We are pleased to announce that Ingram Book Group and Lightning Source (LSI) are initiating a new program for the stocking and fulfillment of LSI books. This new stocking initiative embraces a true print-on-demand inventory model - sell the book, then print the book.

Since the inception of Lightning Source seven years ago, Ingram supported the development and growth of the print-on-demand industry by stocking copies of on-demand books. Initially, on-hand stock needed to be shown to avoid retailer-ordering issues. Because of the amount of time it took for a "traditional" backorder to process, sometimes weeks, retailers often would not place backorders for books when there wasn't sufficient stock on hand at the wholesaler. Many retailers have selected to block backordering in their ordering systems, even though on-demand books were being printed in a few days.

Ingram, until recently, worked around these problems by buying at least two copies of LSI books (often on a non-returnable basis). This practice helped overcome most retailer backordering issues and allowed Ingram to maintain regular service levels. However, the cost of this practice became prohibitive, as the library of LSI's titles grew to more than 150,000. At the same time, LSI's manufacturing capabilities advanced to the point that many books are now manufactured in less than 24 hours. Consequently, the timing is right to evolve to a business model that is more in line with the original vision for print-on-demand.

What is the new strategy?
While it will take several months to implement, the new strategy is designed to take full advantage of the promise of print on demand. With the rapid turn around available today from LSI, inventory can be manufactured and sent to Ingram for order consolidation and shipment on a next-day basis from Nashville. Books will be printed as they are ordered, and all LSI titles will display as active and available for ordering from Ingram and on iPage. Backordering of these titles will not be necessary. Ingram will continue to stock certain titles with a demonstrated sale history under their standard stocking policies. These titles will continue to be available for same-day delivery.

Addressing the backordering concern, the new program will also ease the ordering of multiple copies of books. Under the old minimum on-hand system, if enough copies were not shown, larger orders would require a backorder, once again creating a hurdle for those retailers with "no backorder" policies. The new system is designed to increase sales by filling every order, without delay, at the exact quantity desired by the retailer.

When is the new plan expected to be in place?
It is our intent to have the plan fully implemented by the end of the first quarter of 2005. In the meantime a transition strategy is being implemented immediately to stock on-demand books that have proven sales, and all new titles as they are added into the library.

What is happening in the meantime?
During the transition period, and to support inventory needs in the upcoming holiday season, LSI will fund the printing of at least one copy of all new books and any currently out of stock books with a recent sale history. These books will be placed in inventory at Ingram. Each time Ingram sells the books they will be reordered and this sale - reorder cycle will continue. LSI will credit the publisher the standard publisher compensation (wholesale price less the cost of printing) for each Ingram sale. This is an interim plan that will be in effect until all LSI books are fully integrated into the new inventory strategy in the first quarter 2005. All titles will continue to be available through Ingram and our other distribution partners.

During this time of transition, it is important to note that your titles will remain available and orderable at Ingram. Thank you for your patience during this time of transition as we work to keep your titles available. We will continue to keep you informed and post regular updates on our website.