts receivable at December 31, 2002 and 2003 are as follows:

                                                      2002          2003
                                                  -----------   -----------

       Accounts receivable                        $  25,485       $ 23,059
       Less:
          Allowance for doubtful accounts            (1,389)        (1,410)
          Allowance for sales returns                (1,649)          (769)
                                                  ---------       --------
                                                  $  22,447       $ 20,880
                                                  =========       ========


                                      129
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


5.     INVENTORIES

Inventories at December 31, 2002 and 2003 are as follows:

                                                           2002          2003
                                                         -------       --------

Finished goods                                           $ 14,272      $ 15,853
Raw materials                                                  96            37
                                                         --------      --------
                                                         $ 14,368      $ 15,890
                                                         ========      ========

6.     PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2002 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                            Range of
                                                                             Lives
                                                                             (Years)       2002        2003
                                                                            ---------  ---------   ---------

<S>                                                                          <C>       <C>         <C>
       Machinery, equipment and other                                        3-10      $   7,523   $   7,571
       Furniture and fixtures                                                5-10          3,666       3,441
       Leasehold improvements                                                3-15          2,731       2,875
       Internal use software                                                  5            2,209       2,325
                                                                                       ---------   ---------
                                                                                          16,129      16,212
       Less- accumulated depreciation and amortization                                   (10,430)    (11,547)
                                                                                       ---------   ---------
                                                                                       $   5,699   $   4,665
                                                                                       =========   =========
</TABLE>

Depreciation expense was $2,011, $1,969 and $1,706 for the years ended December
31, 2001, 2002 and 2003, respectively.

7.     GOODWILL

On January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible
Assets." 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 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 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. 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
prepublication costs, are based on estimates related to the Company's strategic
initiatives and current market conditions. Such assumptions also are consistent
with those utilized in the Company's annual planning process. The Company's
transition analysis indicated that there was no impairment of goodwill and
indefinite lived intangible assets as of January 1, 2002. WRC is required to
perform impairment tests on an annual basis, or between yearly tests under
certain circumstances for goodwill and indefinite lived intangibles.


                                      130
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


WRC performed its annual impairment tests during the fourth quarters of 2002 and
2003. No impairment of goodwill and indefinite lived intangibles was required.
There were no changes in the carrying value of the Company's goodwill and
indefinite lived intangibles during the years ended December 31, 2002 and 2003.

                                                   December 31,  December 31,
                                                       2002          2003
                                                   -----------   ------------

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

WRC recorded non-cash deferred income tax expense of approximately $3,500 on
January 1, 2002, for taxable temporary differences that will not reverse prior
to expiration of the Company's net operating loss carryforward periods. The
non-cash charge of $3,500 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 its net operating loss equal to the excess of tax over book
amortization on tax-deductible goodwill and indefinite lived assets 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, trademarks and copyrights 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 recorded an additional $600 and $700 to increase the deferred tax
liabilities for the years ended December 31, 2002 and 2003, respectively. The
Company expects that it will record an additional $640 to increase the deferred
tax liabilities during 2004.

The following information presents the Company's pro forma net loss as if SFAS
142 had been applicable to all periods presented:

                                                 Year Ended December 31,
(in thousands)                            2001            2002           2003
                                      ---------        ---------      --------
Reported net income (loss)            $    (852)       $    (898)     $  2,451
     Addback:
       Goodwill amortization              2,904                -             -
       Amortization of trademarks
         and copyrights                     414                -             -
       Deferred Income Tax Expense         (600)           3,500             -
                                      ---------        ---------      --------
Adjusted net income                   $   1,866        $   2,602      $  2,451
                                      =========        =========      ========

8.     OTHER INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                              -----------------------------------------    -------------------------------------
                                                         December 31, 2002                           December 31, 2003
                                              -----------------------------------------    -------------------------------------
                                                            Accumulated                                Accumulated
                              Useful Lives       Gross     Amortization          Net        Gross      Amortization      Net
                              ------------    ---------   ----------------    ---------    ---------   -------------   ---------
<S>                           <C>             <C>         <C>                 <C>          <C>         <C>             <C>

Customer Lists                6-15 yrs        $    318    $          (122)    $    196     $    318    $       (161)   $    157
Copyrights                    10-20 yrs         19,936             (3,711)      16,225       19,936          (4,901)     15,035
Software                      3 yrs              6,420             (3,567)       2,853        6,420          (5,707)        713
                                              ---------   ----------------    ---------    ---------   -------------   ---------
                   Total:                     $ 26,674    $        (7,400)    $ 19,274     $ 26,674    $    (10,769)   $ 15,905
                                              =========   ================    =========    =========   =============   =========
</TABLE>

For trademarks and copyrights not subject to amortization, which are included in
other intangible assets, the total carrying amount at December 31, 2002 and 2003
was $15,675.


                                      131
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


Amortization of intangibles for the years ended December 31, 2001, 2002 and 2003
was $3,170, $3,370 and $3,369, respectively, and is included in amortization of
goodwill and intangible assets on the consolidated statements of operations.

The estimated amortization expense for intangible assets subject to amortization
for the next five years is as follows:

       2004.....................................       $   1,943
       2005.....................................           1,225
       2006.....................................           1,184
       2007.....................................           1,181
       2008.....................................           1,144
       Thereafter...............................       $   9,228

9.     OTHER ASSETS AND INVESTMENTS

Other assets and investments at December 31, 2002 and 2003 are as follows:

                                                   2002              2003
                                                ---------         ---------

Pre-publication costs, net                      $  19,119         $  22,215
Direct response advertising costs, net              4,319             5,761
Other                                                 751             1,735
                                                ----------        ---------
                                                $  24,189         $  29,711
                                                =========         =========

10.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities at December 31, 2002 and 2003 are
as follows:

<TABLE>
<CAPTION>
                                                                                2002               2003
                                                                            ----------         ------------
<S>                                                                        <C>                <C>
       Rabbi Trust (Note 16)                                                $     1,403        $      1,006
       Payroll and related employee benefits                                      4,818               5,784
       Pension liability (Note 15)                                                5,056               3,988
       Accrued restructuring costs (Note 11)                                      2,771               1,008
       Royalties                                                                  1,397               1,222
       Management fees due to principal shareholder of WRC Media                    800                 500
       Accrued interest                                                           1,447                 691
       Taxes payable, other than income                                             507                 312
       Other                                                                      1,923               1,354
                                                                            -----------        ------------
                                                                            $    20,122        $     15,865
                                                                            ===========        ============
</TABLE>


11. RESTRUCTURING AND OTHER NON-RECURRING EXPENSES

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF 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)". SFAS 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.
SFAS 146 establishes that fair value is the objective for initial measurement of
the liability. The Company adopted SFAS 146 in December 2002.



                                      132
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


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
$4,300.

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 $1,600 relate to the reduction of these employees from the
workforce. This workforce reduction involved each of the three operating units
of WRC. Most of the workforce reductions represented administrative and back
office related employees. 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 the
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. All office space was vacated prior to accrual of this expense.

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

<TABLE>
<CAPTION>
                                                                   Balance at                       Amounts       Balance at
                                                                 January 1, 2002       Charges       Paid      December 31, 2002
                                                                 --------------      ---------    ---------    -----------------
<S>                                                              <C>                 <C>          <C>             <C>
Severance and other benefits                                     $         --        $ 1,630      $  (981)        $   649
Lease terminations                                                         --          2,162          (40)          2,122
Asset write-downs                                                          --            488         (488)             --
                                                                 --------------      -------      -------         -------
Total                                                            $         --        $ 4,280      $(1,509)        $ 2,771
                                                                 ==============      =======      =======         =======
</TABLE>

During the year ended December 31, 2003, the Company reviewed its restructuring
reserve established in 2002 and reduced the reserve by $516. The adjustment
primarily resulted from a decrease of $514 resulting from updating the
assumptions used in determining the fair value of the remaining lease
obligations associated with facilities vacated during 2002.

Components of the Company's 2002 restructuring plan are shown in the following
table for 2003:

<TABLE>
<CAPTION>
                                          Balance at                               Amounts            Balance at
                                      December 31, 2002         Charges             Paid          December 31, 2003
                                      -----------------        ---------          --------        -----------------
<S>                                     <C>                    <C>                <C>             <C>
Severance and other benefits            $        649           $      (2)         $   (627)            $       20
Lease terminations                             2,122                (514)             (620)                   988
                                        ------------           ---------          --------             ----------
Total                                   $      2,771           $    (516)         $ (1,247)            $    1,008
                                        ============           =========          ========             ==========

</TABLE>

The restructuring reserve totaling approximately $1,008 at December 31, 2003 is
expected to be paid as follows: $205 for the year ending December 31, 2004, 2005
and beyond - $803. These charges are included in accrued expenses and other
current liabilities in the consolidated balance sheets.


                                      133
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


12. INCOME TAXES

At December 31, 2003, the Company had available net operating loss carryforwards
(NOLs) of approximately $95,241. 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:

                                      Amount
                                   -----------
                    2019           $     2,236
                    2020                39,955
                    2021                17,552
                    2022                20,830
                    2023                14,668
                                   -----------
                                   $    95,241
                                   ===========

In 2001, 2002 and 2003, the Company recorded income tax expense of $281, $101,
and $(88), respectively, related to a provision for current state and local
taxes.

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
state and local taxes and changes in valuation allowances.

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>
                                                                                 2002                2003
                                                                              ----------          ----------
<S>                                                                            <C>                 <C>
         Deferred tax assets
             Accrued liabilities                                               $  2,025            $    821
             Other                                                                4,582               3,935
                                                                              ----------          ----------
                   Total current deferred tax assets                              6,607               4,756
             Difference between book and tax basis of indefinite lived
             intangibles                                                          2,857               2,353
         Difference between book and tax basis of other intangibles              18,420              17,822
         Net operating loss carryforward                                         30,488              36,788

         Other                                                                    2,084               1,616
                                                                              ----------          ----------
                   Total non-current deferred tax assets                         53,849              58,579


                         Total deferred tax assets                               60,456              63,335

         Deferred tax liabilities
             Difference between book and tax basis of indefinite lived
             intangibles                                                       $ (4,100)           $ (4,800)
             Differences between book and tax basis of circulation
             expenditures                                                          (599)             (1,169)

             Difference between book and tax resulting from the book
             restatement of income                                               (2,354)             (2,777)
                                                                              ----------          ----------

                         Total deferred tax liabilities                          (7,053)             (8,746)

              Total net deferred tax assets                                       53,403             54,589
                                                                              ----------          ----------


         Less: Valuation allowance                                              (57,503)            (59,389)
                                                                              ----------          ----------
         Net                                                                   $ (4,100)           $ (4,800)
                                                                              ==========          ==========
</TABLE>

Management has determined that the Company is not likely to realize the income
tax benefit of its net deferred tax assets. To the extent the Company generates
income in future years, the tax provision will reflect the realization of such
benefits, with the exception of benefits attributable to acquired deferred tax
assets. The recognition of such amount in future years will be allocated to
reduce the excess of the purchase price over the net assets acquired and other
non-current intangible assets.

As a result of the adoption of SFAS 142 in 2002, the Company continues to record
a valuation allowance in excess of its net deferred tax assets, to the extent
the difference between the book and tax basis of indefinite lived intangible
assets is not expected to reverse during the net operating loss carryforward
period. The Company recorded non-cash deferred income tax expense of
approximately $3,500 on January 1, 2002 related to the adoption of SFAS 142.

With the adoption of SFAS 142, the Company no longer amortizes the book basis in
the indefinite lived intangibles but continues to amortize these intangibles for
tax purposes. In 2002 and 2003, the Company recorded additional non-cash
deferred income tax expenses of $600 and $700, respectively, related to the
increase in its net deferred tax liability for the tax effect on the net
increase in the difference between the book and tax basis in the indefinite
lived intangible assets.

13. 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 balance sheet has been
recorded as Due from Parent.

                                      134
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


In May 2001, the Company acquired the assets of Lindy. 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 2002 and 2003, long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                         2002                                             2003
                   ----------------------------------------------     -------------------------------------------------
                   Unamortized   Principal   Carrying      Face       Unamortized   Principal                  Carrying
Debt Instrument    Face Value    Discount    Payments     Value       Value        Discount      Payments        Value
--------------     -----------   ---------   ---------   ---------   -----------   ----------   ---------     ---------
<S>                <C>           <C>         <C>         <C>         <C>            <C>         <C>           <C>
Senior Bank-
Term A (b)         $  25,188     $       -   $   5,038   $  20,150   $  20,150      $     -     $ 6,618       $   13,532

Senior Bank-
Term B (b)            97,750             -       1,000      96,750      96,750            -       1,216           95,534
Senior Bank- New
Term A (b)             9,900             -         133       9,767       9,767            -         155            9,612
Revolving Credit
(b)                        -             -           -           -       5,000            -           -            5,000
Senior
Subordinated
Notes (a)            152,000         4,727           -     147,273     152,000        4,276           -          147,724
                   ---------   -----------   ---------   ---------   ---------     --------     -------       ----------
Total debt           284,838         4,727       6,171     273,940     283,667        4,276       7,989          271,402
Less-  current
portion                7,721             -           -       7,721       8,477            -           -            8,477
                   ---------   -----------   ---------   ---------   ---------     --------     -------       ----------
Long-term debt     $ 277,117   $     4,727   $   6,171   $ 266,219   $ 275,190     $  4,276     $ 7,989       $  262,925
                   =========   ===========   =========   =========   =========     ========     =======       ==========
</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. During the years ended December 31, 2001, 2002 and 2003
     $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 $5,807 discount, which is being accreted through
     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 Parent (Weekly Reader, CompassLearning and ChildU), 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
     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, 2003 there had been no drawings against this letter of credit.
     As of December 31, 2003 and 2002, the revolving credit facility balance was
     $5,000 and $0, respectively. 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 2003, term loan
     A loans outstanding had interest rates that ranged from 4.99% to 5.15% and
     from 4.57% to 6.38%, respectively.


                                      135
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


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 and 2003, term loan B loans outstanding had interest rates that ranged
     from 5.40% to 5.84% and from 5.19% to 7.00%, respectively. As of December
     31, 2002 and 2003, the new term loan A loans outstanding has interest rates
     that ranged from 5.40% to 5.83% and from 5.19% to 7.00%, 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
     commitments for the year ended December 31, 2001, 2002 and 2003 were
     approximately $92, $97 and $81, respectively.

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

     o   the proceeds of the incurrence of certain indebtedness

     o   the proceeds of certain asset sales or other dispositions

     o   the proceeds of issuances of certain equity offerings

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

In 2003, the Company made an additional payment of $282 on the principal of all
Senior Bank Credit Facilities allocated on a pro-rata basis related to the 2002
excess cash flow calculation.

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

Each ratio became more stringent periodically during the fiscal year ended
December 31, 2003 and March 31, 2004. With respect to the fourth quarter ended
December 31, 2003, the Company was required to have a leverage ratio no greater
than 5.00:1.0 and a fixed charge coverage ratio no less than 1.10:1.0 and
thereafter beginning with the quarter ending March 31, 2004, the Company was
required to have a leverage ratio no greater than 4.00:1.0 and a fixed charge
ratio no less than 1.50:1.0. The Company is not in compliance with these
covenants as of December 31, 2003. The Company reached an agreement with its
senior lenders under which they would continue to make available to the Company
additional borrowings under the Company's revolving credit facility through
March 31, 2004. Under the agreement, the lenders waived through March 31, 2004
WRC Media's failure to comply with certain financial covenants as of December
31, 2003, and WRC Media agreed to limit borrowings, including currently
outstanding borrowings and letters of credit, under its revolving credit
facility to $26,000 out of the $30,000 facility. On March 29, 2004 the Company
amended its existing Credit Agreement ("First-Lien Facility") and entered into a
$145,000 Second Priority Senior Credit Facility (the "Second-Lien Facility").
The Company used the proceeds of the financing to refinance in full all term
loans outstanding under the Company's First-Lien Facility, to pay fees and
expenses related to the Second-Lien Facility and for general corporate purposes
of the Company. See Note 22 for additional information.


                                      136
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


Maturities of long-term debt, including unamortized discount and, after
consideration of the refinancing discussed in Note 22, are as follows:

       2004                                $     13,477
       2005                                      27,668
       2006                                      82,533
       2007                                           -
       2008                                           -
       Thereafter                               152,000
                                           ------------
                           Total           $    275,678
                                           ============

Pursuant to the terms of the Amended and Restated Credit Agreement, the Company
is required to enter into and maintain interest rate protection agreements
(interest rate swaps, caps, collars or similar agreements) in a notional amount
equal to at least 50% of the aggregate principal amount of the senior secured
term loans. On November 15, 2001, the Company entered into a one-year interest
cap agreement with a notional principal amount of $67,142 which caps the LIBOR
based rate, as defined, on this loan at 3.0%. This interest rate cap agreement
expired on November 15, 2002. On November 15, 2002, the Company entered into a
six-month and one-year interest rate cap agreement with a notional principal
amount of $50,000 and $14,800, respectively, which caps the LIBOR based rate, as
defined, on those loans at 2.5%. This interest rate cap agreement expired on
November 15, 2003. These interest rate protection agreements did not qualify for
hedge accounting treatment and as such the Company marks to market the contract
at the end of each period. On November 15, 2003, the Company entered into a new
one-year interest rate cap agreement with a notional principal amount of
$61,000, with substantially the same terms as the 2002 agreements. The fair
value of the new interest rate cap at December 31, 2003 was de-minimus.

14.    PREFERRED STOCK

15% Senior 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. The Company has issued its Parent 3,000,000
shares of 15% Preferred Stock 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, 2001, 2002 and 2003, accrued preferred stock
dividends amounted to $14,549, $16,384 and $18,982, respectively, and are
payable in additional shares of preferred stock. Such accrued dividends reflect
penalty dividends of 0.5% for periods prior to November 17, 2001. The Company
believes that no penalty dividend is due for subsequent periods. The preferred
shareholders may disagree with the Company's conclusion. The Company may redeem
the preferred stock, including unpaid dividends, prior to November 17, 2002 or
after November 17, 2004, subject to certain conditions.

In connection with the issuance of WRC Media Inc.'s 15% Senior Preferred Stock
in 1999, 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 common stock. These warrants entitle the holders
to acquire 13% of common stock of Weekly Reader at an exercise price of $0.01
per share and contain a cashless exercise provision. The warrants were
immediately exercisable and expire on November 17, 2011.

15.    RELATED PARTY TRANSACTIONS

Management Agreements

In connection with the acquisition of Weekly Reader, the Company entered into a
management agreement with the principal shareholder of WRC Media Inc.

                                      137
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


In accordance with Weekly Reader's management agreement, the shareholder
provides Weekly Reader management consulting and financial advisory services. As
a result of Weekly Reader's management agreement, Weekly Reader reimburses 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, began paying the shareholder annual aggregate management fees
for services to Weekly Reader of $800. The agreement has no stated term, but can
be terminated by the shareholder upon five days notice. During the years ended
December 31, 2001, 2002 and 2003, the Company recognized expenses for such
management fees in each year of $800. At December 31, 2002 and 2003, other
accrued liabilities include approximately $800 and $500 of accrued management
fees, respectively.

16.    RETIREMENT PLANS

Substantially all of the Company's employees are eligible to participate in a
defined contribution plan of the Parent. Pursuant to the provisions of the Plan,
the Company is obligated to match 33% of the employee's contribution to the Plan
up to the first 6% of the employee's compensation. The expense recognized by the
Company for the plan during the years ended December 31, 2001, 2002 and 2003,
was $899, $977 and $991, 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.

The net pension expense for the American Guidance Plan and the reconciliation of
the funded status of the Plan at December 31, 2002 and 2003 and the accrued
obligation in the consolidated balance sheets are as follows:

<TABLE>
<CAPTION>
                                                                        2002              2003
                                                                     ---------         ----------
<S>                                                                  <C>               <C>
       Change in benefit obligation:
         Projected benefit obligation, beginning of year             $   11,947        $  14,379
              Service cost                                                  742              916
              Interest cost                                                 819              883
              Actuarial loss                                              1,332             (109)
              Benefits paid                                                (461)            (570)
                                                                     ----------        ---------
         Projected benefit obligation, end of year                   $   14,379        $  15,499
                                                                     ==========        =========

       Change in plan assets:
         Fair value of plan assets, beginning of year                $    7,903        $   7,269
              Actual return on plan assets                               (1,284)           1,928
              Employer contributions                                      1,111            1,029
              Benefits paid                                                (461)            (570)
                                                                     ----------        ---------
         Fair value of plan assets, end of year                      $    7,269        $   9,656
                                                                     ==========        =========

       Funded status at December 31,
         Plan assets less than benefit obligation                    $   (7,110)       $  (5,842)
         Unrecognized actuarial loss                                      5,411            3,754
                                                                     ----------        ---------
              Accrued pension cost                                   $   (1,699)       $  (2,088)
                                                                     ==========        =========

       Amounts recognized in consolidated balance sheet:
          Accrued benefit liability                                  $   (5,056)       $  (3,988)
          Accumulated other comprehensive income                          3,357            1,899
                                                                     ----------        ---------
                                                                     $   (1,699)       $  (2,088)
                                                                     ==========        =========
</TABLE>


                                      138
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


<TABLE>
<CAPTION>
                                                                        2002             2003
                                                                     ---------         ----------
<S>                                                                  <C>               <C>
       Components of net periodic benefit cost:
         Service cost                                                $      742        $     916
         Interest cost                                                      819              883
         Expected return on plan assets                                    (749)            (675)
         Amortization of unrecognized net actuarial loss                     70              294
                                                                     ----------        ---------
       Net periodic benefit cost                                     $      882        $   1,418
                                                                     ==========        =========

       Accumulated benefit obligation and fair value of assets:
         Accumulated benefit obligation                              $  (12,325)       $ (13,644)
         Fair value of assets                                        $    7,269        $   9,656

       Weighted-average assumptions as of end of year
       Discount rate                                                     6.25%            6.25%
       Expected return on plan assets                                    9.0%             9.0%
       Rate of compensation increase                                     4.5%             3.5%
</TABLE>

The Company developed the expected long-term rate of return on assets assumption
by considering the current level of expected returns on risk free investments
(primarily government bonds), the historical level of the risk premium
associated with other asset classes in which the portfolio is invested and the
expectation for future returns on each asset class. The expected return for each
asset class was the weighted based on the aggregate target asset allocation to
develop the expected long-term rate of return on assets assumption for the
portfolio. The Company reviews the expected rate of return on an annual basis
and revises it as appropriate.

The American Guidance Plan investment objective is a heavily weighted equity
portfolio with an emphasis on long-term growth. Assets held include
high-quality, well-capitalized stocks of established companies and were
allocated 83% to equity securities and 17% to fixed income securities in 2002
and 87% to equity securities and 13% to fixed income securities in 2003:

                                                      2002              2003
                                                     -----             ------
       Asset Category
         Equity Securities                            83.0%             87.0%
         Debt Securities                              14.0%             11.0%
         Other                                         3.0%              2.0%
                                                     -----             -----
       Total                                         100.0%            100.0%
                                                     =====             =====

The Company expects to contribute $2,254 to the American Guidance Plan in 2004.

The following benefit payments, which reflect future service, as appropriate,
are expected to be paid by the American Guidance Plan during the next five
years:

Pension Benefits

2004..................................    $     613
2005..................................          635
2006..................................          655
2007..................................          659
2008..................................          707

                                      139
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts 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 2001, 2002 and 2003, a minimum liability adjustment of ($325),
($3,041) and $1,458 respectively, was recorded as a component of other
comprehensive loss and reported in accumulated other comprehensive loss as a
component of stockholders' deficit.

17. 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, respectively on the consolidated balance sheets. The balance of the
liability as of December 31, 2002 and 2003 was approximately $1,403 and $1,006,
respectively. The marketable securities in the Rabbi Trusts have been classified
as trading securities and investment income of ($432), $156 and $55 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, 2001, 2002 and 2003, respectively. Marketable securities in the Rabbi Trust
have been recorded at fair value, based on quoted market prices, in the
accompanying consolidated balance sheets.

18.    COMMITMENTS AND CONTINGENCIES

Leases

The Company has non-cancelable operating leases for office, warehouse space and
equipment that include future minimum rental commitments as follows:

<TABLE>
<CAPTION>
                                                    Lease                   Sublease                    Net
Year Ending December 31,                         Commitments                Rentals                 Commitments
                                                 -----------                -------                 -----------

<S>                                              <C>                     <C>                       <C>
 2004                                            $  3,502                $   (348)                   $  3,154
 2005                                               3,159                    (348)                      2,811
 2006                                               2,972                    (352)                      2,620
 2007                                               2,286                    (359)                      1,927
 2008                                               1,735                    (359)                      1,376
Thereafter                                         10,732                    (241)                     10,491
                                                 --------                --------                    --------
Total                                            $ 24,386                $ (2,007)                   $ 22,379
                                                 ========                ========                    ========
</TABLE>


Total rent expense under operating leases was $3,231, $3,422 and $2,997 for the
years ended December 31, 2001, 2002 and 2003, respectively.

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.



                                      140
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


SEC Inquiry

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

15% Senior Preferred Stock due 2011

In 1999, the Company issued 3,000,000 shares of 15% Senior Preferred Stock due
in 2011 with a liquidation preference of $25.00 per share. The Senior Preferred
Stock shall accrue dividends at a rate of 15% per annum, subject to adjustment
if the Company fails to redeem all outstanding shares of such preferred stock in
connection with a mandatory redemption or change of control. Preferred Stock
dividends for the years ended December 31, 2001, 2002 and 2003, amounted to
$14,549, $16,384 and $18,982, respectively, and are payable in additional shares
of Senior Preferred Stock. Such accrued dividends reflect penalty dividends of
0.5% for periods prior to November 17, 2001. While the Company believes that no
penalty dividend is due for subsequent periods, the preferred shareholders may
disagree with that conclusion.

19.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                              2001                  2002                 2003
                                                            ---------            ---------            -----------
<S>                                                         <C>                  <C>                  <C>
Cash paid during the period for interest                    $   32,063           $   27,870           $    27,779
Cash paid during the year for income taxes                  $      352           $      203           $        45
Non-cash financing activities:
    Preferred stock dividends accrued                       $   14,549           $   16,384           $    18,982

</TABLE>

20. RESTATEMENT

In connection with the audit of the Company's 2003 consolidated financial
statements and the reaudit of its 2001 consolidated financial statements, the
Company has restated its previously audited consolidated balance sheets as of
December 31, 2002 and 2003, and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2001, 2002
and 2003 (the "restatement"). The restatement also included adjustments that
affected periods prior to 2001. The impact of the restatement on periods prior
to 2001 was reflected as an adjustment to beginning accumulated deficit as of
January 1, 2001.

On March 31, 2004, the Company filed a Form 8-K that included its consolidated
financial statements as of and for the years ended December 31, 2002 and 2003,
which had been restated to correct certain accounting errors (the "Initial
Restatement"). At that time, the Company announced that the reaudit of its 2001
financial statements was in progress and that completion of the reaudit could
result in additional restatements to its financial statements. Subsequent to the
Initial Restatement, the reaudit of the Company's 2001 consolidated financial
statements was completed and identified additional errors that impacted its
financial statements for 2001, 2002 and 2003. Accordingly, the Company has
restated its previously reported 2002 and 2003 financial statements and its 2001
financial statements for the correction of these additional errors (the "Further
Restatement").

In connection with the Initial Restatement, management had restated its
financial statements because it had incorrectly accounted for (i) revenue
recognition for distributor sales in 2001 and 2002; (ii) rent expense in 2001
and 2002; and (iii) a number of other items including various accruals such as
compensation and fringe benefit costs, deferred revenue and legal costs in 2001
and 2002.

Described below are the matters for which the Company had restated its audited
consolidated financial statements for 2001 and 2002 in connection with the
Initial Restatement to correct for certain errors made in the application of
GAAP that had not previously been corrected because in each such case the
Company believed that the amount of any such error was not material to its
consolidated financial statements.


                                      141
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


     o   Distributor Sales. Historically the Company recognized revenue under a
         distribution contract between its subsidiary, World Almanac Education
         Group, and a distributor at the time that the Company shipped its
         products to the distributor rather than at the time those products were
         resold by the distributor. The Company also recorded distribution fees
         under this contract as operating costs and expenses, based on its
         understanding of the distribution contract. The Company has determined
         to recognize revenue only at the time the distributor ships these
         products to its customer. In addition, the Company should have recorded
         distributions fees as a reduction of revenue, rather than as a separate
         operating cost and expense item. The Company has restated its financial
         statements which increased its net loss by $164 for the year ended
         December 31, 2001, and decreased its net loss by $168 for the year
         ended December 31, 2002.

     o   Barter Transaction. In connection with a failed licensing barter
         transaction for which the Company had incorrectly recorded revenue in
         2001, the Company had increased operating costs and expenses for 2001
         by the amount of the revenue recorded, instead of reversing such net
         revenue amount, as required by GAAP. The Company restated its financial
         statements for 2001 to correct this error, with the net effect being to
         reduce net revenue and operating costs and expenses by $1,500 for the
         year ended December 31, 2001, with no impact on its net loss.

     o   Rent. The Company has two leases that have "free rent" incentives at
         the commencement of the leases and also contain rent escalation clauses
         (which clauses provide for rent increases over time) for which it was
         required under GAAP to record the average rent expense ratably over the
         lease term. In the Company's historical 2001 financial statements,
         however, the Company recorded the rent expense from these leases as it
         was paid. In the Company is historical 2002 financial statements, the
         Company began correctly recording the average rent expense for these
         leases, but the Company calculated the average rent using the remainder
         of the lease term instead of the entire lease term. The Company is
         restating its financial statements to correct these errors. As a
         result, rent expense increased in 2001 because the average rent to be
         paid over the lease terms was greater than the actual rent paid in 2001
         and rent expense decreased in 2002 and 2003 because of the longer lease
         terms used to calculate the average rent. In 2001, the Company also
         incorrectly capitalized some rent expense prior to its occupancy of a
         certain leased premise as a prepaid rent asset and amortized it, rather
         than recording it as an expense, as required by GAAP. The Company has
         restated its financial statements to correct these errors, with the net
         effect being to increase its net loss by $1,005, for the year ended
         December 31, 2001, to decrease its net loss by $412 and increase total
         assets by $352 for the year ended December 31, 2002.

     o   Intercompany Sales. Certain sales between two subsidiaries of World
         Almanac were recorded in 2001 as revenue for one subsidiary and as a
         corresponding operating cost and expense for the other subsidiary,
         rather than being eliminated, as required by GAAP. The Company restated
         its financial statements for 2001 to eliminate these intercompany
         sales. As a result of this correction, revenue decreased by $795 for
         the year ended December 31, 2001 with a corresponding decline in
         operating costs and expenses, and no impact on the Company's net loss
         for the year then ended.

     o   Other. The Company has made a number of other corrections, including
         adjustments relating to various accruals such as compensation and
         fringe benefit costs, deferred revenue, legal costs and other
         immaterial items.

In connection with the reaudit of the Company's 2001 consolidated financial
statements, management determined that it had incorrectly accounted for the
following items, which comprise the Further Restatement: (i) intangible assets
acquired in 1999 in connection with the Parent's acquisition of Weekly Reader;
(ii) acquisition reserves for acquisitions in 1999; (iii) its adoption of SFAS
142 and the preparation of its transitional impairment analysis; (iv) deferred
tax liabilities recognized upon adoption of SFAS 142; (v) Senior Preferred Stock
Dividends and (vi) a number of other items which had been previously identified
and collectively determined to be immaterial but which the Company has now
decided to correct including various accruals such as compensation and fringe
benefit costs, severance and consulting costs and legal costs in 2001, 2002 and
2003.


                                      142
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


Described below are the matters for which the Company has restated its
consolidated financial statements for 2001, 2002 and 2003 in connection with the
Further Restatement.

     o   Weekly Reader Intangible Assets. In connection with the reaudit of the
         Company's 2001 consolidated financial statements, the Company
         reconsidered the assumptions used to determine the estimated fair
         value and economic lives of the intangible assets acquired in
         connection with the 1999 acquisition and recapitalization of Weekly
         Reader by its Parent (the "1999 Intangible Assets"). The Company has
         determined that the original basis for estimating the fair value and
         economic lives of the intangible assets was a valuation report that
         the former owners of Weekly Reader Corporation had provided to the
         Parent at the time of the 1999 acquisition. Accordingly, in 2004, the
         Parent engaged a valuation consulting firm to assist management in
         assessing the fair values and economic lives of the 1999 Intangible
         Assets as of the acquisition date. As a result, certain economic lives
         of the 1999 Intangible Assets have been revised. Accordingly, the
         Company has restated its financial statements to correctly state the
         estimated economic lives of the 1999 Intangible Assets acquired as of
         November 17, 1999. Other intangible assets include copyrights,
         customer lists and trademarks. Copyrights estimated useful life was
         amended from 10 years to approximately 20 years; Customer lists
         estimated useful life decreased from 10 years to approximately 8.5
         years and Trademarks estimated useful life decreased from 40 years to
         approximately 39 years. The Company has restated its financial
         statements to correct the amortization expense for these intangible
         assets which had the effect of reducing accumulated deficit as of
         January 1, 2001 by $6,040 and decreasing amortization expense of
         intangible assets by $3,219 in 2001, $1,844 in 2002 and $1,038 in
         2003.

     o   Weekly Reader Goodwill Reduction. The Company recorded certain reserves
         for a planned restructuring in connection with its acquisition by WRC
         Media in 1999. In connection with the reaudit of its 2001 consolidated
         financial statements the Company determined that it had incorrectly
         recorded reserves of $602 related to estimated liabilities it believed
         it had assumed at the date of such acquisition. The Company concluded
         that the acquisition reserves associated with these liabilities should
         have been reversed in 1999. The estimated liabilities were associated
         with the excess reserves for severance, primarily attributable to
         employees hired subsequent to the acquisition date. The Company has
         restated its 2001 financial statements to correct for these errors. The
         net effect of such adjustments was to increase net loss by $602 for the
         year ended December 31, 2001.

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


                                      143
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)

     o    Deferred Tax Liabilities. The Company recognized non-cash deferred
          income tax expense and a deferred tax liability of approximately
          $1,360 on January 1, 2002 in connection with its adoption of SFAS 142.
          The deferred tax liability relates to the excess of tax over book
          amortization of tax-deductible goodwill and trademarks since the
          timing of the reversal of this liability is indefinite, unless the
          related assets are sold or an impairment of the assets is recorded,
          and can no longer be offset by the Company's net operating loss
          carry-forwards, which expire within a statutory period. During each of
          2002 and 2003 the Company recorded additional deferred tax expense of
          $640.

          The non-cash deferred income tax expense recorded on January 1, 2002
          has been restated to $3,500, an increase of $2,140. The non-cash
          income tax expense recorded during the years ended December 31, 2002
          and 2003 decreased by $40 from $640 to $600 and increased by $60 from
          $640 to $700, respectively. These restatements are principally due to
          the reversal of the impairment charges and the revision of estimated
          fair value and economic lives of the 1999 Intangible Assets discussed
          above.

     o    15% Senior Preferred Stock due 2011. In 1999, the Company issued
          3,000,000 shares of 15% Senior Preferred Stock due in 2011. The
          Senior Preferred Stock accrues dividends at a rate of 15% per annum.
          The Certificate of Designation provides that the Senior Preferred
          Stock was subject to a default or penalty dividend of 0.5% in the
          event of certain registration defaults. A penalty dividend was
          applicable from mid-August of 2000 through November 17, 2001. While
          the Company believes that no penalty dividend is due for subsequent
          periods, the preferred shareholders may disagree with that
          conclusion. The Company had not previously recorded this penalty
          dividend. The recording of the penalty dividends (and required
          compounding in subsequent periods) resulted in the Company
          increasing accrued dividends on Senior Preferred Stock by $505, $110
          and $128 during the years ended December 31, 2001, 2002 and 2003,
          respectively.

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

     o    Other. In connection with the reaudit of the Company's 2001 financial
          statements, the Company has made a number of other corrections to the
          2001, 2002 and 2003 financial statements, which collectively were
          immaterial, including adjustments relating to various accruals such as
          compensation and fringe benefit costs, advertising promotional expense
          and other immaterial items.

After giving effect to the Initial Restatement and the Further Restatement, the
Company believes that it is in compliance with the financial covenants in its
credit facility for all of the reporting periods affected, other than the fourth
quarter of 2003, for which the lenders under the credit facility have granted a
waiver (see Note 13).

The effect of the restatement for the years prior to 2001 was to decrease
accumulated deficit by $5,851 from $148,392 to $142,542 at January 1, 2001 and
increase total assets by $6,404 from $220,973 to $227,973 at January 1, 2001.

                                      144
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


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

<TABLE>
<CAPTION>
                                                                          December 31, 2003
                                                           ---------------------------------------------------
                                                             As Previously
                                                              Reported in        Further
                                                            March 31, 2004      Restatement
                                                             Form 8-K (1)       Adjustments       As Restated
                                                          -----------------     ------------     ------------
<S>                                                        <C>                 <C>              <C>
ASSETS
Current Assets:
     Cash and cash equivalents                            $           1,267                      $     1,267
     Accounts receivable, net                                        20,880                           20,880
     Inventories, net                                                15,890                           15,890
     Due from related party                                          11,502                           11,502
     Prepaid expenses                                                 2,882                            2,882
     Other current assets                                             1,889                            1,889
                                                          ------------------   -----------       ------------
       Total current assets                                          54,310            --             54,310

Property and equipment, net                                           4,399    $      266              4,665
Goodwill                                                             35,018        66,960            101,978
Deferred financing costs, net                                           512            --                512
Other intangible assets, net                                         14,377        17,203             31,580
Other assets and investments                                         30,263          (552)            29,711
                                                          ------------------   -----------       ------------
       Total assets                                       $         138,879    $   83,877        $   222,756
                                                          ==================   ===========       ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                     $          15,446    $       --        $    15,446
     Deferred revenue                                                17,565                           17,565
     Accrued expenses and other current liabilities                  15,365           500             15,865
     Current portion of long-term debt                                8,477            --              8,477
                                                          ------------------   -----------       ------------

       Total current liabilities                                     56,853           500             57,353

Deferred tax liabilities                                              2,640         2,160              4,800
Long-term debt                                                      262,925                          262,925
                                                          ------------------   -----------       ------------

       Total liabilities                                            322,418         2,660            325,078
                                                          ------------------   -----------       ------------

Commitments and contingencies
15% redeemable senior preferred stock                               137,702           934            138,636
                                                          ------------------   -----------       ------------

Stockholders' deficit:
     Common stock                                                        28                               28
     Additional paid-in capital                                       9,133            --              9,133
     Due from parent                                                (59,028)        2,564            (56,464)
     Accumulated other comprehensive loss                            (1,899)                          (1,899)
     Accumulated deficit                                           (269,475)       77,719           (191,756)
                                                          ------------------   -----------       ------------

       Total stockholders' deficit                                 (321,241)       80,283           (240,958)
                                                          ------------------   -----------       ------------

       Total liabilities and stockholders' deficit        $         138,879    $   83,877        $   222,756
                                                          ==================   ===========       ============
</TABLE>


(1) As originally reported in Weekly Reader Corporation's Form 8-K as filed
with the Securities and Exchange Commission on March 31, 2004.


                                      145
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


<TABLE>
<CAPTION>
                                                                           Year Ended December 31, 2003
                                                                    ---------------------------------------------
                                                                    As Previously
                                                                     Reported in        Further
                                                                    March 31, 2004    Restatement
                                                                     Form 8-K (1)     Adjustments     As Restated
                                                                    --------------    -----------    ------------
<S>                                                                 <C>                 <C>        <C>
Revenue, net                                                        $     152,111     $       (1)    $   152,110

Cost of goods sold                                                         37,695             44          37,739
                                                                    --------------    -----------    ------------

     Gross profit                                                         114,416            (45)        114,371
                                                                    --------------    -----------    ------------

Costs and expenses:
     Sales and marketing                                                   28,241                         28,241
     Research and development                                                   -                             --
     Distribution, circulation and fulfillment                             14,626                         14,626
     Editorial                                                             10,365                         10,365
     General and administrative                                            19,011                         19,011
     Restructuring costs and other non-recurring expenses                    (516)                          (516)
     Depreciation                                                           1,682             24           1,706
     Amortization of intangible assets                                     10,126         (1,038)          9,088
                                                                    --------------    -----------    ------------

     Total operating costs and expenses                                    83,535         (1,014)         82,521
                                                                    --------------    -----------    ------------

     Income from operations                                                30,881            969          31,850

Interest expense, including amortization
   of deferred financing costs                                            (28,091)            --         (28,091)
Other income (expense), net                                                  (196)          (500)           (696)
                                                                    --------------    -----------    ------------

     Income before income tax provision                                     2,594            469           3,063

Income tax provision                                                          552             60             612
                                                                    --------------    -----------    ------------

     Net income                                                     $       2,042     $      409     $     2,451
                                                                    ==============    ===========    ============
</TABLE>

(1) As originally reported in Weekly Reader Corporation's Form 8-K as filed
with the Securities and Exchange Commission on March 31, 2004.


                                      146
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


<TABLE>
<CAPTION>
                                                                              December 31, 2002
                                              --------------------------------------------------------------------------------
                                                                                    As Previously
                                              As Previously         Initial         Reported in       Further
                                               Reported in        Restatement      March 31, 2004   Restatement
                                              2002 Form 10-K       Adjustments      Form 8-K (1)     Adjustments   As Restated
                                              --------------    --------------    ---------------   ------------   ------------
<S>                                           <C>                <C>               <C>             <C>           <C>
ASSETS
Current Assets:
     Cash and cash equivalents                $       7,819                       $        7,819                   $     7,819
     Accounts receivable, net                        22,881     $        (616)            22,265    $       182         22,447
     Inventories, net                                14,210               158             14,368                        14,368
     Due from related party                           9,438                16              9,454                         9,454
     Prepaid expenses                                 2,957              (265)             2,692                         2,692
     Other current assets                             1,797                                1,797                         1,797
                                              --------------    --------------    ---------------   ------------   ------------

       Total current assets                          59,102              (707)            58,395            182         58,577

Property and equipment, net                           5,409                                5,409            290          5,699
Goodwill                                             35,018                               35,018         66,960        101,978
Deferred financing costs, net                           692                                  692              -            692
Other intangible assets, net                         18,833               (49)            18,784         16,165         34,949
Other assets and investments                         25,033              (292)            24,741           (552)        24,189
                                              --------------    --------------    ---------------   ------------   ------------

       Total assets                           $     144,087     $      (1,048)    $      143,039    $    83,045    $   226,084
                                              ==============    ==============    ===============   ============   ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                         $      18,883                       $       18,883    $       (44)   $    18,839
     Deferred revenue                                20,369               107             20,476            181         20,657
     Accrued expenses and other
       current liabilities                           18,706               616             19,322            800         20,122
     Current portion of long-term debt                7,721                                7,721              -          7,721
                                              --------------    --------------    ---------------   ------------   ------------

       Total current liabilities                     65,679               723             66,402            937         67,339

Deferred tax liabilities                              2,000                                2,000          2,100          4,100
Long-term debt                                      266,219                              266,219                       266,219
                                              --------------    --------------    ---------------   ------------   ------------

       Total liabilities                            333,898               723            334,621          3,037        337,658
                                              --------------    --------------    ---------------   ------------   ------------

Commitments and contingencies
15% redeemable senior preferred stock               118,846                              118,846            806        119,652
                                              --------------    --------------    ---------------   ------------   ------------

Stockholders' deficit:
     Common stock                                        28                                   28                            28
     Additional paid-in capital                       9,133                                9,133              -          9,133
     Due from parent                                (63,464)             (105)           (63,569)         1,764        (61,805)
     Accumulated other comprehensive loss            (3,357)                              (3,357)                       (3,357)
     Accumulated deficit                           (250,997)           (1,666)          (252,663)        77,438       (175,225)
                                              --------------    --------------    ---------------   ------------   ------------

       Total stockholders' deficit                 (308,657)           (1,771)          (310,428)        79,202       (231,226)
                                              --------------    --------------    ---------------   ------------   ------------

       Total liabilities and
         stockholders' deficit                $     144,087     $      (1,048)    $      143,039    $    83,045    $   226,084
                                              ==============    ==============    ===============   ============   ============
</TABLE>


(1) As originally reported in Weekly Reader Corporation's Form 8-K as filed
with the Securities and Exchange Commission on March 31, 2004.


                                      147
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)

<TABLE>
<CAPTION>

                                                                     Year Ended December 31, 2002
                                            -------------------------------------------------------------------------------------
                                                                                 As Previously
                                              As Previously      Initial          Reported in       Further
                                               Reported in     Restatement       March 31, 2004   Restatement
                                              2002 Form 10-K    Adjustments       Form 8-K (1)     Adjustments     As Restated
                                              ---------------  ---------------    -------------    -------------    -----------
<S>                                           <C>              <C>                 <C>              <C>             <C>
Revenue, net                                  $    156,498     $       (1,485)     $   155,013      $        42     $  155,055

Cost of goods sold                                  39,560               (944)          38,616               31         38,647
                                              -------------    ---------------    -------------    -------------    -----------

     Gross profit                                  116,938               (541)         116,397               11        116,408
                                              -------------    ---------------    -------------    -------------    -----------

Costs and expenses:
     Sales and marketing                            28,345                 --           28,345             (166)        28,179
     Research and development                           --                 --               --               --             --
     Distribution, circulation
       and fulfillment                              14,614               (602)          14,012               --         14,012
     Editorial                                      10,847                 --           10,847               --         10,847
     General and administrative                     18,177                113           18,290              364         18,654
     Restructuring costs and other
       non-recurring expenses                        4,280                 --            4,280               --          4,280
     Depreciation                                    1,945                 --            1,945               24          1,969
     Amortization of intangible assets               8,764                332            9,096           (1,844)         7,252
                                              -------------    ---------------    -------------    -------------    -----------

     Total operating costs and expenses             86,972               (157)          86,815           (1,622)        85,193
                                              -------------    ---------------    -------------    -------------    -----------

     Income from operations                         29,966               (384)          29,582            1,633         31,215

Interest expense, including amortization
   of deferred financing costs                     (28,849)                --          (28,849)             (28)       (28,877)
Other income (expense), net                          1,765                 --            1,765             (800)           965
                                              -------------    ---------------    -------------    -------------    -----------

Income before income tax
   provision and cumulative
   effect of change in
   accounting principle                              2,882               (384)           2,498              805          3,303

Income tax provision                                 2,101                 --            2,101            2,100          4,201
                                              -------------    ---------------    -------------    -------------    -----------

Income before cumulative
   effect of change
   in accounting principle                             781               (384)             397           (1,295)          (898)

Cumulative effect of change
  in accounting principle                          (72,022)                --          (72,022)          72,022             --
                                              -------------    ---------------    -------------    -------------    -----------

     Net income                               $    (71,241)    $         (384)    $    (71,625)    $     70,727     $     (898)
                                              =============    ===============    =============    =============    ===========
</TABLE>

(1) As originally reported in Weekly Reader Corporation's Form 8-K as filed
with the Securities and Exchange Commission on March 31, 2004.


                                      148
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 2001
                                                      ---------------------------------------------------------
                                                                           Restatement
                                                                           Adjustments
                                                       As Previously    in 2003 Form 10-K
                                                        Reported in     and March 31, 2004
                                                       2002 Form 10-K        Form 8-K          As Restated
                                                      ---------------   -------------------    ----------------
<S>                                                   <C>                     <C>                <C>
Revenue, net                                          $     162,165     $           (3,685)    $       158,480

Cost of goods sold                                           43,691                 (2,794)             40,897
                                                      --------------    -------------------    ----------------

     Gross profit                                           118,474                   (891)            117,583
                                                      --------------    -------------------    ----------------

Costs and expenses:
     Sales and marketing                                     29,255                    223              29,478
     Distribution, circulation and fulfillment               14,350                   (651)             13,699
     Editorial                                               10,558                    120              10,678
     General and administrative                              18,895                  1,754              20,649
     Depreciation                                             1,987                     24               2,011
     Amortization of intangible assets                       11,957                 (3,219)              8,738
                                                      --------------    -------------------    ----------------

     Total operating costs and expenses                      87,002                 (1,749)             85,253
                                                      --------------    -------------------    ----------------

     Income from operations                                  31,472                    858              32,330

Interest expense, including amortization
   of deferred financing costs                              (32,403)                   136             (32,267)
Other income (expense), net                                     166                   (800)               (634)
                                                      --------------    -------------------    ----------------

     Loss before income tax provision                          (765)                   194                (571)

Income tax provision                                            281                      -                 281
                                                      --------------    -------------------    ----------------

     Net loss                                         $      (1,046)    $              194     $          (852)
                                                      ==============    ===================    ================
</TABLE>

21.    QUARTERLY DATA (UNAUDITED)

The following is a summary of the unaudited selected quarterly results for which
all adjustments necessary for a fair presentation of each period were included.
As discussed in Note 20, the results of operations for the year ended December
31, 2001, 2002 and 2003 and for the quarterly periods in the years ended
December 31, 2002 and 2003 have been restated.

<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                        ----------------------------------------------------------------------------------
                                              March 31                   March 31                      March 31
                                        ----------------------  ---------------------------   ---------------------------
                                           (as originally        (as previously restated           (as restated for
                                             reported in            in March 31, 2004            further restatement
                                             Form 10-Q)                  Form 8-K)                  adjustments)
<S>                                        <C>                         <C>                           <C>
2003
Revenues                                     $ 34,758                    $ 35,001                      $ 34,819
Gross profit                                   26,393                      26,562                        26,380
Operating costs and expenses                   19,706                      19,653                        19,400
Income / (loss) from operations                 6,687                       6,909                         6,980
Net income / (loss)                              (304)                        (82)                         (226)


2002
Revenues                                     $ 34,008                    $ 34,195                      $ 34,237
Gross profit                                   25,628                      25,759                        25,770
Operating costs and expenses                   19,708                      20,643                        20,519
Income / (loss) from operations                 5,920                       5,116                         5,251
Net income / (loss)                           (74,796)                    (75,600)                       (5,801)

<CAPTION>

                                                                                    Three Months Ended
                                        ----------------------------------------------------------------------------------
                                              June 30                    June 30                       June 30
                                        ----------------------  ---------------------------  ----------------------------
                                           (as originally        (as previously restated          (as restated for
                                            reported in             in March 31, 2004            further restatement
                                             Form 10-Q)                  Form 8-K)                 adjustments)
<S>                                          <C>                          <C>                           <C>
2003
Revenues                                     $ 29,296                     $ 29,530                      $ 29,711
Gross profit                                   21,468                       21,666                        21,803
Operating costs and expenses                   18,225                       18,086                        17,832
Income / (loss) from operations                 3,243                        3,580                         3,971
Net income / (loss)                            (3,931)                      (3,594)                       (3,118)


2002
Revenues                                     $ 30,595                     $ 30,693                      $ 30,693
Gross profit                                   22,073                       22,142                        22,142
Operating costs and expenses                   17,846                       19,383                        18,795
Income / (loss) from operations                 4,227                        2,759                         3,347
Net income / (loss)                            (2,969)                      (4,437)                       (4,039)
</TABLE>


                                      149
<PAGE>

WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                        ----------------------------------------------------------------------------------
                                            September 30               September 30                  September 30
                                        ----------------------  ---------------------------   ---------------------------
                                           (as originally        (as previously restated           (as restated for
                                             reported in            in March 31, 2004            further restatement
                                             Form 10-Q)                  Form 8-K)                   adjustments)
<S>                                        <C>                       <C>                           <C>
2003
Revenues                                      $ 44,205                  $ 44,270                      $ 44,270
Gross profit                                    33,877                    33,919                        33,919
Operating costs and expenses                    20,544                    20,302                        20,049
Income / (loss) from operations                 13,333                    13,617                        13,870
Net income / (loss)                              6,023                     6,307                         6,345


2002
Revenues                                      $ 44,458                  $ 44,549                      $ 44,549
Gross profit                                    34,211                    34,274                        34,274
Operating costs and expenses                    19,837                    20,180                        19,725
Income / (loss) from operations                 14,374                    14,094                        14,549
Net income / (loss)                              8,311                     8,031                         8,296

<CAPTION>

                                                                             Three Months Ended
                                        ----------------------------------------------------------------------------------
                                             December 31                December 31                   December 31
                                        -----------------------  ---------------------------  ----------------------------
                                            (as originally        (as previously restated          (as restated for
                                             reported in             in March 31, 2004            further restatement
                                              Form 10-Q)                  Form 8-K)                   adjustments)
<S>                                            <C>                          <C>                           <C>
2003
Revenues                                       $ 44,086                     $ 43,310                      $ 43,310
Gross profit                                     32,695                       32,269                        32,269
Operating costs and expenses                     26,702                       25,494                        25,240
Income / (loss) from operations                   5,993                        6,775                         7,029
Net income / (loss)                              (1,263)                        (589)                         (550)


2002
Revenues                                       $ 46,633                     $ 45,576                      $ 45,576
Gross profit                                     35,026                       34,222                        34,222
Operating costs and expenses                     29,581                       26,609                        26,154
Income / (loss) from operations                   5,445                        7,613                         8,068
Net income / (loss)                              (1,787)                         381                           646
</TABLE>


22.    SUBSEQUENT EVENT

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

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

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

     o    the proceeds of the incurrence of certain indebtedness

     o    the proceeds of certain asset sales or other dispositions

     o    change in control

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

The Second-Lien Facility provide for certain restrictions, including
restrictions on asset sales, dividend payments, additional indebtedness payments
for restricted investments. In addition, Second-Lien Facility provide for the
maintenance of a financial covenant, a maximum ratio senior leverage ratio of
Senior Secured Debt to trailing four quarter EBITDA (as defined therein) not to
exceed 4.25:1.00 for any fiscal quarter, except the fiscal quarter ended June
30, 2005 for which the senior leverage ratio shall not exceed 4.50:1.00, in each
case to be tested on the last day of each fiscal quarter and computed for the
Parent and its consolidated subsidiaries.

In connection with entering into the Second-Lien Facility, the Company entered
into an amendment and restatement of its First-Lien Facility, which now consists
solely of a $30.0 million revolving credit facility.

The First-Lien Facility, as amended and restated, has a maturity of December 29,
2008, and has one financial covenant, a senior leverage ratio of Senior Secured
Debt to trailing four quarter EBITDA (as defined therein) not to exceed
4.00:1.00 for any fiscal quarter, except the fiscal quarter ended June 30, 2005
for which the senior leverage ratio may


                                      150
<PAGE>


WEEKLY READER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)


not exceed 4.25:1.00, in each case to be tested on the last day of the fiscal
quarter and computed for the Company and its consolidated subsidiaries. Interest
on revolving loan borrowings under the First-Lien Facility will bear interest at
a rate per annum equal to the LIBO rate as defined in the First-Lien Facility
plus 3.5% or the alternate base rate as defined in the First-Lien Facility plus
2.5%.

As a result of the refinancing, the Company wrote off the remaining balances of
the deferred financing costs associated with the First-Lien Facility of
approximately $467 in 2004.

In connection with the refinancing the Company incurred costs and expenses,
primarily investment banking and legal fees, of approximately $6,138. These
amounts will be recorded as deferred financing fees in 2004 and will be
amortized over the term of the Second Lien Facility using the effective interest
method

                                      151
<PAGE>


PART II

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

WRC Media management, including the Chief Executive Officer and Chief Financial
Officer of WRC Media, Weekly Reader and CompassLearning, have conducted an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. In
making this evaluation, WRC Media management considered the "material
weaknesses" (as defined under standards established by the American Institute of
Certified Public Accountants) that were identified and communicated to us in
connection with the audit of our consolidated financial statements for the year
ended December 31, 2003, by our independent auditors. Our independent auditors
identified the following two such "material weaknesses": (1) numerous adjusting
entries proposed as a result of our 2003 audit were recorded by the Company to
correct the underlying books and records, including previously reported results
for 2002 and 2001, and (2) there were an insufficient number of qualified
accounting personnel appropriate for their positions, specifically within the
external financial reporting area. Prior to the identification of these
"material weaknesses" by our independent auditors, WRC Media began implementing
various policies and procedures in connection with its own review of its
accounting and external reporting functions.

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

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

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

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

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

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

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

In addition, the Company is currently searching for a Chief Financial Officer.

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

Other than as summarized above, since the evaluation date there have been no
significant changes in our internal controls over financial reporting or in
other factors that could significantly affect our the internal controls. We will
continue to assess our disclosure controls and procedures and will take any
further actions that we deem necessary.

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 current 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.


                                      152
<PAGE>
<TABLE>
<CAPTION>

                 NAME                      AGE                                 POSITION
                 ----                      ---                                 --------

<S>                                    <C>        <C>
Timothy C. Collins..................       47     Director, WRC Media, Weekly Reader and CompassLearning
D. Ronald Daniel....................       74     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...................       34     Director, WRC Media, Weekly Reader and CompassLearning; and
                                                  Secretary, WRC Media, Weekly Reader and CompassLearning
Peter E. Berger.....................       53     Director, WRC Media, Weekly Reader and CompassLearning
Martin E. Kenney, Jr................       57     Director, WRC Media, Weekly Reader and CompassLearning; Chief
                                                  Executive Officer, WRC Media and CompassLearning; Executive Vice
                                                  President, Weekly Reader
David M. Malcolm....................       57     Director, WRC Media, Weekly Reader and CompassLearning
David F. Burgstahler................       35     Director, WRC Media, Weekly Reader and CompassLearning
Richard Nota........................       43     Senior Vice President, Finance, WRC Media
Emily Swenson.......................       50     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), Asbury Automotive Group Inc.,
Niles Parts Co., Ltd, Columbia Music Entertainment Inc., D&M Holdings, Inc., WRC
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 47 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. 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.


                                      153
<PAGE>

RALPH D. CAULO, NON-EXECUTIVE VICE-CHAIRMAN, WRC MEDIA. Mr. Ralph D. Caulo is
Non-Executive Vice-Chairman of WRC Media. 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 CEO 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. 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 an affiliate 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 a Managing Director at Ripplewood Holdings L.L.C. 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 a Managing Director and Chief Financial Officer of
Ripplewood Holding 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. 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.

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.


                                      154
<PAGE>

DAVID M. MALCOLM, DIRECTOR, WRC MEDIA, WEEKLY READER AND COMPASSLEARNING. David
M. Malcolm has served as a Director of WRC Media, Weekly Reader and
CompassLearning since 2002. Since January of 2001 Mr. Malcolm has served as Head
of Investment Banking and a member of Executive Committee SG Cowen. Mr. Malcolm
is also President of SG Capital Partners L.L.C., 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 Banking Partners. Mr. Burgstahler also
serves as a director of Von Hoffmann Corporation, Jostens Inc. and Focus
Technologies Inc.

RICHARD NOTA, SENIOR VICE PRESIDENT, FINANCE, WRC MEDIA. Richard Nota has over
18 years experience in finance. In October 2003, Mr. Nota was promoted to Senior
Vice President, Finance of WRC Media having overall financial management
responsibilities including finance and accounting, strategic planning, treasury
and risk management and investor relations. From 2000 to October 2003, he 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 1989 to 1995 at Pergament Home Centers, Inc., a retail company.
From 1995 until joining WRC Media, Mr. Nota served as Controller at Heating Oil
Partners, L.P., a retail distributor of petroleum products. Prior to that Mr.
Nota was with Arthur Andersen LLP. At Andersen, Mr. Nota was a supervisor in the
Audit Division.

EMILY SWENSON, PRESIDENT, WEEKLY READER. Since October 2003, Emily Swenson has
been President of Weekly Reader Corporation, responsible for the magazine
publishing and supplementary publishing business at Weekly Reader. Emily Swenson
has over 20 years of education and media experience. Ms Swenson was formerly EVP
and Chief Operating Officer of Children's Television Workshop, with
responsibilities for the TV, Home video and film production as well as book and
magazine publishing businesses. At Children's Television Workshop, Ms. Swenson
was responsible for other divisions including finance, human resources, legal,
strategic planning and research and marketing.


                                      155
<PAGE>

PART III

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes, for the fiscal year ended the last day of
December 2003, all compensation paid to (i) the chief executive officer of each
registrant for fiscal year 2003, (ii) up to the five most highly compensated
executive officers serving at the end of December 2003 in all capacities in
which they served, including those executive officers of WRC Media Inc., Weekly
Reader Corporation and CompassLearning Inc., who performed policy making
functions for those entities and were serving as such at the end of December
2003 in all capacities in which they served, and (iii) up to two additional
individuals employed by each registrant who were not serving as executive
officers at the end of December 2003 but received at least as much compensation
as the fourth most highly compensated executive officer of the registrant for
whom they were employed:


                                      156
<PAGE>


<TABLE>
<CAPTION>
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($)(b)  ($)(e)         SARS(#)(c)
---------------------------            ----    ----------  ------------ ------------- -------        -----------

<S>                                   <C>       <C>         <C>         <C>           <C>             <C>
Martin E. Kenney, Jr.                  2003      611,785     200,000     12,000        12,000          324,294
Director, Chief Executive Officer      2002      537,404     350,000     12,500        12,000          324,294
WRC Media                              2001      480,000     350,000     11,375        12,000          202,294

Richard Nota                           2003      215,455     130,000     10,935        12,000          27,500
Senior Vice President,  Finance        2002      189,260     155,000     12,124        12,000          22,500
WRC Media                              2001      175,000      60,000      4,813        12,000          15,000

Ralph Caulo                            2003      414,950        --         --            --            93,762
Non-Executive Vice Chairman            2002      336,231     100,000       --            --            93,762
WRC Media                              2001      350,000        --         --            --            53,762

Robert S. Lynch                        2003      445,500     215,500     12,000        12,000          167,523
Former Director, Chief
  Operating Officer, WRC Media (g)     2002      462,635     400,000     12,500        12,000          167,523
                                       2001      425,000     400,000      8,500        12,000          12,000

Robert J. Jackson                      2003      304,279        --       12,000          --            17,168
President,World Almanac
  Educaton Group (h)                   2002      250,885        --       12,500     92,285 (e,f)       17,168
WRC Media                              2001        --           --         --        241,806 (f)        7,168

Emily Swenson                          2003    41,156 (d)       --         --          2,500            5,000
President, Weekly
  Reader Corporation


<CAPTION>

SUMMARY COMPENSATION TABLE
                                                  OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
                                      ------------------------------------------------------
                                                     % OF TOTAL
                                                    OPTIONS/SARS
                                                     GRANTED TO    EXERCISE    GRANT DATE
                                       INDIVIDUAL     EMPLOYEES       PRICE     FAIR VALUE
NAME AND PRINCIPAL POSITION             GRANTS     IN FISCAL YEAR   ($/Sh)       ($/Sh)
---------------------------             ------     --------------   ------       ------

<S>                                   <C>            <C>          <C>          <C>
Martin E. Kenney, Jr.
Director, Chief Executive Officer
WRC Media

Richard Nota                             5,000          14%          18.60        0.00
Senior Vice President,  Finance
WRC Media

Ralph Caulo
Non-Executive Vice Chairman
WRC Media

Robert S. Lynch
Former Director, Chief
  Operating Officer, WRC Media (g)


Robert J. Jackson
President,World Almanac
  Educaton Group (h)
WRC Media

Emily Swenson                            5,000          14%          18.60        0.00
President, Weekly
  Reader Corporation

</TABLE>

(a)  Represents bonuses paid in 2001, 2002 and 2003.

(b)  Represents the company contribution to the 401(k) retirement savings plan.

(c)  Represents 2000 - 2003 stock option awards issued.

(d)  Represents partial year from October 15 through December 31, 2003

(e)  Represents vehicle allowance paid.

(f)  Represents consulting fees paid.

(g)  Mr. Lynch resigned from WRC Media in 2003. Mr. Lynch received severance and
     other separation benefitis of approximately $1.5 million.

(h)  Mr. Jackson resigned from World Almanac Educaton Group in 2004. Mr. Jackson
     received severance benfefits of approximately $0.3 million.


                                      157
<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 current report, information
known to us regarding the beneficial ownership of WRC Media common stock by:

     o    each person known by WRC Media to be the beneficial owner of more than
          5% of the outstanding WRC Media common stock;

     o    each of the directors and the executive officers listed under
          "Executive Compensation;" and

     o    all directors and the executive officers listed under
          "Management--Executive Compensation," as a group.

As of the date of this current report, the total number of outstanding shares of
WRC Media common stock was 7,008,406. In addition there were 741,096 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 7,008,406 shares of common stock
have been issued and are outstanding.


                                      158
<PAGE>

                                              WRC MEDIA COMMON STOCK


<TABLE>
<CAPTION>
                                                                          Amount and Nature
                                                                            of Beneficial
 Common Stock            Name and Address of Beneficial Owner              Ownership (a)       Percent of Class (a)
 ------------            ------------------------------------              -------------       --------------------

<S>             <C>                                                      <C>                        <C>
                EAC III
                c/o Ripplewood Holdings L.L.C.
                1 Rockefeller Plaza, 32nd Floor
                New York, NY 10020.....................................     5,611,590 (b)              72.4%

                SGC Partners II LLC
                1221 Avenue of the Americas
                New York, NY 10020.....................................     1,694,039                  21.9%

                EAC IV, L.L.C.
                c/o Ripplewood Holdings L.L.C.
                1 Rockefeller Plaza, 32nd Floor
                New York, NY 10020.....................................     5,611,590 (c)              72.4%

                Timothy C. Collins.....................................     5,611,590 (d)              72.4%

                Charles L. Laurey......................................     5,613,226 (e)              72.4%

                D. Ronald Daniel.......................................     5,611,590 (f)              72.4%

                David M. Malcolm.......................................     1,694,039 (g)              21.9%

                WRC MEDIA INC.
                512 Seventh Avenue, 22nd Floor
                New York, NY  10018

                Martin E. Kenney, Jr...................................       340,422 (h)               4.4%

                Ralph D. Caulo.........................................       101,826 (i)               1.3%

                Richard Nota...........................................        32,876 (j)               *

                Weekly Reader Corporation
                512 Seventh Avenue, 22nd Floor
                New York, NY  10018

                Emily Swenson..........................................         5,000 (k)               *



                All directors of WRC Media and the  executive  officers
                listed under "Management" as a group...................     7,749,502 (d)-(k)         100.0%
</TABLE>

*  Represents holdings of less than 1%.

                                      159
<PAGE>

(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
     current report.

(b)  Represents 4,870,494 shares held directly and 741,096 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 41.4%, 10.3%, 6.8%, 3.4% and 0.4%, respectively, of the
     beneficial ownership in WRC Media EAC III.

(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 5,611,590 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 1,636 shares held directly and 5,611,590 shares beneficially
     owned through Mr. Laurey's position as Managing Director of Ripplewood
     Holdings L.L.C. which is the general partner of Ripplewood Partners, L.P.
     which controls EAC III.

(f)  Represents beneficial ownership of 5,611,590 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.

(g)  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.

(h)  Represents 16,128 shares held directly and 324,294 shares issuable upon
     exercise of options granted under a management share and his employment
     agreement.

(i)  Represents 8,064 shares held directly and 93,762 shares issuable upon
     exercise of options to be granted under Mr. Caulo's consulting agreements
     and employment with WRC Media.

(j)  Represents 5,376 shares held directly and 27,500 shares issuable upon
     exercise of options granted under a management shareholder agreement.

(k)  Represents 5,000 shares issuable upon exercise of options granted under an
     employment agreement.

BENEFICIAL OWNERSHIP OF WEEKLY READER COMMON STOCK

The following table lists, as of the date of this current 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:

     o    each person known by Weekly Reader to be the beneficial owner of more
          than 5% of the outstanding Weekly Reader common stock;



                                      160
<PAGE>

     o    each of the directors and the executive officers listed under
          "Management--Executive Compensation;" and

     o    all directors and the executive officers listed under "Management" as
          a group.

As of the date of this annual report, no shares of Weekly Reader's class A and
class B non-voting common stock are outstanding.

As of the date of this annual 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.


                                      161
<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>                     <C>
                 WRC Media
                 c/o Ripplewood Holdings L.L.C.
                 1 Rockefeller Plaza, 32nd Floor
                 New York, NY 10020.....................................            2,685,670               82.6%**

                 PRIMEDIA, Inc.
                 745 Fifth Avenue
                 New York, NY 10151.....................................              144,330                4.4%**

                 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)            9.5%

                 TCW/Crescent Mezzanine Funds and affiliates
                 11100 Santa Monica Blvd., Suite 2000
                 Los Angeles, CA 90025..................................               56,383 (b)            1.7%

                 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 34,182 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 Investment Partners II Holdings, L.P.
     of 6,062 warrants to purchase Weekly Reader common stock. Because these
     funds are under common control, each fund may be deemed to, for Federal
     securities law purposes, beneficially own the shares underlying the
     warrants held by all the other funds.


                                      162
<PAGE>

(b)  Represents ownership by TCW/Crescent Mezzanine Partners II, L.P. of 27,231
     warrants to purchase Weekly Reader common stock; TCW/Crescent Mezzanine
     Trust II 6,600 warrants to purchase Weekly Reader common stock; TCW
     Leveraged Income Trust, L.P. 5,638 warrants to purchase Weekly Reader
     common stock; TCW Leveraged Income Trust II, L.P. 5,638 warrants to
     purchase Weekly Reader common stock; Shared Opportunity Fund IIB, L.L.C.
     1,879 warrants to purchase Weekly Reader common stock; and TCW Shared
     Opportunity Fund III, L.P. 9,397 warrants to purchase Weekly Reader common
     stock. Because these funds are under common control, each fund may be
     deemed to for Federal 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:

     o    each person known by WRC Media to be the beneficial owner of more than
          5% of the outstanding CompassLearning common stock;

     o    each of the directors and the executive officers listed under
          "Management--Executive Compensation," and

     o    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.


                                      163
<PAGE>


                          COMPASSLEARNING COMMON STOCK

<TABLE>
<CAPTION>
                                                                              Amount and Nature of          Percent
 Common Stock                       Name and Address                          Beneficial Ownership        of Class
 ------------                       ----------------                          --------------------        --------
<S>              <C>                                                          <C>                    <C>
                 WRC Media
                 512 Seventh Avenue, 22nd Floor
                 New York, NY 10018.....................................              10,000                 87.0%**

                 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)              9.6%**

                 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 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.


                                      164
<PAGE>


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 current 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 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 2003 and 2002 for services provided in 2002 and 2001. No payment has
been made for the services provided in 2003. In 2003, management fees of
$300,000 were waived by the Company's principal shareholder. The Company has
accrued and unpaid management fees for 2003 of $650,000.

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.


                                      165
<PAGE>

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.

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.


                                      166
<PAGE>

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:

     o    our financial ability to finance the purchase with cash; or

     o    our ability to obtain third party financing on reasonable terms.

PART III

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents aggregate fees for professional audit services
rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu,
and their respective affiliates (collectively, the "Deloitte Entities") for the
audit of the Company's annual financial statements for the years ended December
31, 2002 and 2003, and fees billed for other services rendered by Deloitte &
Touche LLP during these periods.

                                           2002                2003
                                          -------           -------
                                                 (in thousands)

Audit                                        $521              $553
Audit Related                                   9                --
Tax                                            --                --
Other                                          26                33
       Total                              -------           -------
                                             $556              $586
                                          =======           =======

Audit fees for 2002 were for professional services rendered for the audits of
the consolidated financial statements of the Company, reviews of quarterly
financial statements, employee benefit plan audits and the audits of the
financial statements of a subsidiary.

Audit Related fees for 2002 were for assurance services and due diligence
related to acquisitions.

Other fees are related to employee benefit plan advisory services, which had
been approved by the Audit Committee prior to May 2003.

                                      167
<PAGE>


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

FINANCIAL STATEMENT SCHEDULES:
WRC Media Inc. and Subsidiaries

(a) (2) FINANCIAL STATEMENT SCHEDULES:

Schedule II (a) - WRC Media Inc. Valuation and Qualifying Accounts for the Years
Ended December 31, 2001, 2002 and 2003

Schedule II (b) - Weekly Reader Corporation Valuation and Qualifying Accounts
for the years ended December 31, 2001, 2002 and 2003

SCHEDULE II (a)-WRC Media Inc.

<TABLE>
<CAPTION>
                                                                               Adjustments
                                            ----------------------------------------------------------------------------------
                                              Opening Balance                                                Ending Balance
                                                 January 1              Expense           Write-offs          December 31
                                            ---------------------  ------------------  -----------------   -------------------
<S>                                          <C>                          <C>               <C>                <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS

2003                                         $    1,467                   758               (475)              $ 1,750
2002                                         $    1,942                   866             (1,341)              $ 1,467
2001                                         $    1,794                 1,093               (945)              $ 1,942


ALLOWANCES FOR SALES RETURNS
(As Restated)

2003                                         $    1,649                 2,239             (3,119)                $ 769
2002                                         $    2,165                 2,909             (3,425)              $ 1,649
2001                                         $    2,202                 3,909             (3,946)              $ 2,165


VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
(As Restated)
2003                                         $   84,655                15,805                 --              $100,460
2002                                         $   98,825                14,170                 --              $ 84,655
2001                                         $  119,631                20,806                 --              $ 98,825
</TABLE>


                                      168
<PAGE>

SCHEDULE II (b)-Weekly Reader Corporation



<TABLE>
<CAPTION>
                                               Opening Balance                                                Ending Balance
                                                  January 1              Expense           Write-offs          December 31
                                             ---------------------  ------------------  -----------------   -------------------
<S>                                           <C>                           <C>               <C>                <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS

2003                                          $      1,389                  488               (467)              $ 1,410
2002                                          $      1,543                1,187             (1,341)              $ 1,389
2001                                          $      1,561                  882               (900)              $ 1,543


ALLOWANCES FOR SALES RETURNS
(As Restated)

2003                                          $      1,649                2,239             (3,119)                $ 769
2002                                          $      2,165                2,909             (3,425)              $ 1,649
2001                                          $      2,202                3,909             (3,946)              $ 2,165


VALUATION ALLOWANCE FOR DEFFERED TAX ASSETS
(As Restated)
2003                                          $     57,503                1,886                 --              $ 59,389
2002                                          $     42,668               14,835                 --              $ 57,503
2001                                          $     18,444               24,224                 --              $ 42,668
</TABLE>

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.


                                      169
<PAGE>


INDEX TO EXHIBITS

Except as otherwise indicated, the following documents are incorporated herein
by reference to the WRC Media Inc. Annual Report on Form 10-K for the year ended
December 31, 2002.

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% 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

5.1      Opinion of Cravath, Swaine & Moore regarding the legality of the new
         notes


                                      170
<PAGE>

EXHIBIT
NUMBER             DESCRIPTION OF DOCUMENT
------             -----------------------

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     Transitional Services Agreement dated as of November 17, 1999, among
         Primedia Inc., WRC Media Inc. and Weekly Reader Corporation

10.10    Shareholder Agreement dated as of the 17th day of November, 1999 among
         EAC III L.L.C., Therese K. Crane and WRC Media Inc.

10.11    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.

10.11.1  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.

10.12    Shareholder Agreement dated as of the 17th day of November, 1999 among
         EAC III L.L.C., Martin Kenney and WRC Media Inc.

10.13    Preferred Stock and Warrants Subscription Agreement dated November 17
         between WRC Media Inc., Weekly Reader Corporation, CompassLearning,
         Inc. and the other signatories thereto


                                      171
<PAGE>

EXHIBIT
NUMBER             DESCRIPTION OF DOCUMENT
------             -----------------------

10.14    Management Agreement dated as of November 17, 1999 among Ripplewood
         Holdings L.L.C. and CompassLearning, Inc.

10.15    Management Agreement dated as of November 17, 1999 among Ripplewood
         Holdings L.L.C. and Weekly Reader Corporation

10.16    ChildU Merger Agreement

10.17    Stockholder's Agreement With New WRC Media (ChildU) shareholders

10.18    ChildU Escrow Agreement

10.19    Amended and Restated Credit Agreement

10.20    Lindy Asset Purchase Agreement

10.21    ThinkBox Agreement

10.22    First-Lien Credit Agreement (filed as Exhibit 99.1 with the Form 10-Q
         report filed on May 14, 2004)

10.23    Second-Lien Credit Agreement (filed as Exhibit 99.2 with the Form 10-Q
         report filed on May 14, 2004)

12       Cash Interest Expense Calculation

12.1     Statement Regarding Ratios of Earnings to Fixed Charges Computations

21.1     List of Subsidiaries of the Registrants

23.1     Consent of Cravath, Swaine & Moore (included in its opinion filed as
         Exhibit 5.1)

23.2     Consent of Simba Information Inc.

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.

31.1*    Certification of Chief Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002--WRC Media Inc.

31.2*    Certification of Chief Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002--WRC Media Inc.

31.3*    Certification of Chief Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002--Weekly Reader Corporation

31.4*    Certification of Chief Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002--Weekly Reader Corporation

31.5*    Certification of Chief Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002--CompassLearning, Inc.

32.1*    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002 - WRC Media Inc.

32.2*    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002 - CompassLearning,
         Inc.

32.3*    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002 - Weekly Reader
         Corporation

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.

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.


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<PAGE>

EXHIBIT
NUMBER             DESCRIPTION OF DOCUMENT
------             -----------------------

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

*          Filed herewith.

(b) REPORTS ON FORM 8-K

1.   Form 8-K, filed November 14, 2003, reporting operating results for the
     quarter ended September 30, 2003.

2.   Form 8-K, filed November 18, 2003, reporting the transcript of an investor
     conference call held November 17, 2003.

3.   Form 8-K, filed December 15, 2003, reporting the SEC inquiry concerning
     relating to WRC Media's reserve for bad debt expenses in the first quarter
     of 2003, revenue recognition for the fourth quarter of 2002 and certain
     other of the Company's financial policies and practices.

4.   Form 8-K, filed January 7, 2004, reporting received a waiver until March
     31, 2004 from the lenders under its credit agreement for its expected
     non-compliance with certain financial covenants as of December 31, 2003.

5.   Form 8-K, filed January 29, 2004, reporting its preliminary and unaudited
     condensed consolidated financial results for its full year 2003.

6.   Form 8-K, filed March 22, 2004, reporting in connection with the audit of
     the Company's 2003 consolidated financial statements, that it decided to
     restate its previously audited consolidated balance sheets as of December
     31, 2001 and 2002, and the related statements of stockholders' deficit and
     operations for the years ended December 31, 2001 and 2002, and to amend its
     2003 unaudited financial results that were previously disclosed in a Form
     8-K furnished to the SEC on January 29, 2004.

7.   Form 8-K, filed March 24, 2004, reporting that we believe that upon
     furnishing our audited 2003 financial statements to the holders of our 12
     3/4% Senior Subordinated Notes due 2009 and filing such statements with the
     SEC, we will be in compliance with the information requirements of the
     indenture for these Notes, but that our independent auditors intended to
     include in their audit opinion for our 2002 and 2003 financial statements
     an explanatory paragraph to the effect that the potential claim that we are
     in breach of the indenture's requirements to furnish audited financial
     statements for 2001 or a potential attempt to accelerate the payment of
     such Notes, together with uncertainty as to the timing or ability to
     complete a reaudit of the 2001 financial statements and to furnish an
     auditors' report as required by the indenture in order to obviate such a
     claim, raises substantial doubt about our ability to continue as a going
     concern.


                                      173
<PAGE>

8.   Form NT 10-K, filed March 30, 2004, reporting notification of inability to
     timely file Form 10-K 405, 10-K, 10-KSB 405, 10-KSB, 10-KT, or 10-KT405.

9.   Form NT 10-K/A, filed March 30, 2004, reporting Amend Notification of
     inability to timely file Form 10-K 405, 10-K, 10-KSB 405, 10-KSB, 10-KT, or
     10-KT405.

10.  Form 8-K, filed March 31, 2004, reporting as disclosed in our Form 8-K
     filed with the Securities and Exchange Commission ("SEC") on March 22,
     2004, and in our Form 8-K filed with the SEC on March 24, 2004, in
     connection with the audit of our 2003 consolidated financial statements, we
     have restated our previously audited consolidated balance sheets as of
     December 31, 2001 and 2002, and the related statements of stockholders'
     deficit and operations for the years ended December 31, 2001 and 2002. The
     restatement primarily relates to (i) correction of errors made in the
     application of GAAP and (ii) correction of certain of the Company's
     historical accounting policies to conform to accounting principles
     generally accepted in the United States ("GAAP").


                                      174
<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:  June 15, 2004
                                            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 15TH DAY OF
JUNE, 2004.

            SIGNATURE                                TITLE
            ---------                                -----

*
---------------------------------        Director/Chief Executive Officer
Martin E. Kenney, Jr.

*
---------------------------------                    Director
Peter E. Berger

*
---------------------------------                    Director
David Burgstahler

*
---------------------------------           Non-Executive Vice-Chairman
Ralph D. Caulo

*
---------------------------------                    Director
Timothy C. Collins

*
---------------------------------                    Chairman
D. Ronald Daniel

*
---------------------------------               Director/Secretary
Charles L. Laurey

*
---------------------------------                    Director
David M. Malcolm

*
---------------------------------         Senior Vice President, Finance
Richard Nota


                                      175
<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:  June 15, 2004

                                                WEEKLY READER CORPORATION

                                                By:  /s/ Martin E. Kenney, Jr.
                                                ----------------------------
                                                Name: Martin E. Kenney, Jr.
                                                Title: Executive Vice 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 15TH DAY OF
JUNE, 2004.

            SIGNATURE                            TITLE
            ---------                            -----

*
-------------------------------        Director/ Executive Vice President
Martin E. Kenney, Jr.

*
-------------------------------                     Director
Peter E. Berger

*
-------------------------------                     Director
David Burgstahler

*
-------------------------------                     Chairman
D. Ronald Daniel

*
-------------------------------            Non-Executive Vice Chairman
Ralph D. Caulo

*
-------------------------------                     Director
Timothy C. Collins

*
-------------------------------                Director/Secretary
Charles L. Laurey

*
-------------------------------                     Director
David M. Malcolm

*
-------------------------------          Senior Vice President, Finance
Richard Nota


                                      176
<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:  June 15, 2004

                                              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 15TH DAY OF
JUNE, 2004.

              SIGNATURE                                      TITLE
              ---------                                      -----


----------------------------------           Director/Chief Executive Officer
Martin E. Kenney, Jr.
*

*
----------------------------------                       Director
Peter E, Berger

*
----------------------------------                       Director
David Burgstahler

*
----------------------------------              Non-Executive Vice Chairman
Ralph D. Caulo

*
----------------------------------                       Director
Timothy C. Collins

*
----------------------------------                       Director
D. Ronald Daniel

*
----------------------------------                  Director/Secretary
Charles L. Laurey

*
----------------------------------                       Director
David M. Malcolm


                                      177