##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended June 30,
    2004                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

COMMISSION FILE NUMBER: 000-27577



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HARRIS INTERACTIVE INC.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|DELAWARE                                                           |  | 16-1538028                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

135 Corporate Woods, Rochester, NY
14623

(Address of principal executive
offices)


Registrants telephone number, including
area code:

(585) 272-8400


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

NONE


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

Common Stock, par value $.001 per share


(Title of Class)


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 þ          No o

INDICATE BY
CHECKMARK 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.     o

INDICATE BY
CHECKMARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (as
defined in Rule 12b-2 of the Exchange
Act).     Yes þ          No o

As of
December 31, 2003, the aggregate market value of voting and
non-voting common equity securities held by non-affiliates of
the registrant was $413,082,725.

On September 3, 2004, 57,030,050 shares
of the Registrants Common Stock, $.001 par value,
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The
information required by Part III of this Report, to the
extent not set forth herein, is incorporated by reference from
the Registrants definitive proxy statement relating to the
annual meeting of stockholders to be held in November 2004,
which definitive proxy statement will be filed with the
Securities and Exchange Commission within 120 days after
the end of the fiscal year to which this Report relates.



---






---



HARRIS INTERACTIVE INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 30,
2004

INDEX






|                                                                                           |  |                                                                                                                      |    |      |    | 
|------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                           |  |                                                                                                                      |    | Page
|                                                                                           |  |                                                                                                                      |    |     
|Part I:                                                                                   
|Safe Harbor
    Statement under the Private Securities Litigation Reform Act of
    1995 |  |                                                                                                                      | 3  |     
|Item 1:                                                                                    |  | Business                                                                                                             |    |      | 3  | 
|Item 2:                                                                                    |  | Properties                                                                                                           |    |      | 17 | 
|Item 3:                                                                                    |  | Legal Proceedings                                                                                                    |    |      | 18 | 
|Item 4:                                                                                    |  | Submission of Matters to a
    Vote of Security Holders                                                              |    |      | 18 | 
|Part II:                                                                                  
|Item 5:                                                                                    |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |    |      | 19 | 
|Item 6:                                                                                    |  | Selected Consolidated
    Financial Data                                                                             |    |      | 20 | 
|Item 7:                                                                                    |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |    |      | 21 | 
|Item 7A:                                                                                   |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                       |    |      | 39 | 
|Item 8:                                                                                    |  | Financial Statements and
    Supplementary Data                                                                      |    |      | 41 | 
|Item 9:                                                                                    |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |    |      | 66 | 
|Item 9A:                                                                                   |  | Controls and Procedures                                                                                              |    |      | 66 | 
|Item 9B:                                                                                   |  | Other Information                                                                                                    |    |      | 66 | 
|Part III:                                                                                 
|Item 10:                                                                                   |  | Directors and Executive
    Officers of the Registrant                                                               |    |      | 66 | 
|Item 11:                                                                                   |  | Executive Compensation                                                                                               |    |      | 66 | 
|Item 12:                                                                                   |  | Security Ownership of
    Certain Beneficial Owners and Management and
    Related Stockholder Matters               |    |      | 67 | 
|Item 13:                                                                                   |  | Certain Relationships and
    Related Transactions                                                                   |    |      | 67 | 
|Item 14:                                                                                   |  | Principal Accountant Fees
    and Services                                                                           |    |      | 67 | 
|Part IV:                                                                                  
|Item 15:                                                                                   |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                 |    |      | 67 | 
|Signature                                                                                  |  |                                                                                                                      | 72 |     
|EX-10.6.2 AMENDMENT TO REVOLVING CREDIT FACILITY                                          
|EX-21 LIST OF SUBSIDIARIES                                                                
|EX-23.1 CONSENT OF IDEPENDENT REGISTERED PUBLIC ACCOUNT                                   
|EX-31.1 302 CERTIFICATE OF THE CEO                                                        
|EX-31.2 302 CERTIFICATE OF THE CFO                                                        
|EX-32.1 906 CERTIFICATE OF THE CEO                                                        
|EX-32.2 906 CERTIFICATE OF THE CFO                                                        



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PART I




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

The discussion in this Form 10-K contains
forward-looking statements that involve risks and uncertainties.
The statements contained in this Form 10-K that are not
purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including statements regarding expectations,
beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based
on the information available to Harris Interactive on the date
hereof, and Harris Interactive assumes no obligation to update
any such forward-looking statement. Actual results could differ
materially from the results discussed herein. Factors that might
cause or contribute to such differences include, but are not
limited to, those discussed in the Risk Factors section of this
Form 10-K. The Risk Factors set forth in other reports or
documents Harris Interactive files from time to time with the
Securities and Exchange Commission should also be reviewed.






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

Harris Interactive Inc. and its subsidiaries
(also herein referred to as Harris Interactive,
we, our, us, or the
Company) is a leading market research, polling and
consulting firm, ranking 13th among U.S. research
organizations in 2003 and 15th among global research
organizations in 2003 based on calendar year revenue as reported
by Inside Research. Known for The Harris
Poll® and for pioneering the Internet method to conduct
scientifically accurate market research, we have over
45 years of experience in providing our clients with
information about the views, experiences and attitudes of people
worldwide.

Since 1956, we have provided these services
utilizing traditional market research and polling methodologies,
such as direct mail, telephone-based surveys, mall intercepts,
focus groups and in-person interviews. In September 1997, we
began developing our Internet panel and building the technology
infrastructure to provide online market research and polling
services. In November 1997, we introduced our first
Internet-based market research and polling services.

The Company has its corporate headquarters in
Rochester, New York and conducts international research through
its various U.S. offices, its wholly-owned subsidiaries:
London-based HI Europe (www.hieurope.com), Paris-based Novatris,
S.A. and Tokyo-based Harris Interactive Japan K.K.
(www.hpol.co.jp) as well as through its Global Network of local
market and opinion research firms. The Companys fiscal
year ends June 30th.

Information about the Companys products and
services, shareholder information, press releases, and SEC
filings can be found on the Companys website at
www.harrisinteractive.com. We make available free of charge
through our website the documents and reports we file with the
SEC, including our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the SEC. Information on our website (or the websites of our
subsidiaries) does not constitute part of this Report on
Form 10-K.

Mergers and Acquisitions

The Company was incorporated as a Delaware
corporation in 1997. Founded originally as the Gordon S. Black
Corporation in 1975 the Company acquired Louis Harris and
Associates in 1996 and during fiscal 1999 changed our name to
Harris Interactive Inc. In addition to this acquisition the
Company has achieved growth with the help of a number of
additional acquisitions. In February 2001, the Company acquired
the custom research division of Yankelovich Partners, Inc.
headquartered in Norwalk, Connecticut. In August 2001, we
acquired all of the issued and outstanding stock of Market
Research Solutions Limited, a privately owned U.K. company
headquartered in Oxford, England. In September 2001, the Company
acquired all of the issued and outstanding stock of M&A
Create Limited, a privately owned company headquartered in
Tokyo, Japan. In November 2001, we acquired all of the issued
and outstanding shares of common stock of Total Research
Corporation, a Delaware corporation, located in Princeton, New
Jersey and in March 2004, the Company acquired all of the issued
and outstanding shares of Novatris, S.A., a share corporation
organized and existing under the laws of France.

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Overview

We use Internet-based and traditional
methodologies to provide our worldwide customers with critical
market knowledge in many industries. Our Internet-based and
traditional market research and polling services include:



| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | research studies, which may involve both data
    collection and data analysis, conducted on specific issues for
    specific customers (Custom Research); and
|
| |  | research studies, which primarily involves
    Internet-based data collection, conducted for other market
    research firms (Service Bureau Research).       

In addition, a minimal amount (generating under
5% of our revenues) of our services include research studies on
issues of general interest developed and sold to numerous
clients (Multi-Client Research).

In 1997, we began developing our Internet panel
and our proprietary technology infrastructure necessary to
provide our clients with fast, comprehensive and accurate online
market research and polling products and services. Our Internet
panel presently consists of over six million individuals who
have voluntarily agreed to participate in various online market
research and polling studies. We believe that our Internet panel
is larger than those of any of our competitors of which we are
aware, including the panel sizes reported on the respective
websites of the 25 largest global research organizations (as
ranked for 2003 by the Honomichl report) and in the SEC filed
documents of those competitors. Based upon such reported panel
sizes, the number of online surveys we have completed and the
amount of revenue we derive from on-line research, we believe
that we are the leading Internet-based market research and
polling firm in the world. We treat our revenue as
Internet-based for projects with respect to which more than 50%
of surveys were completed over the Internet. The percentage of
our business that is Internet-based continues to grow and a
majority of our revenues are now realized from Internet-based
projects. The percentage of our Internet-based revenues varies
from quarter to quarter, and is disclosed as part of our
periodic filings.

Historically, we provided our market research
services exclusively through traditional methodologies,
including direct mail, telephone surveys, mall intercepts, focus
groups and in-person interviews. We believe, however, that the
Internet has changed the market research and polling industry.
Accordingly, we have made, and will continue to make,
significant expenditures in the development of our technology
platform, our Internet panel, and management and staff to
continue to lead the transformation of the market research and
polling industry to an Internet-based platform.

The Company operates as one reportable business
segment, and services its clients through multiple operating
groups, based on industry, research methodology and/or geography.

The Company operates telephone data collection
centers in London, England, and Tokyo, Japan. These phone
centers conduct interviews utilizing computer-based
questionnaires. The data are immediately uploaded to the
Companys central data-processing centers. The Company also
out-sources telephone data collection. These combined operations
have sufficient capacity to support reasonably predictable short
and long-term project needs.

The Company maintains secure in-house data
processing operations that provide rapid data management and
analysis. The Company supports many platforms and file types
both to exchange data and to provide clients with extensive
database design and management capabilities. The Company also
provides its clients with sample management services and survey
data results using a variety of software applications.

Harris Interactive and The Harris Pollare
U.S. registered trademarks of Harris Interactive Inc. This
Form 10-K also includes other trademarks, trade names and
service marks of Harris Interactive and of other parties.

The Company has no material debt and continues to
have an increasingly strong cash position. We therefore believe
that we are well positioned to fund expenditures to support our
growth, whether internal or by acquisition.

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Our Market Opportunity

General Overview

Business is becoming more complex. Heightened
competition, consolidation, globalization of product markets,
accelerated product launch schedules, shortened product life and
rapidly changing consumer preferences mark todays business
environment. This complexity has escalated the value of accurate
and timely information needed to make critical decisions.
Business covets data about the preferences, needs, buying
behavior and brand awareness of existing and potential clients.
Well-managed companies also need to continuously track product
performance and competitive position, monitor consumer
satisfaction and loyalty, measure advertising effectiveness and
determine price sensitivity.

Historically, market research has been performed
using traditional data collection methodologies: telephone, mail
and in-person interviews. However, these methods are becoming
increasingly less effective (and less affordable) due to high
data collection costs, consumer resistance to telephone
inquiries, small sample sizes and the extensive time required to
perform the research. Consequently, large traditional research
projects can only be funded by organizations with significant
resources. The Internet has dramatically changed the market
research and polling industry, making it possible to survey a
broad, diverse population at costs and speeds that were
previously unattainable. This capacity has actually increased
the amount of research being completed as much of our revenue is
derived from new research that had never been done
before.

The Internet and its Impact on the Market
Research and Polling Industry

The Internet enables hundreds of millions of
people worldwide to gather and share information as well as
conduct business electronically. The use of the Internet as a
market research and polling tool is still in its relatively
early stages, having only been practiced during the last ten
years.

Harris Interactive became one of the pioneers of
Internet-based research when we began testing the Internet to
conduct market research and polling in 1997. At that time, there
were approximately 40 million people, or only about 16% of
the U.S. population, who had Internet access. They were not
representative of the general population. Harris Interactive had
to perfect data weighting systems to correct for this bias.
Today, a much higher percentage of the population has Internet
access and the demographic composition of Internet users has
become closer to the overall population. The Company has
developed highly accurate weighting procedures, making the
Internet a viable means to conduct market research 
with significant advantages, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Flexibility
    Internet-based market research is conducted on the
    respondents schedule  not the telephone
    researchers schedule. Online questionnaires may be
    completed at home, work or anyplace with Internet access.
    Surveys can be created in multiple languages and administered
    around the world seven days a week, twenty-four hours a day.                                                                                                                                                                                                                                                                                                                                    
|
| |  | Versatility
    Motion and still pictures, graphics, advertising copy and other
    visual materials can be viewed over the Internet, a feature not
    available with telephone sampling. The images can be combined
    with sound as well as protected from being stolen, printed,
    forwarded, copied or saved. Internet-based methodology allows
    questions and their sequence in surveys to be modified as
    panelists respond. Mail surveys, in contrast, are limited to the
    order and content of the printed text of the survey. Online
    qualitative research techniques such as chat room or bulletin
    board focus groups provide substantial savings in time and
    travel costs.
|
| |  | Speed In
    our experience, an average mail survey takes approximately six
    weeks from design to completion. In contrast, Internet surveys
    can generally be completed in two to seven days. As voicemail,
    caller ID, call screening answering machines, do-not-call
    protection, and a general aversion to telemarketing proliferate,
    call acceptance rates drop and telephone researchers must call
    more people to get the same number of completed surveys.
    Therefore, the speed (and cost) advantage of the Internet model
    actually becomes greater as the sample size increases.                                                                                          
|
| |  | Value
    Internet-based methodology offers significant cost benefits when
    compared to traditional market research methodologies.
    Traditional survey sample size is limited due to the high data
    collection costs per                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | response. Internet-based market research methods
    can provide larger and more robust sample sizes for the same
    cost, or the same sample size can be gathered at a reduced cost.                                                                                                                                                                                                    
|
| |  | Productivity
    Because online panelists can read questions faster than they can
    listen, more questions can be asked in the same amount of time.
    Respondents in qualitative sessions conducted online create
    their own transcripts, which can be immediately reviewed and
    analyzed by the market researcher versus having to create
    transcriptions from audiotapes.

The Harris Interactive Advantage

We believe that Harris Interactive is the global
leader in online market research. We offer our clients a broad
suite of Internet-based market research and polling products. We
have several competitive advantages that we believe will enable
us to maintain and expand our lead position in Internet-based
research. Our key competitive advantages include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Highly Satisfied and Loyal
    Clients.Our intensive measurement of
    customer satisfaction and the associated process improvements
    have allowed us to greatly improve the quality of services that
    we deliver. All of our researchers and managers are evaluated on
    the customer satisfaction scores that they earn from their
    clients, and their bonus compensation is tied to customer
    satisfaction levels, currently 9 on a 10 point scale.

This high level of customer satisfaction provides
us with a true competitive advantage in the marketplace by:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | Monitoring and then responding to changing
    customer needs,                                               
|
| |  | Increasing the loyalty of our customers, which
    generates a larger lifetime value earned from each client,
|
| |  | Improving our margins by softening price
    sensitivity, and                                                
|
| |  | Decreasing our cost of sales due to the higher
    propensity for repeat business.                           



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A Proprietary Propensity Score Weighting
    System.This system ensures very
    accurate survey results using online data collection by
    correcting for data anomalies that occur due to sample
    bias  such as the difference in behavior between
    online respondents and offline respondents. We believe that no
    other online market research firm has an equal system to
    correctly weight data and project results to a larger
    population. As a result of two years of research, Harris
    Interactive originated the process of propensity scoring to
    balance the behavioral aspects of volunteer market research
    respondents to that of general populations. We began conducting
    parallel studies using Internet and traditional research
    methodologies when Internet research was not generally accepted
    as a valid methodology in the market research industry, and have
    completed over 200 studies. We have revised and continue to
    revise our methodologies based upon the results of such studies
    and our extensive experience in pioneering the technology. The
    accuracy of this system was proven when Harris Interactive
    produced forecasts of the 2000 U.S. presidential election
    and state-by-state forecasts (72 races in total) that were
    approximately 2 times as accurate as those generated through
    telephone polls.

The Worlds Largest Internet Panelfor conducting online market research.
Currently, our panel consists of over six million individuals
from around the world who have been double opted-in (i.e. where
the individual affirmatively reconfirms his/her intent to join
the panel subsequent to his/her initial registration) and
voluntarily agreed to participate in our various online research
studies. We are currently adding thousands of additional names
to our global panel on a daily basis. This large and diverse
Internet panel enables us to:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | conduct a broad range of customer-specific or
    multi-client research studies across a wide set of industries,                
|
| |  | conduct very large surveys of the general
    population as well as studies of low-incidence, hard-to-find
    subsets,         
|
| |  | market new research products and services through
    co-branded alliances that we historically could not develop
    alone, and

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| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sell our online data collection services to other
    research firms through the Harris Interactive Service Bureau,
    enabling us to penetrate new markets and gain additional market
    share where we do not have relationships or specific expertise.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Specialty Panels.During the past four years, we have performed additional
    screening of the respondents in our main panel in order to form
    specialty panels or groups of people with similar, hard to find
    characteristics. We have developed numerous specialty panels,
    including Affluent, Chronic Illness, Gay, Lesbian and Bisexual,
    Mothers and Expectant Mothers, Physicians, Pet Companion and
    Technology Decision Makers. Our clients highly value our ability
    to rapidly perform online surveying of low incidence
    populations, and have even asked us to develop proprietary
    specialty panels exclusively for their use. Specialty panel
    research has become a key driver of high profit revenue growth
    for the Company.

Proprietary Technology
Infrastructure.A significant amount
of computer software and hardware is required to conduct
Internet-based market research and polling. The key elements of
our technology infrastructure include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A high speed customized email system,
    which enables us to rapidly format, target and send over one
    million customized email invitations per hour;                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | A sophisticated survey engine, which can
    process 240,000 five-minute incoming surveys per hour with a
    peak capacity of 20,000 surveys processed simultaneously;                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Software systemswith the ability to collect data in
    any language supported by Microsoft, including double-byte
    character sets (such as the Asian languages) and right to left
    reading languages;                                                                                                                                                                                                                                                                                                                          
|
| |  | An advanced survey dispatcher system,
    which acts like an air traffic control system to monitor,
    control and balance all respondent activity across all of our
    servers  and to ensure that no respondent will get a
    sorry  the system is busy notice. In
    addition, our proprietary dispatcher system gathers real-time
    statistics on survey starts, suspensions and completions,
    shutting off the surveys when the contracted completion levels
    have been achieved, thereby reducing cost overruns;
|
| |  | A patented customizable multi-language
    registration and polling system, which allows new and
    existing panel members to add, delete or update their
    registration information online, and which recognizes each
    panelists language preference and delivers the survey in
    that language; and                                                                                                                                                                                                                        
|
| |  | Flexible, automated real time reporting toolsthat allow online access to weighted survey data at any time
    and speed the process of data delivery to clients;                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Our Integrated Telephoneand Internet
    data collection system(ICW), which permits smooth,
    labor-free transition between telephone and Internet modes of
    interviewing, with real time quota control and integration with
    the automated real time reporting tools; and                                                                                                                                                                                                                                                    
|
| |  | A Fully Scalable Infrastructurethat was
    designed with no theoretical upper limit and can easily and
    cheaply grow with the expansion of our business. Currently, we
    believe that we can double our existing capacity at a cost of
    less than $300,000.                                                                                                                                                                                                                                                                  

A strong brand.We
believe that The Harris Pollis one of the best-known
polls operating in the United States today. For over
45 years, The Harris Pollhas been recognized for
providing trusted information to a broad range of companies,
non-profit organizations and governmental agencies. We use a
variety of marketing strategies to heighten awareness of and
enhance brand recognition of The Harris Poll, Harris
Interactive and our Internet-based products and services.

Our Products and Services

Our services are focused upon serving numerous
vertical markets, which include, but are not limited to,
pharmaceutical and health care, ecommerce, consumer packaged
goods, automotive, financial services, technology, education,
media and advertising, customer loyalty and public policy. By
aligning all of our support functions (e.g. sales, marketing,
research staff, etc.) to specific vertical markets or research
methodologies, we

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can effectively and efficiently deliver our
services, while providing a high level of industry expertise and
consultative support.


The following table summarizes our primary
products and services, custom and service bureau research, as
well as our multi-client research activities.

|                        |  |                                                                                                                                                                                                                                                                      |  |                               
|----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------
|Product Type            |  | Description                                                                                                                                                                                                                                                          |  | Data Collection Methods       
|                        |  |                                                                                                                                                                                                                                                                      |  |                               
|Custom Research         |  | Market research and polling conducted on an issue
    specifically identified by a client.                                                                                                                                                                           |  | Traditional and Internet-based
|                       
|Service Bureau Research |  | Data Collection conducted for other market
    research firms.                                                                                                                                                                                                       |  | Internet-based                
|                       
|Multi-Client Research   |  | Studies developed for, and sold to, a large
    number of clients who have a similar interest in a particular
    subject area  like Equitrend® brand equity
    research, our corporate reputation product and our annual
    Business School Reputation Rankings. |  | Internet-based                

All multi-client and service bureau research is
conducted via the Internet. We deliver custom research by
employing both traditional and Internet-based methodologies. We
continue to work aggressively in transitioning our custom
research and polling products and services to Internet-based
research. During fiscal 2004, 59% of our total revenue was
derived from Internet-based products, up from 46% in fiscal
2003. We continue to dedicate a significant amount of our
financial and management resources to developing and marketing
new products and services that use our Internet-based
methodologies.

Custom Research

For almost 50 years, we have provided custom
research to a broad range of clients, ranging from
business-to-business and business-to-consumer companies, to
non-profit organizations and governmental agencies. This
experience has served as our foundation to build the techniques
used to conduct accurate Internet-based custom research. Our
long history has also provided us with particular strong
expertise in the following markets:



| |   |                                              
| | - | ---------------------------------------------
| |  | healthcare,                                  
|
| |  | pharmaceuticals and medical devices,         
|
| |  | office equipment and technology,             
|
| |  | education and public policy,                 
|
| |  | transportation,                              
|
| |  | marketing communications and advertising, and
|
| |  | public relations,                            
|
| |  | customer loyalty.                            

We conduct many types of custom research
including customer satisfaction surveys, market share studies,
new product introduction studies, brand recognition studies,
reputation studies, ad concept testing and more. A custom
research project has three distinct phases:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | survey
    design Initial meetings
    are conducted with the client to clearly define the objectives
    and reasons for the study which ensures that the data collected
    by the research will meet the customers needs. Based on
    the requirements, we then determine the proper research
    procedure such as a mail, telephone or Internet survey, focus
    group meetings or personal interviews, identify the population
    to be surveyed, and design the survey questionnaire or focus
    group protocol.

8



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| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | data
    collection Field data
    collection is conducted through computer-aided Internet or
    telephone interviewing, by mail or in person, or by holding
    focus group meetings or any combination of the above. Quality
    procedures assure that surveys are returned and the correct
    number of interviews are completed.          
|
| |  | weighting, analysis and
    reporting We review the
    collected data for sufficiency and completeness, weight the data
    accordingly, and then analyze by desired demographic, business
    or industry characteristics. A comprehensive report that
    typically includes recommendations is then prepared and
    delivered to the client.

Our proprietary sample design and questionnaire
development techniques ensure that complete and accurate
information is collected, and that this data will satisfy the
specific inquiries of our clients. We have developed in-depth
data collection techniques that enhance the integrity and
reliability of our sample database. Our survey methodology
ensures that responses are derived from the appropriate
decision-makers in each category. As a result, we deliver the
data that our clients need.

Service Bureau Research

The Harris Interactive Service Bureau
(HISB) conducts Internet-based data collection for other
market research firms that either do not have the necessary
resources to develop Internet-based market research capabilities
or that have otherwise chosen not to develop such capabilities
themselves. In addition to being a strong revenue source, HISB
also enables us to penetrate markets or industries where we do
not have current relationships or specific expertise. We also
believe that HISB reduces the likelihood that those clients will
invest significant financial and management resources to develop
competitive Internet-based market research capabilities, and
therefore serves as a barrier to entry to our competition.

HISB clients can utilize our data collection
capabilities on a long-term, continuous basis or on a
project-by-project basis. During fiscal 2004, 113 market
research firms used HISB, up from 100 in fiscal 2003 and 90
during fiscal 2002.

Multi-Client Research

Multi-client research relates to those projects
for which the Company performs periodic surveys to collect data
that can be provided in a standard report format to multiple
clients. Multi-client research is sold to a large number of
customers that have an interest in a particular market segment
or research application. Under such arrangements the client
agrees to a set payment upon delivery of the standard report.
Our multi-client products are developed on an independent or
co-branded basis and are marketed by us. We collaborate with
other parties that have unique experience in a particular
subject or market to produce co-branded multi-client products.
Co-branding arrangements relate to projects that are jointly
marketed. Under such arrangements the Company recognizes its
portion of the expenses and revenues related to the project on a
net basis, regardless of which party does the ultimate billing
to the client and regardless of any billings between the Company
and the co-branded company. Co-branded products typically enable
our clients to conduct research that they could not conduct
without our Internet panel and technology infrastructure. By
combining their expertise with our vast database and research
capabilities, we are able to develop and market products that
benefit both parties. Only a minimal portion of our revenue
(under 5%) comes from multi-client research.

Research and Development

The Company has not incurred expenditures for the
three fiscal years ended June 30, 2004 that would be
classified as research and development in accordance with
accounting principles generally accepted in the United States of
America under Financial Accounting Standards Board No. 2.

9



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Our Clients

In fiscal 2004, approximately 35% of the
Companys revenue was derived from Fortune
500 companies. The Company served approximately 1,200
clients, derived from the following lines of business:

|                                         |  |          |    |  
|---------------------------------------- |  | -------- | -- | -
|                                         |  | % FY2004
|                                         |  | Revenue 
|                                         |  |         
|Health Care                              |  |          | 22 | %
|Customer Loyalty Management              |  |          | 20 | %
|Technology                               |  |          | 14 | %
|Harris Interactive Service Bureau (HISB) |  |          | 8  | %
|Strategic Brands & Consulting            |  |          | 6  | %
|Media & Public Relations                 |  |          | 6  | %
|Marketing Communications                 |  |          | 5  | %
|Consumer Packaged Goods                  |  |          | 4  | %
|Automotive & Transportation              |  |          | 3  | %
|Youth & Education                        |  |          | 2  | %
|General Markets/ Other                   |  |          | 10 | %

In fiscal 2004, no single client accounted for
more than 10% of the Companys consolidated revenue.

Our Sales and Marketing Programs

During fiscal 2004 the Company invested to
implement a broad range of sales and marketing programs,
intended to:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | raise awareness of the Harris Interactive, HI
    Europe, Novatris and Harris Interactive Japan brands,
|
| |  | build awareness and generate leads for specific
    products,                                          
|
| |  | expand our Internet panel, and                                                                         
|
| |  | support our global network.                                                                            

Marketing activities are integrated and may
contain elements of public relations, offline and online
advertising and promotion, trade shows, industry event
participation and speaking engagements, market research
knowledge sharing conferences and direct marketing.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Public Relations.Public relations have been the main driver behind the increased
    awareness of the Harris Interactive brand. We engage in
    comprehensive media relations and public relations on a full
    time basis, both in the United States and Europe. We regularly
    create and distribute, via national and international news
    wires, media releases for both our Company and our clients who
    desire to jointly release data from studies that we have
    conducted. During fiscal 2004, the Company created and
    distributed over 250 media releases, including the worldwide
    weekly distribution of The Harris Polland The Harris
    Interactive Health Care News. Our public relations team also
    collaborated with our clients on over 360 joint releases of
    information, and responded to approximately 250 media inquiries
    from reporters, editors, authors and educational institutions
    who wanted to publish our data. The Harris Interactive name
    regularly appears in many media outlets including CNN;
    Business Week,and Timemagazines; USA Today,
    The New York Times, The Los Angeles Times, The Chicago Tribuneand The Boston Globeas well as The Economist, The
    Asahi Shimbunand Nikkeinewspapers; UPI, AP and
    Reuters news wires; and the Associated Press and BBC radio
    networks. The Harris Polland our Harris Interactive
    Health Care Newsare published weekly on WSJ.com, the online
    edition of The Wall Street Journal. BRANDWEEKmagazine
    and The Wall Street Journalalso publish our brand and
    reputation research on a regular basis.
|
| |  | Trade Shows and Speaking
    Engagements.To further our position
    as a global leader in Internet-based research, Harris
    Interactive has participated and will continue to participate in
    a large number of industry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | tradeshows, seminars and expositions. Speakers
    from the Company have traveled the world to share their
    knowledge with many prestigious organizations, including the
    Congress of the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Offline Advertising and
    Promotion.We use print advertising in
    U.S., European and Japanese business and trade publications to
    raise awareness of our brand name and to generate leads for
    individual products and services. The weekly, public release of
    The Harris Pollis one of our most effective offline
    promotional activities. The Company also publishes The Harris
    Interactive Health Care News, containing recent health care
    research on a weekly schedule. We also regularly publish a
    number of market specific newsletters to share our knowledge
    with current and potential customers.                                                                                                                                                                                                                                                                                              
|
| |  | Online Advertising and
    Promotion.The Company has entered
    into numerous agreements with Internet portals, like The Wall
    Street Journal Online, which publishes the weekly editions
    of The Harris Polland The Wall Street Journal-Harris
    Interactive Health Care Poll. The Company also purchases key
    word searches, global banner advertising and co-registration
    opportunities to generate leads and to recruit new members into
    The Harris Poll Online. Currently, these efforts are adding
    thousands of double-opted in panel members per day in the U.S.,
    Canada, the United Kingdom, France, Germany, Italy, Spain and
    the Scandinavian countries. Other online promotions are
    undertaken from time to time to recruit special population
    segments into our panel such as senior citizens, teens,
    minorities, practicing physicians and information technology
    (IT) users.
|
| |  | Direct Marketing.Direct marketing strategies are also used to generate leads for
    our specific products and services. Campaigns that incorporate
    dimensional mail in combination with outbound telemarketing
    calls conducted by the inside sales force, have yielded the
    greatest response. These campaigns are scheduled on a rotating
    basis throughout the year to support all major lines of business
    and to maximize the productivity of the inside sales force.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Sales Force
    Automation.During fiscal 2004 we
    successfully completed the implementation of salesforce.com, a
    web-based, Customer Relationship Management (CRM) system
    for internal use. We have more than 200 worldwide employees
    wired into this integrated system to share customer data, manage
    leads and contacts as well as track sales proposals, RFPs
    and contracts sold. We effectively manage all marketing
    campaigns, audio conferences, and web casts through this system
    as well as tracking sales bookings across the organization.                                                                                                                                                                                                                                                                                                                                                      

Our Competition

We compete with numerous market research firms,
as well as corporations and individuals that perform market
research studies on an isolated basis, many of whom have market
shares larger than our own. Consolidation in the industry
continues to create larger and larger global firms, some with
billions of dollars in annual revenue.

Although barriers to entry for Internet-based
market research are high, we expect that competition will
intensify as existing market research firms continue to invest
in building their online research capabilities. We will likely
also face competition in the future from other traditional
market research firms who move into Internet-based technologies
or other companies with access to large databases of individuals
with whom they can communicate on the Internet. These companies
may, either alone or in alliances with other firms, attempt to
penetrate this market.

Many of our current and potential competitors
have longer operating histories or significantly greater
financial and marketing resources. These competitors may be able
to undertake more extensive marketing campaigns for their
services, adopt more aggressive pricing policies and make more
attractive offers to potential employees, partners and potential
customers.

Further, our competitors and potential
competitors may develop technologies that are superior to ours
or that achieve greater market acceptance than our own.

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We believe, however, that we can and will remain
highly competitive due to the knowledge of our people and our
ability to excel in:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | proprietary sample design techniques,                                               
|
| |  | questionnaire development,                                                          
|
| |  | in-depth data collection, and                                                       
|
| |  | the ability to accurately deliver data that
    represents the desired demographics.

We also believe that we have additional
competitive advantages such as:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | our expanding global footprint                                                                                                           
|
| |  | our scalable proprietary Internet technology
    platform,                                                                               
|
| |  | our brand recognition and strong reputation,                                                                                             
|
| |  | our quality, and the depth and breadth of our
    products and services, and                                                             
|
| |  | our high levels of customer satisfaction,                                                                                                
|
| |  | our knowledge base and methodologies for the
    unbiased transition from traditional data collection modes to
    Internet interviewing.

Having what we believe to be the largest Internet
panel in the world, coupled with our related technology and
expertise, gives us what we believe are the following additional
competitive advantages:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | proven ability to project Internet-based survey
    results to the required audience,                 
|
| |  | breadth of geographic scope enabling us to do
    projects with multiple country components,          
|
| |  | diversity and demographic depth enabling us to do
    both broad based and low incidence studies,     
|
| |  | ability to limit the frequency of requests to
    panelists, helping us avoid attrition from over-use.

We believe that our ability to control and fully
integrate the survey design, data collection, analysis, and
reporting functions gives us an advantage over competitors who
do not offer the broad range of services by enabling us to
deliver a final product most closely tied to our clients
needs. Our expertise in data collection using a variety of
methods allows us to choose the most effective method for each
particular project. We believe that our business model provides
a balance between the ability to take advantage of the current
higher margin-lower cost opportunities offered by Internet-based
research and the ability, by offering both data collection and
analysis to clients, to cushion the possible future impact of
competitive pricing on margins achievable through Internet data
collection services as competition in that area increases.

Our Intellectual Property and Other
Proprietary Rights

Our success in becoming the leader in
Internet-based market research has been largely driven not only
by our investment in our database but also by our proprietary
software technology, research methodology, sample, balancing,
data weighting and analysis techniques, and the internal
processes that we developed to conduct online research. This
intellectual property is essential to our continued success, and
to protect it, we rely on a combination of patent, copyright,
trademark and trade secret laws, plus confidentiality and
license agreements. In October 2001, we received a patent for a
system to conduct surveys over a network, including the
Internet, to multiple respondents in multiple countries in
different languages. This system only allows the respondent to
participate once. It can also dynamically generate surveys from
a database as well as immediately show and compare the results
of the surveys. The patent will expire February 2, 2019. We
also have two additional patents pending:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For ConceptLoc®  a proprietary
    suite of online security products that protect non-animated
    graphics interchange format and Joint Photographic Expert Group
    images, prevent printing of protected images,

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| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | disable screen print capability, disable save,
    save as, drag and drop, and copy capabilities and defeat
    third-party capture applications; and                        
|
| |  | Harris Interactive Configurator  a
    system to conduct build your own product
    configuration research over a network.                                                
|
| |  | Shelf Impactsm  a system
    for evaluating the impact of package design and shelf placement
    for store shelf products using extremely short duration image
    exposure.

Our success and ability to compete substantially
depend on our internally developed technologies and our
trademarks. We have trademark registrations for a number of our
trademarks, including Harris Interactive, HI Europe, and The
Harris Poll. If we were prevented from using The Harris
Pollname, our brand recognition and business would likely
suffer. We would have to make substantial financial investments
to rebuild our brand identity.

Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in
which our services are made available.

Under the terms of our 1996 acquisition of Louis
Harris and Associates, we purchased the HARRIS name including
The Harris Poll, for global use except for use in Europe
and the European portion of the former Soviet Union (the
Territory). The prior owner of Louis Harris and
Associates sold the HARRIS name for use in the Territory, and
those rights are now owned by Taylor Nelson Sofres plc.
(TNS). In February 2000, we entered into a trademark
license agreement with TNS, which provides us with a
non-transferable license to use the names HARRIS ONLINE, HARRIS
POLL ONLINE, HARRIS INTERACTIVE, and HARRIS POLL INTERACTIVE
within the Territory. Our use of these trademarks is permitted
only in connection with market research services involving use
of the Internet and with reference to the license. We may not
otherwise use the HARRIS name in the Territory. The agreement
prohibits TNS from using HARRIS ONLINE, HARRIS POLL ONLINE,
HARRIS INTERACTIVE and HARRIS POLL INTERACTIVE, or confusingly
similar marks within the Territory, and provides that TNS will
not contest our use of HPOL within the Territory.
TNS retains the right to use the HARRIS name within the
Territory unless such use indicates a connection with the
Internet and is confusingly similar to the marks licensed to us.
TNS also retains the right to terminate the license in the event
of (i) our insolvency or our breach of the agreement,
(ii) the termination of separate agreements between us and
TNS relating to our providing TNS with access to our panelist
database, and/or (iii) a change of control or sale of
substantially all of the business or assets of Harris
Interactive in favor of a competitor of TNS; provided however,
in the latter two cases we may purchase perpetual rights to the
names.

We have licensed in the past, and expect to
license in the future, certain of our proprietary rights, such
as trademarks or copyrighted material, to third parties. While
we attempt to ensure that the quality of our brand is maintained
by these licenses, licensees may take actions that might harm
the value of our proprietary rights or reputation. The steps
taken by us to protect our proprietary rights may not be
adequate and third parties may infringe or misappropriate our
copyrights, trademarks and similar proprietary rights. In
addition, other parties may assert claims of infringement of
intellectual property or other proprietary rights against us.

In addition, there can be no assurance that third
parties will not independently develop functionally equivalent
or superior systems, software or procedures. We believe that our
systems, software and procedures and other proprietary rights do
not infringe on the proprietary rights of third parties. There
can be no assurance, however, that third parties will not assert
infringement claims against us in the future or that any such
claim will not require us to enter into materially adverse
license agreements or result in protracted and costly
litigation, regardless of the merits of such claims.

Financial Information About Geographic
Areas

The Company is comprised primarily of operations
in the United States, Europe and Asia. Non-U.S. market
research is comprised primarily of operations in the United
Kingdom, Japan and France. We operate these
non-U.S. businesses on a consistent basis with our
U.S. operations. We perform Internet-based market research
in the United Kingdom and France using our European database and
as a result also produce limited amounts of

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Service Bureau research in Europe. Internet based
research in Japan is currently limited as a result of the
limited database panel throughout the Asia-Pacific region.


The Company currently has one reportable segment.
All intercompany sales and transactions have been eliminated
upon consolidation.

The Company has prepared the financial results
for geographic information on a basis that is consistent with
the manner in which management internally disaggregates
information to assist in making internal operating decisions.
The Company has allocated common expenses among these geographic
regions differently that it would for stand-alone information
prepared in accordance with accounting principles generally
accepted in the United States of America. Geographic net income
may not be consistent with measures used by other companies.

Geographic information for the years ended
June 30, 2004, 2003 and 2002 are as follows:

|                          |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|------------------------- |  | -------- | ------- | -------- |  | -------- | ------ | ----- |  | - | ----- |  |  | - | ------- | -
|                          |  | U.S.     |         | Europe   |  | Asia     |        |      
|                          |  | Market   |         | Market   |  | Market   |        |      
|                          |  | Research |         | Research |  | Research |        | Total
|                          |  |          |         |          |  |          |        |      
|Year ended June 30, 2004: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 111,999 |          |  | $        | 26,483 |       |  | $ | 7,550 |  |  | $ | 146,032 |  
|Net Income (Loss)         |  |          | 30,040  |          |  |          | (237   | )     |  |   | 115   |  |  |   | 29,918  |  
|Long-lived assets         |  |          | 87,315  |          |  |          | 9,483  |       |  |   | 3,434 |  |  |   | 100,232 |  
|                         
|Year ended June 30, 2003: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 101,050 |          |  | $        | 23,044 |       |  | $ | 6,457 |  |  | $ | 130,551 |  
|Net Income                |  |          | 10,131  |          |  |          | 703    |       |  |   | 273   |  |  |   | 11,107  |  
|Long-lived assets         |  |          | 61,498  |          |  |          | 9,087  |       |  |   | 3,255 |  |  |   | 73,840  |  
|                         
|Year ended June 30, 2002: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 78,488  |          |  | $        | 16,418 |       |  | $ | 5,142 |  |  | $ | 100,048 |  
|Net Income (Loss)         |  |          | (12,466 | )        |  |          | (2,388 | )     |  |   | 61    |  |  |   | (14,793 | )
|Long-lived assets         |  |          | 64,277  |          |  |          | 9,056  |       |  |   | 3,188 |  |  |   | 76,521  |  

During fiscal 2004, 2003 and 2002, approximately
77%, 77% and 78%, respectively, of our total consolidated
revenue was derived from our U.S. operations and
approximately 23%, 23% and 22%, respectively, of our total
consolidated revenue was derived from our
non-U.S. operations.

Backlog

As of June 30, 2004, we had a revenue
backlog of approximately $48 million, as compared to a
backlog of approximately $40 million at June 30, 2003.
It is estimated that substantially all of the backlog as of
June 30, 2004 will be recognized during the fiscal year
ending June 30, 2005.

Employees

As of June 30, 2004, we employed a total of
771 persons on a full-time basis worldwide, 586 of which were
employed in the United States. In addition, we employed
757 part-time and hourly individuals on a worldwide basis,
for data gathering and processing activities, 39 of which were
employed in the United States.

None of our employees are represented by a
collective bargaining agreement. We have not experienced any
work stoppages. We consider our relationship with our employees
to be good.

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Executive Officers of Harris
Interactive

The following table sets forth the name, age and
position of each of the persons who were serving as executive
officers of the Company as of September 1, 2004. These
individuals have been elected by and are serving at the pleasure
of our board of directors:

|                    |  |     |    |          |  |                                                                          
|------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Gordon S. Black     |  |     | 63 |          |  | Executive Chairman                                                       
|Robert E. Knapp     |  |     | 45 |          |  | Vice Chairman of the Board,
    Chief Executive Officer                  
|Gregory T. Novak    |  |     | 42 |          |  | President, Chief Operating Officer                                       
|Leonard R. Bayer    |  |     | 54 |          |  | Executive Vice President,
    Chief Technology Officer                   
|Bruce A. Newman     |  |     | 50 |          |  | Chief Financial Officer,
    Secretary and Treasurer                     
|Dennis K. Bhame     |  |     | 56 |          |  | Executive Vice President, Human Resources                                
|Peter J. Milla      |  |     | 45 |          |  | Executive Vice President,
    Chief Information Officer                  
|Arthur E. Coles     |  |     | 61 |          |  | Group President,
    Healthcare & Policy Research                        
|Theresa A. Flanagan |  |     | 43 |          |  | President, Customer Loyalty Management                                   
|Ronald B. Knight    |  |     | 65 |          |  | Group President, Harris Interactive
    Service Bureau and Chief of Staff
|George Terhanian    |  |     | 40 |          |  | President, Harris Interactive Europe                                     
|Minoru Aoo          |  |     | 60 |          |  | Managing Director, Harris Interactive Japan                              
|James Fredrickson   |  |     | 43 |          |  | Senior Vice President, Research Operations                               
|Michael E. Peters   |  |     | 48 |          |  | Senior Vice President, Sales                                             
|David Vaden         |  |     | 33 |          |  | Senior Vice President,
    Business Development & Internet Services      

The following is a brief account of the business
experience of each of the above executive officers:

Gordon S. Black,
PhD.has served as Executive Chairman
of the Board since January 2004. Mr. Black served as
Chairman and Chief Executive Officer of Harris Interactive since
he founded Gordon S. Black Corporation in July 1975. From July
1968 to June 1978, Dr. Black was a member of the faculty of
the University of Rochester, where he was an Associate Professor
with tenure. Dr. Black received a Ph.D. in Political
Science from Stanford University and a B.A. in Political Science
from Washington University.

Robert E. Knappbegan his tenure as Vice-Chairman and
CEO of Harris Interactive on January 26, 2004. Previously,
Knapp was EVP and Chief Strategy Officer at Gartner, Inc., a
$900 million, worldwide research and advisory firm based in
Stamford, CT. Knapp joined Gartner in July 2000 as Chief
Marketing Officer. In 2001, he took on general management
responsibility for Gartners worldwide business units
including Research, Consulting, and Events. Prior to joining
Gartner, he held various executive positions at branding and
advertising firms including Siegel & Gale, BBDO and
Lintas. Mr. Knapp received a B.S. in Business
Administration from the University of Miami.

Gregory T. Novakhas
served as President and Chief Operating Officer since April
2004. From July 2003 to March 2004 he served as President,
U.S. Operations and prior to that he was Group President,
Strategic Marketing Solutions and Business and Consulting since
July 2001. He served as Group President, Strategic Marketing
Solutions, from July 2000 to July 2001. From June 1999 through
June 2000, Mr. Novak was the President of our Internet
Division. From August 1996 to June 1999, Mr. Novak was Vice
President/ General Manager of Lightnin Americas, a unit of
GSX. Mr. Novak received an M.S. in Management from Purdue
Universitys Krannert Business School and a B.S. in
Mechanical Engineering from the University of Pittsburgh.

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Mr. Novak is also a graduate of General
Electrics Nuclear Power Engineering Program and FMCs
Corporate Analysts Training and Development Program.


Leonard R. Bayerhas
served as Executive Vice President, Chief Scientist and Chief
Technology Officer, and as a director of Harris Interactive,
since July 1978. From August 1976 to July 1978, Mr. Bayer
worked for Practice Development Corporation where he served as
Vice President of Research and Development. From September 1975
to August 1976, Mr. Bayer was a member of the faculty of
the University of Rochester School of Medicine where he taught
mathematical statistics. Mr. Bayer received an M.A. in
Statistics, a B.S. in Astrophysics and a B.A. in Mathematics
from the University of Rochester.

Bruce A. Newmanhas
served as our Chief Financial Officer, Secretary and Treasurer
since January 1986. From July 1980 to January 1986,
Mr. Newman served as Treasury Manager of The Case-Hoyt
Corporation, a national printer. From July 1975 to August 1979,
Mr. Newman worked for PricewaterhouseCoopers LLP.
Mr. Newman received a B.S. in Accounting from the State
University of New York at Albany and is a Certified Public
Accountant.

Dennis K. Bhamehas
served as the Executive Vice President of Human Resources since
April 2000. Prior to joining our company, Mr. Bhame spent
16 years at Bausch & Lomb Inc., most recently as
Vice President, Global Human Resources, Eyeware Division. He
worked as a human resource professional at Burroughs Corporation
and Moore Business Forms prior to joining Bausch &
Lomb. Mr. Bhame holds a B.S. in Business Management from
New Hampshire College.

Peter J. Millahas
served as our Executive Vice President, Chief Information
Officer since September 1999. From 1985 until 1999,
Mr. Milla was the Senior Vice President and Chief
Information Officer at Response Analysis Corporation and
following its acquisition, at Roper Starch Worldwide, where he
was responsible for all information technology and data
processing activities. From 1983 until 1985, Mr. Milla was
on the staff of the National Opinion Research Center
(NORC) at the University of Chicago and was responsible for
managing the data processing activities on research projects for
academic institutions and government agencies. Mr. Milla is
currently a member of the Board of Directors of the Council of
American Survey Research Organizations (CASRO). He also serves
as chair of CASROs Technology Committee. Mr. Milla
holds a B.A. in Sociology and M.A. in Applied Social Research
from Queens College of the City University of New York.

Arthur E. Coleshas
served as our Group President, Healthcare & Policy
Research, since July 2000. From June 1999 to June 2000,
Mr. Coles was our Executive Vice President of Marketing and
Business Development. Mr. Coles was President and Chief
Executive Officer of our largest subsidiary from June 1997 to
June 1999. Prior to joining the Company, Mr. Coles worked
for Eastman Kodak Company, where he served as Vice President of
Strategic Planning for the Digital Imaging Division. Prior to
this, he spent over 30 years at Xerox Corporation in a
variety of general management, marketing, and operational roles.
Mr. Coles received an M.B.A. from the Rochester Institute
of Technology and a B.S. in Mathematics from the State
University of New York at Albany.

Theresa A. Flanaganhas served as President of the
Customer Loyalty Management division of Harris Interactive since
November 2001. Ms. Flanagan became President of the
Customer Loyalty Management division of Total Research
Corporation in July 1996. She joined Total Research Corporation
in 1983 and served as Senior Vice President from June 1993 to
July 1996.

Ronald B. Knighthas
served as Group President, Harris Interactive Service Bureau and
Chief of Staff since July 2001. He served as Group President,
Business and Consumer Services; Consulting & Brand
Management from July 2000 until July 2001. Prior to joining the
Company, Mr. Knight was the Chief Operating Officer for The
Sutherland Group from September 1998 through July 2000. He is
the former Vice President and Chief of Staff of Business
Operations for Xerox Corporations Production Systems Group
(PSG) where he worked for 30 years. He served as a
Lieutenant in the U.S. Navy and worked as a financial
analyst for General Motors prior to joining Xerox Corporation.
Mr. Knight holds a B.S. in Business Administration from the
University of Rochester, and an M.B.A. from the University of
Rhode Island.

George Terhanian, PhDhas served as President, Harris
Interactive Europe, since July 2003 and continues to serve as
President of Global Internet Research. Dr. Terhanian has
directed the Companys online research activities since
they began in 1997. Prior to joining the Company in 1996,
Dr. Terhanian taught in elementary and

16



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##### Table of Contents



secondary schools in the United States and was an
analyst for the Inspector Generals Office of the United
States Department of Education. He has also served an
appointment as an American Educational Research Association
Fellow at the National Center for Educational Statistics.
Dr. Terhanian received his B.A. in Political Science from
Haverford College, his Ed.M. in Administration, Planning and
Social Policy from Harvard University, and his Ph.D. in
Education (Policy Research, Evaluation and Measurement) from the
University of Pennsylvania.


Minoru Aoohas
served as Managing Director of Harris Interactive Japan since
February 2000. He has also served as Managing Director of Adams
Communications and M&A Create Limited since August 1995.
From March 1987 to July 1995, Mr. Aoo worked for Dow Jones
and Co. as a Managing Director/ North Asia in the International
Marketing Services Department. Mr. Aoo joined Nihon Keizai
Shimbun after receiving a Bachelor of Commercial Science from
Keio University in Tokyo.

James Fredricksonhas served as Senior Vice President,
Research Operations, since May 2002. In this role,
Mr. Fredrickson is responsible for all of the firms
operational activities associated with providing market research
services in support of client studies. Mr. Fredrickson was
Vice President, Harris Interactive Service Bureau from its
inception in March 1999 to April 2002. From 1987 to 1999,
Mr. Fredrickson served in a variety of operational roles.
Mr. Fredrickson received a B.S. in Mathematics from the
State University of New York at Brockport.

Michael E. Petershas served as Senior Vice President,
Global Sales since August 2004. Mr. Peters is responsible
for the direction of the Companys global sales growth.
Mr. Peters joined the Company with over twenty years of
consultative sales and marketing experience in technology and
professional consulting organizations and was a former partner
at PricewaterhouseCoopers Consulting. Mr. Peters received a B.S.
in Management and Marketing from Clarkson University.

David Vadenhas
served as Senior Vice President, Business Development and
Internet Services since January 2002. Mr. Vaden is
responsible for direction of the Companys acquisition and
alliance program, strategic planning, and global management of
the Companys Internet research panel and specialty
subpanels. He served as Vice President, Finance from January
2000 to December 2001. Prior to joining the Company,
Mr. Vaden served as a Manager in the Audit and Business
Advisory Services division at PricewaterhouseCoopers LLP (PwC).
While at PwC, Mr. Vaden was selected as one of fifty
employees among thirty seven thousand personnel in the United
States to participate in the PwC Scholars Program.
Mr. Vaden received an M.B.A. with distinction from Columbia
University Business School, a B.S. in Accounting with honors
from St. John Fisher College and is a Certified Public
Accountant.






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

The Companys headquarters and principal
United States operating facility is located at 135 Corporate
Woods, Rochester, New York, 14623, under a lease that expires in
June 2010. In addition, we lease data collection centers, in
which we operate telephone interviewing centers in London,
England, and Tokyo, Japan, and we lease service offices to house
our project staff, administrative staff and processing staff, in
New York, New York, Princeton, New Jersey, Norwalk, Connecticut,
Minneapolis, Minnesota, Claremont, California, London, England,
Paris, France and Tokyo, Japan.

We lease all of our facilities and believe our
current facilities are adequate to meet our needs for the
foreseeable future. We believe additional or alternative
facilities can be leased to meet our future needs on
commercially reasonable terms.

17



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##### Table of Contents



Information concerning each of our material
properties is as follows (in thousands):

|                     |  |                           |  |                  |               |                  |  |   |       | 
|-------------------- |  | ------------------------- |  | ---------------- | ------------- | ---------------- |  | - | ----- | 
|                     |  |                           |  |                  |               | Remaining       
|                     |  |                           |  |                  |               | Lease Obligation
|Address              |  | Location                  |  | Termination Date |               | June 30, 2004   
|                     |  |                           |  |                  |               |                 
|60 Corporate Woods   |  | Rochester, New York       |  |                  | June 2010     |                  |  | $ | 5,459 | 
|135 Corporate Woods  |  | Rochester, New York       |  |                  | June 2010     |                  |  |   | 3,722 | 
|5 Independence Way   |  | Princeton, New Jersey     |  |                  | July 2011     |                  |  |   | 5,431 | 
|111 Fifth Avenue     |  | NYC, New York             |  |                  | December 2004 |                  |  |   | 646   | 
|161 Sixth Avenue     |  | NYC, New York             |  |                  | April 2012    |                  |  |   | 5,013 | 
|70 Carlson Road      |  | Rochester, New York       |  |                  | June 2008     |                  |  |   | 877   | 
|101 Merritt 7        |  | Norwalk, Connecticut      |  |                  | June 2009     |                  |  |   | 1,243 | 
|40-52 Watermans Park |  | Brentford, United Kingdom |  |                  | June 2005     |                  |  |   | 650   | 






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

In the normal course of business, the Company is
at times subject to pending and threatened legal actions and
proceedings. After reviewing pending and threatened actions and
proceedings with counsel, management believes that the outcome
of such actions or proceedings is not expected to have a
material adverse effect on our business, financial condition or
results of operations.






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

No matters were submitted to a vote of security
holders during the fourth quarter of fiscal 2004.

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##### Table of Contents






PART II






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

Market Information

Our common stock is traded on the Nasdaq National
Market system under the symbol HPOL. The following
quotations reflect inter-dealer quotations that do not include
retail markups, markdowns or commissions and may not represent
actual transactions. The following table shows, for the periods
indicated, the high and low bid prices per share of our common
stock.

|                           |                |                |  |        |  |  |  |        | 
|-------------------------- | -------------- | -------------- |  | ------ |  |  |  | ------ | 
|                           |                |               
|                           |                | Price Range of
|                           |                | Common Stock  
|                           |                |               
|                           |                | High           |  | Low   
|                           |                |                |  |       
|Year ending June 30, 2004: |                |                |  |        |  |  |  |       
|                           | Fourth Quarter |                |  | 8.9400 |  |  |  | 6.3200 | 
|                           | Third Quarter  |                |  | 9.5000 |  |  |  | 7.5400 | 
|                           | Second Quarter |                |  | 9.1000 |  |  |  | 6.0200 | 
|                           | First Quarter  |                |  | 8.1000 |  |  |  | 6.1900 | 
|                          
|Year ending June 30, 2003: |                |                |  |        |  |  |  |       
|                           | Fourth Quarter |                |  | 6.9500 |  |  |  | 4.0000 | 
|                           | Third Quarter  |                |  | 5.6000 |  |  |  | 2.9200 | 
|                           | Second Quarter |                |  | 3.5800 |  |  |  | 2.0000 | 
|                           | First Quarter  |                |  | 3.5000 |  |  |  | 2.0800 | 

Holders

At August 25, 2004, the Companys
common stock was held by approximately 5,400 stockholders,
reflecting stockholders of record or persons holding stock
through nominee or street name accounts with brokers.

Dividends

We have never declared nor paid any cash
dividends on our common stock. We currently anticipate that we
will retain any future earnings for the development and
operations of our business. Accordingly, we do not anticipate
paying any cash dividends on our capital stock in the
foreseeable future.

Changes in Securities and Use of
Proceeds

On June 30, 2004, the Company issued an
aggregate of 27,266 shares of its common stock as the
Companys matching contribution under its 401(k) Plan for
an aggregate consideration of $183,222, which did not constitute
a sale under Section 2(3) of the Securities Act of 1933, as
amended.

On December 6, 1999, the Company completed
an initial public offering of 6,670,000 shares of its
common stock. Proceeds to the Company from the offering totaled
approximately $85.5 million. During the period from
December 6, 1999 through March 31, 2004, the Company
used portions of the proceeds from its public offering as
follows: (i) approximately $57.2 million of net cash
used for working capital and general corporate purposes,
including capital expenditures (ii) approximately
$11.4 million of net cash used for the expansion of our
Internet panel (iii) approximately $12.9 million of
net cash used for acquisitions and (iv) $4.0 million
of net cash used in connection with the repayment of short-term
and long-term borrowings. As of March 31, 2004, the Company
had applied all of the proceeds from its initial public offering.

19



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##### Table of Contents








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

The following selected consolidated financial
data of Harris Interactive should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the notes to those statements and other
financial information appearing elsewhere in this Form 10-K.

|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                           |  |                                                  
|                                                           |  | For the Years Ended June 30,                     
|                                                           |  |                                                  
|                                                           |  | 2004                                              |         | 2003 |  | 2002 |         | 2001 |  | 2000
|                                                           |  |                                                   |         |      |  |      |         |      |  |     
|                                                           |  |                                                  
|                                                           |  | (In thousands, except per share and sales growth)
|Statement of Operations Data:                              |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Revenue from services                                      |  | $                                                 | 146,032 |      |  | $    | 130,551 |      |  | $    | 100,048 |   |  | $ | 60,061  |   |  | $ | 51,289  |  
|Cost of services                                           |  |                                                   | 70,301  |      |  |      | 66,852  |      |  |      | 53,470  |   |  |   | 30,764  |   |  |   | 28,600  |  
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Gross profit                                               |  |                                                   | 75,731  |      |  |      | 63,699  |      |  |      | 46,578  |   |  |   | 29,297  |   |  |   | 22,689  |  
|Operating expenses:                                        |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Sales and marketing expenses                               |  |                                                   | 12,041  |      |  |      | 9,542   |      |  |      | 9,720   |   |  |   | 8,475   |   |  |   | 8,665   |  
|General and administrative expenses                        |  |                                                   | 50,231  |      |  |      | 47,507  |      |  |      | 46,708  |   |  |   | 48,537  |   |  |   | 37,856  |  
|Restructuring (credits) charges and
    asset write-downs  |  |                                                   |        |      |  |      | (997    | )    |  |      | 6,222   |   |  |   |        |   |  |   |        |  
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Operating Expenses                                   |  |                                                   | 62,272  |      |  |      | 56,052  |      |  |      | 62,650  |   |  |   | 57,012  |   |  |   | 46,521  |  
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Operating income (loss)                                    |  |                                                   | 13,459  |      |  |      | 7,647   |      |  |      | (16,072 | ) |  |   | (27,715 | ) |  |   | (23,832 | )
|Interest and other income                                  |  |                                                   | 604     |      |  |      | 563     |      |  |      | 1,412   |   |  |   | 3,721   |   |  |   | 3,100   |  
|Interest expense                                           |  |                                                   | (109    | )    |  |      | (57     | )    |  |      | (95     | ) |  |   | (26     | ) |  |   | (160    | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                          |  |                                                   | 13,954  |      |  |      | 8,153   |      |  |      | (14,755 | ) |  |   | (24,020 | ) |  |   | (20,892 | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income tax (benefit) expense                               |  |                                                   | (15,964 | )    |  |      | (2,954  | )    |  |      | 38      |   |  |   |        |   |  |   | 50      |  
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                          |  |                                                   | 29,918  |      |  |      | 11,107  |      |  |      | (14,793 | ) |  |   | (24,020 | ) |  |   | (20,942 | )
|Accrued dividends on preferred stock                       |  |                                                   |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   | (738    | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) available to holders of common
    stock |  | $                                                 | 29,918  |      |  | $    | 11,107  |      |  | $    | (14,793 | ) |  | $ | (24,020 | ) |  | $ | (21,680 | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Basic net income (loss) per share                          |  | $                                                 | 0.53    |      |  | $    | 0.21    |      |  | $    | (0.32   | ) |  | $ | (0.70   | ) |  | $ | (0.93   | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Diluted net income (loss) per share                        |  | $                                                 | 0.52    |      |  | $    | 0.20    |      |  | $    | (0.32   | ) |  | $ | (0.70   | ) |  | $ | (0.93   | )
|                                                           |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Weighted average shares outstanding 
    basic            |  |                                                   | 56,099  |      |  |      | 52,984  |      |  |      | 46,136  |   |  |   | 34,239  |   |  |   | 23,318  |  
|Weighted average shares outstanding 
    diluted          |  |                                                   | 57,445  |      |  |      | 54,639  |      |  |      | 46,136  |   |  |   | 34,239  |   |  |   | 23,318  |  
|Selected Operating Data:                                   |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Sales Growth                                               |  |                                                   | 12      | %    |  |      | 30      | %    |  |      | 67      | % |  |   | 17      | % |  |   | 77      | %
|Capital Expenditures                                       |  |                                                   | 1,637   |      |  |      | 2,178   |      |  |      | 2,841   |   |  |   | 7,606   |   |  |   | 12,092  |  
|Balance Sheet Data
    (at the end of the period):         |  |                                                   |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash and cash equivalents                                  |  |                                                   | 20,906  |      |  |      | 20,391  |      |  |      | 10,787  |   |  |   | 10,585  |   |  |   | 23,932  |  
|Marketable securities                                      |  |                                                   | 35,658  |      |  |      | 18,693  |      |  |      | 17,070  |   |  |   | 31,906  |   |  |   | 48,960  |  
|Working capital                                            |  |                                                   | 66,928  |      |  |      | 41,321  |      |  |      | 27,799  |   |  |   | 45,394  |   |  |   | 78,698  |  
|Total Assets                                               |  |                                                   | 197,124 |      |  |      | 145,242 |      |  |      | 135,463 |   |  |   | 85,221  |   |  |   | 104,452 |  
|Long-term debt, excluding current installment              |  |                                                   |        |      |  |      |        |      |  |      | 314     |   |  |   |        |   |  |   |        |  
|Total stockholders equity                                 |  |                                                   | 165,489 |      |  |      | 118,489 |      |  |      | 103,300 |   |  |   | 71,174  |   |  |   | 94,350  |  

The selected consolidated financial data reported
above includes the financial results of the following entities
which we acquired as of the dates indicated: Novatris S.A.
(March 2004), Total Research Corporation (November 2001), Market
Research Solutions Limited (August 2001), M&A Create Limited
(August 2001) and the custom research division of Yankelovich
Partners, Inc. (February 2001).

20



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##### Table of Contents








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

Overview

Harris Interactive provides market research,
polling and consulting services to a broad range of companies,
non-profit organizations and governmental agencies. Since 1956,
we have provided these services utilizing traditional market
research and polling methodologies, such as direct mail,
telephone-based surveys, mall intercepts, focus groups and
in-person interviews. In September 1997, we began developing our
Internet panel and building the technology infrastructure to
provide online market research and polling services. In November
1997, we introduced our first Internet-based market research and
polling services and a majority of our revenues are now
Internet-based.

We generally perform traditional and
Internet-based custom research services on a fixed fee basis in
response to client-generated requests. We sell our multi-client
research services on a periodic basis, typically annually.
Harris Interactive Service Bureau also performs research for
other market research firms on a project-by-project basis in
response to requests from those firms.

Critical Accounting Policies and
Estimates

The preparation of financial statements requires
management to make estimates and assumptions that affect amounts
reported therein. The most significant of these areas involving
difficult or complex judgments made by management with respect
to the preparation of the Companys financial statements in
fiscal 2004 include:



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | Revenue recognition,                                           
|
| |  | Provision for uncollectible accounts,                          
|
| |  | Valuation of intangible assets and other
    long-lived assets,
|
| |  | Valuation of goodwill,                                         
|
| |  | Realizability of deferred tax assets, and                      
|
| |  | HIPoints loyalty program.                                     

In each situation, management is required to make
estimates about the effects of matters or future events that are
inherently uncertain.



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

Revenue under fixed fee arrangements is
principally recognized on a proportional performance basis using
the cost-to-cost methodology, which the Company believes is
effectively equivalent to output measures. This revenue includes
amounts billed to our clients to cover subcontractor costs and
other direct out-of-pocket expenses. Losses expected
to be incurred, if any, on jobs in progress are charged to
income as soon as such losses are known. Revisions to estimated
costs and differences between actual contract losses and
estimated contract losses would affect both the timing of
revenue allocated and the results of operations of the Company.



| |                                         
| | ----------------------------------------
| | Provision for Uncollectible
    Accounts

The Company maintains provisions for
uncollectible accounts and estimated losses resulting from the
inability of its customers to remit payments. If the financial
condition of customers were to deteriorate, thereby resulting in
an inability to make payments, or if client disputes arise that
delay or jeopardize payments, additional allowances may be
required.



| |                                                               
| | --------------------------------------------------------------
| | Valuation of Intangible Assets and Other
    Long-lived Assets

The Company assesses the carrying value of its
identifiable intangible assets and long-lived assets, excluding
goodwill, whenever events or changes in circumstances indicate
that the carrying amount of the underlying asset may not be
recoverable. Certain factors which may occur and indicate that
an impairment exists include, but are not limited to: a
significant decrease in the market price of a long-lived asset;
significant under-performance

21



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##### Table of Contents



relative to historical or projected future
operating results; significant changes in the manner of the
Companys use of the underlying assets or their physical
condition; and significant adverse industry or market trends. In
the event that the carrying value of an asset is determined to
be unrecoverable, the Company would record an adjustment to the
respective carrying value.




| |                      
| | ---------------------
| | Valuation of Goodwill

With respect to goodwill, the Company completes
an impairment test on an annual basis. In performing this annual
test, the Company compares the fair value of its reporting unit
with its carrying amount, including goodwill. In the event that
a reporting units carrying value exceeds its fair value,
the Company would record an adjustment to the respective
reporting units goodwill for the difference between the
implied fair value of goodwill and the carrying value. In
addition to the annual impairment analysis, the Company also
assesses the carrying value of goodwill whenever events or
changes in circumstances indicate that the carrying amount of
the underlying asset may not be recoverable.



| |                                         
| | ----------------------------------------
| | Realizability of Deferred Tax
    Assets

The Company has evaluated the valuation allowance
and potential realization of its deferred tax assets on an
ongoing basis. In the determination of the valuation allowance,
the Company has considered future taxable income. As a result of
the Companys operating performance in fiscal 2003 and the
more favorable near term outlook for profitability, a portion of
the valuation allowance was reversed in the fourth quarter of
2003 with the resultant benefit to income and goodwill. As a
result of the continued profitable operating performance in
fiscal 2004 and continued outlook for profitability, the
remaining U.S. valuation allowance was reversed in the
fourth quarter of 2004 with the resultant benefit to income,
goodwill and equity. Further financial information about income
taxes is included in Note 11, Income Taxes, to
our Audited Consolidated Financial Statements for the fiscal
year ended June 30, 2004 contained in this Form 10-K.
The Company continues to maintain a valuation allowance of
approximately $1.9 million related to Harris Interactive
Europe and Harris Interactive Japan for net operating loss
carryforwards of $4.7 million and $1.3 million,
respectively.



| |                         
| | ------------------------
| | HIPointsLoyalty Program

Since July 2001, the Company has had a loyalty
program (HIPoints), whereby points are awarded to market
survey respondents who register for the Companys online
panel, complete online surveys and refer others to join our
online panel. The earned points, which are non-transferable, may
be redeemed for gifts from a specific product folio at any time
prior to expiration, which is after one year of account
inactivity. The Company maintains a reserve for its obligations
with respect to future redemption of outstanding points,
calculated based on the expected redemption rate of the points.
This expected redemption rate is estimated based on research
from other loyalty and retention programs and the Companys
actual redemption rates to date. An actual redemption rate that
differs from this estimated redemption rate may have a material
impact on the results of operations of the Company.

Business Combinations

On March 2, 2004 the Company acquired all of
the issued and outstanding shares of capital stock of Novatris,
S.A. (Novatris), a privately owned share corporation
organized and existing under the laws of France, for a
combination of cash and shares of Harris Interactive common
stock. The Company and Novatris are engaged in complementary
businesses in the market research and polling industry. The
acquisition added one million panel members to the
Companys existing European panel. This acquisition was
also expected to create opportunities for revenue growth, cost
savings and other synergies. This acquisition was accounted for
under the purchase method in accordance with Statement of
Financial Accounting Standard No. 141
(FAS 141), Business Combinations,
(SFAS 141) and is included in the Companys financial
statements commencing on March 2, 2004.

On November 1, 2001 the Company acquired all
of the issued and outstanding shares of common stock, par value
$.001 per share, of Total Research Corporation (Total
Research), a Delaware corporation, headquartered

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in Princeton, New Jersey, in exchange for shares
of Harris Interactive common stock. Total Research was also
engaged in complementary businesses in the market research and
polling industry. The acquisition has created revenue growth,
cost savings and other synergies including the ability to
convert Total Research traditional-based clients to the
Internet, sell to one anothers customers, offer customers
more comprehensive and diverse services, and use a combined
worldwide network. The acquisition was accounted for as a
purchase in accordance with FAS 141 and is included in the
Companys financial statements commencing on
November 1, 2001.


In September 2001, the Company acquired all of
the issued and outstanding stock of M&A Create Limited, a
privately owned company headquartered in Tokyo, Japan, in
consideration of a combination of cash and shares of Harris
Interactive common stock. Additionally, in August 2001, the
Company acquired all of the issued and outstanding stock of
Market Research Solutions Limited, a privately owned UK company,
headquartered in Oxford, England, in consideration of a
combination of cash and shares of Harris Interactive common
stock.

Further financial information about Business
Combinations is included in Note 3, Business
Combinations, to our Audited Consolidated Financial
Statements contained in this Form 10-K.

Restructuring and Asset Impairment
Charge

During the second quarter of fiscal 2002, the
Company recorded a restructuring and asset write-down charge of
$6.2 million directly related to the operational
integration of Harris Interactive and Total Research. Management
developed a formal plan that included a 5% reduction in Harris
Interactive staff of the full-time workforce in Rochester, NY;
New York, NY; Norwalk, CT and a few other outlying locations.
The affected employees were mainly support staff with
overlapping functions in the combined Company. Other integration
actions included the closing of our telephone center located in
Youngstown, OH and offices in New York, NY and Chicago, IL,
which resulted in asset write-downs and a reserve for lease
commitments at these locations. The plan was formally
communicated to the affected employees during the second fiscal
quarter of 2002. The Company realized approximately
$1.1 million in non-cash savings and $1.9 million in
cash savings in fiscal 2002. In fiscal 2003 the Company realized
non-cash savings of approximately $2.1 million and cash
savings of approximately $5.6 million. Cost savings from
the plan in fiscal 2004 were consistent with those in fiscal
2003. As of June 30, 2004 all actions for the plan were
completed. Further financial information about the plan is
included in Note 4, Restructuring Charges (Credits)
and Asset Write-downs, to our Audited Consolidated
Financial Statements contained in this Form 10-K.

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Results of Operations

The following table sets forth for the periods
indicated our results of operations expressed as a percentage of
revenue:

|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|--------------------------------------------------------- |  | -------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                          |  |                     
|                                                          |  | Years Ended June 30,
|                                                          |  |                     
|                                                          |  | 2004                 |     | 2003 |  | 2002
|                                                          |  |                      |     |      |  |     
|Revenue from services                                     |  |                      | 100 | %    |  |      | 100 | % |  |  | 100 | %
|Cost of services                                          |  |                      | 48  |      |  |      | 51  |   |  |  | 53  |  
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Gross profit                                              |  |                      | 52  |      |  |      | 49  |   |  |  | 47  |  
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Operating expenses:                                       |  |                      |     |      |  |      |     |   |  |  |     |  
|Sales and marketing                                       |  |                      | 8   |      |  |      | 7   |   |  |  | 10  |  
|General and administrative                                |  |                      | 34  |      |  |      | 37  |   |  |  | 47  |  
|Restructuring (credits) charges and asset
    write-downs |  |                      |    |      |  |      | (1  | ) |  |  | 6   |  
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Operating income (loss)                                   |  |                      | 10  |      |  |      | 6   |   |  |  | (16 | )
|Interest and other income, net                            |  |                      |    |      |  |      | 1   |   |  |  | 1   |  
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Net income (loss) before taxes                            |  |                      | 10  |      |  |      | 7   |   |  |  | (15 | )
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Income tax (benefit) expense                              |  |                      | (11 | )    |  |      | (2  | ) |  |  |    |  
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  
|Net income (loss)                                         |  |                      | 21  |      |  |      | 9   |   |  |  | (15 | )
|                                                          |  |                      |     |      |  |      |     |   |  |  |     |  

Fiscal 2004 as Compared to Fiscal
2003

Revenue from
services.Total fiscal 2004
revenue increased 12% to $146.0 million from
$130.6 million in fiscal 2003. U.S. revenue increased
$11.0 million to $112.0 million for fiscal 2004, an
increase of 11% over fiscal 2003. This increase in
U.S. revenue was attributable to growth in several markets,
most predominantly Strategic Marketing and Business &
Consumer, Health Care and the Harris Interactive Service Bureau
(HISB). Revenue in the United Kingdom also increased
$1.9 million to $24.9 million from $23.0 million,
an increase of 8% over fiscal 2003. This increased revenue for
the United Kingdom was a direct result of exchange rate
differences that accounted for a $2.2 million increase in
revenue due to the depreciation of the U.S. dollar. On a
constant currency basis, United Kingdom revenue decreased
$0.3 million. Revenue in Japan increased 17%, to
$7.6 million for fiscal 2004, from $6.5 million for
fiscal 2003. Of the increased Japan revenue, $0.6 million
was as a result of exchange rate differences and the
depreciation of the U.S. dollar. The remaining increase in
Japan revenue was due to steady growth of Japan operations with
the addition of new work coupled with the continued benefit from
preexisting customers. Revenue for fiscal 2004 also includes
$1.6 million in revenue from Novatris as a result of the
March 2, 2004 acquisition. Thus, of the $15.5 million
of increased revenue in fiscal 2004 over fiscal 2003, all but
$1.6 million represented organic growth.

Gross profit.Gross profit increased to $75.7 million, or 52% of revenue,
during fiscal 2004, from $63.7 million or 49% of revenue
for the prior year, primarily due to the growth in
Internet-related business relative to overall revenue growth.
Revenue from Internet-based services was $86.5 million, or
59% of total revenue, for fiscal 2004, compared with
$60.1 million, or 46% of revenue for fiscal 2003. During
fiscal 2004 the Companys European operations began to make
significant strides in the movement towards Internet-based
services which in turn helped increase gross margins. European
Internet-based revenues increased to $4.2 million in fiscal
2004, 16% of total European revenue, from $0.6 million in
fiscal 2003 because of our continued efforts to build our
European database, including the acquisition of Novatris in
March of 2004. As the Companys Internet based business
model continued to mature and expand and the Company saw
increased conversion of existing work to the Internet, lower
margin traditional revenue decreased 15% to $59.5 million
for fiscal 2004, from $70.4 million for fiscal 2003. HISB,
which is 100% Internet-based, has also played a significant role
in the growth of Internet revenue. HISB projects generate higher
gross margins due to the fact that they are data collection only
and typically do not include as much professional time as custom
Internet-based research work. For fiscal 2004, HISB projects
generated revenue for the Company of $10.0 million, up 26%
from $7.9 million

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for the prior year. In addition to the conversion
of work to the Internet, we have also made significant progress
in reducing data processing and telephone data collection costs
by outsourcing work to lower cost subcontractors, which in turn
has improved our gross margins.


Sales and
marketing.Sales and marketing
expenses increased to $12.0 million, or 8% of revenue, for
fiscal 2004 compared with $9.5 million, or 7% of revenue,
from the prior year. As a percentage of revenue, sales and
marketing expenses increased one percentage point. The increase
is attributable to the increased headcount for our sales force
in both the United States and United Kingdom. The increased
costs for sales and marketing during fiscal 2004 are in line
with both the increased revenue as compared to fiscal 2003 and
managements goals to grow our sales force during fiscal
2004 and into fiscal 2005.

General and
administrative.General and
administrative expenses increased to $50.2 million, or 34%
of revenue, for fiscal 2004, as compared to $47.5 million
or 37% of revenue for the prior year. Increases in absolute
dollars are largely due to increases in incentive compensation
related expenses including salaries, fringe benefits and
bonuses. Such expenses for fiscal 2004 increased approximately
$2.3 million compared to the prior year however remain in
line with the costs necessary to support our increased volume of
business. The Companys costs for database development also
increased approximately $0.6 million for fiscal 2004
compared to the prior year as the Company continues to expand
its database panel in the United States and Western Europe. The
increased database development costs however were offset by
decreased telecommunication costs of approximately
$0.5 million because of the closing of call centers in the
United States and United Kingdom. Other increases in general and
administrative expenses during fiscal 2004 include increased
rent expense of $0.7 million, approximately
$0.5 million from the addition of Novatris in March 2004, a
bad debt write-off in Japan amounting to $0.5 as well as other
costs related to changes in our executive officers and the
consolidation of operations in the United Kingdom.

As a percentage of revenue, general and
administrative expenses decreased three percentage points as the
Company has continued its cost saving efforts and stabilized
operating expenses. Included within our cost saving efforts in
fiscal 2004 was the decreased usage and eventual closing of our
last telephone center in the United States in June of 2004 and
the above mentioned consolidation of operations in the United
Kingdom. Because the Company continues to maintain its major
systems and assets established in prior years, overall capital
expenditures continue to decline, and as a result depreciation
expense has decreased $0.7 million during fiscal 2004 as
compared to the prior year.

Interest income, net.Net interest and other income
totaled $0.5 million for both fiscal 2004 and fiscal 2003.
Throughout fiscal 2004 the Company had more cash and marketable
securities to invest, generated primarily from operations,
however earnings on the increased investment balances were
offset by lower interest rates. Net cash and marketable
securities at June 30, 2004 was $56.6 million compared
to $39.1 million at June 30, 2003.

Income taxes.The Company recorded an income tax
benefit of $16.0 million in fiscal 2004 as compared to a
benefit of $3.0 in fiscal 2003. The recorded benefit during
fiscal 2004 and 2003 was the result of the reversal of valuation
allowances on the Companys deferred tax assets. At the end
of fiscal 2003 it was determined that it was more likely than
not that we would utilize additional net operating losses in the
near future, and therefore a portion of the valuation allowance
was reversed in fiscal 2003. At the end of fiscal 2004, after
achieving two fiscal years of net income, it became even more
likely that we will utilize all of our U.S. net operating
losses, and therefore the remaining U.S. valuation
allowance was reversed in fiscal 2004.

Fiscal 2003 as Compared to Fiscal
2002

Revenue from
services.Total fiscal 2003
revenue increased 30%, from $100.0 million in fiscal 2002
to $130.6 million in fiscal 2003. The overall increase in
revenue was primarily driven by the $22.6 million increase
in U.S. revenue, or 29%, to $101.1 million for fiscal
2003. The increased U.S. revenue was partially attributable
to the incremental revenue generated from the acquisition of
Total Research as well as overall growth in several
U.S. markets, most prominently healthcare and customer
loyalty management. Additionally, excluding the Total Research
acquisition, the Company recognized a modest increase in
U.S. revenue related to our expanding

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Internet client base and Internet-based market
research services, which contributed $59.3 million in total
U.S. Internet-based revenue for fiscal 2003, as compared to
$40.6 million for the prior fiscal year.


Revenue for the United Kingdom increased from the
prior year by $6.6 million, or 40%, to $23.0 million
in fiscal 2003. Revenue for Japan increased $1.3 million,
or 26%, to $6.5 million in fiscal 2003. The increase in
U.K. revenue was primarily attributable to the incremental
revenue generated from the acquisition of Total Research in
November 2001. Revenue from Japan increased due to the continued
benefit we derived from new contracts with selected customers
throughout fiscal 2003.

Approximately $16.4 million of the increased
revenue in fiscal 2003 was from true organic growth, excluding
the impact of the Companys acquisition of Total Research.
Organic growth is calculated in accordance with the pro forma
information provided in Note 3, Business
Combinations, to our Audited Consolidated Financial
Statements contained in this Form 10-K related to the
Companys acquisition of Total Research.

Gross profit.Gross profit was $63.7 million, or 49% of revenue, for
fiscal 2003, compared with $46.6 million, or 47% of
revenue, for fiscal 2002. The improvement in gross margin
percentage resulted primarily from the growth in
Internet-related business relative to overall revenue growth.
Revenue from Internet-based services was $60.1 million, or
46% of total revenue, in fiscal 2003, compared with
$40.6 million, or 41% of revenue, for fiscal 2002. This
increase in Internet revenue was due in part to the acquisition
of new Internet-based projects as well as the conversion of
existing, traditional work to the Internet. Additionally,
through increasing the level of Internet related work, the
Company has been able to use our existing panel for research in
place of more expensive outsourcing and telephone costs. HISB
has also played a significant role in the growth of Internet
revenue. HISB projects generate higher gross margins due to the
fact that they are data collection only and typically do not
include as much professional time as customer Internet-based
research work.

Sales and
marketing.Sales and marketing
expenses in fiscal 2003 were $9.5 million, or 7% of
revenue, compared with $9.7 million, or 10% of revenue, for
fiscal 2002. As a percentage of revenue, sales and marketing
expenses decreased three percentage points. The decrease is
attributable to reductions in headcount and related expenses,
reflecting the Companys continuing efforts to reduce
costs, as well as productivity improvements from the increased
experience level of the Companys sales force with Harris
Interactive sales and marketing strategies. The Company has been
able to maintain a consistent level of sales and marketing costs
as a percentage of sales throughout the fiscal year despite
increased fiscal 2003 fourth quarter expenditures for incentive
compensation and severance related costs. The severance related
costs were associated with reorganizing our U.K. management team
and the closing of one of our four U.K. offices. The additional
incentive compensation expense resulted from increased full year
revenue results as compared to budget that led to increased
commissions and bonuses to employees in accordance with the
Companys compensation plans. In total annual expenditures
in fiscal 2003 continue to support the Companys overall
business model established in the prior year.

General and
administrative.General and
administrative expenses were $47.5 million, or 37% of
revenue, in fiscal 2003 compared with $46.7 million, or 47%
of revenue, for fiscal 2002. The ten percentage point decrease
in such expenses as a percentage of revenue reflects reductions
in headcount and related expenses, rent expense and depreciation
expense, and reflects the Companys continuing efforts to
reduce costs. Depreciation and equipment rental and maintenance
expenses decreased by a combined $1.1 million, or 15%, to
$6.3 million in fiscal 2003 primarily as a result of the
fixed asset write-offs in connection with the Companys
fiscal 2002 second quarter restructuring charge which reduced
the level of gross fixed assets. The 2002 restructuring plan
also reduced fiscal 2003 rent expense by $0.7 million
as a result of the closing of three of our telephone centers. As
part of its cost savings efforts, the Company has eliminated all
but two telephone centers in the United States and the United
Kingdom, retaining one in each country primarily to support
committed projects with longer-term, predictable needs. The
balance of telephone data collection has been migrated to lower
cost providers, including some in foreign countries. The cost
savings from the prior year restructuring plan were partially
offset by increased database development costs related to the
establishment of our Western European panel as well as the
continued expansion of our U.S. panel.

Interest and other income,
net.Net interest and other income
totaled $0.5 million for fiscal 2003 compared with
$1.3 million for fiscal 2002. The decrease was primarily
attributable to the lower average

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marketable securities balance that resulted from
sales of the portfolio to fund operating losses, and to interest
rates for fiscal 2003 compared to fiscal 2002.


Income tax
benefit.The Company recorded an
income tax benefit of $3.0 million in fiscal 2003 as
compared to a minimal expense in fiscal 2002. For financial
reporting purposes, in fiscal 2003 the Company was able to
utilize net operating loss carryforwards to apply against fiscal
2003 net income, resulting in substantially no current
income tax expense. As described above under Fiscal 2004
as Compared to Fiscal 2003  Income Taxes, the
recorded benefit in 2003 was as a result of the partial reversal
of the valuation allowance on the Companys deferred tax
assets. Due to operating losses in fiscal 2002 no benefit was
recognized in that fiscal year.

Significant Factors Affecting Company
Performance



| |                                         
| | ----------------------------------------
| | Internet and Traditional Revenue
    Mix

The primary factors driving the growth in the
Companys gross profit and net income (loss) are growth in
revenue and the mix of the revenue derived from Internet versus
traditional work. The Companys model is based upon the
premise that Internet work is more profitable than traditional
work, due to the comparatively low data collection cost of
Internet work, as illustrated by the following table. The
Company believes that the table, which should be viewed as
illustrative and not as an actual measure or predictor of any
particular project or the Companys projects as a whole at
any given point in time, reasonably represents comparability of
traditional and Internet-based projects prior to adjustment for
the other factors affecting profitability described below.

|                                           |                 |             |     |                |   |  |           |          | 
|------------------------------------------ | --------------- | ----------- | --- | -------------- | - |  | --------- | -------- | 
|                                           |                 | Traditional |     | Internet-Based
|                                           |                 |             |     |               
|Revenue                                    |                 |             | 100 | %              |   |  | 100%      |         
|Less: Cost of Services (as a % of revenue) |                 |             |     |                |   |  |           |         
|                                           | Direct Payroll  |             |     | 25             | % |  |           | 30%      | 
|                                           | Data Collection |             |     | 40             | % |  |           | 5% - 10% | 
|                                           |                 |             |     |                |   |  |           |         
|Gross Profit (as a % of revenue)           |                 |             | 35  | %              |   |  | 60% - 65% |         
|                                           |                 |             |     |                |   |  |           |         

In addition to the Data Collection Costs and
panel incentives, the Internet-based model has additional fixed
costs associated with the development and maintenance of
underlying databases and Internet technology. Such costs
decrease Net Income for Internet-based work. In general,
however, due to the interplay between the variable and fixed
components of cost, the premise is that, as the volume and
percentage of Internet-based work increases, and assuming that
project professional service components and pricing are
comparable and operating expenses continue to be managed in the
ordinary course, Net Income as a percentage of revenue should
also increase.

As our Internet business grows and our model
matures, we have continued to analyze the differential between
Internet and traditional work and have learned that the
variables that affect the model are becoming commensurately more
complex. For example, projects that have a majority of data
collection using the Internet may still have a traditional data
collection component, particularly in multi-country studies
involving countries for which Internet databases are not fully
developed. The traditional data collection component will tend
to decrease profitability. Profitability also is decreased by
direct costs of outsourcing and pass-through costs applicable to
particular projects. On the other hand, once fixed costs of
database development and maintenance are absorbed, increases in
volume and revenues have a progressively increasing impact on
profitability.

Pure internet data collection continues to have a
lower variable data collection cost than traditional methods,
and we continue to view the level of our Internet revenues as an
important indicator of revenue sources that would not be
available to the Company if it were not able to do Internet work
and as an important driver of our profitability. We do not
believe, however, that Internet revenue in and of itself should
be used as an unqualified measure or predictor for other
purposes.

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Regarding the mix of work, for fiscal 2004, the
Companys actual Internet mix was 59% on a global basis and
73% in the United States alone. Internet and traditional revenue
by geographic location for fiscal 2004, 2003 and 2002 is as
follows:

|                             |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|---------------------------- |  | -------- | ------- | -------- |  | -------- | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                             |  | U.S.     |         | Europe   |  | Japan    |        |      
|                             |  | Market   |         | Market   |  | Market   |        |      
|                             |  | Research |         | Research |  | Research |        | Total
|                             |  |          |         |          |  |          |        |      
|Year ended June 30, 2004:    |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Internet Revenue             |  | $        | 81,946  |          |  | $        | 4,166  |       |  | $ | 371   |   |  | $ | 86,483  |  
|Traditional Revenue          |  |          | 30,053  |          |  |          | 22,317 |       |  |   | 7,179 |   |  |   | 59,549  |  
|                             |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Total Revenue                |  | $        | 111,999 |          |  | $        | 26,483 |       |  | $ | 7,550 |   |  | $ | 146,032 |  
|Internet Percentage of Total |  |          | 73      | %        |  |          | 16     | %     |  |   | 5     | % |  |   | 59      | %
|Year ended June 30, 2003:    |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Internet Revenue             |  | $        | 59,258  |          |  | $        | 564    |       |  | $ | 316   |   |  | $ | 60,138  |  
|Traditional Revenue          |  |          | 41,792  |          |  |          | 22,480 |       |  |   | 6,141 |   |  |   | 70,413  |  
|                             |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Total Revenue                |  | $        | 101,050 |          |  | $        | 23,044 |       |  | $ | 6,457 |   |  | $ | 130,551 |  
|Internet Percentage of Total |  |          | 59      | %        |  |          | 2      | %     |  |   | 5     | % |  |   | 46      | %
|Year ended June 30, 2002:    |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Internet Revenue             |  | $        | 40,608  |          |  | $        |       |       |  | $ | 18    |   |  | $ | 40,626  |  
|Traditional Revenue          |  |          | 37,880  |          |  |          | 16,418 |       |  |   | 5,124 |   |  |   | 59,422  |  
|                             |  |          |         |          |  |          |        |       |  |   |       |   |  |   |         |  
|Total Revenue                |  | $        | 78,488  |          |  | $        | 16,418 |       |  | $ | 5,142 |   |  | $ | 100,048 |  
|Internet Percentage of Total |  |          | 52      | %        |  |          | 0      | %     |  |   | 0     | % |  |   | 41      | %

The Company considers all of the revenue from a
project to be Internet-based whenever 50% or more of the surveys
were completed over the Internet.



| |                                   
| | ----------------------------------
| | Development of Global
    Database

Although the Company continues to work to convert
projects to the Internet in the United States, the primary new
growth opportunity is in Europe, where the ability to change the
Internet mix is dependent upon the Companys success in
expanding the size of its respondent panel and increasing
customer acceptance of Internet-based work. The globalization of
the Internet portion of the Companys business has
commenced and we expect it to ramp up over the next several
years.

The Companys global database of more than
6 million Internet survey respondents continues to be a
critical component of its success. The Company believes that its
multi-million participant U.S. database continues to be
adequate to service its U.S. Internet-based business. In
fiscal 2004, the Company began to conduct more Internet-based
projects in Europe and continued its initiative to build a
European database. To that end, it entered into various name
acquisition agreements that resulted in names being added
regularly to the European database. Our initiative was helped
significantly with the acquisition of Novatris and its one
million member European-based panel in March 2004. As of June
2004 the Companys European database included over
1.7 million names. The Company intends to continue to
expand the European panel in fiscal 2005 and beyond in order to
support the growth of Internet-based research in Europe.
Additionally, in both the U.S. and in Europe, the Company
intends to continue efforts to enhance existing and build new
specialty panels. The amount of the Companys investments
in names for its databases will continue to vary, particularly
quarter by quarter, based upon factors such as panel
availability, opportunities that arise for acquisition or
development of panels in specialty or under-represented groups,
client demand and attrition.

Internet databases by their nature experience
participant attrition. There are no standard measurement systems
for such attrition, particularly in the Internet survey response
field. Measurement involves complex variables. For example,
determining attrition, by lack of response from a panelist for a
set length of time since last contact, is not necessarily
reflective of expected long-term attrition. The panelist may not
have had an interest in responding regarding particular survey
topics offered over a period of time but may, after an absence,
respond to a later survey covering a topic of particular
interest to the respondent. Moreover, panelists who receive what
they perceive to be excessively frequent survey requests tend to
have higher than normal rates of attrition. Thus, percentage
rates of attrition may not be comparable or meaningful within
the industry. When the Company first

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developed its Internet model, it expected
attrition of panel members to be in the range of 20% annually.
With the Companys increased expertise gained from several
years of investment in panel management techniques, it controls
panel fatigue and monitors attrition in multiple ways. Its
overall attrition rates by most measures, however, are
significantly less than the Company originally anticipated.


Liquidity and Capital Resources



| |          
| | ---------
| | Liquidity

Prior to fiscal 2003 we financed our operations
primarily through the $85.5 million of net proceeds
generated from our December 1999 initial public offering.
Consequently, cash and cash equivalents and marketable
securities were $27.9 million at June 30, 2002. In
fiscal 2003 the Company generated positive cash flows for the
first time in recent years and as a result our cash and cash
equivalents and marketable securities were $56.6 million
and $39.1 million at June 30, 2004 and 2003,
respectively.

Net cash provided by operating activities was
$16.4 million and $11.9 million for fiscal 2004 and
fiscal 2003, respectively, as compared to net cash used in
operating activities of $5.5 million for fiscal 2002. The
positive cash flows in fiscal 2004 and fiscal 2003 were
primarily as a result of the Company generating net income
during each year as compared to the funding of net losses in
fiscal 2002. The increased cash provided by operating activities
in fiscal 2004 as compared to fiscal 2003 is due to the
increased income before income taxes as the tax benefits
reflected in net income during each period were essentially
non-cash items.

Net cash used in investing activities was
$21.8 million and $3.9 million in fiscal 2004 and
fiscal 2003, respectively, as compared with net cash provided by
investing activities of $8.0 million for fiscal 2002.
During fiscal 2004 the Companys investing activities
included the net purchase of additional marketable securities of
approximately $17.6 million, cash paid in connection with
the Novatris acquisition of $2.6 million and capital
expenditures of $1.6 million. During fiscal 2003 the
Companys investing activities included the net purchase of
additional marketable securities of approximately
$1.9 million as well as capital expenditures of
$2.2 million. During fiscal 2002, net proceeds from sales
and maturities of marketable securities of $14.6 million
were partially offset by capital expenditures of
$2.8 million and the $3.8 million cash outflow for
transaction related costs to acquire Total Research in November
2001. Fiscal 2003 and 2002 capital expenditures primarily
supported the development of our Internet infrastructure in the
U.S. The trend of increased operating cash flows in fiscal
2004 and 2003 have resulted in decreased investing cash flows
during each period as the Company has elected to invest the
additional idle cash in marketable securities that produce more
favorable returns.

In fiscal 2004 and 2003 the Company had net cash
provided by financing activities of $5.7 million and
$1.8 million, respectively. Cash flows from financing
activities in fiscal 2004 were entirely due to issuances of
common stock and stock option exercises. The Company received
cash of $4.1 million in fiscal 2003 as a result of
issuances of common stock and stock option exercises; this was
offset by the repayment of $2.3 million in short and long
term borrowings. Net cash used in financing activities of
$1.7 million in fiscal 2002 was primarily related to the
repayment of long-term debt of $2.3 million and the
repurchase of 422,900 shares of common stock for
$0.9 million, these cash outflows were partially offset by
$1.7 million provided by the issuance of common stock and
stock option exercises. At June 30, 2004 and 2003 the
Company had no short-term or long-term borrowings.



| |                  
| | -----------------
| | Capital Resources

At June 30, 2004, the Company had cash and
cash equivalents balances of $20.9 million, a slight
increase from $20.4 at June 30, 2003. In addition to cash
and cash equivalents, at June 30, 2004 the Company also had
$35.7 million in marketable securities, an increase of 91%
from $18.7 million at June 30, 2003. As stated above,
the increase in marketable securities during fiscal 2004 is a
direct result of the Company electing to invest its idle cash in
securities with the potential to produce more favorable returns.
A significant amount of the increased investment in marketable
securities were invested in government securities which
represented 66% of the total balance, as opposed to commercial
paper and corporate bonds which represented 6% and 28% of
marketable securities balances at June 30, 2004,
respectively. At June 30, 2003, government securities,
commercial paper and corporate bonds represented 22%, 13% and
65% of the marketable securities balance, respectively.

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At June 30, 2004, the Company had, and
continues to maintain, lines of credit with commercial banks
providing borrowing availability up to $10.0 million, at
the prime interest rate. The prime rate in effect at
June 30, 2004 was 4.25%. Borrowings under these
arrangements are due upon demand. There were no borrowings under
these agreements at June 30, 2004 or 2003. These lines of
credit are collateralized by the assets of the Company.

The Company maintains a letter of credit for
3.1 million euro (approximately $3.8 million based on
the June 30, 2004 euro conversion rate) that serves as
collateral for the contingent purchase price involved in the
Companys acquisition of Novatris during the quarter ended
March 31, 2004, which reduces our borrowing capacity
against the $10.0 million line of credit.

Our capital requirements depend on numerous
factors, including market acceptance of our services, the
resources we allocate to the continuing development of our
Internet infrastructure and Internet panel, marketing and
selling of our services, our promotional activities, our
acquisition activities and other factors. Management anticipates
continuing expenditures for property, plant and equipment and
working capital requirements throughout fiscal 2005 at levels
consistent with fiscal 2004.

Regarding the Companys ability to continue
to generate revenue, the Company must constantly develop new
business, both for growth and to replace non-renewed projects.
Although work for no one client constitutes more than 10% of the
Companys revenue, the Company has had to, and in the
future will likely have to, find significant amounts of
replacement and additional revenue as customer relationships and
work for continuing customers change. The Companys ability
to generate revenue is dependent not only on execution of its
business plan but also on general market factors outside of its
control. Many of our clients treat all or a portion of their
market research expenditures as discretionary. As a result, as
economic conditions decline in any of our markets, our ability
to generate revenue is adversely impacted.

Based on current plans and business conditions,
we believe that our existing cash, cash equivalents and
short-term investments will be sufficient to satisfy our
anticipated cash requirements to support the Companys
planned operations for the foreseeable future. We cannot be
certain, however, that our underlying assumed levels of revenue
and expenses will be accurate. If our operating results were to
fail to meet our expectations, or if accounts receivable or
other assets or acquisitions were to require a greater use of
cash than is currently anticipated, we could be required to seek
additional funding through public or private financing or other
arrangements. In such event, adequate funds may not be available
when needed or may not be available on favorable terms, which
could have a negative effect on our business and results of
operations.

Off Balance Sheet Risk Disclosure

The Company is not party to any off balance sheet
arrangements.

Contractual Cash Obligations (in
thousands)

The Companys consolidated contractual cash
obligations and other commercial commitments as of June 30,
2004 are as follows:

|                                   |  |                        |        |           |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ---------------------- | ------ | --------- |  | ----- | ----- | ----- |  | ------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |                       
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |        | Less than |  | 1-3   |       | 3-5   |  | After  
|                                   |  | Total                  |        | 1 Year    |  | Years |       | Years |  | 5 Years
|                                   |  |                        |        |           |  |       |       |       |  |        
|Contractual Obligations            |  |                        |        |           |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       | 
|                                   |  |                        |        |           |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       | 
|Long-term debt                     |  | $                      |       |           |  | $     |      |       |  | $       |      |  |  | $ |      |  |  | $ |      | 
|Capital lease obligations          |  |                        |       |           |  |       |      |       |  |         |      |  |  |   |      |  |  |   |      | 
|Operating leases                   |  |                        | 21,345 |           |  |       | 4,592 |       |  |         | 6,715 |  |  |   | 5,960 |  |  |   | 4,078 | 
|Purchase obligations               |  |                        |        |           |  |       |       |       |  |         |      |  |  |   |      |  |  |   |      | 
|Other long-term obligations        |  |                        |       |           |  |       |      |       |  |         |      |  |  |   |      |  |  |   |      | 
|                                   |  |                        |        |           |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       | 
|Total contractual cash obligations |  | $                      | 21,345 |           |  | $     | 4,592 |       |  | $       | 6,715 |  |  | $ | 5,960 |  |  | $ | 4,078 | 
|                                   |  |                        |        |           |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       | 

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New Accounting Pronouncements



| |         
| | --------
| | SFAS 149

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149
is effective for contracts entered into or modified after
June 30, 2003, and hedging relationships designated after
June 30, 2003, except for those provisions of
SFAS No. 149 which relate to SFAS No. 133
Implementation Issues that have been effective for fiscal
quarters that began prior to June 15, 2003. The Company
adopted SFAS No. 149 on July 1, 2003. The
adoption did not have an impact on the Companys
consolidated financial statements.



| |         
| | --------
| | SFAS 150

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer
classify a financial instrument that is within its scope as a
liability (or as an asset in some circumstances).
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and is
otherwise effective for the Company beginning July 1, 2003.
The Company adopted SFAS No. 150 on July 1, 2003.
The adoption did not have an impact on the Companys
consolidated financial statements.



| |        
| | -------
| | FIN 46R

In January 2003, the FASB issued Interpretation
No. 46 (revised December 2003), Consolidation of
Variable Interest Entities. This standard clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, which replaces
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities and addresses consolidation by business
enterprises of variable interest entities (more commonly known
as Special Purpose Entities or SPEs). FIN No. 46
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risk among the parties involved. FIN
No. 46 also enhances the disclosure requirements related to
variable interest entities. The consolidation requirements of
this Interpretation are effective for the first reporting period
ending after March 15, 2004 for all non-special purpose
entities created prior to February 1, 2003. For all
entities that were created subsequent to January 31, 2003,
consolidation requirements of this Interpretation were effective
upon creation. The Company adopted FIN 46R on
January 1, 2004. The adoption did not have a material
impact on the Companys consolidated financial statements.



| |         
| | --------
| | SFAS 132

In December 2003, the FASB issued a revised
SFAS No. 132 (FAS 132),
Employers Disclosures about Pensions and Other
Postretirement Benefits. The amended FAS 132 revises
employers disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement
or recognition of those plans required by SFAS No. 87,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. Adoption of this standard had no
impact on the Companys consolidated financial statements.

Risk Factors

The market research industry is vulnerable
to general economic conditions.

Many of our clients treat all or a portion of
their market research expenditures as discretionary. As general
economic conditions decline and our customers seek to control
variable costs, projects to be performed by the

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Company may be delayed or cancelled, and new
project bookings may slow. As a result, the growth and earnings
of the Company may be adversely impacted.


Our growth will be adversely affected if
the marketplace does not continue to convert to Internet-based
market research and polling.

The ongoing success of our business will depend
on our ability to continually develop and market Internet-based
products and services that achieve broad market acceptance. Our
clients must continue to accept the Internet as an attractive
replacement for traditional market research methodologies, such
as direct mail, telephone-based surveys, mall intercepts, focus
groups and in-person interviews.

Since the beginning of fiscal 1998, we have spent
$67.1 million and significant management resources to
develop and grow our Internet-based market research and polling
business. Some of our clients have expressed concern that
Internet users do not yet accurately reflect their applicable
population, and that any information collected via the Internet
will be inherently biased. If our current and potential clients
do not continue to accept our Internet-based methodologies as
reliable and unbiased, our revenues may not meet expectations or
may decline, and our business, financial condition and results
of operations would likely suffer.

We face intense competitive pressures and
uncertainties within the market research and polling
industry.

The market research and polling industry is
highly fragmented and includes competitors much larger than we
are. As competitors increase their ability to offer alternative
products in the market, we may come under increasing pressures
in selling and pricing our products and services. No one
customer accounts for more than 5% of our revenues and most of
our revenues are derived on a project by project basis. We must
continuously replace completed work with new projects in order
to sustain and grow our revenues. The market research industry
tends to be adversely affected by slow or depressed business
conditions in the market as a whole. We are at risk of decreased
market research budgets as our customers respond to difficult
economic conditions, as well as to delays in projects both
committed and uncommitted.

If we are unable to maintain adequate size
and demographic composition of our existing Internet panel, if
we are unable to continue global growth, or if we are required
to spend substantial funds to do so, our business, financial
condition and results of operations will suffer.

Our success is highly dependent on our ability to
obtain and retain an adequate number of panelists in our
Internet panel and its specialty sub-panels. Our ability to
maintain an adequate online panel or increase Internet revenues
may be harmed if:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant number of our current online
    panelists decide that they are no longer willing to participate
    in our surveys,                
|
| |  | we lose a large number of online panelists from
    over-use, and then must rely on a limited number of online
    panelists for ongoing research,
|
| |  | we are unable to attract an adequate number of
    replacement panelists and specialty panel members, or                                          
|
| |  | new regulatory requirements related to Internet
    spam make it impractical for us to continue
    operations as currently conducted.          

There are no industry or other benchmarks for
determining the optimal size and composition of an Internet
panel. Among other factors, panelist response rates differ with
differing survey content and the frequency with which panelists
are willing to respond to survey invitations is variable. We
believe that our current panel is adequate for the foreseeable
future to accommodate our clients broad-based survey
requests, but circumstances could change due to factors
described above and, additionally, we are not always able to
accommodate client requests related to limited populations with
particular demographic characteristics. We constantly reassess
our panel size and demographics as survey requests are made and,
based upon availability of existing panelists to fulfill project
requests, determine our need to recruit additional panelists
over time.

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In general, if the number of our active survey
respondents significantly decreases, or the demographic
composition of our Internet panel narrows, our ability to
provide our clients with accurate and statistically projectable
information would likely suffer. This risk is likely to increase
as our business expands. For example, our Internet panel is
surveyed for our own studies as well as for studies conducted
for other market research firms by our Harris Interactive
Service Bureau. Our business will be unable to grow and will
suffer if we have an insufficient number of panelists to respond
to our surveys, or if our panel becomes unreliable due to
reduced size, or because it is not representative of the general
population.

Key components of our strategy are extension of
our Internet-based market research and polling products and
services to clients globally, expansion of our Internet panel to
include global online panelists and development of strategic
alliances globally. Our inability to attract panel members in
key regions, including particularly Western Europe and Japan,
would hinder our ability to serve the needs of our customers who
do business on a global level. Although we have not developed
reliable estimates of our needs in Japan, we have estimated that
our ability to effectively provide broad-based Internet research
in Western Europe requires a panel with at least 1,000,000
respondents. Due in part to our acquisition of Novatris, S.A.,
our European panel now exceeds that size, but our future growth
in Europe may be constrained if we cannot increase the size of
our European panel commensurate with that growth. The optimal
size of our panel in specific countries is subject to the same
uncertainty as is applicable to our existing panel in the United
States.

Our online panelists are not obligated to
participate in our surveys and polls and there can be no
assurance that they will continue to do so.

We use our HI Points®, HI Stakes® and
instant results programs to provide incentives to encourage
participation in our surveys and to maintain the size of our
Internet panel. If these programs lose their effectiveness in
the future, a reduction in size or responsiveness of the panel
could result.

If we are unable to overcome other risks
associated with global operations, we will be unable to conduct
business on a global level.

The following additional risks are inherent in
doing business on a global level:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | export controls relating to encryption technology,                                  
|
| |  | inability to comply with or enactment of more
    restrictive privacy laws,         
|
| |  | changes in regulatory requirements,                                                 
|
| |  | currency exchange fluctuations,                                                     
|
| |  | problems in collecting accounts receivable and
    longer collection periods,       
|
| |  | potentially adverse tax consequences,                                               
|
| |  | political instability,                                                              
|
| |  | Internet access restrictions, and                                                   
|
| |  | anti-American sentiment or terrorist activity
    against American interests abroad.

We have little or no control over these risks. We
have encountered more restrictive privacy laws in connection
with our business operations in Europe, which have inhibited our
ability to develop our European Internet panel. We have also
experienced currency exchange fluctuations, the impact of which
has not been material. As we increase our global operations in
the future, we may experience some or all of these risks, which
may have a material adverse effect on our business, financial
condition and results of operations.

If we do not continue to keep pace with
rapid technological change within the market research and
polling industry, we will not be able to successfully implement
our business plan.

The markets for our products and services are
highly competitive. Our current competitors also offer
Internet-based and traditional market research and polling
services. We expect to face future competition from

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other organizations that develop Internet-related
products and services. These companies may, either alone or in
alliances with other firms, penetrate the Internet-based market
research and polling market.


Our ongoing success will depend on our continued
ability to improve the performance features and reliability of
our products and services. We may experience difficulties that
could delay or prevent the successful development, introduction
or marketing of new products and services. We could also incur
substantial costs if we need to modify our services or
infrastructure to adapt to these changes.

Any failure in the performance of our
Internet-based technology infrastructure could harm our
business.

Any system failure, including network, software
or hardware failure, that causes an interruption in our ability
to communicate with our Internet panel, collect research data,
or protect visual materials included in our surveys, could
result in reduced revenue, and could impair our reputation. Our
systems and operations are vulnerable to damage or interruption
from fire, earthquake, flooding, power loss, telecommunications
failure, break-ins and similar events. One supplier of our
secure off-site Web hosting facilities currently maintains
approximately one-third of our servers at one facility, and the
redundancy of our systems may not be adequate as we depend upon
the supplier and others to protect our systems and operations
from the events described above.

We have experienced technical difficulties and
downtime of individual components of our computer system in the
past and believe that technical difficulties and downtime may
occur from time to time in the future. The impact of technical
difficulties and downtime may be severe. We have developed,
however have not fully implemented a formal disaster recovery
plan and our business interruption insurance may not adequately
compensate us for any losses that may occur due to failures in
our systems. In addition, our servers and software must be able
to accommodate a high volume of traffic. Any increase in demands
on our servers beyond that which we currently anticipate, will
require us to fund the expansion and modification of our network
infrastructure. If we were unable to add additional software and
hardware to accommodate increased demand, unanticipated system
disruptions and slower data collection would likely result.

Our Internet panel members communicate with us
using various Internet service providers. These providers have
experienced significant outages in the past, and could
experience outages, delays and other difficulties unrelated to
our systems in the future.

Major components of the Internet backbone itself
could fail due to terrorist attack, war or natural disaster. Our
business is particularly vulnerable to such failure because not
only would we suffer the effects experienced by businesses in
general, we would be unable to perform Internet surveys which
are the core of much of our business. We thus would be unable to
effectively service the needs of many of our clients.

Any future system delays or failures in the
Internet could adversely affect our access to our online
panelists, which could have a material adverse effect on our
business, financial condition and results of operations.

Sustaining our growth may strain our
managerial and systems resources.

We have grown rapidly and need to continue to
grow in all areas of our operations. Managing and sustaining our
growth will place significant demands on management as well as
on our administrative, operational, technical and financial
systems and controls. Ongoing consolidation within the market
research industry will likely force us to grow in order to
provide the geographic and functional range of services provided
by larger competitors. Because we are in a service industry,
inability to expand our employee resources will severely hamper
our efforts. Moreover, because many of our larger competitors
have global operations, our expansion must in part be global.
Our operational and financial systems and controls will have to
continue to adapt to a more diversified geographic base of
operations. If we are unable to manage our growth effectively,
we will not be able to successfully implement our business plan
at projected levels.

We must continue to attract and retain
highly skilled employees.

Our future success will depend, in part, on our
ability to continue to attract, retain and motivate highly
skilled technical, managerial, marketing, sales and client
support personnel. Competition for these personnel exists, and
we may be unable to attract, integrate or retain the proper
numbers of sufficiently qualified personnel

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that our business plan assumes. In the past, we
have from time to time experienced difficulty hiring and
retaining qualified employees. The Internet research industry is
new and there are few in any educational institutions that
provide specialized training related to market research.
Employees therefore must be recruited in competition with other
industries and few of those who are recruited have direct or
substantial experience with Internet research. In the past,
competition for highly skilled employees has resulted in
additional costs for recruitment, compensation and relocation or
the provision of remote access to our facilities. We may
continue in the future to experience difficulty in hiring and
retaining employees with appropriate qualifications. To the
extent that we are unable to hire and retain skilled employees
in the future, our business, financial condition and results of
operations would likely suffer.


The loss of the services of one or more of
our key personnel could disrupt our operations and result in
loss of revenues.

Our future success depends to a significant
extent on the continued services of our key technical and senior
management personnel, primarily including executive officers
Robert E. Knapp, our Vice Chairman and Chief Executive Officer,
Gregory T. Novak, our President and Chief Operating Officer, and
Leonard R. Bayer, our Executive Vice President and Chief
Technical Officer. The loss of the services of any of these
persons could seriously harm our business. The loss of the
services of the other Executive Officers named in Item 1 of
this annual report on Form 10-K also could be disruptive to
our business. Only a few of our employees are currently bound by
an employment agreement. All of our other relationships with our
officers and key employees are at will. We do not have key
person life insurance policies covering any of our
employees other than Gordon S. Black.

Our business is largely dependent on the
continued development and worldwide growth of the Internet. The
Internet may not grow, or may be unable to support the demands
placed on it by this growth.

If worldwide Internet usage does not continue to
grow, we may be unable to attract international online panelists
to our Internet panel or clients for our Internet-based market
research and polling products and services. If Internet usage
does continue to grow, the Internet infrastructure may be unable
to support the demands placed on it by this growth and its
performance and reliability may decline. Varying factors could
inhibit future growth or the ability of the Internet
infrastructure to adequately support the growth in Internet
usage, including:



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | inadequate network infrastructure,                       
|
| |  | security concerns,                                       
|
| |  | inconsistent quality of service, and                     
|
| |  | unavailability of cost effective, high speed
    service.

Our Internet panel depends on Internet service
providers, online service providers and other website operators
for access to the Internet and our websites. Many websites have
experienced interruptions in their service as a result of
outages and other delays occurring throughout the Internet
network infrastructure.

If worldwide Internet usage declines, or grows at
a significantly slower rate than projected, our ability to
maintain our current Internet panel, expand our global Internet
panel and gather research data and information around the world
will decrease, which would likely harm our business, financial
condition and results of operations.

A breach of our Internet security measures
or security concerns could adversely affect our
business.

Internet security concerns could cause some
online panelists to reduce their participation levels, provide
inaccurate responses or end their membership in our Internet
panel. This could harm our credibility with our current clients.
If our clients become dissatisfied, they may stop using our
products and services. In addition, dissatisfied and lost
clients could damage our reputation. A loss of online panelists
or a loss of clients would hurt our efforts to generate
increased revenues.

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A failure in our security measures could result
in the misappropriation of private data. As a result, we may be
required to expend capital and other resources to protect
against the threat of such security breaches or to alleviate
problems caused by such breaches, which could have a material
adverse effect on our business, financial condition and results
of operations.

Failure or inability to protect our
intellectual property could adversely affect our
business.

Our success and ability to compete depends
substantially on our internally developed technologies and
trademarks, which we protect through a combination of patent,
copyright, trade-secret and trademark laws. We have registered a
number of our trademarks, including Harris Interactive and The
Harris Poll. If we were prevented from using The Harris Poll
name, our brand recognition and business would likely suffer. We
would have to make substantial financial expenditures to promote
and rebuild our brand identity.

Currently, we have pending trademark applications
for a number of our products and services. We also have patent
applications currently pending for our ConceptLoc®
encryption system and our system and method for conducting
product configuration research over a computer-based network. In
addition, we may apply for additional trademarks or patents in
the future. Our patent or trademark applications may not be
approved, or if approved, our patents or trademarks may be
successfully challenged by others or invalidated. We cannot
guarantee that infringement or other claims will not be asserted
or prosecuted against us in the future, whether resulting from
our internally developed intellectual property or licenses or
content from third parties. Any future assertions or
prosecutions could be time-consuming, result in costly
litigation and diversion of technical and management personnel
or require us to pay money damages, introduce new trademarks,
develop non-infringing technology, or enter into royalty or
licensing agreements. Any of those events could substantially
increase our operating expenses and potentially reduce our
expected revenues.

We generally enter into confidentiality or
license agreements with parties with whom we do business, and
generally control access to, and distribution of, our
technologies, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose,
obtain or use our technologies. The steps we have taken may not
prevent misappropriation of our technologies, particularly in
foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United
States.

We also rely on off-the-shelf technologies that
we license from third parties. Off-the-shelf
technology refers to generally commercially available software
that is not customized for a particular user. These third party
licenses may not continue to be available to us on commercially
reasonable terms or at all. The inability to use licensed
technology important to our business could require us to obtain
substitute technology of lower quality or performance standards
or at a greater cost. In the future, we may seek to license
additional technology to enhance our current technology
infrastructure. We cannot be certain that any such licenses will
be available on commercially reasonable terms or at all. The
loss of any of these technology licenses could result in delays
in providing our products and services until equivalent
technology, if available, is identified, licensed and integrated.

We may be subject to liability for
publishing or distributing content over the
Internet.

We may be subject to claims relating to content
that is published on or downloaded from our websites. We also
could be subject to liability for content that is accessible
from our website through links to other websites. For example,
as part of surveys panelists sometimes access, through our
websites or linkages to client websites, content provided by our
clients such as advertising copy that may be incomplete or
contain inaccuracies. We also recruit panelists to participate
in research sponsored and hosted by our clients on the
clients website, and we cannot completely control breaches
of privacy policies, warranties, or other claims that may be
made by those third parties. We may be accused of sending bulk
unsolicited email, and have our email blocked by many ISPs and
therefore be unable to conduct online data collection.

Although we carry general liability insurance,
our insurance may not cover potential claims of this type, such
as defamation or trademark infringement, or may not be adequate
to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed. In addition,
any claims of this type, with or without merit, would result in
the diversion of our financial resources and management
personnel.

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Liability arising from the use of the
personal information of our Internet panel could be
costly.

We could be subject to liability claims by our
online panelists for any misuse of personal information. These
claims could result in costly litigation. In addition, the
Federal Trade Commission and other domestic and international
agencies have been investigating various Internet companies
regarding their use of personal information. We could incur
additional costs and expenses if new regulations regarding the
use of personal information are introduced or if our privacy
practices are investigated.

Changes in government regulation or
industry practices could limit our Internet activities or result
in additional costs of doing business on the
Internet.

Any new laws pertaining to the imposition of
taxes on Internet access and electronic commerce could adversely
affect our business. In February 1999, the Federal
Communications Commission issued a declaratory ruling
interpreting the Telecommunications Act of 1996 to allow local
exchange carriers to receive reciprocal compensation for traffic
delivered to information service providers, particularly
Internet service providers, on the basis that traffic bound for
Internet service providers is largely interstate. As a result of
this ruling, the costs of transmitting data over the Internet
may increase and our business could suffer.

A significant majority of U.S. state
legislatures had enacted laws regulating the distribution of
unsolicited email.

In December 2003, The Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM)
was enacted. The law requires unsolicited e-mail marketing
messages to have a valid return address. E-mail marketers are
required to remove customers from their mailing lists if
requested. The law also gives more legal ammunition for ISPs to
take spammers to court, allows the Federal Trade Commission
(FTC) to impose fines, and gives state attorneys general
the power to bring lawsuits.

Any future legislation or regulations or the
application of existing laws and regulations to the Internet
could limit our effectiveness in conducting Internet-based
market research and polling, and increase our operating
expenses. In addition, the application of existing laws to the
Internet could expose us to substantial liability for which we
might not be indemnified by content providers or other third
parties. Existing laws and regulations currently address, and
new laws and regulations and industry self-regulatory
initiatives are likely to address, a variety of issues,
including the following:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | email distribution,                                                
|
| |  | user privacy and expression,                                       
|
| |  | the rights and safety of children,                                 
|
| |  | intellectual property,                                             
|
| |  | information security,                                              
|
| |  | anti-competitive practices,                                        
|
| |  | the convergence of traditional channels with
    Internet commerce,
|
| |  | taxation and pricing, and                                          
|
| |  | the characteristics and quality of products and
    services.      

Those laws that do reference the Internet have
limited interpretation by the courts and their applicability and
scope are not well defined, particularly on an International
basis. Any new laws or regulations relating to the Internet
could adversely affect our business.

Industry standards related to the Internet are
still evolving. Moreover, some private entities have proposed
their own standards for communications with, and use of
information related to, individuals who use the Internet.
Internet service providers also have the ability to disrupt our
communications with our panel. Although we believe that we
maintain the highest standards for the recruitment of members
into our database, communications with our panelists and use of
information provided by our respondents, some service providers
and/or self

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appointed industry regulators may not agree. As a
result, our communications with our panelists may be disrupted
from time to time.


We have incurred losses in recent years and
may incur them again.

We incurred net losses of $14.8 million in
fiscal 2002, $24.0 million in fiscal 2001 and
$20.9 million in fiscal 2000. We base current and future
expense levels on our operating plans, which are based on our
estimates of future revenues. If our revenues grow at a slower
rate than we anticipate, or if our spending levels exceed our
expectations or cannot be adjusted to reflect slower revenue
growth, we may not be able to maintain profitability. Even if we
remain profitable in the future, we may be unable to maintain
current profitability growth on an ongoing basis.

Variations in our operating results may
cause our stock price to decline.

Our quarterly operating results have in the past,
and may in the future, fluctuate significantly. Our future
results of operations may fall below the expectations of public
market analysts and investors. If this happens, the price of our
common stock would likely decline.

Factors that are outside of our control, and that
have caused our results to fluctuate in the past or that may
affect us in the future, include:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | declines in general economic conditions or the
    budgets of our clients,                
|
| |  | a general decline in the demand for market
    research and polling products and services,
|
| |  | seasonal decreases in demand for market research
    and polling services,                
|
| |  | development of equal or superior products and
    services by our competitors,            
|
| |  | technical difficulties that cause general and
    long-term failure of the Internet, and  
|
| |  | currency fluctuations.                                                                    

Factors that are partially within our control,
and that have caused our results to fluctuate in the past or
that may affect us in the future, include:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our relative mix of Internet-based and
    traditional market research and polling businesses,                                                                         
|
| |  | technical difficulties associated with the
    investments in and maintenance of our own systems that
    negatively affect our operations,                            
|
| |  | our ability to maintain the proper size and scope
    of our Internet panel necessary to develop and sell new products
    and services and generate expected revenues,
|
| |  | our ability to recruit respondents into our
    sub-panels, such as our IT Decision Makers, to conduct
    high-value research for our clients, and                    
|
| |  | development of our own new, marketable products
    and services.                                                                                                      

The factors listed above may affect both our
quarter-to-quarter operating results as well as our long-term
success. You should not rely on quarter-to-quarter comparisons
of our results of operations or any other trend in our
performance as an indication of our future results.

The price of our common stock is likely to
be volatile and subject to wide fluctuations.

The market prices of the securities of
Internet-related companies have been especially volatile and
these securities may be overvalued. The market price of our
common stock is likely to be subject to wide fluctuations. If
financial operating results do not improve or improve at a
slower rate than we anticipate, or if operating or capital
expenditures exceed our expectations and cannot be adjusted
accordingly, or if some other event adversely affects us, the
market price of our common stock would likely decline. In
addition, if the market for Internet-related stocks or the stock
market in general experiences an additional loss in investor
confidence or declines

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again, the market price of our common stock could
fall for reasons unrelated to our business, financial condition
and results of operations. Investors might be unable to resell
their shares of our common stock at or above the purchase price.
In the past, companies that have experienced volatility in the
market price of their stock have been the subjects of securities
class action litigation. If we were to become the subject of
securities class action litigation, it could result in
substantial costs and a diversion of managements attention
and resources.


Anti-takeover provisions in our charter
could delay or prevent an acquisition of the
company.

Our restated certificate of incorporation
provides for the division of our board of directors into three
classes, eliminates the right of stockholders to act by written
consent without a meeting, and provides our board of directors
with the power to issue shares of preferred stock without
stockholder approval.

The preferred stock could have voting, dividend,
liquidation, and other rights established by the board of
directors that are superior to those of our common stock. In
addition, Section 203 of the Delaware General Corporation
Law contains provisions that impose restrictions on stockholder
action to acquire our company. The effect of these provisions of
our certificate of incorporation and Delaware law could
discourage or prevent third parties from seeking to obtain
control of us, including transactions in which the holders of
common stock might receive a premium for their shares over
prevailing market prices.

Potential acquisitions of, or investments
in, other companies may not be available and/or have a negative
impact on our business.

As part of our continued strategy to increase
revenue, expand our Internet panel, acquire additional
intellectual capital and add to our portfolio of existing
products and services, we may acquire or make investments in
complementary businesses, services, products or technologies. We
may be unable to identify suitable acquisition candidates or
acquire them at reasonable prices and/or on reasonable terms.

Some material risks of acquisitions are:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in the integration and assimilation
    of the operations, technologies, products and personnel of the
    acquired business,
|
| |  | the diversion of managements attention from
    other business concerns,                                                                 
|
| |  | the availability of favorable acquisition
    financing, and                                                                              
|
| |  | the potential loss of key employees and/or
    customers of any acquired business.                                                        

Acquisitions may require the use of significant
amounts of cash, resulting in the inability to use those funds
for other business purposes. Acquisitions using our capital
stock could have a dilutive effect, and could adversely affect
the market price of our common stock. Amortization of intangible
assets would reduce our earnings, which in turn could negatively
influence the price of our common stock. These difficulties
could disrupt our ongoing business, distract our management and
employees and increase our expenses.






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

As a result of operating in foreign markets, the
Companys financial results could be affected by factors
such as changes in foreign currency exchange rates or weak
economic conditions. The Company has international sales and
operations in the United Kingdom, Japan and France. Therefore we
are subject to foreign currency rate exposure.
Non-U.S. sales are denominated in the functional currencies
of the country in which our foreign subsidiaries reside. Total
consolidated assets and liabilities of the Company are
translated into U.S. dollars at the exchange rates in
effect as of the balance sheet date. Income and expense items
are translated at the average exchange rate for each period
presented. Accumulated net translation adjustments are recorded
in stockholders equity. The Company measures our risk to
foreign currency rate exposure on two levels, the first being
the impact on operating results on the consolidation of foreign
subsidiaries that are denominated in the functional currency of
their home country, and the second being the extent to which we
have instruments denominated in a foreign currency.

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Foreign exchange translation gains and losses are
included in the Companys results of operations as a result
of consolidating the results of operations of our United
Kingdom, French and Japanese subsidiaries, which are denominated
in British Pounds, Euros and Japanese Yen, respectively, with
our U.S. results. The impact of translation gains or losses
on net income from consolidating foreign subsidiaries were not
material for the periods presented. We have historically had
very low exposure to changes in foreign currency exchange rates
upon consolidating our foreign subsidiaries due to the size of
our foreign operations in comparison to our
U.S. operations. While the United Kingdom now contributes
significantly to our revenues, we continue to believe our
exposure to foreign currency fluctuation risk is low given that
our United Kingdom operations have historically produced low
operating margins. However, as the operating margins in the
United Kingdom increase and we continue to expand in Europe, our
exposure to the appreciation or depreciation in the
U.S. dollar could have a more significant impact on our net
income and cash flows.

To the extent the Company incurs expenses that
are based on locally denominated sales volumes paid in local
currency, the exposure to foreign exchange risk is reduced.
Since the Companys foreign operations are conducted using
a foreign currency we bear additional risk of fluctuations in
exchange rates because of instruments denominated in a foreign
currency. We have historically had low exposure to changes in
foreign currency exchange rates with regard to instruments
denominated in a foreign currency given the amount and
short-term maturity of these instruments. The carrying values of
financial instruments denominated in a foreign currency,
including cash and cash equivalents, marketable securities,
accounts receivable and accounts payable, approximate fair value
because of the short maturity of these instruments.

The Company has determined that the impact of a
near-term 10% appreciation or depreciation of the
U.S. dollar would have an insignificant effect on our
financial position, results of operations and cash flows.
Therefore the Company has not entered into any derivative
financial instruments to mitigate the exposure to translation
and transaction risk. However, this does not preclude the
Companys adoption of specific hedging strategies in the
future. As we continue to expand globally, the risk of foreign
currency exchange rate fluctuation may increase. Therefore, in
the future, we will continue to assess the need to utilize
financial instruments to hedge currency exposures on an ongoing
basis to mitigate such risks.

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

Index to Consolidated Financial
Statements

|                                                                                                     |  |  |    | 
|---------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Independent Registered Public
    Accounting Firm                                          |  |  | 42 | 
|Consolidated Balance Sheets at June 30, 2004
    and 2003                                            |  |  | 43 | 
|Consolidated Statements of Operations for the
    years ended June 30, 2004, 2003 and 2002           |  |  | 44 | 
|Consolidated Statements of Cash Flows for the
    years ended June 30, 2004, 2003 and 2002           |  |  | 45 | 
|Consolidated Statements of Stockholders
    Equity for the years ended June 30, 2004, 2003 and 2002 |  |  | 46 | 
|Notes to Consolidated Financial Statements
    (including unaudited quarterly results of operations) |  |  | 47 | 
|Index to Financial Statement Schedules                                                               |  |  |    | 
|Schedule II  Valuation and
    Qualifying Accounts                                                  |  |  | 71 | 

All other schedules for which provision is made
in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Harris Interactive Inc.

In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the financial position of Harris
Interactive Inc. (the Company) and its subsidiaries
at June 30, 2004 and 2003, and the results of their
operations and their cash flows for each of the three fiscal
years in the period ended June 30, 2004, in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. 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 of these statements 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP

Rochester, New York

September 7, 2004


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HARRIS INTERACTIVE INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share
amounts)

|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |         |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --- | -------- | ------- |  | --- | ------- | ------- | 
|                                            |                                                                                                                                                                   | June 30,                                   |     | June 30,
|                                            |                                                                                                                                                                   | 2004                                       |     | 2003    
|                                            |                                                                                                                                                                   |                                            |     |         
|ASSETS                                      |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|Current assets:                             |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            | Cash and cash equivalents                                                                                                                                         |                                            | $   | 20,906   |         |  | $   | 20,391  |        
|                                            | Marketable securities                                                                                                                                             |                                            |     | 35,658   |         |  |     | 18,693  |        
|                                            | Accounts receivable, less allowances of $237 and
    $325, respectively                                                                                           |                                            |     | 23,876   |         |  |     | 20,821  |        
|                                            | Costs and estimated earnings in excess of
    billings on uncompleted contracts                                                                                   |                                            |     | 5,885    |         |  |     | 3,776   |        
|                                            | Other current assets                                                                                                                                              |                                            |     | 4,227    |         |  |     | 3,690   |        
|                                            | Deferred tax assets, net                                                                                                                                          |                                            |     | 6,340    |         |  |     | 127     |        
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            |                                                                                                                                                                   | Total current assets                       |     |          | 96,892  |  |     |         | 67,498  | 
|                                            | Property, plant and equipment, net                                                                                                                                |                                            |     | 6,261    |         |  |     | 7,806   |        
|                                            | Goodwill                                                                                                                                                          |                                            |     | 63,906   |         |  |     | 63,259  |        
|                                            | Other intangibles, less accumulated amortization
    of $945 and $520, respectively                                                                               |                                            |     | 2,745    |         |  |     | 730     |        
|                                            | Deferred tax assets, net                                                                                                                                          |                                            |     | 25,383   |         |  |     | 2,045   |        
|                                            | Other assets                                                                                                                                                      |                                            |     | 1,937    |         |  |     | 3,904   |        
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            |                                                                                                                                                                   | Total assets                               |     | $        | 197,124 |  |     | $       | 145,242 | 
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                           
|LIABILITIES AND STOCKHOLDERS
    EQUITY    |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                           
|Current liabilities:                        |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            | Accounts payable                                                                                                                                                  |                                            |     | 7,638    |         |  |     | 6,752   |        
|                                            | Accrued expenses                                                                                                                                                  |                                            |     | 11,570   |         |  |     | 9,050   |        
|                                            | Billings in excess of costs and estimated
    earnings on uncompleted contracts                                                                                   |                                            |     | 10,756   |         |  |     | 10,375  |        
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            |                                                                                                                                                                   | Total current liabilities                  |     |          | 29,964  |  |     |         | 26,177  | 
|Deferred Tax Liabilities                    |                                                                                                                                                                   |                                            | 792 |          |         |  |    |        
|Other long-term liabilities                 |                                                                                                                                                                   |                                            | 879 |          |         |  | 576 |        
|Commitments and Contingencies
    (Note 18) |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|Stockholders equity:                       |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            | Common stock, $.001 par value,
    100,000,000 shares authorized; 57,013,320 shares
    issued at June 30, 2004 and 54,500,713 shares issued
    at June 30, 2003 |                                            |     | 57       |         |  |     | 55      |        
|                                            | Additional paid in capital                                                                                                                                        |                                            |     | 195,817  |         |  |     | 179,108 |        
|                                            | Unamortized deferred compensation                                                                                                                                 |                                            |     |         |         |  |     | (56     | )      
|                                            | Accumulated other comprehensive loss                                                                                                                              |                                            |     | (8       | )       |  |     | (323    | )      
|                                            | Accumulated deficit                                                                                                                                               |                                            |     | (30,377  | )       |  |     | (60,295 | )      
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            |                                                                                                                                                                   | Total stockholders equity                 |     |          | 165,489 |  |     |         | 118,489 | 
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        
|                                            |                                                                                                                                                                   | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |     | $        | 197,124 |  |     | $       | 145,242 | 
|                                            |                                                                                                                                                                   |                                            |     |          |         |  |     |        

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

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HARRIS INTERACTIVE INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(in thousands, except share and per share
amounts)

|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |        |         |  
|------------------------------------------------- | --------------------------------------------------------- | --------------------------------- | ---------- | ------ | ------ | ---- | ---------- | ------ | ------ | - | ---------- | ------ | ------- | -
|                                                  |                                                           |                                  
|                                                  |                                                           | For the Years Ended June 30,     
|                                                  |                                                           |                                  
|                                                  |                                                           | 2004                              |            | 2003   |        | 2002
|                                                  |                                                           |                                   |            |        |        |     
|Revenue from services                             |                                                           | $                                 | 146,032    |        |        | $    | 130,551    |        |        | $ | 100,048    |       
|Cost of services                                  |                                                           |                                   | 70,301     |        |        |      | 66,852     |        |        |   | 53,470     |       
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  |                                                           | Gross profit                      |            |        | 75,731 |      |            |        | 63,699 |   |            |        | 46,578  |  
|Operating expenses:                               |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  | Sales and marketing expenses                              |                                   |            | 12,041 |        |      |            | 9,542  |        |   |            | 9,720  |        
|                                                  | General and administrative expenses                       |                                   |            | 50,231 |        |      |            | 47,507 |        |   |            | 46,708 |        
|                                                  | Restructuring (credits) charges and asset
    write-downs |                                   |            |       |        |      |            | (997   | )      |   |            | 6,222  |        
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  | Total operating expenses                                  |                                   |            | 62,272 |        |      |            | 56,052 |        |   |            | 62,650 |        
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  |                                                           | Operating income (loss)           |            |        | 13,459 |      |            |        | 7,647  |   |            |        | (16,072 | )
|Interest and other income                         |                                                           |                                   | 604        |        |        |      | 563        |        |        |   | 1,412      |       
|Interest expense                                  |                                                           |                                   | (109       | )      |        |      | (57        | )      |        |   | (95        | )     
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  |                                                           | Income (loss) before income taxes |            |        | 13,954 |      |            |        | 8,153  |   |            |        | (14,755 | )
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|Income tax (benefit) expense                      |                                                           |                                   | (15,964    | )      |        |      | (2,954     | )      |        |   | 38         |       
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|                                                  |                                                           | Net income (loss)                 |            |        | 29,918 |      |            |        | 11,107 |   |            |        | (14,793 | )
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|Basic net income (loss) per share                 |                                                           | $                                 | 0.53       |        |        | $    | 0.21       |        |        | $ | (0.32      | )     
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|Diluted net income (loss) per share               |                                                           | $                                 | 0.52       |        |        | $    | 0.20       |        |        | $ | (0.32      | )     
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|Weighted average shares outstanding 
    basic   |                                                           |                                   | 56,099,330 |        |        |      | 52,983,689 |        |        |   | 46,136,445 |       
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       
|Weighted average shares outstanding 
    diluted |                                                           |                                   | 57,444,785 |        |        |      | 54,638,596 |        |        |   | 46,136,445 |       
|                                                  |                                                           |                                   |            |        |        |      |            |        |        |   |            |       

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

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HARRIS INTERACTIVE INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)

|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |         |        |       |        |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------- | ----- | ------- | ------- | ------- | ------ | ------ | ------ | ------- | ------ | ----- | ------ | -
|                                                                 |                                                                                           |                                                                              
|                                                                 |                                                                                           | For the Years Ended June 30,                                                 
|                                                                 |                                                                                           |                                                                              
|                                                                 |                                                                                           | 2004                                                                          |                                                                                | 2003                                                                            |       | 2002   
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |        
|Cash flows from operating activities:                            |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 | Net income (loss)                                                                         |                                                                               | $                                                                              | 29,918                                                                          |       |         | $       | 11,107  |        |        | $      | (14,793 | )     
|                                                                 | Adjustments to reconcile net income (loss) to net
    cash used in operating activities  |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |         |       
|                                                                 |                                                                                           | Depreciation and amortization                                                 |                                                                                |                                                                                 | 4,862 |         |         |         | 5,583  |        |        |         | 6,534  |      
|                                                                 |                                                                                           | Restructuring (credits) charges and asset
    write-offs                      |                                                                                |                                                                                 |      |         |         |         | (997   | )      |        |         | 6,222  |      
|                                                                 |                                                                                           | Windfall stock option adjustment                                              |                                                                                |                                                                                 | 8,026 |         |         |         |       |        |        |         |       |      
|                                                                 |                                                                                           | Less: Cash outflows related to restructuring
    charges and asset write-offs |                                                                                |                                                                                 | (150  | )       |         |         | (1,025 | )      |        |         | (1,258 | )    
|                                                                 |                                                                                           | Amortization of deferred compensation                                         |                                                                                |                                                                                 | 56    |         |         |         | 91     |        |        |         | 289    |      
|                                                                 |                                                                                           | Amortization of premium and discount on
    marketable securities             |                                                                                |                                                                                 | 373   |         |         |         | 259    |        |        |         | 54     |      
|                                                                 |                                                                                           | (Increase) decrease in                                                       |                                                                                |                                                                                 |       |         |         |         |        |        |        |         |        |      
|                                                                 |                                                                                           |                                                                               | Accounts receivable                                                            |                                                                                 |       | (1,553  | )       |         |        | 266    |        |         |        | 3,138 |       
|                                                                 |                                                                                           |                                                                               | Cost and estimated earnings in excess of billings
    on uncompleted contracts |                                                                                 |       | (1,886  | )       |         |        | 965    |        |         |        | 425   |       
|                                                                 |                                                                                           |                                                                               | Other current assets                                                           |                                                                                 |       | (7,490  | )       |         |        | (3,822 | )      |         |        | (379  | )     
|                                                                 |                                                                                           |                                                                               | Deferred Taxes                                                                 |                                                                                 |       | (18,753 | )       |         |        |        |        |         |        |       |       
|                                                                 |                                                                                           |                                                                               | Other assets                                                                   |                                                                                 |       | 403     |         |         |        | 1,033  |        |         |        | 681   |       
|                                                                 |                                                                                           |                                                                               | (Decrease) increase in                                                        |                                                                                 |       |         |         |         |        |        |        |         |        |       |       
|                                                                 |                                                                                           |                                                                               |                                                                                | Accounts payable                                                                |       |         | 388     |         |        |        | (805   | )       |        |       | (1,975 | )
|                                                                 |                                                                                           |                                                                               |                                                                                | Accrued expenses                                                                |       |         | 1,993   |         |        |        | (254   | )       |        |       | (4,663 | )
|                                                                 |                                                                                           |                                                                               |                                                                                | Other liabilities                                                               |       |         | 302     |         |        |        | (982   | )       |        |       | 1,168  |  
|                                                                 |                                                                                           |                                                                               |                                                                                | Billings in excess of costs and estimated
    earnings on uncompleted contracts |       |         | (59     | )       |        |        | 444    |         |        |       | (971   | )
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 |                                                                                           |                                                                               |                                                                                | Net cash provided by (used in) operating
    activities                         |       |         | 16,430  |         |        |        | 11,863 |         |        |       | (5,528 | )
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|Cash flows from investing activities:                            |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 | Cash paid in connection with acquisitions, net of
    cash acquired                       |                                                                               |                                                                                | (2,623                                                                          | )     |         |         | 168     |        |        |        | (3,751  | )     
|                                                                 | Purchase of marketable securities                                                         |                                                                               |                                                                                | (35,285                                                                         | )     |         |         | (32,926 | )      |        |        | (36,603 | )     
|                                                                 | Proceeds from maturities and sales of marketable
    securities                           |                                                                               |                                                                                | 17,725                                                                          |       |         |         | 31,023  |        |        |        | 51,208  |       
|                                                                 | Capital expenditures                                                                      |                                                                               |                                                                                | (1,637                                                                          | )     |         |         | (2,178  | )      |        |        | (2,841  | )     
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 |                                                                                           |                                                                               |                                                                                | Net cash (used in) provided by investing
    activities                         |       |         | (21,820 | )       |        |        | (3,913 | )       |        |       | 8,013  |  
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|Cash flows from financing activities:                            |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 | Principal payments under long-term debt                                                   |                                                                               |                                                                                |                                                                                |       |         |         |        |        |        |        | (2,327  | )     
|                                                                 | Decrease in short-term borrowings                                                         |                                                                               |                                                                                |                                                                                |       |         |         | (811    | )      |        |        | (137    | )     
|                                                                 | Decrease in long-term borrowings                                                          |                                                                               |                                                                                |                                                                                |       |         |         | (1,507  | )      |        |        |        |       
|                                                                 | Issuance of common stock and stock options                                                |                                                                               |                                                                                | 5,672                                                                           |       |         |         | 4,091   |        |        |        | 1,662   |       
|                                                                 | Repurchase of common stock                                                                |                                                                               |                                                                                |                                                                                |       |         |         |        |        |        |        | (901    | )     
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|                                                                 |                                                                                           |                                                                               |                                                                                | Net cash provided by (used in) financing
    activities                         |       |         | 5,672   |         |        |        | 1,773  |         |        |       | (1,703 | )
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                           |                                                                               | 233                                                                            |                                                                                 |       |         | (119    | )       |        |        | (580   | )      
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|Net increase in cash and cash equivalents                        |                                                                                           |                                                                               | 515                                                                            |                                                                                 |       |         | 9,604   |         |        |        | 202    |        
|Cash and cash equivalents at beginning of period                 |                                                                                           |                                                                               | 20,391                                                                         |                                                                                 |       |         | 10,787  |         |        |        | 10,585 |        
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        
|Cash and cash equivalents at end of period                       |                                                                                           | $                                                                             | 20,906                                                                         |                                                                                 |       | $       | 20,391  |         |        | $      | 10,787 |        
|                                                                 |                                                                                           |                                                                               |                                                                                |                                                                                 |       |         |         |         |        |        |        |        

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

45



---



##### Table of Contents



HARRIS INTERACTIVE INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands)

|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |         |  
|--------------------------------------------------------------- | ---------------------------------------- | ------------ | ------ | ---------- |  | ----------- | -- | ------------- |  | ------------- | ------- | -------- |  | ------- | ---- | ------------- |  | ------ | ---- | ---- | - |  | ------- | ------- | - |  | ------ | - |  |  | ---- | - |  |  | ------- | ------- | -
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |              
|                                                                |                                          | Common Stock |        |            |  |             |    | Accumulated   |  | Retained      |         |          |  |         |      |              
|                                                                |                                          | Outstanding  |        | Additional |  | Unamortized |    | Other         |  | Earnings      |         |          |  |         |      | Total        
|                                                                |                                          |              |        | Paid-In    |  | Deferred    |    | Comprehensive |  | (Accumulated  |         | Treasury |  | Officer |      | Stockholders
|                                                                |                                          | Shares       |        | Amount     |  | Capital     |    | Compensation  |  | Income (Loss) |         | Deficit) |  | Stock   |      | Loan          |  | Equity
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |       
|Balance At June 30, 2001                                        |                                          |              | 34,614 |            |  |             | 34 |               |  |               | 128,793 |          |  |         | (436 | )             |  |        | 184  |      |   |  | (56,609 | )       |   |  | (792   | ) |  |  |      |   |  |  | 71,174  |        
|Comprehensive loss:                                             |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|                                                                | Net loss                                 |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         | (14,793 | ) |  |        |   |  |  |      |   |  |  |         | (14,793 | )
|                                                                | Unrealized loss on marketable securities |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | (176 | ) |  |         |         |   |  |        |   |  |  |      |   |  |  |         | (176    | )
|                                                                | Foreign currency translation             |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | (256 | ) |  |         |         |   |  |        |   |  |  |      |   |  |  |         | (256    | )
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Total comprehensive loss                                        |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | (15,225 | )      
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Exercise of options and warrants                                |                                          |              | 466    |            |  |             | 1  |               |  |               | 731     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 732     |        
|Issuance of common stock under Employee Stock
    Purchase Plan |                                          |              | 347    |            |  |             |    |               |  |               | 281     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 281     |        
|Amortization of deferred compensation                           |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         | 289  |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 289     |        
|Repurchase of common stock                                      |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  | (901   | ) |  |  |      |   |  |  | (901    | )      
|Issuance of common stock under 401(k) plan                      |                                          |              | 120    |            |  |             |    |               |  |               | 328     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 328     |        
|Issuance of common stock for acquisitions                       |                                          |              | 17,533 |            |  |             | 18 |               |  |               | 47,104  |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  | (500 | ) |  |  | 46,622  |        
|Paydown of officer loan                                         |                                          |              | (60    | )          |  |             |    |               |  |               | (223    | )        |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  | 223  |   |  |  |         |        
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Balance At June 30, 2002                                        |                                          |              | 53,020 |            |  |             | 53 |               |  |               | 177,014 |          |  |         | (147 | )             |  |        | (248 | )    |   |  | (71,402 | )       |   |  | (1,693 | ) |  |  | (277 | ) |  |  | 103,300 |        
|Comprehensive income:                                           |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|                                                                | Net income                               |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         | 11,107  |   |  |        |   |  |  |      |   |  |  |         | 11,107  |  
|                                                                | Unrealized loss on marketable securities |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | (20  | ) |  |         |         |   |  |        |   |  |  |      |   |  |  |         | (20     | )
|                                                                | Foreign currency translation             |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | (55  | ) |  |         |         |   |  |        |   |  |  |      |   |  |  |         | (55     | )
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Total comprehensive income                                      |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 11,032  |        
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Exercise of options                                             |                                          |              | 2,101  |            |  |             | 2  |               |  |               | 3,209   |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 3,211   |        
|Issuance of common stock under Employee Stock
    Purchase Plan |                                          |              | 100    |            |  |             |    |               |  |               | 268     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 268     |        
|Amortization of deferred compensation                           |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         | 91   |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 91      |        
|Retirement of common stock                                      |                                          |              | (791   | )          |  |             |    |               |  |               | (1,698  | )        |  |         |      |               |  |        |      |      |   |  |         |         |   |  | 1,693  |   |  |  |      |   |  |  | (5      | )      
|Issuance of common stock under 401(k) plan                      |                                          |              | 157    |            |  |             |    |               |  |               | 615     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 615     |        
|Paydown of officer loan                                         |                                          |              | (86    | )          |  |             |    |               |  |               | (300    | )        |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  | 277  |   |  |  | (23     | )      
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Balance At June 30, 2003                                        |                                          |              | 54,501 |            |  |             | 55 |               |  |               | 179,108 |          |  |         | (56  | )             |  |        | (323 | )    |   |  | (60,295 | )       |   |  |       |   |  |  |     |   |  |  | 118,489 |        
|Comprehensive income:                                           |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|                                                                | Net income                               |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         | 29,918  |   |  |        |   |  |  |      |   |  |  |         | 29,918  |  
|                                                                | Unrealized loss on marketable securities |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | (188 | ) |  |         |         |   |  |        |   |  |  |      |   |  |  |         | (188    | )
|                                                                | Foreign currency translation             |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      | 503  |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         | 503     |  
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Total comprehensive income                                      |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 30,233  |        
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Exercise of options                                             |                                          |              | 2,034  |            |  |             | 2  |               |  |               | 4,536   |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 4,538   |        
|Issuance of common stock under Employee Stock
    Purchase Plan |                                          |              | 67     |            |  |             |    |               |  |               | 373     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 373     |        
|Windfall stock options                                          |                                          |              |        |            |  |             |    |               |  |               | 8,026   |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 8,026   |        
|Amortization of deferred compensation                           |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         | 56   |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 56      |        
|Issuance of common stock under 401(k) plan                      |                                          |              | 96     |            |  |             |    |               |  |               | 728     |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 728     |        
|Issuance of common stock for Acquisitions                       |                                          |              | 315    |            |  |             |    |               |  |               | 3,046   |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  | 3,046   |        
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        
|Balance At June 30, 2004                                        |                                          |              | 57,013 |            |  |             | 57 |               |  |               | 195,817 |          |  |         |     |               |  |        | (8   | )    |   |  | (30,377 | )       |   |  |       |   |  |  |     |   |  |  | 165,489 |        
|                                                                |                                          |              |        |            |  |             |    |               |  |               |         |          |  |         |      |               |  |        |      |      |   |  |         |         |   |  |        |   |  |  |      |   |  |  |         |        

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

46



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##### Table of Contents



HARRIS INTERACTIVE INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Years Ended June 30, 2004, 2003 and
2002

(In thousands, except share and per share
amounts)



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

Harris Interactive Inc. (the Company)
is a leading global market research, polling and consulting
firm, using Internet-based and traditional methodologies to
provide clients with information about the views, behaviors and
attitudes of people worldwide. Known for The Harris PollTM, the Company has over 45 years experience
in providing clients with market research and polling services
including custom, multi-client and service bureau research, in
addition to customer relationship management services.



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



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

The accompanying consolidated financial
statements include the assets, liabilities and results of
operations of its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.



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

Cash and cash equivalents include all highly
liquid investments with a remaining maturity of three months or
less at date of purchase.



| |                      
| | ---------------------
| | Marketable Securities

Harris Interactive Inc. accounts for its
investments in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. All
investments have been classified as available-for-sale
securities as of June 30, 2004 and 2003. Available-for-sale
securities are stated at fair value, with the unrealized gains
and losses reported in other comprehensive income (loss).
Realized gains and losses on available-for-sale securities are
included in interest and other income. The cost of securities
sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are
included in interest income.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment, including
improvements that significantly add to productive capacity or
extend useful life, are recorded at cost, while maintenance and
repairs are expensed as incurred. Depreciation is calculated on
the straight-line or accelerated methods over the estimated
useful lives of the assets, which are generally 3 to
7 years. Leasehold improvements are amortized on the
straight-line method over the lessor of estimated useful life of
the assets or life of the underlying lease arrangements.



| |                                    
| | -----------------------------------
| | Impairment of Long Lived
    Assets

In accordance with SFAS No. 144,
Accounting for the Impairment and Disposal of Long-Lived
Assets, the Companys long-lived assets are assessed
for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. The
carrying value of the Long-Lived asset is considered impaired
when the projected undiscounted pre-tax cash flows are less than
the carrying value. The recoverability of the carrying value of
long-lived assets is assessed at the lowest level for which
identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. If cash flows are less
than the carrying value of an asset or asset group, an
impairment loss is measured based on the difference between
estimated fair value and carrying value. Assets to be disposed
are measured at the lower of their carrying amount or fair value
less cost to sell. Fair value is determined through quoted
market prices in active markets or, if quoted market prices are
unavailable, through the performance of internal analyses of
discounted cash flows or external appraisals.

47



---



##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)



| |                                   
| | ----------------------------------
| | Goodwill and Other
    Intangibles

In July 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard
No. 141 (SFAS 141), Business
Combinations,and Statement of Financial Accounting Standard
No. 142 (SFAS 142), Goodwill and Other
Intangible Assets.SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, thereby eliminating
the pooling-of-interests method. Effective upon adoption,
SFAS No. 142 eliminates the requirement to amortize
goodwill and instead requires periodic testing of goodwill for
impairment. If goodwill is impaired, it will be written down to
its estimated fair value. The impact of adoption of
SFAS No. 142 did not result in an adjustment to
recorded goodwill. See also footnotes 16, 17 and 18.



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

On July 1, 2001 the Company adopted the
provisions of SFAS No. 142 Goodwill and Other
Intangible Assets. The pronouncement required an annual
impairment test in lieu of monthly amortization for goodwill.
The Company completed its transitional impairment test in
accordance with FAS 142 as of December 31, 2001, with
no impairment identified. The Company completed its annual
impairment test in accordance with FAS 142 as of
June 30, 2004, 2003 and 2002, with no impairment identified.

In performing the annual impairment test, the
Company compares the fair value of its reporting unit with its
carrying amount, including goodwill. In the event that a
reporting units carrying value exceeds its fair value, the
Company would record an adjustment to the respective reporting
units goodwill for the difference between the implied fair
value of goodwill and the carrying value. In addition to the
annual impairment analysis, the Company also assesses the
carrying value of goodwill whenever events or changes in
circumstances indicate that the carrying amount of the
underlying asset may not be recoverable.



| |                                                             
| | ------------------------------------------------------------
| | Computer Software Developed or Obtained for
    Internal Use

The Company follows the provisions of Statement
of Position 98-1 Accounting for Costs of Computer Software
Developed or Obtained for Internal Use which accounts for
the costs of computer software developed or obtained for
internal use and identifies the characteristics of internal use
software. Such amounts are included in other assets in the
balance sheet and amounted to $1,711 and $1,485 at June 30,
2004 and 2003, respectively. Amortization expense related to
these costs amounted to $960, $1,072 and $913 for fiscal years
2004, 2003 and 2002, respectively.



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

The Company recognizes revenue from services
principally on a proportional performance basis using the
cost-to-cost methodology, which the Company believes is
equivalent to output measures. The Companys services
typically include a series of surveys and a deliverable report
in which the timing and frequency vary by contract. Progress on
a contract can be tracked reliably and is matched against
project costs and costs to complete on a periodic basis.
Customers are obligated to pay as services are performed, and in
the event that a client cancels the contract, the client is
responsible for payment for services performed through the date
of cancellation. Losses expected to be incurred, if any, on jobs
in progress are charged to income as soon as such losses are
known.

Invoices to clients are generated based upon the
achievement of specific events as defined by each contract
including deliverables, timetables, and incurrence of certain
costs. Such events may not be directly related to the
performance of services. Revenues earned on contracts in
progress in excess of billings are classified as a current
asset. Amounts billed in excess of revenues earned are
classified as a current liability.

48



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

In accordance with Emerging Issues Task Force
EITF 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent,revenue includes amounts billed to clients for
subcontractor costs incurred in the completion of surveys.
Furthermore reimbursement of out-of-pocket expenses related to
service contracts are also included in revenue in accordance
with EITF 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments which potentially expose
the Company to concentrations of credit risk consist principally
of accounts receivable as well as costs and estimated earnings
in excess of billings on uncompleted contracts. Credit losses
are provided for in the financial statements and have been
within managements expectations. For fiscal years 2004,
2003 and 2002 no single customer accounted for more than 10% of
the Companys consolidated revenue.



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

The Company and its U.S. subsidiaries file a
consolidated federal income tax return. The Company files
separate state income tax returns in certain states and combined
income tax returns in other states. The Company follows the
asset and liability approach to account for income taxes, which
requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of operating loss
carryforwards and temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company
has not provided any domestic income taxes applicable to the
unremitted earnings of its foreign subsidiaries as these amounts
are considered to be indefinitely reinvested outside the U.S.



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

For the Companys subsidiaries outside of
the United States, the local currency is the functional
currency. In accordance with SFAS No. 52,
Foreign Currency Translation, the financial
statements of the subsidiaries are translated into
U.S. dollars as follows: assets and liabilities at year-end
exchange rates; income, expenses and cash flows at average
exchange rates; and stockholders equity at historical
exchange rates. The resulting translation adjustment is recorded
as a component of accumulated other comprehensive (loss) income
in the accompanying consolidated balance sheet.



| |                     
| | --------------------
| | Advertising Expenses

Advertising expenses are expensed as incurred and
are included in selling, general and administrative expenses in
the accompanying consolidated statement of operations. Such
expenses amounted to $836, $1,021 and $1,275, for the years
ended June 30, 2004, 2003 and 2002, respectively.



| |                  
| | -----------------
| | Reclassifications

It is the Companys policy to reclassify
amounts in prior years financial statements to conform to
the current years presentation.



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

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America, requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities, if any, at the date of the

49



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

Cash and accounts receivable are valued at their
carrying or redemption amounts, which are reasonable estimates
of their fair value. The fair value of all other instruments
approximates cost.



| |                        
| | -----------------------
| | Income (Loss) Per Share

Basic income (loss) per share amounts are
computed based on the weighted average number of shares of
common stock outstanding during the year. Diluted net income
(loss) per share reflects the assumed exercise and conversion of
employee stock options that have an exercise price that is below
the average market price of the common shares for the respective
periods. The treasury stock method is used in calculating
diluted shares outstanding whereby assumed proceeds from the
exercise of stock options and the related tax benefit are
assumed to be used to repurchase common stock at the average
market price during the period.

The Company has granted stock options to its
officers and non-employee directors under a stock-based
compensation plan, with employee grants typically vesting
ratably over three to four years and expiring ten years from the
date of grant (as discussed in Note 14 
Employee Stock Options).The Company accounts for its
stock-based compensation plans in accordance with Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees.Accordingly,
given the fixed nature of the equity instruments granted under
such plans, no compensation cost has been recognized. The pro
forma information below illustrates the effect on net income
(loss) and net income (loss) per share based on provisions of
Statement of Financial Accounting Standard (FAS)
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure,issued
in December 2002.

|     |  |                      |         |                     |  |                     |       |           |  |             |         |          |  |       |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|---- |  | -------------------- | ------- | ------------------- |  | ------------------- | ----- | --------- |  | ----------- | ------- | -------- |  | ----- | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|     |  |                      |         |                     |  |                     |       |           |  |            
|     |  |                      |         |                     |  |                     |       | Basic Net |  | Diluted Net
|     |  |                      |         | Income (Loss)       |  | Income (Loss)      
|     |  | Net Income (Loss)    |         | Per Share Available |  | Per Share Available
|     |  | Available to Holders |         | to Holders          |  | to Holders of      
|     |  | of Common Stock      |         | of Common Stock     |  | Common Stock       
|     |  |                      |         |                     |  |                    
|     |  |                      |         | Fair Value          |  |                     |       |           |  |            
|     |  |                      |         | Compensation        |  |                     |       |           |  |            
|     |  | As                   |         | Expense             |  | Pro                 |       | As        |  | Pro         |         | As       |  | Pro  
|     |  | Reported             |         | (Net of Tax)        |  | Forma               |       | Reported  |  | Forma       |         | Reported |  | Forma
|     |  |                      |         |                     |  |                     |       |           |  |             |         |          |  |      
|2004 |  | $                    | 29,918  |                     |  | $                   | 1,101 |           |  | $           | 28,817  |          |  | $     | .53  |   |  | $ | .51  |   |  | $ | .52  |   |  | $ | .50  |  
|2003 |  |                      | 11,107  |                     |  |                     | 1,099 |           |  |             | 10,008  |          |  |       | .21  |   |  |   | .19  |   |  |   | .20  |   |  |   | .18  |  
|2002 |  |                      | (14,793 | )                   |  |                     | 1,215 |           |  |             | (16,008 | )        |  |       | (.32 | ) |  |   | (.35 | ) |  |   | (.32 | ) |  |   | (.35 | )

Recent Accounting Pronouncements



| |         
| | --------
| | SFAS 149

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149
is effective for contracts entered into or modified after
June 30, 2003, and hedging relationships designated after
June 30, 2003, except for those provisions of
SFAS No. 149 which relate to SFAS No. 133
Implementation Issues that have been effective for fiscal
quarters that began prior to June 15,

50



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

2003. The Company adopted SFAS No. 149
on July 1, 2003. The adoption did not have an impact on the
Companys consolidated financial statements.



| |         
| | --------
| | SFAS 150

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer
classify a financial instrument that is within its scope as a
liability (or as an asset in some circumstances).
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and is
otherwise effective for the Company beginning July 1, 2003.
The Company adopted SFAS No. 150 on July 1, 2003.
The adoption did not have an impact on the Companys
consolidated financial statements.



| |        
| | -------
| | FIN 46R

In January 2003, the FASB issued Interpretation
No. 46 (revised December 2003), Consolidation of
Variable Interest Entities. This standard clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, which replaces
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities and addresses consolidation by business
enterprises of variable interest entities (more commonly known
as Special Purpose Entities or SPEs). FIN No. 46
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risk among the parties involved. FIN
No. 46 also enhances the disclosure requirements related to
variable interest entities. The consolidation requirements of
this Interpretation are effective for the first reporting period
ending after March 15, 2004 for all non-special purpose
entities created prior to February 1, 2003. For all
entities that were created subsequent to January 31, 2003,
consolidation requirements of this Interpretation were effective
upon creation. The Company adopted FIN 46R on
January 1, 2004. The adoption did not have a material
impact on the Companys consolidated financial statements.



| |         
| | --------
| | SFAS 132

In December 2003, the FASB issued a revised
SFAS No. 132 (FAS 132),
Employers Disclosures about Pensions and Other
Postretirement Benefits. The amended FAS 132 revises
employers disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement
or recognition of those plans required by SFAS No. 87,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions. Adoption of this standard had no
impact on the Companys consolidated financial statements.



|   |                      
|-- | ---------------------
|3. | Business Combinations



| |         
| | --------
| | Novatris

On March 2, 2004 the Company acquired all of
the issued and outstanding shares of capital stock of Novatris,
S.A. (Novatris), a privately owned share corporation
organized and existing under the laws of France, pursuant to the
Share Purchase Agreement among the Company, Harris Interactive
International, Inc., a Delaware corporation and direct, wholly
owned subsidiary of the Company, and Novatris.

51



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                        
|-- | ---------------------------------------
|3. | Business
    Combinations  (Continued)

The Company and Novatris are engaged in
complementary businesses in the market research and polling
industry. The acquisition adds one million panel members to the
Companys existing European panel. This acquisition is also
expected to create opportunities for revenue growth, cost
savings and other synergies including the ability to sell to one
anothers customers and use a combined worldwide network.

The aggregate purchase price was $5,827,
including cash, common stock and options to purchase shares of
the Companys common stock. Total cash consideration for
the acquisition amounted to $2,522. An aggregate of
315,279 shares of common stock, with an estimated fair
value of $2,714, was issued to the stockholders of Novatris. The
value was determined based on the average closing price of the
Companys common stock over the two-day period before and
after the acquisition date. Additionally, pursuant to the merger
agreement the Company issued 88,887 options to purchase shares
of the Companys common stock with an estimated fair market
value of $332. Total transaction costs amounted to $259.

The acquisition was accounted for under the
purchase method in accordance with Statement of Financial
Accounting Standard No. 141, Business Combinations,
(SFAS 141) and is included in the Companys financial
statements commencing on March 2, 2004. The Company has
recorded approximately $2,962 in goodwill, 2,440 in intangibles
and a deferred tax liability of $830 related to the acquisition.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition:

|                                   |                       |                           |        |       |        |  
|---------------------------------- | --------------------- | ------------------------- | ------ | ----- | ------ | -
|Current Assets                     |                       | $                         | 1,651  |      
|Property, Plant and Equipment, net |                       |                           | 138    |      
|Other Long Term Assets             |                       |                           | 511    |      
|                                   |                       |                           |        |      
|                                   | Total Assets Acquired |                           |        | 2,300 |       
|                                   |                       |                           |        |      
|Current Liabilities                |                       |                           | (1,045 | )    
|                                   |                       |                           |        |      
|                                   |                       | Total Liabilities Assumed |        |       | (1,045 | )
|                                   |                       |                           |        |      
|                                   | Net Assets Acquired   |                           | $      | 1,255 |       
|                                   |                       |                           |        |      

Under the terms and conditions of the Share
Purchase Agreement the selling security holders could receive up
to 1,351 euro (approximately $1,646 based on the June 30,
2004 euro conversion rate) in contingent consideration for
achieving established net profit targets for the three calendar
years ended December 31, 2006 as well as an additional
1,351 euro in contingent consideration for achieving established
panel growth targets for the three calendar years ended
December 31, 2006. In the event that either of the above
contingencies occurs the Company will allocate the contingent
payments accordingly between goodwill and intangible assets.

Novatris, whose fiscal year prior to the
acquisition was the calendar year, experienced losses of
approximately $1 million during the calendar year ended
December 31, 2002 and essentially broke even during the
calendar year ended December 31, 2003. Given that Novatris
was a private organization prior to the acquisition, the Company
currently does not have consistent quarterly financial
information accessible to provide relevant pro-forma financial
results for the year ended June 30, 2004, therefore no such
results are reported.



| |               
| | --------------
| | Total Research

On November 1, 2001 the Company acquired all
of the issued and outstanding shares of common stock, par value
$.001 per share, of Total Research Corporation (Total
Research), a Delaware corporation, located in Princeton,
New Jersey, pursuant to the Agreement and Plan of Merger, dated
as of August 5, 2001, among the Company, Total Merger Sub
Inc., a Delaware corporation and direct, wholly owned subsidiary
of the Company,

52



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                        
|-- | ---------------------------------------
|3. | Business
    Combinations  (Continued)

and Total Research. Pursuant to the merger
agreement, Total Merger Sub was merged with and into Total
Research (the Merger), with Total Research
continuing as the surviving corporation and as a direct, wholly
owned subsidiary of the Company. Harris Interactive and Total
Research are engaged in complementary businesses in the market
research and polling industry. The acquisition has created
revenue growth, cost savings and other synergies including the
ability to convert Total Research traditional-based clients to
the Internet, sell to one anothers customers, offer
customers more comprehensive and diverse services, and use a
combined worldwide network.

Upon consummation of the Merger, each outstanding
share of Total Research common stock was converted into the
right to receive 1.222 shares of Harris Interactive common
stock, par value $.001 per share. An aggregate of
approximately 16,610,000 shares of common stock, with an
estimated fair value of $41,259, was issued to the stockholders
of Total Research Corporation. The value was determined using
the average fair market value of the stock for the range of
trading days beginning August 2, 2001 and ending
August 8, 2001. Additionally, pursuant to the merger
agreement, all outstanding options to purchase shares of Total
Research common stock were, upon consummation of the Merger,
fully vested and converted into an option to
purchase 1.222 shares of Harris Interactive common
stock. As a result, the former option holders of Total Research
received from Harris Interactive options to purchase
approximately 2,899,000 shares of Harris Interactive common
stock, with an estimated fair value of $3,609. The acquisition
was accounted for as a purchase in accordance with FAS 141
and is included in the Companys financial statements
commencing on November 1, 2001.

The Company acquired $13,861 in assets and
assumed $17,174 in liabilities from Total Research and recorded
approximately $48,206 in goodwill and intangibles related to the
acquisition in accordance with the provisions of SFAS 142
(See Notes 16 and 17).

The unaudited pro forma information set forth
below assumes the acquisition with Total Research Corporation
had occurred at the beginning of fiscal 2002, after giving
effect to adjustments for amortization of intangibles. The
unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the results
of operations that would have been achieved had the acquisition
been consummated at that time.

|                                 |  |                              |         |             |  |      |         |  |  |   |         |  
|-------------------------------- |  | ---------------------------- | ------- | ----------- |  | ---- | ------- |  |  | - | ------- | -
|                                 |  |                             
|                                 |  | Twelve Months Ended June 30,
|                                 |  |                             
|                                 |  |                              |         | (Pro-forma)
|                                 |  |                              |         | (Unaudited)
|                                 |  | 2004                         |         | 2003        |  | 2002
|                                 |  |                              |         |             |  |     
|Revenue                          |  | $                            | 146,032 |             |  | $    | 130,551 |  |  | $ | 114,139 |  
|Net income (loss)                |  |                              | 29,918  |             |  |      | 11,107  |  |  |   | (22,755 | )
|Income(loss) per share  basic   |  | $                            | 0.53    |             |  | $    | 0.21    |  |  |   | (0.43   | )
|Income(loss) per share  diluted |  | $                            | 0.52    |             |  | $    | 0.20    |  |  |   | (0.43   | )



| |                   
| | ------------------
| | Other Acquisitions

In September 2001, the Company acquired all of
the issued and outstanding stock of M&A Create Limited, a
privately owned company headquartered in Tokyo, Japan, in
consideration of cash and shares of Harris Interactive common
stock. Additionally, in August 2001, the Company acquired all of
the issued and outstanding stock of Market Research Solutions
Limited, a privately owned U.K. company, headquartered in
Oxford, England, in consideration of a combination of cash and
shares of Harris Interactive common stock.

53



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|   |                                        
|-- | ---------------------------------------
|3. | Business
    Combinations  (Continued)

Supplemental non-cash investing and financing
activities are as follows:

|                                                                             |                               |                     |   |       | 
|---------------------------------------------------------------------------- | ----------------------------- | ------------------- | - | ----- | 
|                                                                             |                               | As of June 30, 2004
|                                                                             |                               |                    
|Acquisitions  Market Research
    Solutions Limited And M&A Create Limited: |                               |                     |   |      
|                                                                             | Fair value of assets acquired |                     | $ | 4,500 | 
|                                                                             | Liabilities assumed           |                     |   | 6,568 | 
|                                                                             | Stock issued                  |                     |   | 2,256 | 



|   |                                                          
|-- | ---------------------------------------------------------
|4. | Restructuring (Credits) Charges and Asset
    Write-downs

During the second quarter of fiscal 2002, the
Company recorded a restructuring and asset write-down charge of
$6,222 directly related to the operational integration of Harris
Interactive and Total Research. Management developed a formal
plan that included a 5% reduction in Harris Interactive staff of
the full-time workforce in Rochester, NY; New York, NY; Norwalk,
CT and a few other outlying locations. The affected employees
were mainly support staff with overlapping functions in the
combined Company. Other integration actions included the closing
of our telephone center located in Youngstown, OH and offices in
New York, NY and Chicago, IL, which resulted in asset
write-downs and a reserve for lease commitments at these
locations. The plan was formally communicated to the affected
employees during the second fiscal quarter of 2002.

The following table summarizes activity with
respect to the restructuring charges for the period ended
June 30, 2003:

|                                   |                                     |           |       |             |   |             |       |        |   |   |       |      |   |   |       |        |  
|---------------------------------- | ----------------------------------- | --------- | ----- | ----------- | - | ----------- | ----- | ------ | - | - | ----- | ---- | - | - | ----- | ------ | -
|                                   |                                     |           |       | Asset       |   | Lease       |       |       
|                                   |                                     | Severance |       | Write-downs |   | Commitments |       | Total 
|                                   |                                     |           |       |             |   |             |       |       
|Net charge fiscal 2002             |                                     | $         | 1,169 |             |   | $           | 2,792 |        |   | $ | 2,261 |      |   | $ | 6,222 |       
|                                   | Asset write-offs during fiscal 2002 |           |       | 0           |   |             |       | (2,792 | ) |   |       | 0    |   |   |       | (2,792 | )
|                                   | Cash payments during fiscal 2002    |           |       | (1,098      | ) |             |       | 0      |   |   |       | (160 | ) |   |       | (1,258 | )
|                                   |                                     |           |       |             |   |             |       |        |   |   |       |      |   |   |       |       
|Remaining reserve at June 30, 2002 |                                     |           | 71    |             |   |             | 0     |        |   |   | 2,101 |      |   |   | 2,172 |       
|                                   | Cash payments during fiscal 2003    |           |       | (71         | ) |             |       | 0      |   |   |       | (954 | ) |   |       | (1,025 | )
|                                   | Fiscal 2003 adjustments             |           |       | 0           |   |             |       | 0      |   |   |       | (997 | ) |   |       | (997   | )
|                                   |                                     |           |       |             |   |             |       |        |   |   |       |      |   |   |       |       
|Remaining reserve at June 30, 2003 |                                     | $         | 0     |             |   | $           | 0     |        |   | $ | 150   |      |   | $ | 150   |       
|                                   | Cash payments during fiscal 2004    |           |       | 0           |   |             |       | 0      |   |   |       | (150 | ) |   |       | (150   | )
|                                   |                                     |           |       |             |   |             |       |        |   |   |       |      |   |   |       |       
|Remaining reserve at June 30, 2004 |                                     | $         | 0     |             |   | $           | 0     |        |   | $ | 0     |      |   | $ | 0     |       
|                                   |                                     |           |       |             |   |             |       |        |   |   |       |      |   |   |       |       

As of June 30, 2004, all actions were
completed. The total number of employees included in the charge
and ultimately terminated was 82.

During fiscal 2003, the Company adjusted the
reserve for restructuring charges by $997 for lease commitments
that were no longer required. The adjustments were due to the
Company obtaining a release from its obligations under previous
lease obligations.

54



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|   |                      
|-- | ---------------------
|5. | Marketable Securities

At June 30, 2004 and 2003, marketable
securities consisted of the following:

|                                    |                                                |      |        |            |  |      |        |            |  |   |        |        |  |   |        |        | 
|----------------------------------- | ---------------------------------------------- | ---- | ------ | ---------- |  | ---- | ------ | ---------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                                                |      |        |           
|                                    |                                                | 2004 |        | 2003      
|                                    |                                                |      |        |           
|                                    |                                                | Cost |        | Fair Value |  | Cost |        | Fair Value
|                                    |                                                |      |        |            |  |      |        |           
|Type of issue:                      |                                                |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       
|                                    | Available-for-sale securities Commercial paper |      | $      | 2,000      |  |      | $      | 2,000      |  |   | $      | 2,400  |  |   | $      | 2,400  | 
|                                    | Corporate bonds                                |      |        | 10,295     |  |      |        | 10,248     |  |   |        | 12,186 |  |   |        | 12,214 | 
|                                    | Government securities                          |      |        | 23,545     |  |      |        | 23,410     |  |   |        | 4,067  |  |   |        | 4,079  | 
|                                    |                                                |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       
|Total available-for-sale securities |                                                | $    | 35,840 |            |  | $    | 35,658 |            |  | $ | 18,653 |        |  | $ | 18,693 |       
|                                    |                                                |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       

Gross unrealized gains and losses on
available-for-sale securities at June 30, 2004 were $6 and
$188, respectively. Gross unrealized gains and losses on
available-for-sale securities at June 30, 2003 were $41 and
$1, respectively.

The cost and fair value of available-for-sale
securities at June 30, 2004 and 2003, by contractual
maturity, are shown below:

|                                    |                                        |      |        |            |  |      |        |            |  |   |        |        |  |   |        |        | 
|----------------------------------- | -------------------------------------- | ---- | ------ | ---------- |  | ---- | ------ | ---------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                                        |      |        |           
|                                    |                                        | 2004 |        | 2003      
|                                    |                                        |      |        |           
|                                    |                                        | Cost |        | Fair Value |  | Cost |        | Fair Value
|                                    |                                        |      |        |            |  |      |        |           
|Maturity date:                      |                                        |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       
|                                    | Due in one year or less                |      | $      | 14,381     |  |      | $      | 14,338     |  |   | $      | 10,389 |  |   | $      | 10,413 | 
|                                    | Due after one year through three years |      |        | 21,459     |  |      |        | 21,320     |  |   |        | 8,264  |  |   |        | 8,280  | 
|                                    |                                        |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       
|Total available-for-sale securities |                                        | $    | 35,840 |            |  | $    | 35,658 |            |  | $ | 18,653 |        |  | $ | 18,693 |       
|                                    |                                        |      |        |            |  |      |        |            |  |   |        |        |  |   |        |       

There were no material gains or losses from sales
of available-for-sale securities during the years ended
June 30, 2004 and 2003



|   |                      
|-- | ---------------------
|6. | Contracts In Progress

Accumulated costs and estimated earnings and
billings on contracts in progress at June 30 was as follows:

|                                         |  |      |         |      |  |   |         |  
|---------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                         |  | 2004 |         | 2003
|                                         |  |      |         |     
|Accumulated costs and estimated earnings |  | $    | 25,815  |      |  | $ | 28,299  |  
|Billings                                 |  |      | (30,686 | )    |  |   | (34,898 | )
|                                         |  |      |         |      |  |   |         |  
|                                         |  | $    | (4,871  | )    |  | $ | (6,599  | )
|                                         |  |      |         |      |  |   |         |  

Contracts in progress are included in the
accompanying balance sheets under the following captions:

|                                                                                |  |      |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                |  | 2004 |         | 2003
|                                                                                |  |      |         |     
|Costs and estimated earnings in excess of
    billings on uncompleted contracts |  | $    | 5,885   |      |  | $ | 3,776   |  
|Billings in excess of costs and estimated
    earnings on uncompleted contracts |  |      | (10,756 | )    |  |   | (10,375 | )
|                                                                                |  |      |         |      |  |   |         |  
|                                                                                |  | $    | (4,871  | )    |  | $ | (6,599  | )
|                                                                                |  |      |         |      |  |   |         |  

55



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|   |                              
|-- | -----------------------------
|7. | Property, Plant and Equipment

Property, plant and equipment consists of the
following:

|                       |                          |          |        |         |   |   |        |         |  
|---------------------- | ------------------------ | -------- | ------ | ------- | - | - | ------ | ------- | -
|                       |                          |         
|                       |                          | June 30,
|                       |                          |         
|                       |                          | 2004     |        | 2003   
|                       |                          |          |        |        
|Furniture and fixtures |                          | $        | 4,547  |         |   | $ | 4,341  |        
|Equipment              |                          |          | 21,340 |         |   |   | 19,696 |        
|Leasehold improvements |                          |          | 3,565  |         |   |   | 3,320  |        
|                       |                          |          |        |         |   |   |        |        
|                       |                          |          | 29,452 |         |   |   | 27,357 |        
|                       | Accumulated depreciation |          |        | (23,191 | ) |   |        | (19,551 | )
|                       |                          |          |        |         |   |   |        |        
|                       |                          | $        | 6,261  |         |   | $ | 7,806  |        
|                       |                          |          |        |         |   |   |        |        

Depreciation expense on property, plant and
equipment amounted to $3,478, $4,198 and $4,421 in fiscal years
2004, 2003 and 2002, respectively.



|   |                                                
|-- | -----------------------------------------------
|8. | Business Segment and Geographic
    Information

The Company currently has one reportable segment.
The Company is comprised of operations in the United States,
Europe (including the United Kingdom and France) and Japan. All
intercompany sales and transactions have been eliminated upon
consolidation.

The Company has prepared the financial results
for geographic information on a basis that is consistent with
the manner in which management internally disaggregates
information to assist in making internal operating decisions.
The Company has allocated common expenses among these geographic
regions differently than it would for stand-alone information
prepared in accordance with accounting principles generally
accepted in the United States of America. Geographic net income
may not be consistent with measures used by other companies.

Geographic information for the years ended
June 30, 2004, 2003 and 2002 are as follows:

|                          |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|------------------------- |  | -------- | ------- | -------- |  | -------- | ------ | ----- |  | - | ----- |  |  | - | ------- | -
|                          |  | U.S.     |         | Europe   |  | Asia     |        |      
|                          |  | Market   |         | Market   |  | Market   |        |      
|                          |  | Research |         | Research |  | Research |        | Total
|                          |  |          |         |          |  |          |        |      
|Year ended June 30, 2004: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 111,999 |          |  | $        | 26,483 |       |  | $ | 7,550 |  |  | $ | 146,032 |  
|Net Income (Loss)         |  |          | 30,040  |          |  |          | (237   | )     |  |   | 115   |  |  |   | 29,918  |  
|Long-lived assets         |  |          | 87,315  |          |  |          | 9,483  |       |  |   | 3,434 |  |  |   | 100,232 |  
|Year ended June 30, 2003: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 101,050 |          |  | $        | 23,044 |       |  | $ | 6,457 |  |  | $ | 130,551 |  
|Net Income                |  |          | 10,131  |          |  |          | 703    |       |  |   | 273   |  |  |   | 11,107  |  
|Long-lived assets         |  |          | 61,498  |          |  |          | 9,087  |       |  |   | 3,255 |  |  |   | 73,840  |  
|Year ended June 30, 2002: |  |          |         |          |  |          |        |       |  |   |       |  |  |   |         |  
|Revenue                   |  | $        | 78,488  |          |  | $        | 16,418 |       |  | $ | 5,142 |  |  | $ | 100,048 |  
|Net Income (Loss)         |  |          | (12,466 | )        |  |          | (2,388 | )     |  |   | 61    |  |  |   | (14,793 | )
|Long-lived assets         |  |          | 64,277  |          |  |          | 9,056  |       |  |   | 3,188 |  |  |   | 76,521  |  

56



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|   |                 
|-- | ----------------
|9. | Accrued Expenses

Accrued expenses consisted of the following at
June 30:

|                                 |  |      |        |      |  |   |       | 
|-------------------------------- |  | ---- | ------ | ---- |  | - | ----- | 
|                                 |  | 2004 |        | 2003
|                                 |  |      |        |     
|Payroll and withholding expenses |  | $    | 1,689  |      |  | $ | 1,078 | 
|Accrued benefits                 |  |      | 371    |      |  |   | 792   | 
|Bonuses                          |  |      | 3,000  |      |  |   | 2,217 | 
|Project Accruals                 |  |      | 1,094  |      |  |   | 495   | 
|Accrued HI Points                |  |      | 1,830  |      |  |   | 1,562 | 
|Other                            |  |      | 3,586  |      |  |   | 2,906 | 
|                                 |  |      |        |      |  |   |       | 
|                                 |  | $    | 11,570 |      |  | $ | 9,050 | 
|                                 |  |      |        |      |  |   |       | 

Other consists of accrued expenses individually
less than 5% of total current liabilities.



|    |               
|--- | --------------
|10. | Line of Credit

At June 30, 2004, the Company had, and
continues to maintain, lines of credit with commercial banks
providing borrowing availability up to $10.0 million, at
the prime interest rate. The prime rate in effect at
June 30, 2004 was 4.25%. Borrowings under these
arrangements are due upon demand. There were no borrowings under
these agreements at June 30, 2004 or 2003. These lines of
credit are collateralized by the assets of the Company.

The Company maintains a letter of credit for
3,083 euro (approximately $3,755 based on the June 30, 2004
euro conversion rate) that serves as collateral for the
contingent purchase price involved in the Companys
acquisition of Novatris during the quarter ended March 31,
2004, which reduces our borrowing capacity against the
$10.0 million line of credit.

At June 30, 2004 and 2003 the Company had no
short-term or long-term borrowings.



|    |             
|--- | ------------
|11. | Income Taxes

The provision for income taxes consists of:

|          |         |      |         |         |   |      |        |        |   |   |    |    | 
|--------- | ------- | ---- | ------- | ------- | - | ---- | ------ | ------ | - | - | -- | -- | 
|          |         | 2004 |         | 2003    |   | 2002
|          |         |      |         |         |   |     
|Current:  |         |      |         |         |   |      |        |        |   |   |    |   
|          | Federal |      | $       | 160     |   |      | $      | 262    |   |   | $  |   | 
|          | State   |      |         | 165     |   |      |        | 38     |   |   |    |   | 
|          | Foreign |      |         | 619     |   |      |        | 45     |   |   |    | 38 | 
|          |         |      |         |         |   |      |        |        |   |   |    |   
|          |         | $    | 944     |         |   | $    | 345    |        |   | $ | 38 |   
|Deferred: |         |      |         |         |   |      |        |        |   |   |    |   
|          | Federal |      | $       | (14,742 | ) |      | $      | (2,654 | ) |   | $  |   | 
|          | State   |      |         | (2,371  | ) |      |        | (382   | ) |   |    |   | 
|          | Foreign |      |         | 205     |   |      |        | (263   | ) |   |    |   | 
|          |         |      |         |         |   |      |        |        |   |   |    |   
|          |         | $    | (16,908 | )       |   | $    | (3,299 | )      |   | $ |   |   
|          |         |      |         |         |   |      |        |        |   |   |    |   
|          |         | $    | (15,964 | )       |   | $    | (2,954 | )      |   | $ | 38 |   
|          |         |      |         |         |   |      |        |        |   |   |    |   

57



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|    |                               
|--- | ------------------------------
|11. | Income
    Taxes  (Continued)

The U.S. and foreign components of income (loss)
before income taxes are as follows:

|        |  |      |        |      |  |      |       |  |  |   |         |  
|------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ------- | -
|        |  | 2004 |        | 2003 |  | 2002
|        |  |      |        |      |  |     
|U.S.    |  | $    | 13,252 |      |  | $    | 7,663 |  |  | $ | (12,528 | )
|Foreign |  |      | 702    |      |  |      | 490   |  |  |   | (2,227  | )
|        |  |      |        |      |  |      |       |  |  |   |         |  
|        |  | $    | 13,954 |      |  | $    | 8,153 |  |  | $ | (14,755 | )
|        |  |      |        |      |  |      |       |  |  |   |         |  

Deferred tax assets (liabilities) at
June 30 consist of the following:

|                                          |  |      |        |      |  |   |         |  
|----------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | -
|                                          |  | 2004 |        | 2003
|                                          |  |      |        |     
|Net operating loss carryforwards          |  | $    | 32,089 |      |  | $ | 31,050  |  
|Internet database development expenses    |  |      | 892    |      |  |   | 1,048   |  
|Stock option compensation                 |  |      | 142    |      |  |   | 180     |  
|HIPoints Reserve                          |  |      | 732    |      |  |   | 608     |  
|Other                                     |  |      | 740    |      |  |   | 891     |  
|                                          |  |      |        |      |  |   |         |  
|Gross deferred tax assets                 |  |      | 34,595 |      |  |   | 33,777  |  
|Valuation allowance                       |  |      | (1,926 | )    |  |   | (29,227 | )
|                                          |  |      |        |      |  |   |         |  
|                                          |  |      | 32,669 |      |  |   | 4,550   |  
|Goodwill                                  |  |      | (780   | )    |  |   | (519    | )
|Intangible assets created by acquisitions |  |      | (959   | )    |  |   |        |  
|                                          |  |      |        |      |  |   |         |  
|Net deferred tax assets                   |  | $    | 30,930 |      |  | $ | 4,031   |  
|                                          |  |      |        |      |  |   |         |  

As of June 30, 2004, the Company has Federal
and New York State net operating loss carryforwards of
approximately $75 million and $73 million,
respectively, that will begin to expire in 2020 as all 1999 loss
carryforwards were used in 2004.

Deferred tax assets have been recognized to the
extent management believes it is more likely than not that the
asset will be realized. Changes in facts, circumstances and
projections may have an effect on the amount of the asset
recognized in future periods.

The reversal of the valuation allowance
established against deferred tax assets for temporary
differences resulting from APB 16 purchase accounting
amounting to $2,315 was credited directly to goodwill, rather
than income tax expense, resulting in zero net effect to the
income statement. Further, the reversal of the valuation
allowance established for stock option deductions, amounting to
$6,168, was credited directly to additional paid in capital,
resulting in zero net effect to the income statement. In
addition, for fiscal 2004 a tax benefit for stock option
deductions, amounting to $1,858, was also credited directly to
additional paid in capital, resulting in zero net effect to the
income statement.

Under existing federal tax laws, Internal Revenue
Code Sec. 382 provides for an annual limitation on the
utilization of federal net operating losses and tax credit
carryforwards generated prior to certain ownership changes. The
acquisition of Total Research Corporation in November 2001
resulted in an ownership change for federal income tax purposes,
and accordingly this could limit the Companys ability to
use its federal net operating loss and tax credit carryforwards
in future years. As of June 30, 2004, of the Companys
total net operating loss carryover of $75 million,
approximately $64 million is subject to an annual
limitation under Internal Revenue Code Section 382.

58



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|    |                               
|--- | ------------------------------
|11. | Income
    Taxes  (Continued)

In addition, Harris Interactive Europe has net
operating loss carryforwards in the United Kingdom of
approximately $4,723. A deferred tax valuation allowance of
approximately $1,417 has been recorded against the deferred tax
asset related to the United Kingdom net operating loss
carryforwards. Harris Interactive Japan also has net operating
loss carryforwards in Japan of approximately $1,331, some of
which begin to expire in 2005. A deferred tax valuation
allowance of approximately $520 has been recorded against the
deferred tax assets related to Harris Interactive Japans
net operating loss carryforwards.

The (benefit) provision for income taxes differs
from the amount of income tax determined by applying the
applicable U.S. statutory federal income tax rate to income
before income taxes as follows:

|                                                        |  |      |         |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  | 2004 |         | 2003 |  | 2002
|                                                        |  |      |         |      |  |     
|Expense (Benefit) at Federal statutory rate             |  | $    | 4,744   |      |  | $    | 2,772  |   |  | $ | (5,017 | )
|State income tax benefit, net of Federal income
    tax |  |      | (1,437  | )    |  |      | 249    |   |  |   | (938   | )
|Foreign rate differential                               |  |      | 585     |      |  |      | (10    | ) |  |   | (778   | )
|Merger related expenses                                 |  |      |        |      |  |      |       |   |  |   | (1,426 | )
|(Decrease) Increase in valuation allowance              |  |      | (19,750 | )    |  |      | (6,023 | ) |  |   | 8,172  |  
|Other                                                   |  |      | (106    | )    |  |      | 58     |   |  |   | 25     |  
|                                                        |  |      |         |      |  |      |        |   |  |   |        |  
|                                                        |  | $    | (15,964 | )    |  | $    | (2,954 | ) |  | $ | 38     |  
|                                                        |  |      |         |      |  |      |        |   |  |   |        |  



|    |                     
|--- | --------------------
|12. | Stockholders Equity



| |             
| | ------------
| | Common Stock

In fiscal 2000, the Company amended its
Certificate of Incorporation to increase the number of
authorized common stock to 100,000,000 shares. At
June 30, 2004 and 2003 the Company had no outstanding
Warrants.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Company registered 500,000 shares of
common stock in March 2000 for issuance under the 1999 Employee
Stock Purchase Plan (ESPP). The ESPP provides
employees with an opportunity to purchase the Companys
common stock through payroll deductions. Under the ESPP, the
Companys employees may purchase, subject to certain
restrictions, shares of common stock at the lesser of 85% of the
fair value at either the beginning or the end of each offering
period. During fiscal years 2004, 2003 and 2002, employees
purchased 67,015, 99,383 and 104,507 shares of common stock
through the ESPP, respectively.



| |               
| | --------------
| | Treasury Stock

In December 2000, the Board of Directors approved
a share repurchase program authorizing the Company to purchase
up to $5,000 of its common stock at market prices. The amount
and timing of any purchase will depend upon a number of factors,
including the price and availability of the Companys
shares and general market conditions. The Companys
purchases of common stock are recorded as Treasury
Stock and result in a reduction of
Stockholders Equity unless such shares are
formally retired. As of June 30, 2004, the Company had
repurchased and retired 655,600 shares of common stock, at
a cost of $1,693 under such program.



| |                       
| | ----------------------
| | Investor Stock Options

At June 30, 2004, the Company had
outstanding investor options to acquire 88,887 shares of
its common stock that were issued in connection with the
Companys acquisition of Novatris in March 2004. At
June 30, 2003, the Company had outstanding investor options
to acquire 12,220 shares of its common stock, which

59



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|    |                                       
|--- | --------------------------------------
|12. | Stockholders
    Equity  (Continued)

represent options to acquire common stock of
Total Research Corporation which were assumed by the Company in
connection with the merger of Total Research Corporation in
November 2001. Investor options for fiscal 2004 and 2003 are not
included as options under the Companys employee stock
option plan, as discussed in Note 14 below.



|    |                            
|--- | ---------------------------
|13. | Net Income (Loss) Per Share

The following table presents the shares used in
computing basic and diluted earnings per share (EPS)
for the years ended June 30, 2004, 2003 and 2002.
Unexercised stock options to purchase 1,686,887 and
564,343 shares of the Companys common stock for the
years ended June 30, 2004 and 2003, respectively, at
weighted average prices per share of $9.13 and $8.05 were not
included in the computations of diluted earnings per share
because the options exercise prices were greater than the
average market price of the Companys common stock for
fiscal 2004 and 2003, respectively. As a result of losses from
continuing operations, unexercised stock options to
purchase 6,543,458 shares of the Companys common
stock for the year ended June 30, 2002, at a weighted
average price per share of $2.67, were excluded from the
calculation of diluted net loss per share as the effect would
have been anti-dilutive.

|                                                             |  |                              |            |      |  |      |            |  |  |  |            | 
|------------------------------------------------------------ |  | ---------------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                             |  |                             
|                                                             |  | For the Years Ended June 30,
|                                                             |  |                             
|                                                             |  | 2004                         |            | 2003 |  | 2002
|                                                             |  |                              |            |      |  |     
|Weighted average outstanding common shares for
    basic EPS |  |                              | 56,099,330 |      |  |      | 52,983,689 |  |  |  | 46,136,445 | 
|Diluted effect of outstanding stock options                  |  |                              | 1,345,455  |      |  |      | 1,654,907  |  |  |  |           | 
|Shares for diluted EPS                                       |  |                              | 57,444,785 |      |  |      | 54,638,596 |  |  |  | 46,136,445 | 

The following table sets forth the computation of
basic and diluted net loss per share:

|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |         |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---- | ---------- | ------ |  | ---- | ---------- | ------ |  | - | ---------- | ------- | -
|                                                                               |                                                               | 2003 |            | 2002   |  | 2002
|                                                                               |                                                               |      |            |        |  |     
|Numerator:                                                                     |                                                               |      |            |        |  |      |            |        |  |   |            |        
|                                                                               | Net income (loss) attributable to holders of
    common stock |      | $          | 29,918 |  |      | $          | 11,107 |  |   | $          | (14,793 | )
|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |        
|Denominator for basic income (loss) per
    share   weighted average shares   |                                                               |      | 56,099,330 |        |  |      | 52,983,689 |        |  |   | 46,136,445 |        
|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |        
|Basic income (loss) per share                                                  |                                                               | $    | 0.53       |        |  | $    | 0.21       |        |  | $ | (0.32      | )      
|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |        
|Denominator for diluted income (loss) per
    share   weighted average shares |                                                               |      | 57,444,785 |        |  |      | 54,638,596 |        |  |   | 46,136,445 |        
|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |        
|Diluted income (loss) per share                                                |                                                               | $    | 0.52       |        |  | $    | 0.20       |        |  | $ | (0.32      | )      
|                                                                               |                                                               |      |            |        |  |      |            |        |  |   |            |        



|    |                       
|--- | ----------------------
|14. | Employee Stock Options

The Company has a nonqualified and incentive
stock option plan that enables key employees and directors of
the Company to purchase shares of common stock of the Company.
The Company grants options to purchase its common stock,
generally at fair value as of the date of grant. Options
generally vest over a period up to 4 years and expire after
10 years from the date of grant.

The Company has registered 3,250,000 shares
of common stock for issuance under the 1999 long-term incentive
plan. There were 693,266 shares available for future grant
at June 30, 2004.

60



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002





|    |                                         
|--- | ----------------------------------------
|14. | Employee Stock
    Options  (Continued)

During fiscal 2004 the Company registered an
additional 1,100,000 shares for stock options that were
issued to employees in connection with the hiring of its CEO and
the acquisition of Novatris.

Pursuant to the terms of the merger with Total
Research Corporation, outstanding employee and director options
to purchase common stock of Total Research Corporation became
fully vested and exercisable to purchase an aggregate of
2,654,306 shares of the Companys common stock on
November 1, 2001. All other terms of these options continue
to be governed by the applicable Total Research option
agreements.

A summary of the status of the Companys
employee stock options (including options under the Company
plan, Total Research director and employee options after
November 1, 2001, and options issued outside the Company
plan to new employees) for the years ended June 30, 2004,
2003 and 2002 is as follows:

|                             |                        |           |           |                  |            |   |      |      |      | 
|---------------------------- | ---------------------- | --------- | --------- | ---------------- | ---------- | - | ---- | ---- | ---- | 
|                             |                        | Number of |           | Weighted Average
|                             |                        | Shares    |           | Price Per Share 
|                             |                        |           |           |                 
|Outstanding at June 30, 2001 |                        |           | 3,858,484 |                  |            | $ | 3.38 |     
|                             | Assumed in acquisition |           |           | 2,654,306        |            |   |      | 2.05 |     
|                             |                        | Granted   |           |                  | 877,000    |   |      |      | 2.10 | 
|                             |                        | Canceled  |           |                  | (367,194   | ) |      |      | 6.51 | 
|                             |                        | Exercised |           |                  | (723,538   | ) |      |      | 1.15 | 
|                             |                        |           |           |                  |            |   |      |     
|Outstanding at June 30, 2002 |                        |           | 6,299,058 |                  |            |   | 2.70 |     
|                             |                        | Granted   |           |                  | 785,000    |   |      |      | 2.48 | 
|                             |                        | Canceled  |           |                  | (524,572   | ) |      |      | 4.51 | 
|                             |                        | Exercised |           |                  | (1,870,341 | ) |      |      | 1.49 | 
|                             |                        |           |           |                  |            |   |      |     
|Outstanding at June 30, 2003 |                        |           | 4,689,145 |                  |            |   | 2.95 |     
|                             |                        | Granted   |           |                  | 1,569,500  |   |      |      | 8.55 | 
|                             |                        | Canceled  |           |                  | (96,007    | ) |      |      | 5.05 | 
|                             |                        | Exercised |           |                  | (2,033,936 | ) |      |      | 2.23 | 
|                             |                        |           |           |                  |            |   |      |     
|Outstanding at June 30, 2004 |                        |           | 4,128,702 |                  |            | $ | 5.38 |     
|                             |                        |           |           |                  |            |   |      |     

Employee stock options exercisable as of
June 30, 2004, 2003 and 2002 amounted to 2,076,730,
3,436,548 and 4,965,355, respectively. The weighted average
exercise price of the exercisable options at June 30, 2004,
2003 and 2002 was $3.73, $3.00 and $2.43, respectively.

61



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|    |                                         
|--- | ----------------------------------------
|14. | Employee Stock
    Options  (Continued)

The following represents additional information
about employee stock options outstanding at June 30, 2004:

|                    |                 |                     |  |                  |           |                |  |             |     |                   |  |   |       |  |  |  |           |  |  |   |       | 
|------------------- | --------------- | ------------------- |  | ---------------- | --------- | -------------- |  | ----------- | --- | ----------------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                    |                 |                    
|Options Outstanding |                 | Options Exercisable
|                    |                 |                    
|                    |                 | Weighted            |  |                  |           |               
|                    |                 | Average             |  | Weighted         |           |                |  | Weighted   
|Range of            |                 | Remaining           |  | Average          |           |                |  | Average    
|Exercise Prices     |                 | Number              |  | Contractual Life |           | Exercise Price |  | Number      |     | Exercisable Price
|Per Share           |                 | Outstanding         |  | (Years)          |           | (Per Share)    |  | Exercisable |     | (Per Share)      
|                    |                 |                     |  |                  |           |                |  |             |     |                  
|                    | $  .47  $  .47 |                     |  |                  | 212,000   |                |  |             | 3.3 |                   |  | $ | 0.47  |  |  |  | 212,000   |  |  | $ | 0.47  | 
|                    | 1.26    2.42   |                     |  |                  | 1,385,244 |                |  |             | 7.4 |                   |  | $ | 2.16  |  |  |  | 913,956   |  |  | $ | 2.08  | 
|                    | 3.00    5.25   |                     |  |                  | 662,958   |                |  |             | 5.6 |                   |  | $ | 3.85  |  |  |  | 626,635   |  |  | $ | 3.83  | 
|                    | 6.56    8.96   |                     |  |                  | 1,625,500 |                |  |             | 9.4 |                   |  | $ | 8.50  |  |  |  | 81,139    |  |  | $ | 7.23  | 
|                    | 11.00   14.00  |                     |  |                  | 243,000   |                |  |             | 5.7 |                   |  | $ | 11.35 |  |  |  | 243,000   |  |  | $ | 11.35 | 
|                    |                 |                     |  |                  |           |                |  |             |     |                   |  |   |       |  |  |  |           |  |  |   |       | 
|                    | Total           |                     |  |                  | 4,128,702 |                |  |             | 7.6 |                   |  | $ | 5.38  |  |  |  | 2,076,730 |  |  | $ | 3.73  | 
|                    |                 |                     |  |                  |           |                |  |             |     |                   |  |   |       |  |  |  |           |  |  |   |       | 

During fiscal 2000, 617,000 stock options were
granted to employees at an amount that was less than the fair
value of the common stock as of the grant date. Accordingly, the
Company recorded $2,431 in unamortized deferred compensation in
fiscal 2000 for these options that vested over 3 to
4 years. Compensation expense was amortized over the
vesting period with unamortized deferred compensation recorded
as a reduction in stockholders equity. No such options
were granted in fiscal 2004, 2003 and 2002. During fiscal 2004,
2003 and 2002, compensation expense recognized in the
consolidated statements of operations amounted to $56, $91 and
$289, respectively.

The weighted average fair market value of options
granted during fiscal 2004, 2003 and 2002 was $4.28, $1.37 and
$1.17, respectively. For purposes of this disclosure, 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 used for grants outstanding in
2004, 2003 and 2002.

|                                       |  |      |      |      |  |      |      |   |  |  |      |  
|-------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                       |  | 2004 |      | 2003 |  | 2002
|                                       |  |      |      |      |  |     
|Risk-free interest rate                |  |      | 2.29 | %    |  |      | 2.35 | % |  |  | 3.01 | %
|Weighted average expected life (years) |  |      | 4    |      |  |      | 4    |   |  |  | 3    |  
|Volatility factor                      |  |      | 64   | %    |  |      | 72   | % |  |  | 81   | %
|Dividend yield                         |  |      |     |      |  |      |     |   |  |  |     |  



|    |            
|--- | -----------
|15. | 401(k) Plan

The Company established a 401(k) Plan (the
Plan) effective January 1, 1995. Eligibility to
participate in the Plan, including employer matching
contributions, if any, is limited to those employees who are at
least 21 years of age and have completed one year of
employment with at least 1,000 hours of service. However,
employees are eligible to contribute to the Plan upon completion
of one quarter of service.

Participants may contribute 1% to 100% of
compensation up to federally established limitations. Employer
matching contributions are discretionary, and include matching
contributions and profit sharing contributions. Matching
contribution expense incurred by the Company during fiscal 2004,
2003 and 2002 was $726, $616 and $634, respectively.

62



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|    |                                                       
|--- | ------------------------------------------------------
|16. | Acquired Intangible Assets Subject to
    Amortization

|                            |                                |                |   |              |       |          |   |              |     |  |   |       |       |  |   |     |     | 
|--------------------------- | ------------------------------ | -------------- | - | ------------ | ----- | -------- | - | ------------ | --- |  | - | ----- | ----- |  | - | --- | --- | 
|                            |                                |               
|                            |                                | As of June 30,
|                            |                                |               
|                            |                                |                |   |             
|                            |                                | 2004           |   | 2003        
|                            |                                |                |   |             
|                            |                                | Gross          |   |              |       | Gross    |   |             
|                            |                                | Carrying       |   | Accumulated  |       | Carrying |   | Accumulated 
|                            |                                | Amount         |   | Amortization |       | Amount   |   | Amortization
|                            |                                |                |   |              |       |          |   |             
|Amortized intangible assets |                                |                |   |              |       |          |   |              |     |  |   |       |       |  |   |    
|                            | Contract-based intangibles     |                | $ | 1,250        |       |          | $ | 833          |     |  | $ | 1,250 |       |  | $ | 520 |    
|                            | Intangible Respondent Database |                |   | 2,000        |       |          |   | 74           |     |  |   |      |       |  |   |    |    
|                            | Customer Relationships         |                |   | 240          |       |          |   | 27           |     |  |   |      |       |  |   |    |    
|                            | Trade Names                    |                |   | 200          |       |          |   | 11           |     |  |   |      |       |  |   |    |    
|                            |                                |                |   |              |       |          |   |              |     |  |   |       |       |  |   |    
|                            |                                | Total          |   | $            | 3,690 |          |   | $            | 945 |  |   | $     | 1,250 |  |   | $   | 520 | 
|                            |                                |                |   |              |       |          |   |              |     |  |   |       |       |  |   |    

|                                |                                   |                     |   |      |  |      |   |     |  |  |   |     | 
|------------------------------- | --------------------------------- | ------------------- | - | ---- |  | ---- | - | --- |  |  | - | --- | 
|                                |                                   |                    
|                                |                                   | For the Years Ended
|                                |                                   | June 30,           
|                                |                                   |                    
|                                |                                   | 2004                |   | 2003 |  | 2002
|                                |                                   |                     |   |      |  |     
|Aggregate amortization expense: |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ended                |                     | $ | 425  |  |      | $ | 312 |  |  | $ | 241 | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    
|Estimated amortization expense: |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ending June 30, 2005 |                     | $ | 648  |  |      |   |     |  |  |   |     | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ending June 30, 2006 |                     | $ | 440  |  |      |   |     |  |  |   |     | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ending June 30, 2007 |                     | $ | 309  |  |      |   |     |  |  |   |     | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ending June 30, 2008 |                     | $ | 256  |  |      |   |     |  |  |   |     | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    
|                                | For the year ending June 30, 2009 |                     | $ | 256  |  |      |   |     |  |  |   |     | 
|                                |                                   |                     |   |      |  |      |   |     |  |  |   |    



|    |         
|--- | --------
|17. | Goodwill

|                                                                                                                             |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------- |  | - | ------ | -
|Balance as of July 1, 2001                                                                                                   |  | $ | 8,913  |  
|Acquisitions of Market Research Solutions Limited
    and M&A Create Limited during the quarter ended
    September 30, 2001 |  |   | 5,276  |  
|Acquisition of Total Research during the quarter
    ended December 31, 2001                                                 |  |   | 49,239 |  
|                                                                                                                             |  |   |        |  
|Balance as of July 1, 2002                                                                                                   |  | $ | 63,428 |  
|Additional purchase accounting adjustments in
    connection with the acquisition of Total Research                          |  |   | 249    |  
|Goodwill written off related to the reversal of
    deferred tax asset valuation allowance                                   |  |   | (418   | )
|                                                                                                                             |  |   |        |  
|Balance as of June 30, 2003                                                                                                  |  | $ | 63,259 |  
|Acquisition of Novatris during the quarter ended
    March 31, 2004                                                          |  |   | 2,962  |  
|Goodwill written off related to the reversal of
    deferred tax asset valuation allowance                                   |  |   | (2,315 | )
|                                                                                                                             |  |   |        |  
|Balance as of June 30,2004                                                                                                   |  | $ | 63,906 |  
|                                                                                                                             |  |   |        |  

63



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|    |                              
|--- | -----------------------------
|18. | Commitments and Contingencies

The Company has several non-cancelable operating
leases for office space, vehicles and equipment. Future minimum
lease payments under non-cancelable operating leases as of
June 30, 2004 are as follows:

|                      |  |  |       | 
|--------------------- |  |  | ----- | 
|Years Ending June 30: |  | 
|                      |  | 
|2005                  |  |  | 4,592 | 
|2006                  |  |  | 3,418 | 
|2007                  |  |  | 3,297 | 
|2008                  |  |  | 3,142 | 
|2009                  |  |  | 2,818 | 
|2010 and beyond       |  |  | 4,078 | 

Total rental expense for operating leases in
2004, 2003 and 2002 was $5,853, $5,183 and $5,922, respectively.



|    |                                   
|--- | ----------------------------------
|19. | Supplemental Cash Flow Information



| |                                                     
| | ----------------------------------------------------
| | Supplemental Disclosure of Cash Flow
    Information

Cash paid (received) during the year for:

|         |  |      |      |      |  |      |      |   |  |   |        |  
|-------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ------ | -
|         |  | 2004 |      | 2003 |  | 2002
|         |  |      |      |      |  |     
|Interest |  | $    | (513 | )    |  | $    | (411 | ) |  | $ | (1,686 | )
|         |  |      |      |      |  |      |      |   |  |   |        |  
|Taxes    |  | $    | 565  |      |  | $    | (823 | ) |  | $ | 41     |  
|         |  |      |      |      |  |      |      |   |  |   |        |  

64



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##### Table of Contents



HARRIS INTERACTIVE INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Years Ended June 30, 2004, 2003 and
2002



|    |                                              
|--- | ---------------------------------------------
|20. | Unaudited Quarterly Results of
    Operations

The following table presents unaudited
consolidated quarterly statement of operations data for the
years ended June 30, 2004 and 2003. In managements
opinion, this information has been prepared on the same basis as
the audited consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments
necessary for the fair presentation of the unaudited information
in the periods presented. This information should be read in
conjunction with the consolidated financial statements and
related notes included under this Item 8 and in conjunction
with other financial information included elsewhere in this
Form 10-K. The results of operations for any quarter are
not necessarily indicative of results that may be expected for
any future periods.

|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |        | 
|---------------------------- | ----------------------------------- | ------------------------------------- | ------ | -------- |  | -------- | ------ | -------- | - | --------- | ------ | -------- | - | -------- | ------ | -------- | - | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------ | 
|                             |                                     |                                      
|                             |                                     | Three Months Ended                   
|                             |                                     |                                      
|                             |                                     | Sept. 30,                             |        | Dec. 31, |  | Mar. 31, |        | June 30, |   | Sept. 30, |        | Dec. 31, |   | Mar. 31, |        | June 30,
|                             |                                     | 2002                                  |        | 2002     |  | 2003     |        | 2003     |   | 2003      |        | 2003     |   | 2004     |        | 2004    
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |         
|                             |                                     |                                      
|                             |                                     | (In thousands, except per share data)
|Revenue from services        |                                     | $                                     | 30,329 |          |  | $        | 32,468 |          |   | $         | 32,080 |          |   | $        | 35,674 |          |   | $ | 33,267 |        |  | $ | 36,126 |        |  | $ | 35,428 |        |  | $ | 41,211  |       
|Cost of services             |                                     |                                       | 16,552 |          |  |          | 16,944 |          |   |           | 16,141 |          |   |          | 17,215 |          |   |   | 17,237 |        |  |   | 18,139 |        |  |   | 16,831 |        |  |   | 18,094  |       
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Gross Profit                 |                                     |                                       | 13,777 |          |  |          | 15,524 |          |   |           | 15,939 |          |   |          | 18,459 |          |   |   | 16,030 |        |  |   | 17,987 |        |  |   | 18,597 |        |  |   | 23,117  |       
|Operating expenses:          |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|                             | Sales and marketing expenses        |                                       |        | 1,909    |  |          |        | 2,226    |   |           |        | 2,352    |   |          |        | 3,055    |   |   |        | 2,775  |  |   |        | 2,807  |  |   |        | 3,012  |  |   |         | 3,447  | 
|                             | General and administrative expenses |                                       |        | 11,003   |  |          |        | 11,763   |   |           |        | 11,411   |   |          |        | 13,330   |   |   |        | 11,325 |  |   |        | 12,094 |  |   |        | 13,105 |  |   |         | 13,707 | 
|                             | Restructuring and asset impairment  |                                       |        |         |  |          |        | (389     | ) |           |        | (273     | ) |          |        | (335     | ) |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       | 
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Operating income             |                                     |                                       | 865    |          |  |          | 1,924  |          |   |           | 2,449  |          |   |          | 2,409  |          |   |   | 1,930  |        |  |   | 3,086  |        |  |   | 2,480  |        |  |   | 5,963   |       
|Interest and other income    |                                     |                                       | 168    |          |  |          | 149    |          |   |           | 114    |          |   |          | 132    |          |   |   | 121    |        |  |   | 128    |        |  |   | 158    |        |  |   | 197     |       
|Interest expense             |                                     |                                       | (19    | )        |  |          | (19    | )        |   |           | (6     | )        |   |          | (13    | )        |   |   |       |        |  |   | (6     | )      |  |   |       |        |  |   | (103    | )     
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Income before income taxes   |                                     |                                       | 1,014  |          |  |          | 2,054  |          |   |           | 2,557  |          |   |          | 2,528  |          |   |   | 2,051  |        |  |   | 3,208  |        |  |   | 2,638  |        |  |   | 6,057   |       
|Income tax (benefit) expense |                                     |                                       |       |          |  |          |       |          |   |           |       |          |   |          | (2,954 | )        |   |   | 800    |        |  |   | 983    |        |  |   | 997    |        |  |   | (18,744 | )     
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Net income                   |                                     | $                                     | 1,014  |          |  | $        | 2,054  |          |   | $         | 2,557  |          |   | $        | 5,482  |          |   | $ | 1,251  |        |  | $ | 2,225  |        |  | $ | 1,641  |        |  |   | 24,801  |       
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Basic net                    |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|                             | Income per share                    |                                       | $      | 0.02     |  |          | $      | 0.04     |   |           | $      | 0.05     |   |          | $      | 0.10     |   |   | $      | 0.02   |  |   | $      | 0.04   |  |   | $      | 0.03   |  |   | $       | 0.44   | 
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|Diluted net                  |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|                             | Income per share                    |                                       | $      | 0.02     |  |          | $      | 0.04     |   |           | $      | 0.05     |   |          | $      | 0.10     |   |   | $      | 0.02   |  |   | $      | 0.04   |  |   | $      | 0.03   |  |   | $       | 0.43   | 
|                             |                                     |                                       |        |          |  |          |        |          |   |           |        |          |   |          |        |          |   |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       

65



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##### Table of Contents








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

None.






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

The Companys management, with the
participation of the Companys Principal Executive Officer
and Principal Financial Officer, evaluated the effectiveness of
the design and operation of Harris Interactives disclosure
controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based on that evaluation, the
Companys Principal Executive Officer and Principal
Financial Officer concluded that Harris Interactives
disclosure controls and procedures as of June 30, 2004 (the
end of the period covered by this Report on Form 10-K) have
been designed and are functioning effectively to provide
reasonable assurance that the information required to be
disclosed by Harris Interactive in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.

Subsequent to the end of the Companys
fiscal year, on July 29, 2004, the Company issued an
earnings release reporting fourth quarter and fiscal year end
results. During preparation of this Report on Form 10-K,
the Company effected an adjustment between two
stockholders equity accounts, which adjustment resulted in
a change to previously reported net income. The adjustment
represents a significant deficiency, as defined by the PCAOB,
with regards to the Form 10-K process. The Company is
implementing new and additional procedures to reduce the
likelihood of a recurrence.






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

None.



PART III






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

The information required by Item 10 of
Form 10-K with respect to our directors is incorporated by
reference from the information contained in the section
captioned Election of Directors in the
Companys definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 9, 2004 (the
Proxy Statement), a copy of which will be filed with
the Securities and Exchange Commission before the meeting date.
For information with respect to our executive officers and
significant employees, see the section captioned Executive
Officers of Harris Interactive in Part I of this
Form 10-K. The information required by Item 10 of
Form 10-K with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference from the information contained in the
section captioned Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement.

The information required by Item 10 of
Form 10-K with respect to the identification of the
Companys Audit Committee and Audit Committee financial
expert is incorporated by reference from the information
contained in the Section captioned Corporate
Governance  Committees of the Board of
Directors in the Proxy Statement.

In 2004 we adopted a revised Code of Ethics
applicable to all employees, officers, directors,
representatives, consultants, contractors, and agents of the
Company, as well as an Addendum to the Code of Ethics with
additional requirements for our Chief Executive Officer and
senior financial officers. The Code of Ethics and Addendum are
available on our website at www.harrisinteractive.com. We intend
to satisfy the disclosure requirements under Item 5.05 of
Form 8-K regarding an amendment to, or waiver from, a
provision of the Code of Ethics or Addendum applicable to our
Chief Executive Officer or any senior financial officer by
posting such information on our website.






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

The information required by Item 11 of
Form 10-K is incorporated by reference from the information
contained in the sections captioned Compensation of
Executive Officers and Directors and Other Matters,
Compensation Committee Report on Executive
Compensation, and Comparison of 55 Month Cumulative
Total Return in the Proxy Statement.

66



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##### Table of Contents








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

The information required by Item 12 of
Form 10-K is incorporated by reference from the information
contained in the sections captioned Security Ownership of
Certain Beneficial Owners and Management and Equity
Compensation Plan Information in the Proxy Statement.






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

The information required by Item 13 of
Form 10-K is incorporated by reference from the information
contained in the section captioned Compensation of
Executive Officers and Directors and Other Matters  
Certain Relationships and Related Transactions in the
Proxy Statement.






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

The information required by Item 14 of
Form 10-K is incorporated by reference from the information
contained in the section captioned Audit Fees in the
Proxy Statement.



PART IV





|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements Schedules,
    and Reports on Form 8-K

Financial Statements

The following financial statements are filed as a
part of this Report under Item 8 
Financial Statements and Supplementary Data:

|                                                                                                     |  |  |    | 
|---------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Independent Registered Public
    Accounting Firm                                          |  |  | 42 | 
|Consolidated Balance Sheets at June 30, 2004
    and 2003                                            |  |  | 43 | 
|Consolidated Statements of Operations for the
    years ended                                        |  |  |    | 
|June 30, 2004, 2003 and 2002                                                                         |  |  | 44 | 
|Consolidated Statements of Cash Flows for the
    years ended                                        |  |  |    | 
|June 30, 2004, 2003 and 2002                                                                         |  |  | 45 | 
|Consolidated Statements of Stockholders
    Equity for the                                          |  |  |    | 
|years ended June 30, 2004, 2003 and 2002                                                             |  |  | 46 | 
|Notes to Consolidated Financial Statements
    (including unaudited quarterly results of operations) |  |  | 47 | 

Financial Statement Schedules

The following financial statement schedule is
filed as a part of this Report under Schedule II
immediately preceding the signature page:
Schedule II  Valuation and Qualifying Accounts
for the three fiscal years ended June 30, 2004. All other
schedules called for by Form 10-K are omitted because they
are inapplicable or the required information is shown in the
financial statements, or notes thereto, included herein.

Reports on Form 8-K

On April 2, 2004, a report on Form 8-K
was furnished to the SEC pursuant to Item 9 announcing
Albert Angrisanis resignation as the Companys
President, Chief Operating Officer and member of the Board of
Directors of the Company effective April 1, 2004 and
announcing Gregory T. Novaks promotion to President and
Chief Operating Officer of the Company.

On April 28, 2004, a report on Form 8-K
was furnished to the SEC pursuant to Items 7 and 12
announcing the Companys earnings for the calendar quarter
ended March 31, 2004.

On June 23, 2004, a report on Form 8-K
was furnished to the SEC pursuant to Items 7 and 9
announcing the Companys financial expectations for the
fiscal year ending June 30, 2005.

67



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##### Table of Contents



EXHIBITS

|        |    |               |  |                                                                                                                                                                                                                                                                                                                         
|------- | -- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 2  | .1            |  | Agreement and Plan of Merger, dated
    August 5, 2001, among Harris Interactive Inc., Total Merger
    Sub Inc., and Total Research Corporation (Incorporated by
    reference to Harris Interactives Current Report on
    Form 8-K filed August 14, 2001, listed as
    Exhibit 99.1).                              
|        | 2  | .2            |  | Share Purchase Agreement dated March 2, 2004
    among Harris Interactive International, Inc. and the
    Shareholders of Novatris, S.A. (Filed as Exhibit 10.1 to
    the Companys Registration Statement on Form S-3 filed
    March 8, 2004 (Registration No. 333-113389) and
    incorporated herein by reference).
|        | 3  | .1            |  | Amended and Restated Certificate of Incorporation
    of the Company (filed as Exhibit 3.1 to Form 10-K filed
    September 27, 2000 and incorporated herein by reference).                                                                                                                                             
|        | 3  | .2            |  | By-laws of the Company (filed as Exhibit 3.2
    to Form 10-K filed August 31, 2001 and incorporated
    herein by reference).                                                                                                                                                                                          
|        | 10 | .1*           |  | 1999 Long Term Incentive Plan and form of
    agreements thereto of the Company (filed as Exhibit 10.1 to
    the Companys Registration Statement on Form S-1 filed
    September 17, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                     
|        | 10 | .2*           |  | 1999 Employee Stock Purchase Plan and form of
    agreements thereto of the Company (filed as Exhibit 10.2 to
    the Companys Registration Statement on Form S-1 filed
    September 17, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                 
|        | 10 | .3.1*         |  | Confidentiality and Non-Competition Agreement
    dated September 1, 1999 between the Company and
    David H. Clemm (filed as Exhibit 10.5.2 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).              
|        | 10 | .3.2*         |  | Consulting Agreement between the Company and
    James R. Riedman dated April 25, 2001 (filed as
    Exhibit 10.21 to Form 10-K filed August 31, 2002
    and incorporated herein by reference).                                                                                                                        
|        | 10 | .3.3*         |  | Employment Agreement by and between the Company
    and Albert A. Angrisani, dated as of August 5, 2001
    (filed as Exhibit 10.23 to Form S-4 filed
    September 6, 2001 (Registration No. 333-69056) and
    incorporated herein by reference).                                                                     
|        | 10 | .3.4*         |  | Letter Agreement of Albert A. Angrisani,
    dated as of August 5, 2001 (filed as Exhibit 10.24 to
    Form S-4 filed September 6, 2001 (Registration
    No. 333-69056) and incorporated herein by reference).                                                                                                         
|        | 10 | .3.5*         |  | Separation Agreement by and between the Company
    and David H. Clemm, dated as of March 15, 2002 (filed
    as Exhibit 10.1 to Form 10-Q filed May 15, 2002
    and incorporated herein by reference).                                                                                                                
|        | 10 | .3.6*         |  | Change of Control Agreement by and between the
    Company and Bruce A. Newman, dated as of June 28, 2002
    (filed as Exhibit 10.25 to Form 10-K filed
    September 30, 2002 and incorporated herein by reference).                                                                                                  
|        | 10 | .3.7*         |  | Amendment No. 1 to the Employment Agreement
    by and between the Company and Albert A. Angrisani, dated
    as of June 28, 2002 (filed as Exhibit 10.26 to Form
    10-K filed September 30, 2002 and incorporated herein by
    reference).                                                                          
|        | 10 | .3.8*         |  | Amendment No. 1 to the Letter Agreement of
    Albert A. Angrisani, dated as of June 28, 2002 (filed
    as Exhibit 10.27 to Form 10-K filed September 30, 2002
    and incorporated herein by reference).                                                                                                              
|        | 10 | .3.9*         |  | Employment Agreement by and between the Company
    and George Terhanian, dated September 26, 2002 (filed as
    Exhibit 10.32 to Form 10-K filed September 26,
    2003 and incorporated herein by reference).                                                                                                         
|        | 10 | .3.10*        |  | Employment Agreement between the Company and
    Gordon S. Black, dated as of December 16, 2002 (filed
    as Exhibit 10.1 to Form 10-Q filed on
    February 10, 2003 (erroneously referenced therein as
    Confidentiality and Non-Competition Agreement and incorporated
    herein by reference)).                 
|        | 10 | .3.11*        |  | Form of Change in Control Agreement entered into
    by Company with each of the following individuals (filed as
    Exhibit 10.1 to Form 10-Q filed on May 14, 2003
    and incorporated herein by reference):                                                                                                         

|                 |  |                     
|---------------- |  | --------------------
|Dennis K. Bhame  |  | Arthur E. Coles     
|Gareth Davies    |  | James E. Fredrickson
|Ronald B. Knight |  | Peter J. Milla      
|Gregory T. Novak |  | George B. Terhanian 
|David B. Vaden   |  |                     

68



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|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 10 | .3.12*        |  | Amendment to Employment Agreement by and between
    the Company and Gordon S. Black, dated July 1, 2003
    (filed as Exhibit 10.30 to Form 10-K filed
    September 26, 2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .3.13*        |  | Employment Agreement by and between the Company
    and Leonard R. Bayer, dated July 1, 2003 (filed as
    Exhibit 10.31 to Form 10-K filed September 26,
    2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .3.14*        |  | Letter Agreement of Albert A. Angrisani,
    effective as of July 1, 2003 (filed as Exhibit 10.33
    to Form 10-K filed September 26, 2003 and incorporated
    herein by reference).                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .3.15*        |  | Employment Agreement by and between Total
    Research Corporation and Theresa Flanagan, dated January 1,
    1999 (filed as Exhibit 10.34 to Form 10-K filed
    September 26, 2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                           
|        | 10 | .3.16*        |  | Employment Agreement between the Company and
    Gregory T. Novak, dated November 7, 2003 (filed as
    Exhibit 10.1 to Form 10-Q filed February 13, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .3.17*        |  | Employment Agreement between the Company and
    Robert E. Knapp, dated as of December 31, 2003 and
    effective as of January 26, 2004 (filed as
    Exhibit 10.1 to Form 8-K filed January 6, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                      
|        | 10 | .3.18*        |  | Employment Agreement between the Company and
    David Vaden, dated February 24, 2004 (filed as
    Exhibit 10.1 to Form 10-Q filed May 17, 2004 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .3.19*        |  | Form of Non-Qualified Stock Option Agreement
    between the Company and certain employees of Novatris, S.A.
    dated as of March 2, 2004 (filed as Exhibit 4.2 to the
    Company Registration Statement on Form S-8 filed
    March 8, 2004 (Registration No. 333-113392) and
    incorporated herein by reference).                                                                                                                                                                                                                               
|        | 10 | .3.20*        |  | Employment Agreement between the Company and
    Gregory T. Novak, dated May 14, 2004 (filed as
    Exhibit 10.2 to Form 10-Q filed on May 17, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .4            |  | Form of Option Agreement between the Company and
    certain of the Shareholders of Novatris, S.A. (filed as
    Exhibit 10.2 to the Company Registration Statement on
    Form S-3 filed March 8, 2004 (Registration
    No. 333-113389) and incorporated herein by reference).                                                                                                                                                                                                                                                                      
|        | 10 | .5.1          |  | Leases for 135, 155 & 60 Corporate
    Woods, Rochester, New York dated April 12, 1991 between
    Gordon S. Black Corporation and Corporate Woods Associates,
    together with all amendments thereto (filed as
    Exhibit 10.6.1 to the Companys Registration Statement
    on Form S-1 filed September 17, 1999 and incorporated
    herein by reference); amendments dated February 11, 2000,
    March 14, 2000 and October 1, 2000 (filed as
    Exhibit 10.6.1 to Form 10-K filed August 31, 2001
    and incorporated herein by reference).
|        | 10 | .5.2          |  | Lease for 70 Carlson Road, Rochester, New York
    dated July 1, 1998 between Gordon S. Black Corporation
    and Carlson Park Associates, together with all amendments
    thereto (filed as Exhibit 10.6.2 to the Companys
    Registration Statement on Form S-1 filed September 17,
    1999 (Registration No. 333-87311) and incorporated herein
    by reference).                                                                                                                                                                             
|        | 10 | .5.3          |  | Lease for 111 Fifth Avenue, New York, New York
    dated June 9, 1994 between Louis Harris and Associates,
    Inc. and B.J.W. Associates (filed as Exhibit 10.7 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                                                                                                                                                                                         
|        | 10 | .6.1          |  | Revolving Credit Facility between Gordon S.
    Black Corporation and Manufacturers and Traders Trust Company
    dated August 18, 1999 (filed as Exhibit 10.9 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                                                                                                                                                                                           
|        | 10 | .6.2          |  | Amendment to Revolving Credit Facility between
    the Company and Manufacturers and Traders Trust Company dated
    March 2, 2004 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .7            |  | Amended and Restated Investment Agreement between
    Riedman Corporation and the Company dated October 15, 1991
    (filed as Exhibit 10.12 to the Companys Registration
    Statement on Form S-1/A filed October 26, 1999
    (Registration No. 333-87311) and incorporated herein by
    reference).                                                                                                                                                                                                                                             

69



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|        |    |               |  |                                                                                                                                                                                                                                                                                         
|------- | -- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 10 | .8            |  | Registration Agreement between the Company and
    Riedman Corporation dated as of October 15, 1999 (filed as
    Exhibit 10.17 to the Companys Registration Statement
    on Form S-1/A filed October 26, 1999 (Registration
    No. 333-87311) and incorporated herein by reference).
|        | 21 |               |  | List of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                  
|        | 23 | .1            |  | Consent of Independent Registered Public
    Accounting Firm (filed herewith).                                                                                                                                                                                                          
|        | 24 |               |  | Power of Attorney (included on page 72 of
    this Report).                                                                                                                                                                                                                             
|        | 31 | .1            |  | Certificate of the Chief Executive Officer
    pursuant to 18 U.S.C. §1350 (Section 302 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 31 | .2            |  | Certificate of the Chief Financial Officer
    pursuant to 18 U.S.C. §1350 (Section 302 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 32 | .1            |  | Certificate of the Chief Executive Officer
    pursuant to 18 U.S.C. §1350 (Section 906 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 32 | .2            |  | Certificate of the Chief Financial Officer
    pursuant to 18 U.S.C. §1350 (Section 906 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        



---



|  |                                                                     
|- | --------------------------------------------------------------------
|* | Denotes management contract or compensatory plan
    or arrangement.

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##### Table of Contents



Schedule II

Valuation and Qualifying Accounts


(In thousands)


|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  |  |        | 
|------------------------ | ------------------------------------------- | -------------------------------------------------------------- |  | ---------- | ------ | ----------- |  | --------- | ----- |  |  |  | ------ |  |  |  | ------ | 
|                         |                                             | Balance at                                                     |  | Additions  |        | Deductions  |  | Balance  
|                         |                                             | Beginning                                                      |  | Charged to |        | Amounts     |  | at End   
|                         |                                             | of Period                                                      |  | Earnings   |        | Written Off |  | of Period
|                         |                                             |                                                                |  |            |        |             |  |          
|Year ended June 30, 2002 |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         | Deducted in the consolidated balance sheet: |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  |  |       
|                         |                                             | Trade accounts receivable, allowance for doubtful
    accounts |  |            | 383    |             |  |           | 364   |  |  |  | 273    |  |  |  | 474    | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         |                                             | Deferred tax valuation allowance                               |  |            | 24,592 |             |  |           | 8,374 |  |  |  | 0      |  |  |  | 32,966 | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|Year ended June 30, 2003 |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         | Deducted in the consolidated balance sheet: |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  |  |       
|                         |                                             | Trade accounts receivable, allowance for doubtful
    accounts |  |            | 474    |             |  |           | 78    |  |  |  | 227    |  |  |  | 325    | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         |                                             | Deferred tax valuation allowance                               |  |            | 32,966 |             |  |           | 0     |  |  |  | 3,739  |  |  |  | 29,227 | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|Year ended June 30, 2004 |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         | Deducted in the consolidated balance sheet: |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  |  |       
|                         |                                             | Trade accounts receivable, allowance for doubtful
    accounts |  |            | 325    |             |  |           | 416   |  |  |  | 504    |  |  |  | 237    | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 
|                         |                                             | Deferred tax valuation allowance                               |  |            | 29,227 |             |  |           | 0     |  |  |  | 27,301 |  |  |  | 1,926  | 
|                         |                                             |                                                                |  |            |        |             |  |           |       |  |  |  |        |  |  | 

71



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##### Table of Contents



SIGNATURE

Pursuant to the requirements 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,

September 8, 2004

| |                        
| | -----------------------
| | HARRIS INTERACTIVE INC.



| |    |                    
| | -- | -------------------
| | By | /s/ BRUCE A. NEWMAN

| |                                                     
| | ----------------------------------------------------
| |                                                     
| | Bruce A. Newman                                     
| | Chief Financial Officer, Secretary and
    Treasurer
| | (On Behalf of the Registrant and as                 
| | Principal Financial and Accounting Officer)         

72



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##### Table of Contents



POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints,
jointly and severally, Bruce A. Newman and Robert E. Knapp, and
each of them, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him, and in
his name, place and stead, in any and all capacities, to sign
any amendments to this Report on Form 10-K, and to file the
same, with Exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite or necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or
any of them, or their substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                           |  |                                                                                                    |  |                   |  | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                           |  |                                                                                                    |  |                  
|Name                                       |  | Capacity                                                                                           |  | Date             
|                                           |  |                                                                                                    |  |                  
|                                          
|/s/ ROBERT E. KNAPPRobert E. Knapp         |  | Vice Chairman and Chief Executive Officer
    (Principal Executive Officer) and Director           |  | September 8, 2004
|                                          
|/s/ BRUCE A. NEWMANBruce A. Newman         |  | Chief Financial Officer, Secretary, and Treasurer
    (Principal Financial and Accounting Officer) |  | September 8, 2004
|                                          
|/s/ LEONARD R. BAYERLeonard R. Bayer       |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ GEORGE BELLGeorge Bell                 |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ GORDON S. BLACKGordon S. Black         |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ DAVID BRODSKYDavid Brodsky             |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ STEPHEN D. HARLANStephen D. Harlan     |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ JAMES R. RIEDMANJames R. Riedman       |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ SUBRATA K. SENSubrata K. Sen           |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ HOWARD L. SHECTERHoward L. Shecter     |  | Director                                                                                           |  | September 8, 2004
|                                          
|/s/ ANTOINE G. TREUILLEAntoine G. Treuille |  | Director                                                                                           |  | September 8, 2004

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##### Table of Contents



EXHIBITS

|        |    |               |  |                                                                                                                                                                                                                                                                                                                         
|------- | -- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 2  | .1            |  | Agreement and Plan of Merger, dated
    August 5, 2001, among Harris Interactive Inc., Total Merger
    Sub Inc., and Total Research Corporation (Incorporated by
    reference to Harris Interactives Current Report on
    Form 8-K filed August 14, 2001, listed as
    Exhibit 99.1).                              
|        | 2  | .2            |  | Share Purchase Agreement dated March 2, 2004
    among Harris Interactive International, Inc. and the
    Shareholders of Novatris, S.A. (Filed as Exhibit 10.1 to
    the Companys Registration Statement on Form S-3 filed
    March 8, 2004 (Registration No. 333-113389) and
    incorporated herein by reference).
|        | 3  | .1            |  | Amended and Restated Certificate of Incorporation
    of the Company (filed as Exhibit 3.1 to Form 10-K filed
    September 27, 2000 and incorporated herein by reference).                                                                                                                                             
|        | 3  | .2            |  | By-laws of the Company (filed as Exhibit 3.2
    to Form 10-K filed August 31, 2001 and incorporated
    herein by reference).                                                                                                                                                                                          
|        | 10 | .1*           |  | 1999 Long Term Incentive Plan and form of
    agreements thereto of the Company (filed as Exhibit 10.1 to
    the Companys Registration Statement on Form S-1 filed
    September 17, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                     
|        | 10 | .2*           |  | 1999 Employee Stock Purchase Plan and form of
    agreements thereto of the Company (filed as Exhibit 10.2 to
    the Companys Registration Statement on Form S-1 filed
    September 17, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                 
|        | 10 | .3.1*         |  | Confidentiality and Non-Competition Agreement
    dated September 1, 1999 between the Company and
    David H. Clemm (filed as Exhibit 10.5.2 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).              
|        | 10 | .3.2*         |  | Consulting Agreement between the Company and
    James R. Riedman dated April 25, 2001 (filed as
    Exhibit 10.21 to Form 10-K filed August 31, 2002
    and incorporated herein by reference).                                                                                                                        
|        | 10 | .3.3*         |  | Employment Agreement by and between the Company
    and Albert A. Angrisani, dated as of August 5, 2001
    (filed as Exhibit 10.23 to Form S-4 filed
    September 6, 2001 (Registration No. 333-69056) and
    incorporated herein by reference).                                                                     
|        | 10 | .3.4*         |  | Letter Agreement of Albert A. Angrisani,
    dated as of August 5, 2001 (filed as Exhibit 10.24 to
    Form S-4 filed September 6, 2001 (Registration
    No. 333-69056) and incorporated herein by reference).                                                                                                         
|        | 10 | .3.5*         |  | Separation Agreement by and between the Company
    and David H. Clemm, dated as of March 15, 2002 (filed
    as Exhibit 10.1 to Form 10-Q filed May 15, 2002
    and incorporated herein by reference).                                                                                                                
|        | 10 | .3.6*         |  | Change of Control Agreement by and between the
    Company and Bruce A. Newman, dated as of June 28, 2002
    (filed as Exhibit 10.25 to Form 10-K filed
    September 30, 2002 and incorporated herein by reference).                                                                                                  
|        | 10 | .3.7*         |  | Amendment No. 1 to the Employment Agreement
    by and between the Company and Albert A. Angrisani, dated
    as of June 28, 2002 (filed as Exhibit 10.26 to Form
    10-K filed September 30, 2002 and incorporated herein by
    reference).                                                                          
|        | 10 | .3.8*         |  | Amendment No. 1 to the Letter Agreement of
    Albert A. Angrisani, dated as of June 28, 2002 (filed
    as Exhibit 10.27 to Form 10-K filed September 30, 2002
    and incorporated herein by reference).                                                                                                              
|        | 10 | .3.9*         |  | Employment Agreement by and between the Company
    and George Terhanian, dated September 26, 2002 (filed as
    Exhibit 10.32 to Form 10-K filed September 26,
    2003 and incorporated herein by reference).                                                                                                         
|        | 10 | .3.10*        |  | Employment Agreement between the Company and
    Gordon S. Black, dated as of December 16, 2002 (filed
    as Exhibit 10.1 to Form 10-Q filed on
    February 10, 2003 (erroneously referenced therein as
    Confidentiality and Non-Competition Agreement and incorporated
    herein by reference)).                 
|        | 10 | .3.11*        |  | Form of Change in Control Agreement entered into
    by Company with each of the following individuals (filed as
    Exhibit 10.1 to Form 10-Q filed on May 14, 2003
    and incorporated herein by reference):                                                                                                         

|                 |  |                     
|---------------- |  | --------------------
|Dennis K. Bhame  |  | Arthur E. Coles     
|Gareth Davies    |  | James E. Fredrickson
|Ronald B. Knight |  | Peter J. Milla      
|Gregory T. Novak |  | George B. Terhanian 
|David B. Vaden   |  |                     



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##### Table of Contents



|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 10 | .3.12*        |  | Amendment to Employment Agreement by and between
    the Company and Gordon S. Black, dated July 1, 2003
    (filed as Exhibit 10.30 to Form 10-K filed
    September 26, 2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .3.13*        |  | Employment Agreement by and between the Company
    and Leonard R. Bayer, dated July 1, 2003 (filed as
    Exhibit 10.31 to Form 10-K filed September 26,
    2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .3.14*        |  | Letter Agreement of Albert A. Angrisani,
    effective as of July 1, 2003 (filed as Exhibit 10.33
    to Form 10-K filed September 26, 2003 and incorporated
    herein by reference).                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .3.15*        |  | Employment Agreement by and between Total
    Research Corporation and Theresa Flanagan, dated January 1,
    1999 (filed as Exhibit 10.34 to Form 10-K filed
    September 26, 2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                           
|        | 10 | .3.16*        |  | Employment Agreement between the Company and
    Gregory T. Novak, dated November 7, 2003 (filed as
    Exhibit 10.1 to Form 10-Q filed February 13, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .3.17*        |  | Employment Agreement between the Company and
    Robert E. Knapp, dated as of December 31, 2003 and
    effective as of January 26, 2004 (filed as
    Exhibit 10.1 to Form 8-K filed January 6, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                      
|        | 10 | .3.18*        |  | Employment Agreement between the Company and
    David Vaden, dated February 24, 2004 (filed as
    Exhibit 10.1 to Form 10-Q filed May 17, 2004 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .3.19*        |  | Form of Non-Qualified Stock Option Agreement
    between the Company and certain employees of Novatris, S.A.
    dated as of March 2, 2004 (filed as Exhibit 4.2 to the
    Company Registration Statement on Form S-8 filed
    March 8, 2004 (Registration No. 333-113392) and
    incorporated herein by reference).                                                                                                                                                                                                                               
|        | 10 | .3.20*        |  | Employment Agreement between the Company and
    Gregory T. Novak, dated May 14, 2004 (filed as
    Exhibit 10.2 to Form 10-Q filed on May 17, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .4            |  | Form of Option Agreement between the Company and
    certain of the Shareholders of Novatris, S.A. (filed as
    Exhibit 10.2 to the Company Registration Statement on
    Form S-3 filed March 8, 2004 (Registration
    No. 333-113389) and incorporated herein by reference).                                                                                                                                                                                                                                                                      
|        | 10 | .5.1          |  | Leases for 135, 155 & 60 Corporate
    Woods, Rochester, New York dated April 12, 1991 between
    Gordon S. Black Corporation and Corporate Woods Associates,
    together with all amendments thereto (filed as
    Exhibit 10.6.1 to the Companys Registration Statement
    on Form S-1 filed September 17, 1999 and incorporated
    herein by reference); amendments dated February 11, 2000,
    March 14, 2000 and October 1, 2000 (filed as
    Exhibit 10.6.1 to Form 10-K filed August 31, 2001
    and incorporated herein by reference).
|        | 10 | .5.2          |  | Lease for 70 Carlson Road, Rochester, New York
    dated July 1, 1998 between Gordon S. Black Corporation
    and Carlson Park Associates, together with all amendments
    thereto (filed as Exhibit 10.6.2 to the Companys
    Registration Statement on Form S-1 filed September 17,
    1999 (Registration No. 333-87311) and incorporated herein
    by reference).                                                                                                                                                                             
|        | 10 | .5.3          |  | Lease for 111 Fifth Avenue, New York, New York
    dated June 9, 1994 between Louis Harris and Associates,
    Inc. and B.J.W. Associates (filed as Exhibit 10.7 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                                                                                                                                                                                         
|        | 10 | .6.1          |  | Revolving Credit Facility between Gordon S.
    Black Corporation and Manufacturers and Traders Trust Company
    dated August 18, 1999 (filed as Exhibit 10.9 to the
    Companys Registration Statement on Form S-1/A filed
    October 26, 1999 (Registration No. 333-87311) and
    incorporated herein by reference).                                                                                                                                                                                                                           
|        | 10 | .6.2          |  | Amendment to Revolving Credit Facility between
    the Company and Manufacturers and Traders Trust Company dated
    March 2, 2004 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .7            |  | Amended and Restated Investment Agreement between
    Riedman Corporation and the Company dated October 15, 1991
    (filed as Exhibit 10.12 to the Companys Registration
    Statement on Form S-1/A filed October 26, 1999
    (Registration No. 333-87311) and incorporated herein by
    reference).                                                                                                                                                                                                                                             



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##### Table of Contents



|        |    |               |  |                                                                                                                                                                                                                                                                                         
|------- | -- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |              
|Number  |    | Exhibit Title
|        |    |              
|        | 10 | .8            |  | Registration Agreement between the Company and
    Riedman Corporation dated as of October 15, 1999 (filed as
    Exhibit 10.17 to the Companys Registration Statement
    on Form S-1/A filed October 26, 1999 (Registration
    No. 333-87311) and incorporated herein by reference).
|        | 21 |               |  | List of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                  
|        | 23 | .1            |  | Consent of Independent Registered Public
    Accounting Firm (filed herewith).                                                                                                                                                                                                          
|        | 24 |               |  | Power of Attorney (included on page 72 of
    this Report).                                                                                                                                                                                                                             
|        | 31 | .1            |  | Certificate of the Chief Executive Officer
    pursuant to 18 U.S.C. §1350 (Section 302 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 31 | .2            |  | Certificate of the Chief Financial Officer
    pursuant to 18 U.S.C. §1350 (Section 302 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 32 | .1            |  | Certificate of the Chief Executive Officer
    pursuant to 18 U.S.C. §1350 (Section 906 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        
|        | 32 | .2            |  | Certificate of the Chief Financial Officer
    pursuant to 18 U.S.C. §1350 (Section 906 of the
    Sarbanes-Oxley Act of 2002) (filed herewith).                                                                                                                                        



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|  |                                                                     
|- | --------------------------------------------------------------------
|* | Denotes management contract or compensatory plan
    or arrangement.