##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)For the transition period
    from          to   Commission File Number:
    333-109381
  Haights Cross Communications,
    Inc.
 (Exact Name of Registrant as
    Specified in its Charter)
  Delaware

13-4087398(State or Other Jurisdiction
    of
    Incorporation)

(I.R.S. Employer
    Identification Number)10 New King Street,
    Suite 102
    White Plains, NY(Address of Principal
    Executive Offices)

10604(Zip
    Code)   Registrants telephone number, including area code:
 914) 289-9400
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  þ o
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE None




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##### 



TABLE OF
    CONTENTS
  
  Description



Page No.Part IItem 1.


Business


3Item 1A


Risk
    Factors


16Item 1B.


Unresolved Staff
    Comments


23Item 2.


Properties


23Item 3.


Legal
    Proceedings


24Item 4.


Submission of
    Matters to a Vote of Security Holders


24Part IIItem 5.


Market for
    Registrants Common Equity and Related Stockholder Matters
    And Issuer Purchases of Equity Securities


25Item 6.


Selected Financial
    Data


26Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


29Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


56Item 8.


Financial
    Statements and Supplementary Data


56Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


102Item 9A.


Controls and
    Procedures


102Item 9B.


Other
    Information


103Part IIIItem 10.


Directors and
    Executive Officers of the Registrant


103Item 11.


Executive
    Compensation


107Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


124Item 13.


Certain
    Relationships and Related Transactions


126Item 14.


Principal
    Accounting Fees and Services


126Part IVItem 15.


Exhibits, Financial
    Statements and Schedules


127Signatures


132Exhibit List


133EX-12.1: STATEMENT REGARDING
    COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1:
    SUBSIDIARIES OF HAIGHTS CROSS COMMUNICATIONS, INCEX-21.2:
    SUBSIDIARIES OF HAIGHTS CROSS OPERATING COMPANYEX-31.1:
    CERTIFICATIONEX-31.2:
    CERTIFICATIONEX-12.1: STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1: SUBSIDIARIES OF HAIGHTS CROSS COMMUNICATIONS, INC.EX-21.2: SUBSIDIARIES OF HAIGHTS CROSS OPERATING COMPANYEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATION   2




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##### Table of Contents



PART I  Item 1.
    Business  As used herein, unless otherwise indicated, the terms
    we, our, ours,
    us and our company refer, collectively,
    to Haights Cross Communications, Inc. and its consolidated
    subsidiaries, including our wholly owned subsidiary Haights
    Cross Operating Company and its consolidated subsidiaries,
    references to Haights Cross Communications refer to
    Haights Cross Communications, Inc. and references to
    Haights Cross refer to Haights Cross Operating
    Company.
  Company
    Overview
    
    K-12 Education  
    K-12 Supplemental Education:  We publish
    supplemental reading materials for the pre-kindergarten through
    eighth grade, or PreK-8, marketed under the well-known imprints
    Sundance Publishingand Newbridge Educational
    Publishing, and we also offer non-proprietary supplemental
    reading and literature products for the K-12 market. The results
    of operations of Chelsea House Publishers, which was
    divested in the third quarter 2005, have been eliminated from
    the K-12 Supplemental Education segment for all periods
    presented.
    Test-prep and Intervention:  We publish
    state-specific test preparation materials for K-12 competency
    tests under our well-recognized imprints and brands such as
    Triumph Learning, Coachand Buckle
    Down.  We also publish skills assessment products
    and intervention materials for struggling math and reading
    students under the widely known Options Publishingimprint.  
    Library:  We publish unabridged audiobooks for
    adults and children under the Recorded Booksimprint and
    market these titles, as well as selected non-proprietary
    unabridged audiobooks, primarily to public libraries and schools.
    Medical Education:  We publish continuing
    medical education products, or CME products, primarily in audio
    format, for doctors and other health care professionals under
    the Oakstone Publishingimprint. We also produce Medical
    Board Review courses under our CMEinfoimprint, in audio
    and video format. We also publish personal wellness information
    products for companies seeking to improve employee awareness of
    health and wellness issues under the Top Healthand
    Personal Bestbrands.     3




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##### Table of Contents



Form 10-K
  Business
    Segments
    K-12
    Supplemental Education
  Sundance Publishing Newbridge Educational
    Publishing.
  Sundance Publishing/ Newbridge Educational
    Publishing. Sundance Sundance Newbridge
 4




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##### Table of Contents



Sundance/Newbridge
  Product Line

Grades

DescriptionNewbridge Discovery
    Links  
     Science Social
    Studies Intermediate Plus

K-5th

Non-fiction, guided reading
    programs and teaching resources, containing photographs and
    supporting text designed to engage students.Sundance Alpha Kids

K-2nd

A large collection of guided
    readers of graduating difficulty to support small group
    instruction, with a subset of alphabet books.Newbridge Big Books 
    
     Early Science Early
    Math Early Social Studies Ranger Rick Science Spectacular Thinking Like a Scientist

K-6th

Shared reading program, teacher
    directs group reading with big books (16 x 20),
    students engage in
    follow-up
    reading in student versions (5 x 7) of the big books. Reading Quest

6th-8th

Leveled content-area reading for
    teaching social studies and science.Sundance Second Chance
    Readers

2nd-8th

High-interest literature titles
    designed to give reluctant readers the support and enjoyment
    they need to build basic reading, writing and speaking skills.Sundance Reading
    PowerWorks

1st-2nd

Standards-based, balanced
    literacy-theme units in science, social studies and math, with
    shared, guided and independent reading levels for students of
    differing abilities in the same classroom.Newbridge Fluency
    Practice

3rd -5th

Three kits with copies of
    standards-based, nonfiction passages that include a
    self-administered quiz.Sundance Comprehension Strategy
    Kits

3rd -5th

Three fiction and three nonfiction
    kits focused on comprehension reading strategies, with Modeling
    Transparencies, Interactive Practice Cards, Leveled Selections,
    Take-Home Readers, and assessment.Sundance/Newbridge Smart Word
    
    Vocabulary Cards

K-8th

More than 2,000 instructional
    vocabulary cards that support every leveled book in the
    Sundance/Newbridge leveled book room. Each card includes
    engaging activities and Tips for Spanish Speakers.   Sundance Sundance LEAP (Literature
    Enrichment Activities Program),
    Chapter-by-Chapter,
    LIFT (Literature is For Thinking) Novel Ideas.
  Sundance/Newbridge Sundance/Newbridge Sundance/ Newbridge
 5




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Test-prep
    and Intervention
  Triumph Learning Options Publishing Coach Buckle Down
  Triumph Learning/Buckle Down. Triumph Learning Buckle Down Triumph Learning
  Triumph Learning Buckle Down Triumph Learnings Coach 200-300 Buckle Down 150-225
  Triumph Learning Buckle Down
  Product Line

Grades

DescriptionCoach

K-12th

Approximately 1,050 state-specific
    test-prep workbooks covering 24 states; over 50 software
    titles covering 7 states; over 200 nationally standardized test
    preparation and complementary skills books books; collections of
    state-specific practice tests.Buckle Down

3rd-12th

Approximately 400 state-specific
    test-prep workbooks covering 19 states; 40 nationally
    standardized test preparation books; collections of
    state-specific practice tests.   Triumph Learning Buckle Down Coach Buckle Down
  Options Publishing. Options
    Publishing Options Publishing
 6




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Options Publishing
  Product Line

Grades

DescriptionComprehensive Reading
    Assessment
    Comprehensive Math Assessment
    Comprehensive Science Assessment
    Comprehensive Social Studies Assessment

K-8th

Comprehensive assessment of
    students skills in the specific subject, extensive
    exercises and lessons to improve performance in one book.Best Practices in
    Reading

1st-8th

Each book uses research-based
    strategies, modeling in early lessons, and skills development to
    help students learn to become independent readers and thinkers.Intervention
    Packages  Math or Reading

K-8th

Programs for after school, summer
    school and special programs, ability to diagnose students
    current functioning levels, instruction for critical skills and
    strategies, and extensive additional practice.   Options Publishing Options Publishing Options Publishing Options Publishing Options
  Library
  Recorded Books Recorded Books
  Recorded Books.  Recorded Books Recorded Books Recorded Books Recorded Books Recorded Books Recorded
    Books
  Recorded Books Recorded Books Recorded Books
  Recorded Books The
 7




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Modern Scholar Pimsleur Language Recorded Books Recorded Books Audio Adventures Landmark
  Recorded Books Recorded Books
  Medical
    Education
  Oakstone Medical Oakstone Wellness CMEinfo Oakstone Medical Scott Publishing. Oakstone Wellness Oakstone Medical Oakstone
    Wellness
  Oakstone Medical Publishing.  Oakstone Medical Practical Reviews 30-year Oakstone Medical Oakstone
    Medical Practical Reviews Practical Reviews Practical Reviews Practical Reviews Practical Reviews Neurology Practical
    Reviews Practical Reviews Oakstone Medical
  Oakstone Medical
  Oakstone Medical CMEinfo CMEinfo CMEinfo
 8




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##### Table of Contents



Practical Reviews CMEinfo , Oakstone Medical
  Oakstone Wellness Publishing.  Oakstone Wellness Top Health Oakstone Wellness Personal Best
  Oakstone Medical 30-year
  Seasonality
    Customers
    K-12 Supplemental Education. Sundance Newbridge
  Test-prep and Intervention.  Triumph Learning,
    Buckle Down Options Publishing
  Library.  Recorded Books Recorded Books
  Medical Education.  Oakstone Medical Publishing and/or
  Product
    and Content Development
   9




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##### Table of Contents



Identification of New Product Lines.
  Development of New Titles. work-for-hire Recorded Books Oakstone
    Medical Oakstone Wellness
    K-12
    Supplemental Education
  Sundance/Newbridge
  Sundance/Newbridge Sundance/
    Newbridge
  Sundance/Newbridge Sundance/Newbridge
 10




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##### Table of Contents



Sundance/Newbridge
  Sundance/Newbridge
  Test-Prep
    and Intervention
  Triumph Learning Triumph Learning Triumph
    Learning up-to-date Triumph Learning Triumph Learning
  Triumph Learning Triumph Learning Triumph Learning Triumph
    Learning
  Buckle
    Down Buckle Down
  Options Publishing Options Publishing Options Publishing
  Library
  Recorded Books Recorded Books
 11




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##### Table of Contents



Recorded Books Recorded Books Recorded Books Recorded Books
  Recorded Books Recorded Books
  Recorded Books word-for-word
  Medical
    Education
  Oakstone Medical Oakstone Medical Oakstone Medical Oakstone Oakstone Medical Oakstone Medical Practical Reviews Oakstone Medical
  Oakstone Wellness Oakstone Top
    Health, Personal Best Best of Health
 12




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##### Table of Contents



Sales and
    Marketing
      
    Build and Leverage a Knowledgeable and Committed Sales
    Force.  We believe our sales personnel are deeply
    knowledgeable about and committed to the professional
    disciplines they serve. We emphasize the recruitment of
    full-time inside sales representatives, particularly experienced
    education professionals and senior sales representatives and
    sales managers with a record of accomplishment and established
    networks of customers. Our focus on full-time inside sales
    representatives, rather than the use of independent sales agents
    who represent multiple publishers, gives us a dedicated sales
    force with deeper customer relationships and more focused sales
    responsibilities than those of many of our competitors. These
    factors have allowed us to achieve greater market penetration
    with our highly recognizable brands and products.
    Capitalize on our Extensive Expertise in Direct
    Marketing.  We make extensive use of catalog
    mailings, product samplings, continuous order plans and various
    other forms of direct mail campaigns. We have built and maintain
    electronic databases of current, former and prospective
    customers in each of our segments. We carefully track customer
    purchasing history, contact data, feedback and current
    purchasing information. We use these databases to support our
    direct and indirect sales campaigns and regard this data as
    highly valuable and proprietary. We are deeply committed to
    building our direct marketing capabilities which will help us in
    targeting current and new customers with new product and content
    offerings.
    Focus on Targeted, Consultative Solutions to Differentiate Us
    from Competition.  We work with our customer base
    to provide targeted, customized solutions to their special
    classroom material needs, which can lead to sales to a given
    customer in excess of $1 million. This consultative sales
    process also provides valuable input to our product development
    effort, while providing one-stop-shopping for our
    customers.      K-12
    Supplemental Education
  Sundance/Newbridge Sundance/Newbridge
  Sundance/Newbridge Sundance Newbridge
 13




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##### Table of Contents



Test-prep
    and Intervention
  Triumph Learning Triumph Learning Triumph Learning Triumph Learning Triumph Learning Triumph Learning
  Buckle Down Buckle Down Triumph Learning, Buckle
    Down Options Publishing
  Options Publishing Options Publishing Options Publishing Options Publishing
  Library
  Recorded Books Recorded Books Recorded Books
  Recorded Books Recorded Books
  Recorded Books Recorded Books Recorded Books
  Medical
    Education
  Oakstone Medical up-to-date
 14




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##### Table of Contents



Oakstone Medical e-mail e-mail Oakstone
    Wellness Oakstone Wellness
  Competition
    K-12 Supplemental Education.  Sundance/Newbridge
  Test-prep and Intervention.  Triumph Learning Buckle Down Triumph Learning Buckle Down Options Publishing
  Library.  Recorded Books Recorded Books Recorded Books
  Medical Education.  Oakstone Medical Practical
    Reviews Oakstone
    Wellness
  Seasonality
    and Quarterly Results of Operations
   15




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Production
    and Fulfillment
        Intellectual
    Property
      Environmental
    Regulation
    Employees
    Item 1A.
    Risk
    Factors.  Set forth below are some of the risks and uncertainties that,
    if they were to occur, could materially and adversely affect our
    business, or that could cause our actual results to differ
    materially from the results contemplated by the forward-looking
    statements contained in this Annual Report on
    Form 10-K
    and the other public statements we make.
 16




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##### Table of Contents



Risks
    Related to Our Business
  Our
    substantial leverage and indebtedness may adversely affect our
    ability to operate our business and place us at a competitive
    disadvantage in our industry.
        
    we are required to use a substantial portion of our cash flow
    from operations to pay interest on our debt, thereby reducing
    the availability of our cash flow to fund working capital,
    capital expenditures, product development efforts, strategic
    acquisitions, investments and alliances and other general
    corporate requirements;
    our debt service requirements increase our vulnerability to
    economic downturns and adverse competitive and industry
    conditions and could place us at a competitive disadvantage
    compared to those of our competitors that have less debt;
    our debt service obligations could limit our flexibility in
    planning for, or reacting to, changes in our business and our
    industry and could limit our ability to pursue other business
    opportunities, borrow more money for operations or capital
    expenditures in the future and implement our business strategies;
    our level of debt may restrict us from raising additional
    financing on satisfactory terms to fund working capital, capital
    expenditures, product development efforts, strategic
    acquisitions, investments and alliances and other general
    corporate requirements; and
    our substantial leverage may make it more difficult for us to
    satisfy our debt service obligations.  We
    have a history of losses, which we expect to continue, and we
    might not ever achieve or maintain profitability.
    A
    decrease in funding of schools and libraries by federal, state
    and local governments could reduce our sales and
    profits.
    We may
    be unable to compete successfully in our highly competitive
    industry.
   17




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Misuse,
    misappropriation or other loss of our proprietary rights could
    have a material adverse effect on our results of
    operations.
      We may
    have to defend against intellectual property infringement claims
    and other claims which may cause us to incur significant costs
    and may divert management attention.
     18




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Our
    management has broad discretion over the application of cash and
    cash equivalents on hand, and investors will not have the
    opportunity to evaluate information concerning the application
    of such amounts.
    We are
    dependent upon our key personnel.
    Growth
    of multimedia products may compete with and reduce our
    publishing activities.
    Technological
    changes may reduce our sale of products.
    Our
    business may be adversely affected by an increase in paper or
    postage costs.
    We may
    be unable to successfully complete acquisitions and our
    acquisitions may divert management attention from operating our
    business.
   19




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Our
    principal stockholders own a large percentage of our common
    stock and will be able to influence or control substantially all
    corporate decisions.
      Changes
    in Media/Communications Partners III Limited
    Partnerships beneficial ownership interest in us could
    result in an event of default under our debt
    agreements.
    Restrictive
    covenants in our debt instruments may adversely affect our
    operations.
    
    incur additional debt;
    pay dividends and make other distributions;
    make investments and other restricted payments;
    enter into sale and leaseback transactions;
    incur liens;
    engage in mergers, acquisitions and asset sales;
    enter into transactions with affiliates;
    make capital expenditures; 20




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##### Table of Contents




    amend or otherwise alter debt and other material
    agreements; and
    alter the business we conduct.    Our
    success depends in large part on our ability to update and
    expand the content of existing products and develop new products
    in a cost-effective manner and on a timely basis.
    If the
    federal NCLB is materially changed, repealed, or found
    unconstitutional, our revenue and profitability could be
    adversely affected.
    If
    there is a substantial reduction in the emphasis placed by
    federal and state governments on assessment and remediation in
    K-12 education, our business may be adversely
    affected.
    We are
    dependent on a limited number of suppliers and service
    providers, and any interruption of supply or services from these
    vendors could have a material adverse effect on our
    operations.
   21




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Disruption
    in our distribution centers could significantly lower our
    revenues and profitability.
    We are
    dependent upon a central computer system and if we experience
    damage, service interruptions or failures in this system, or if
    our security measures are breached, our customer relationships
    and our ability to attract new customers may be adversely
    affected.
    We
    have incurred and will continue to incur increased costs as a
    result of our efforts to comply with the requirements of the
    Sarbanes-Oxley Act.
  Options Publishing. Form 10-K
  Future
    transactions may limit our ability to use our net operating loss
    carryforwards.
   22




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Leased Locations As of December 31, 2006

Use

Sq. Ft.


Expiration Date136 Madison Avenue, New York,
    NY(2)(7)

Office


1,626


January 31,2007302 N Washington Ave, Moorestown,
    NJ(3)(8)

Office


250


February 28,2007200 Skipjack Road, Prince
    Frederick, MD(1)

Warehouse


23,000


November 30, 2007500 Corporate Parkway, Birmingham,
    AL(3)

Office


30,248


November 30, 200711-13 E. 26th Street,
    New York, NY(2)

Office


5,500


December 31, 20078310 Capital of Tx Hy, Austin,
    TX(2)

Office


2,910


April, 30, 2008One Beeman Road, Northborough,
    MA(5)

Warehouse/Office


150,000


July 31, 20092308 Heinz Road, Iowa City, IA(2)

Warehouse/Office


45,000


September 30, 2009140 Bugeye Square, Prince
    Frederick, MD(1)

Warehouse


19,400


November 6, 2009136 Madison Avenue, New York, NY(2)

Office


16,500


March 30, 2010826-828
    Broadway, New York, NY(1)

Recording Studios


11,500


August 31, 2010Units 4 Rearsby Business Park,
    Rearsby, UK(1)

Warehouse/Office


20,000


December 31, 20102080 Cabot Blvd. West, Langhorne,
    PA(6)

Office


9,955


March 31, 20113927 Second Ave., Birmingham, AL(3)

Warehouse


5,000


Month-to-Month     (1)
    
    This property is used by our Library segment.(2)
    
    This property is used by our Test-prep and Intervention segment.
    On April 1, 2006, 30,000 square feet, the entirety of the Iowa
    warehouse was vacated, and is being held for sub-lease.(3)
    
    This property is used by our Medical Education segment.(4)
    
    This property is used by our K-12 Supplemental Education segment.(5)
    
    This property is used by our K-12 Supplemental Education and
    Test-prep and Intervention segments.(6)
    
    This property was previously occupied by our Chelsea Housebusiness, and is being held for
    sub-lease.(7)
    
    This property was vacated after the lease expired.(8)
    
    This lease was renewed after the expiration date.   23




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Item 3.
    Legal
    Proceedings.         Item 4.
    Submission
    of Matters to a Vote of Security Holders.   24




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchasers of Equity Securities.    Holders
    Dividends
    Securities
    Authorized for Issuance under Equity Compensation
    Plans
   25




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##### Table of Contents



Item 6.
    Selected
    Financial Data.  Form 10-K. Form 10-K.
  Year Ended December 31,2002


2003


2004


2005


2006(Restated)(1)


(Restated)(1)


(Restated)(1)


(Restated)(1)(Dollars in thousands)Consolidated Statements of
    OperationsData:Revenue:K-12 Supplemental Education

$
42,656


$
44,763


$
48,450


$
43,096


$
34,296Test-prep and Intervention


21,682



25,171



34,421



64,501



73,909Library


65,451



61,137



68,878



76,626



81,328Medical Education


18,297



18,188



19,144



26,262



32,471Total revenue


148,086



149,259



170,893



210,485



222,004Cost of goods sold


46,424



45,925



52,998



60,864



62,429Selling, general and
    administrative expense(2)


59,826



61,751



74,300



94,527



105,709Amortization and write-off of
    pre-publication costs(3)


5,311



6,835



9,106



13,150



20,619Goodwill impairment charges(4)


















34,812Depreciation and amortization


1,945



2,099



2,954



5,038



5,499Income (loss) from operations


34,580



32,649



31,535



36,906



(7,064
)Interest expense and other(5)(7)


(19,298
)


(34,226
)


(50,281
)


(61,215
)


(66,256
)Income (loss) before taxes,
    discontinued operations and cumulative effect of accounting
    change


15,282



(1,577
)


(18,746
)


(24,309
)


(73,320
)Benefit (provision) for income
    tax(6)


(3,499
)


(3,510
)


(3,880
)


(4,952
)


1,601(Loss) income before discontinued
    operations and cumulative effect of accounting change


11,783



(5,087
)


(22,626
)


(29,261
)


(71,719
)(Loss) income from discontinued
    operations


5,576



(289
)


(3,788
)


(4,976
)


(1,136
)Cumulative effect of accounting
    change(4)(8)


(48,610
)










2,213



Net loss

$
(31,251
)

$
(5,376
)

$
(26,414
)

$
(32,024
)

$
(72,855
)   26




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##### Table of Contents



Year Ended December 31,2002


2003


2004


2005


2006(Restated)(1)


(Restated)(1)


(Restated)(1)


(Restated)(1)(Dollars in thousands)Other Financial Data:EBITDA(9)

$
41,836


$
41,583


$
43,595


$
55,094


$
53,866Additions to pre-publication
    costs(3)


8,806



10,833



12,163



21,877



22,852Additions to property and equipment


1,787



2,815



3,248



3,831



2,759Interest expense(5), (7)


17,993



19,928



48,194



59,328



65,787Net cash provided by (used in):Operating activities


41,075



30,026



21,233



24,491



25,930Investing activities


(10,594
)


(6,079
)


(93,306
)


(29,483
)


(24,234
)Financing activities


(23,214
)


6,798



116,569



(1,802
)


(1,393
)Ratio of earnings to fixed
    charges(10)


1.4















   As of December 31,2002


2003


2004


2005


2006(Restated)(1)


(Restated)(1)


(Restated)(1)


(Restated)(1)(Dollars in thousands)Consolidated Balance Sheet
    Data:Cash and cash equivalents

$
2,701


$
32,389


$
78,581


$
69,592


$
69,847Working capital


16,630



49,588



94,647



76,483



72,841Total assets


231,236



265,522



399,703



401,319



362,686Total debt(7)


200,596



239,750



492,848



520,743



552,769Redeemable preferred stock(7)


126,191



143,663



36,882



37,717



41,051Total stockholders deficit


(139,468
)


(163,897
)


(192,819
)


(228,121
)


(303,918
)    (1)
    
    We have restated our selected historical consolidated financial
    results set forth in this table related to deferred tax
    valuation allowance and to reflect our outstanding warrants to
    purchase our Series A preferred stock (Preferred
    Warrants) that should have been recorded as a liability
    and marked to market, as more fully described in Note 2,
    Summary of Significant Accounting Policies in the
    accompanying financial statements included elsewhere in this
    Annual Report on Form
    10-K.(2)
    
    Selling, general and administrative expense is a summary of the
    following captions from our consolidated statement of
    operations: marketing and sales, fulfillment and distribution,
    general and administrative, and restructuring. For the year
    ended December 31, 2002, our selling, general and
    administrative expense includes non-recurring restructuring and
    restructuring related charges of $(0.1) million related to
    severance accruals and warehouse and information technology
    expenses. For the year ended December 31, 2003, our
    selling, general and administrative expense includes
    restructuring and restructuring related charges of
    $2.0 million, relating to the consolidation of the
    warehousing, customer service and order fulfillment functions of
    our Sundance/Newbridgeand Triumph Learningbusinesses. For the years ended December 31, 2004 and
    2005, our selling, general and administrative expense includes
    restructuring and restructuring related charges of
    $0.4 million and $0.4 million, respectively, relating
    to IT system implementation costs at our Recorded Booksand Triumph Learningbusinesses. For the year ended
    December 31, 2006 our selling, general and administrative
    expense includes restructuring and restructuring related charges
    of $0.8 million, relating to the consolidation of the
    Iowa-based warehousing, customer service and order fulfillment
    functions of our Buckle Down Publishingbusiness with our
    existing shared service facility in Northborough, Massachusetts,
    the closing of our New York City editorial office of our
    Sundance/Newbridgebusiness and IT system implementation
    costs at our Recorded Booksbusiness.(3)
    
    We capitalize and amortize the pre-publication costs associated
    with the development of our new products. These costs primarily
    include author fees under
    work-for-hire
    agreements (excluding royalties), the costs associated with
    artwork, photography and master tapes, other external creative
    costs, internal editorial staff costs and pre-press costs 27




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##### Table of Contents



that are directly attributable to the product. Also included is
    the intangible value assigned to the backlist of acquired
    companies. These capitalized pre-publication and intangible
    costs are amortized over the anticipated life of the product,
    for a period not exceeding five years. For the year ended
    December 31, 2006 our amortization and write- off of
    pre-publication expense includes a pre-publication asset
    impairment charge of $3.0 million in our K-12 Supplemental
    Education segment which consists of our Sundance/Newbridgebusiness.(4)
    
    On January 1, 2002 we adopted SFAS No. 142,
    Goodwill and Other Intangible Assets. We performed
    the initial impairment test as of January 1, 2002 and
    recorded a goodwill write-down of $48.6 million, which is
    presented in our consolidated statements of operations as a
    cumulative effect of accounting change. We performed subsequent
    impairment tests in each year succeeding the year of adoption
    and for the year ended December 31, 2006 financial results
    include a $34.8 million goodwill impairment charge related
    to our Sundance/Newbridge and Options Publishingbusinesses. ( See Note 8, Goodwill, of our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.)(5)
    
    For the year ended December 31, 2003, our interest expense
    and other expense includes a redemption premium of
    $9.2 million incurred in connection with our redemption of
    subordinated debt with proceeds from our August 20, 2003
    refinancing.(6)
    
    For the years ended December 31, 2002, 2003, 2004 and 2005
    the provision for income taxes was restated for deferred income
    tax expense, the related deferred taxes payable and the
    valuation allowance. ( See Deferred Income Tax
    Restatement in Note 2 of our consolidated financial
    statements included elsewhere in this Annual Report on
    Form 10-K.)(7)
    
    On January 1, 2004 we adopted Statement of Financial
    Accounting Standards No. 150, Accounting for Certain
    Financial Instruments with Characteristics of both Liabilities
    and Equity (SFAS No. 150).
    SFAS No. 150 establishes standards for classifying and
    measuring as liabilities certain financial instruments that
    embody obligations of the issuer and have characteristics of
    both liabilities and equity. This adoption required that our
    Preferred B be classified as debt on our consolidated balance
    sheet and that the dividends and accretion related to the
    Preferred B be classified as interest expense on a going forward
    basis. (See Note 13, Equity and Redeemable Preferred
    Stock, of our consolidated financial statements included
    elsewhere in this Annual Report on
    Form 10-K.)(8)
    
    The financial statements for the year ended December 31,
    2005 were restated to reflect our outstanding Warrants as
    liabilities in accordance with FASB Staff Position
    FAS 150-5:
    Issuers Accounting under FASB Statement No. 150 for
    Freestanding Warrants and Other Similar Instruments on
    Shares That Are Redeemable. As a result of recording these
    Preferred Warrants as liabilities which should be marked to fair
    market value, the Company recorded a gain of $2.2 million,
    which is presented as a cumulative effect of accounting change
    for the year ended December 31, 2005.(9)
    
    We define EBITDA as net income (net loss) before
    interest, taxes, depreciation, amortization, discontinued
    operations and cumulative effect of a change in accounting for
    goodwill. We present EBITDA because we believe that EBITDA
    provides useful information regarding our operating results. We
    rely on EBITDA as a primary measure to review and assess the
    operational performance of our company and our management team
    in connection with executive compensation and bonus plans. We
    also use EBITDA to compare our current operating results with
    corresponding historical periods and with the operating
    performance of other publishing companies and for evaluating
    acquisition targets. We believe such information is useful to
    investors to provide disclosures of our operating results on the
    same basis as that used by our management. We also believe it
    can assist investors in comparing our performance to that of
    other publishing companies on a consistent basis without regard
    to depreciation, amortization, interest, taxes, and cumulative
    effects of accounting changes and discontinued operations that
    do not directly affect our operations.EBITDA has limitations as an analytical tool, and you should not
    consider it in isolation, or as a substitute for net income (net
    loss), cash flows from operating activities and other
    consolidated income or cash flow statement data prepared in
    accordance with accounting principles generally accepted in the
    United States. Such limitations include:  
    EBITDA does not reflect our cash expenditures or future
    requirements for capital expenditures or capitalized
    pre-publication costs;
    EBITDA does not reflect changes in, or cash requirements for,
    our working capital needs; 28




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##### Table of Contents




    EBITDA does not reflect the significant interest expense, or the
    cash requirements necessary to service interest or principal
    payments on our debt;
    Although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be
    replaced in the future, and EBITDA does not reflect any cash
    requirements for such replacements; and
    Other companies in our industry may calculate EBITDA differently
    than we do, thereby limiting its usefulness as a comparative
    measure.  Because of these limitations, EBITDA should not be considered a
    measure of discretionary cash available to us to invest in the
    growth of our business or as a measure of performance in
    compliance with GAAP. We compensate for these limitations by
    relying primarily on our GAAP results and using EBITDA on a
    supplementary basis. See our consolidated statements of
    operations and our consolidated statement of cash flows included
    in our financial statements included elsewhere in this Annual
    Report on
    Form 10-K.
    The following table reconciles our net loss to EBITDA for the
    periods presented:  Year Ended December 31,2002


2003


2004


2005


2006(Restated)(1)


(Restated)(1)


(Restated)(1)


(Restated)(1)(Dollars in thousands)Reconciliation of net loss to
    EBITDA:Net loss

$
(31,251
)

$
(5,376
)

$
(26,414
)

$
(32,024
)

$
(72,855
)Cumulative effect of accounting
    change


48,610











(2,213
)


Net loss (income) from
    discontinued operations


(5,576
)


289



3,788



4,976



1,136Interest expense and other,
    including income taxes


22,797



37,736



54,161



66,167



64,655Income from operations


34,580



32,649



31,535



36,906



(7,064
)Amortization of pre-publication
    costs


5,311



6,835



9,106



13,150



20,619Goodwill impairment charges


















34,812Depreciation and amortization of
    intangibles


1,945



2,099



2,954



5,038



5,499EBITDA

$
41,836


$
41,583


$
43,595


$
55,094


$
53,866   (10)
    
    The ratio of earnings to fixed charges is an
    analytical tool used to assist investors in evaluating a
    companys ability to meet the interest requirements of debt
    securities or the dividend requirements of preferred stock.
    Earnings for the purpose of this calculation are defined as
    pretax income before the effects of discontinued operations,
    extraordinary items and the cumulative effect of accounting
    change. Fixed charges are defined as the sum of interest
    expense, amortization of deferred financing costs, and the
    interest portion of rental expense. For the year ended
    December 31, 2003, interest expense includes
    $3.2 million of charges for the write-off of deferred
    financing costs associated with our August 20, 2003
    financing and a redemption premium of $9.2 million incurred
    in connection with our redemption of subordinated debt with
    proceeds from our August 20, 2003 refinancing. For the
    years ended December 31, 2003, 2004, 2005 and 2006 earnings
    were inadequate to cover fixed charges by $1.6 million,
    $18.8 million, $24.3 million and $73.3 million,
    respectively.   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  Safe
    Harbor Statement under Private Securities Litigation
    Reform Act of 1995
  Form 10-K Form 10-K
 29




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Form 10-K,
  Form 10-K Form 10-K,
  and/or
 30




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##### Table of Contents



Form 10-K
  Recent
    Developments
  Delay
    in Filing Periodic Reports
    Form 12b-25 Form 10-K Form 8-K Form 10-K
  Effect of late filing on our financial reporting
    covenants. Form 10-K Form 10-Q. Form 10-K, Form 10-Q
  and/or and/or
    
    We received a default notice from the agent under the Facility
    on May 14, 2007, which stated that we were in default of
    the annual financial information delivery covenant for our
    failure to timely furnish to the agent under the Facility our
    annual financial information for our fiscal year ended
    December 31, 2006. We received a second default notice from
    the agent under the Facility on June 12, 2007, which stated
    that an Event of Default would not be deemed to occur as a
    result of failing to timely furnish the annual financial 31




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##### Table of Contents



information for our fiscal year ended December 31, 2006 if
    we furnished such information to the agent by July 12,
    2007. On July 12, 2007, we received a third notice from the
    agent under the Facility extending the cure period to
    July 26, 2007.  
    We received default notices from the trustee under the
    indentures on May 29, 2007, which stated that an Event of
    Default would not be deemed to occur as a result of failing to
    timely file with the SEC our annual financial information for
    the fiscal year ended December 31, 2006 included in this
    Annual Report on
    Form 10-K
    if we filed this report within 60 days of the date of
    notice.
    We received a default notice from the agent under the agreements
    for our Senior Secured Term Loans on June 19, 2007, which
    stated that an Event of Default would not be deemed to occur as
    a result of failing to timely file with the SEC our annual
    financial information for the fiscal year ended
    December 31, 2006 included in this Annual Report on
    Form 10-K
    and our quarterly financial information for our fiscal quarter
    ended March 31, 2007 (to be included in our Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2007) if we filed such
    reports within 60 days of the date of notice.  Form 10-K and/or and/or and/or and/or
  Form 10-K Form 10-Q
  Investigation of disagreements with
    Mr. Davis.
    
    The employment agreements were not misleading and did not have
    secret terms, and no director that voted upon the agreements was
    deprived of relevant information that would have affected his
    vote. Accordingly, the allegation of fraud was not
    supported.
    Messrs. Gaffney and Gormley obtained no personal benefit
    and avoided no personal detriment in connection with the
    employment agreements apart from the benefit conferred on the
    company. The benefit and detriment of those agreements, namely,
    the retention of Quandt and Crecca as employees of the company,
    was shared equally by all of the companys shareholders. As
    a result, Gaffney and Gormley were not interested in
    the transaction under Delaware law, such that their involvement
    in negotiating the agreements was a conflict of interest, and
    the business judgment rule thus protects their vote
    in favor of the agreements.
    The engagement of the compensation consultant by the company was
    the functional equivalent of engagement by the Board
    of Directors, insofar as Messrs. Gaffney and Gormley, who
    constituted two of the three directors (Mr. Davis being the
    third) who would have made the decision to engage the
    consultant, knew of, and approved, the engagement.
    The compensation consultant provided several legitimate bases to
    support her report. 32




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##### Table of Contents



Form 10-K.
  Recapitalization
        
    Our stockholders, including Mr. Quandt, would enter into a
    Shareholders Agreement providing for, among other things, a new
    six-member Board of Directors to be composed of Mr. Quandt
    and five persons designated by various former Preferred B
    and Preferred A holders; and
    We would enter into a release agreement with the applicable
    Preferred B holders, pursuant to which, among other things, such
    holders would dismiss the pending legal action described above
    under Item 3  Legal Proceedings.    Overview
    
    K-12 Education:  
    K-12 Supplemental Education:  We publish
    supplemental reading materials for the pre-kindergarten through
    eighth grade, or PreK-8, market under the well-recognized
    imprints Sundance Publishingand Newbridge Educational
    Publishing, and we also offer non-proprietary supplemental
    reading and 33




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##### Table of Contents



literature products for the K-12 market. During 2005, we sold
    the assets of our Chelsea House imprint which had
    previously been included within the K-12 Supplemental Education
    segment, and these results have been reclassified as a
    discontinued operation for all periods presented.  
    Test-prep and Intervention:  We publish
    state-specific test preparation materials for K-12 competency
    tests under our well-recognized imprints and brands such as
    Triumph Learning, Coachand Buckle
    Down.  We also offer skills assessment products
    and intervention materials for struggling math and reading
    students under the widely known Options Publishingimprint.  
    Library:  We publish unabridged audiobooks and
    other products for adults and children, under the Recorded
    Booksbrand, and market these titles, as well as selected
    non-proprietary audiobooks and other products, primarily to
    public libraries and schools.
    Medical Education:  We publish audio-based
    continuing medical education, or CME, materials for doctors and
    other health care professionals under the Oakstone Publishingimprint and self-study CME courses under our CMEinfo
    imprint. We also publish personal wellness information products
    for companies seeking to improve employee awareness of health
    and wellness issues under the Top Healthand Personal
    Bestbrands.  Business
    Segments
    K-12 Supplemental Education. Sundance Newbridge
  Test-prep and Intervention. Triumph
    Learning Buckle Down Publishing Options
    Publishing
  Library. Recorded Books
  Medical Education. Oakstone Publishing
  Restatements
    Critical
    Accounting Policies
   34




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##### Table of Contents



Revenue
    and Expense Recognition
      Pre-Publication
    Costs
  work-for-hire
  Goodwill
    and Other Intangible Assets
     35




---



##### Table of Contents



Direct
    Response Advertising Costs
  product-by-product 12-18 months. Oakstone Publishing
    Inventory
    and Related Obsolescence
  first-in,
  Stock-Based
    Compensation
     36




---



##### Table of Contents



Income
    Taxes
    Redeemable
    Capital Stock
  FSP No. 150-5: No. 150-5),
 37




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2006


2005


2004(Restated)(1)


(Restated)(1)(Dollar amounts in thousands)RevenueK-12 Supplemental Education(2)

$
34,296



15.4
%

$
43,096



20.5
%

$
48,450



28.4
%Test-Prep and Intervention(3)


73,909



33.3
%


64,501



30.6
%


34,421



20.1
%Library


81,328



36.6
%


76,626



36.4
%


68,878



40.3
%Medical Education(4)


32,471



14.7
%


26,262



12.5
%


19,144



11.2
%Total revenue


222,004



100.0
%


210,485



100.0
%


170,893



100.0
%Cost of goods sold


62,429



28.1
%


60,864



28.9
%


52,998



31.0
%Selling, general and
    administrative expense:Marketing and sales


58,556



26.4
%


52,491



24.9
%


38,820



22.7
%Fulfillment and distribution


18,027



8.1
%


16,083



7.7
%


13,295



7.8
%General and administrative


28,719



12.9
%


25,953



12.4
%


22,185



13.0
%Restructuring charges


407



0.2
%






0.0
%







%Total Selling, general and
    administrative expense


105,709



47.6
%


94,527



45.0
%


74,300



43.5
%Amortization of pre-publication
    costs


20,619



9.3
%


13,150



6.2
%


9,106



5.3
%Goodwill impairment charge


34,812



15.7
%














Depreciation/amortization of
    intangibles


5,499



2.5
%


5,038



2.4
%


2,954



1.7
%Income from operations


(7,064
)


(3.2
)%


36,906



17.5
%


31,535



18.5
%Interest expense


65,787



29.6
%


59,328



28.2
%


48,194



28.2
%Other expenses, net of interest
    income


469



0.2
%


1,887



0.8
%


2,087



1.3
%Loss before income taxes and
    discontinued operations


(73,320
)


(33.0
)%


(24,309
)


(11.5
)%


(18,746
)


(11.0
)%Tax benefit (provision)(5)


1,601



0.7
%


(4,952
)


(2.4
)%


(3,880
)


(2.3
)%Loss before discontinued operations


(71,719
)


(32.3
)%


(29,261
)


(13.9
)%


(22,626
)


(13.3
)%Loss from discontinued operations


(1,136
)


(0.5
)%


(4,976
)


(2.4
)%


(3,788
)


(2.2
)%Loss before cumulative effect of
    accounting change


(72,855
)


(32.8
)%


(34,237
)


(16.3
)%


(26,414
)


(15.5
)%Cumulative effect of accounting
    change(6)







%


2,213



1.1
%







%Net loss

$
(72,855
)


(32.8
)%

$
(32,024
)


(15.2
)%

$
(26,414
)


(15.5
)%     (1)
    
    As explained in notes 5 and 6 below and more fully in a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this Annual Report on
    Form 10-K
    we have restated the results of 2004 and 2005.(2)
    
    The results of operations of K-12 Supplemental Education exclude
    the results of operations of Chelsea House Publishingfor
    all periods presented. We sold the Chelsea House Publishingbusiness on August 9, 2005.(3)
    
    The results of operations of Test-Prep and Intervention include
    the results of operations of Buckle Down Publishingprospectively from its acquisition date of April 15,
    2004 and the results of operations of Options Publishingprospectively from its acquisition date of December 2,
    2004. 38




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##### Table of Contents



(4)
    
    The results of operations of Medical Education include the
    results of operations of Scott Publishingprospectively
    from its acquisition date of April 14, 2005 and the results
    of operations of CMEinfoprospectively from its
    acquisition date of June 17, 2005.(5)
    
    The deferred income tax expense and related deferred taxes
    payable was restated for the years ended December 31, 2005
    and 2004. (See a description of the restatement in Note 2,
    Summary of Significant Accounting Policies in our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.)(6)
    
    The cumulative effect of accounting change results from a
    restatement for the year ended December 31, 2005 of the
    accounting treatment related to our Preferred Warrants. ( See a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this annual report on
    Form 10-K.)  Year
    Ended December 31, 2006 Compared To Year Ended
    December 31, 2005
    Years Ended December 31,2006


2005(Restated) (1)(Dollar amounts in thousands)RevenueK-12 Supplemental Education(2)

$
34,296



15.4
%

$
43,096



20.5
%Test-Prep and Intervention


73,909



33.3
%


64,501



30.6
%Library


81,328



36.6
%


76,626



36.4
%Medical Education(3)


32,471



14.7
%


26,262



12.5
%Total revenue


222,004



100.0
%


210,485



100.0
%Cost of goods sold


62,429



28.1
%


60,864



28.9
%Selling, general and
    administrative expense:Marketing and sales


58,556



26.4
%


52,491



24.9
%Fulfillment and distribution


18,027



8.1
%


16,083



7.7
%General and administrative


28,719



12.9
%


25,953



12.4
%Restructuring charges


407



0.2
%






0.0
%Total Selling, general and
    administrative expense


105,709



47.6
%


94,527



45.0
%Amortization of pre-publication
    costs


20,619



9.3
%


13,150



6.2
%Goodwill impairment charge


34,812



15.7
%







%Depreciation/amortization of
    intangibles


5,499



2.5
%


5,038



2.4
%Income from operations


(7,064
)


(3.2
)%


36,906



17.5
%Interest expense


65,787



29.6
%


59,328



28.2
%Other expenses, net of interest
    income


469



0.2
%


1,887



0.8
%Loss before income taxes and
    discontinued operations


(73,320
)


(33.0
)%


(24,309
)


(11.5
)%Tax benefit (provision)(4)


1,601



0.7
%


(4,952
)


(2.4
)%Loss before discontinued operations


(71,719
)


(32.3
)%


(29,261
)


(13.9
)%Loss from discontinued operations


(1,136
)


(0.5
)%


(4,976
)


(2.4
)%Loss before cumulative effect of
    accounting change


(72,855
)


(32.8
)%


(34,237
)


(16.3
)%Cumulative effect of accounting
    change(5)







%


2,213



1.1
%Net loss

$
(72,855
)


(32.8
)%

$
(32,024
)


(15.2
)%  39




---



##### Table of Contents



(1)
    
    As explained in notes 4 and 5 below and more fully in a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this Annual Report on
    Form 10-K
    we have restated the results of 2004 and 2005.(2)
    
    The results of operations of K-12 Supplemental Education
    excludes the results of operations of Chelsea House
    Publishingfor all periods presented. We sold the Chelsea
    House Publishingbusiness on August 9, 2005.(3)
    
    The results of operations of Medical Education include the
    results of operations of Scott Publishingprospectively
    from its acquisition date of April 14, 2005 and the results
    of operations of CMEinfoprospectively from its
    acquisition date of June 17, 2005.(4)
    
    The deferred income tax expense and related deferred taxes
    payable was restated for the years ended December 31, 2005.
    (See a description of the restatement in Note 2,
    Summary of Significant Accounting Policies in our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.)(5)
    
    The cumulative effect of accounting change results from a
    restatement for the year ended December 31, 2005 of the
    accounting treatment related to our Preferred Warrants. (See a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this Annual Report on
    Form 10-K.)  Revenue
  Scott Publishing CMEinfo
  K-12 Supplemental Education. Sundance/Newbridge Sundance/Newbridge Sundance/Newbridges Sundance/Newbridge
  Test-prep and Intervention. Triumph Learning Buckle Down
 40




---



##### Table of Contents



Sundance/Newbridge,
    Triumph Learning Buckle Down 2005-2006 Triumph
    Learnings Buckle Downs Triumph Learning Buckle Down Triumph
    Learnings Buckle Downs
  Options Publishin Options
    Publishing Options Publishing
  Library. Recorded Books Recorded Books Plugged-in to Reading Recorded Books Unlimited
  Medical Education. Scott Publishing CMEinfo Scott Publishing CMEinfo Oakstone Wellness Oakstone Medical Oakstone Medical Oakstone Medical
  Cost of
    Goods Sold
    K-12 Supplemental Education. K-12
 41




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##### Table of Contents



Test-prep and Intervention.
  Library.
  Medical Education. Scott Publishing CMEinfo
  Selling,
    General & Administrative Expense
  Buckle
    Downs Newbridge Sundance/Newbridge
  K-12 Supplemental Education.
  Test-prep and Intervention. Buckle Downs
  Library.
 42




---



##### Table of Contents



Recorded Books Unlimited
  Medical Education. Scott Publishing CMEinfo
  Corporate.
  Amortization
    of Pre-Publication Costs
  Sundance/Newbridge Buckle Down Publishing Options
    Publishing, Scott Publishing CMEinfo.
  Goodwill
    Impairment Charge
  Sundance/Newbridge Options Publishing Options Publishing,
  Depreciation
    Expense and Amortization of Intangibles
  Scott Publishing CMEinfo
  Interest
    Expense
   43




---



##### Table of Contents



Year Ended December 31,2006


2005(In thousands)Interest expense:Senior secured term loans

$
11,991


$
9,945113/4% senior
    notes


19,975



19,974121/2% senior
    discount notes  non-cash


11,972



10,605Series B senior preferred
    stock  non-cash


21,574



18,463Other


364



383Total interest expense


65,876



59,370Less: capitalized interest


(89
)


(42
)Net Interest expense

$
65,787


$
59,328     Discontinued
    Operations
  Chelsea House Publishers Chelsea House Publishers Chelsea House
    Publishers Chelsea House Publishers Triumph Learning College
  Provision
    for Income Taxes
  Form 10-K.)
  Sundance/Newbridge Options Publishing.
 44




---



##### Table of Contents



WF Howes,
  Cumulative
    Effect of Accounting Change
  FAS 150-5.
  Net
    Loss
  Sundance/Newbridge Options
    Publishing Sundance/Newbridge
 45




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
    Year Ended December 31,2005


2004(Restated)(1)(Dollar amounts in thousands)RevenueK-12 Supplemental Education(2)

$
43,096



20.5
%

$
48,450



28.4
%Test-Prep and Intervention(3)


64,501



30.6
%


34,421



20.1
%Library


76,626



36.4
%


68,878



40.3
%Medical Education(4)


26,262



12.5
%


19,144



11.2
%Total Revenue


210,485



100.0
%


170,893



100.0
%Cost of goods sold


60,864



28.9
%


52,998



31.0
%Selling, general and
    administrative expenses:Marketing and sales


52,491



24.9
%


38,820



22.7
%Fulfillment and distribution


16,083



7.7
%


13,295



7.8
%General and administrative


25,953



12.4
%


22,185



13.0
%Total selling, general and
    administrative expenses


94,527



45.0
%


74,300



43.5
%Amortization of pre-publication
    costs


13,150



6.2
%


9,106



5.3
%Depreciation / amortization of
    intangibles


5,038



2.4
%


2,954



1.7
%Income from continuing operations


36,906



17.5
%

$
31,535



18.5
%Interest expense


59,328



28.2
%


48,194



28.2
%Other expenses


1,887



0. 8
%


2,087



1.3
%Loss before taxes, discontinued
    operations and cumulative effect of accounting change


(24,309
)


(11.5
)%


(18,746
)


(11.0
)%Provision for income taxes(5)


4,952



2.4
%


3,880



2.3
%Income from continuing operations


(29,261
)


(13.9
)%

$
(22,626
)


(13.3
)%Loss from discontinued operations


(4,976
)


(2.4
)%


(3,788
)


(2.2
)%Loss before cumulative effect of
    accounting change


(34,237
)


(16.3
)%


(26,414
)


(15.5
)%Cumulative effect of accounting
    change(6)


2,213



1.1
%







%Net loss

$
(32,024
)


(15.2
)%

$
(26,414
)


(15.5
)%     (1)
    
    As explained in notes 5 and 6 below and more fully in a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this Annual Report on
    Form 10-K
    we have restated the results of 2004 and 2005.(2)
    
    The results of operations of K-12 Supplemental Education exclude
    the results of operations of Chelsea House Publishing for all
    periods presented. We sold the Chelsea House Publishing business
    on August 9, 2005.(3)
    
    The results of operations of Test-Prep and Intervention include
    the results of operations of Buckle Down Publishingfrom
    its acquisition date of April 15, 2004 and the results of
    operations of Options Publishingfrom its acquisition
    date of December 2, 2004.(4)
    
    The results of operations of Medical Education include the
    results of operations of Scott Publishingprospectively
    from its acquisition date of April 14, 2005 and the results
    of operations of CMEinfoprospectively from its
    acquisition date of June 17, 2005.(5)
    
    The deferred income tax expense and related deferred taxes
    payable was restated for the years ended December 31, 2005
    and 2004. (See a description of the restatement in Note 2,
    Summary of Significant Accounting Policies in our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.) 46




---



##### Table of Contents



(6)
    
    The cumulative effect of accounting change results from a
    restatement for the year ended December 31, 2005 of the
    accounting treatment related to our Preferred Warrants. (See a
    description of the restatement in Note 2, Summary of
    Significant Accounting Policies in our consolidated
    financial statements included elsewhere in this Annual Report on
    Form 10-K).  Revenue
  Buckle Down Publishing Options
    Publishing Scott Publishing CMEinfo Buckle Down Publishing Options
    Publishing
  K-12 Supplemental Education. Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge
  Test-prep and Intervention. Buckle Down Publishing Options Publishing Buckle Down Publishing Options
    Publishing Triumph Learning Sundance/Newbridge, Triumph Learning Buckle Down 2005-2006 Triumph
    Learning Buckle Down 2005-2006 Triumph Learning Buckle
    Down Triumph
    Learning 2005-2006 Triumph Learning Triumph Learning 2005-2006 Buckle Down
  Library. Recorded Books Recorded Books
 47




---



##### Table of Contents



Recorded Books Recorded Books start-up
  Medical Education. Scott Publishing CMEinfo Scott
    Publishing CMEinfo Oakstone Publishing Oakstone Medical Wellness Oakstone Medical
  Cost of
    Goods Sold
    K-12 Supplemental Education.
  Test-prep and Intervention. Buckle Down Publishing Options
    Publishing. Triumph Learning Options Publishing
  Library.
  Medical Education. Scott Publishing CMEinfo. Scott Publishing
 48




---



##### Table of Contents



Selling,
    General & Administrative Expense
    K-12 Supplemental Education.
  Test-prep and Intervention. Options Publishing Buckle Down Publishing. Triumph Learning.
  Library.
  Medical Education. Scott Publishing CMEinfo
  Corporate.
  Amortization
    of Pre-Publication Costs
  Buckle Down Options Publishing Scott
    Publishing CMEinfo
  Depreciation
    Expense and Amortization of Intangibles
   49




---



##### Table of Contents



Buckle Down Options Publishing Scott
    Publishing CMEinfo
  Interest
    Expense
        Year Ended December 31,2005


2004(In thousands)Interest expense:Senior secured term loans

$
9,945


$
6,596113/4% senior
    notes


19,974



16,600121/2% senior
    discount notes  non-cash


10,605



8,617Series B senior preferred
    stock  non-cash


18,463



16,115Other


383



305Total interest expense


59,370



48,233Less: capitalized interest


42



39Net Interest expense

$
59,328


$
48,194     Discontinued
    Operations
  Chelsea House Publishers Chelsea House Chelsea
    House Triumph Learning College
  Provision
    for Income Taxes
  Form 10-K.)
 50




---



##### Table of Contents



WF
    Howes,
  Cumulative
    Effect of Accounting Change
  FAS 150-5:
  Net
    Loss
    Contractual
    Obligations and Commitments
  Financing
    Arrangements
  Senior Secured Revolving Credit Facility. and/or
  Senior Secured Term Loans.
   51




---



##### Table of Contents



Senior Notes. 3 4 3 4
    Senior Discount Notes. 1 2 pari passu
  Series A Preferred Warrants. Form 10-K). No. 150-5,
  Series B Senior Preferred Stock.
    Off
    Balance Sheet Arrangements
   52




---



##### Table of Contents



Payments Due By PeriodLess Than








AfterContractual Obligations(3)

1 Year


1-2 Years


3-5 Years


5 Years


Total(In thousands)Operating leases

$
3,093


$
2,338


$
2,455


$



$
7,886Senior secured term loans(1)


13,422



133,860











147,282113/4% Senior
    notes


19,975



19,975



229,925







269,875121/2% Senior
    discount notes










177,844







177,844Series B senior preferred(2)














129,468



129,468Total

$
36,490


$
156,173


$
410,224


$
129,468


$
732,355     (1)
    
    The Senior Secured Term Loans are floating rate instruments. The
    interest for this schedule was calculated using year end rates.
    A one percent increase in interest rates would result in
    payments of $14.7 million and $134.8 million in less
    than 1 year and 1-2 year, respectively, for the Senior
    Secured Term Loans.(2)
    
    The Preferred B is presented at its December 31, 2006
    liquidation value and does not include future dividend payments
    which will not be paid in cash, based on restrictions in our
    Senior Discount Notes indenture. (See Note 13 to our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.)(3)
    
    The Preferred Warrants are classified as liabilities and
    recorded at fair value based on an analysis prepared by us. We
    have determined that the Preferred Warrants had no value at
    December 31, 2006.  Liquidity
    and Capital Resources
        1 2
     53




---



##### Table of Contents



Cash
    Flows
  Scott Publishing CMEinfo
  Scott Publishing CMEinfo
    Capital
    Expenditures
    Recorded Books
  Seasonality
    and Quarterly Results of Operations
   54




---



##### Table of Contents



Year Ended December 31, 2005First Quarter


Second Quarter


Third Quarter


Fourth QuarterRestated(Dollars in thousands)Revenue

$
46,366


$
56,661


$
56,318


$
51,140Income from operations


6,120



13,178



9,987



7,621Net loss(1)


(10,831
)


(6,151
)


(5,574
)


(9,468
)   Year Ended December 31, 2006First Quarter


Second Quarter


Third Quarter


Fourth QuarterRestated(Dollars in thousands)Revenue

$
51,490


$
56,899


$
58,940


$
54,675Income (loss) from operations(2)


4,674



(15,517
)


8,477



(4,698
)Net loss(1)(2)


(12,529
)


(28,669
)


(9,320
)


(22,337
)     (1)
    
    Net loss for each interim period in the years ended December 31,
    2005 and 2006 reflect the restatement of the benefit (provision)
    for income taxes. Net loss for the quarter ended
    September 30, 2005 also reflects the restatement for
    Preferred Warrants. (See a description of the restatement in
    Note 2, Summary of Significant Accounting Policies
    in our consolidated financial statements included elsewhere in
    this Annual Report on Form 10-K.)(2)
    
    The second quarter 2006 loss from operations and the net loss
    was impacted by the recording of a $24.4 million goodwill
    impairment charge related to our K-12 Supplemental Education
    Segment. The fourth quarter 2006 loss from operations and net
    loss was impacted by the recording of a $10.4 million
    goodwill impairment charge related to our Test-prep Intervention
    segment.  Inflation
    Recent
    Accounting Pronouncements
   55




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.            Item 8.
    Financial
    Statements and Supplementary Data 56




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   57




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005Restated(Note 2)(In thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
69,847


$
69,592Accounts receivable, net


22,462



22,804Inventory, net


23,242



22,304Direct response advertising
    costs  current portion, net


3,838



3,534Prepaid royalties


6,135



5,456Prepaid expenses and other current
    assets


2,658



4,127Total current assets


128,182



127,817Pre-publication costs, net


45,173



42,841Direct response advertising costs,
    net


7,389



7,159Property and equipment, net


11,279



11,303Goodwill


135,566



170,252Intangible assets, net


24,242



26,934Deferred financing costs, net


10,347



13,522Other assets


508



1,491Total assets

$
362,686


$
401,319LIABILITIES, REDEEMABLE
    PREFERRED STOCK AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued
    liabilities

$
30,862


$
28,533Accrued interest


9,039



8,871Deferred subscription revenue


14,140



12,630Current portion of long term debt


1,300



1,300Total current liabilities


55,341



51,334Long term liabilities:Senior secured term loan


124,850



126,150113/4% senior
    notes


172,146



172,630121/2% senior
    discount notes


104,847



92,875Series B senior preferred
    stock, redeemable, $.001 par value, 6,000,000 shares
    authorized, 2,000,230 shares issued and outstanding
    (approximate aggregate liquidation value as of December 31,
    2006 of $151,459)


149,626



127,788Deferred tax liability


14,905



16,844Deferred gain on Series B
    cancellation and other long term liabilities


3,838



4,102Total long term liabilities


570,212



540,389Commitments(Note 15)Redeemable preferred stock:Series A preferred stock,
    redeemable, $.001 par value, 30,000 shares authorized,
    22,476 shares issued and outstanding (approximate aggregate
    liquidation value as of December 31, 2006 of $39,328)


39,196



36,191Series C preferred stock,
    redeemable, $.001 par value, 3,500 shares authorized,
    issued and outstanding (approximate aggregate liquidation value
    as of December 31, 2006 of $4,004)


1,855



1,526Total redeemable preferred stock


41,051



37,717Stockholders deficit:Common stock, $.001 par value,
    30,000,000 shares authorized, 20,012,914 and
    20,008,300 shares issued and outstanding as of
    December 31, 2006 and 2005, respectively


20



20Accumulated other comprehensive
    income


658



284Accumulated deficit


(304,596
)


(228,425
)Total stockholders deficit


(303,918
)


(228,121
)Total liabilities, redeemable
    preferred stock and stockholders deficit

$
362,686


$
401,319    58




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004Restated (Note 2)(In thousands)Revenue

$
222,004


$
210,485


$
170,893Costs and expenses:Cost of goods sold


62,429



60,864



52,998Marketing and sales


58,556



52,491



38,820Fulfillment and distribution


18,027



16,083



13,295General and administrative


28,719



25,953



22,185Restructuring charges


407







Amortization of pre-publication
    costs


20,619



13,150



9,106Goodwill impairment charges


34,812







Depreciation expense and
    amortization of intangibles


5,499



5,038



2,954Total costs and expenses


229,068



173,579



139,358(Loss)Income from operations


(7,064
)


36,906



31,535Other (income) expenses:Interest expense


65,787



59,328



48,194Interest income


(2,921
)


(1,872
)


(777
)Amortization deferred financing
    costs


3,381



3,579



2,937Other expense (income)


9



180



(73
)Total other expenses


66,256



61,215



50,281Loss before income taxes,
    discontinued operations and cumulative effect of accounting
    change


(73,320
)


(24,309
)


(18,746
)Benefit (provision) for income taxes


1,601



(4,952
)


(3,880
)Loss before discontinued operations
    and cumulative effect of accounting change


(71,719
)


(29,261
)


(22,626
)Discontinued operations:Loss from operations of
    discontinued operations






(3,731
)


(2,076
)Loss on disposal of discontinued
    operations


(1,136
)


(1,245
)


(1,712
)Loss before cumulative effect of
    accounting change


(72,855
)


(34,237
)


(26,414
)Cumulative effect of accounting
    change






2,213



Net loss


(72,855
)


(32,024
)


(26,414
)Preferred stock dividends and
    accretion


(3,334
)


(3,048
)


(2,735
)Net loss available to common
    stockholders

$
(76,189
)

$
(35,072
)

$
(29,149
)    59




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS
    DEFICIT
  AccumulatedOther





TotalCommon Stock


Comprehensive


Accumulated


StockholdersShares


Amount


Income


Deficit


Deficit(In thousands)Balance as of January 1,
    2004, as previously reported


20,000


$
20


$
299


$
(156,673
)

$
(156,354
)Effect of restatement (Note 2)














(7,543
)


(7,543
)Balance as of January 1,
    2004, as restated


20,000



20



299



(164,216
)


(163,897
)Comprehensive loss: Net loss, as
    restated














(26,414
)


(26,414
)Foreign currency translation
    adjustment










227







227Total comprehensive loss, as
    restated


















(26,187
)Preferred stock dividends and
    accretion














(2,735
)


(2,735
)Balance as of December 31,
    2004, as restated


20,000



20



526



(193,365
)


(192,819
)Comprehensive loss: Net loss, as
    restated














(32,024
)


(32,024
)Foreign currency translation
    adjustment










(242
)






(242
)Total comprehensive loss, as
    restated


















(32,266
)Stock  based
    compensation expense














3



3Issuances pursuant to stock options


8











9



9Preferred stock dividends and
    accretion














(3,048
)


(3,048
)Balance as of December 31,
    2005,as restated


20,008



20



284



(228,425
)


(228,121
)Comprehensive loss: Net loss














(72,855
)


(72,855
)Foreign currency translation
    adjustment










374







374Total comprehensive loss


















(72,481
)Stock  based
    compensation expense














7



7Issuances pursuant to stock options


5











11



11Preferred stock dividends and
    accretion














(3,334
)


(3,334
)Balance as of December 31,
    2006


20,013


$
20


$
658


$
(304,596
)

$
(303,918
)    60




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004Restated (Note 2)(In thousands)Operating activities from
    Continuing OperationsNet loss from continuing operations

$
(71,719
)

$
(29,261
)

$
(22,626
)Adjustments to reconcile net loss
    from continuing operations to net cash provided by operating
    activities:Non-cash interest expense


33,546



29,069



24,671Allowance for doubtful accounts


4,078



3,831



3,023Allowance for obsolescence


2,498



1,164



976Depreciation and amortization of
    property and equipment, pre-publication costs and intangibles


26,118



18,188



12,060Amortization of deferred financing
    costs


3,382



3,579



2,937Amortization of premium on
    113/4% senior
    notes


(484
)


(491
)


(28
)Goodwill impairment charge


34,812







Deferred taxes  non-cash


(1,939
)


4,640



3,833Other non-operating
    income  non-cash


13



16



(70
)Changes in operating assets and
    liabilities:Accounts receivable


(5,238
)


(5,235
)


(6,009
)Inventory


(3,437
)


(2,451
)


(2,726
)Prepaid expenses, royalty advances
    and other current assets


790



(497
)


(439
)Direct response advertising costs


(534
)


(1,556
)


(435
)Other assets


(18
)


(21
)


(478
)Accounts payable, accrued and other
    liabilities


2,384



2,938



5,830Accrued interest


168



483



1,646Deferred subscription revenue


1,510



95



(932
)Net cash provided by operating
    activities from continuing operations


25,930



24,491



21,233Investing activities from
    Continuing OperationsAdditions to pre-publication costs


(22,852
)


(21,877
)


(12,163
)Additions to property and equipment


(2,759
)


(3,831
)


(3,248
)Additions to intangible assets


(39
)


(20
)


(28
)Acquisitions, net of cash acquired


907



(12,255
)


(77,896
)Proceeds from sale of business


500



8,500



Proceeds from sale of assets


9







29Net cash used in investing
    activities from continuing operations


(24,234
)


(29,483
)


(93,306
)Financing activities from
    Continuing OperationsProceeds from
    121/2% senior
    discount notes










73,653Proceeds from
    113/4% senior
    notes










33,150Proceeds from senior secured term
    loan










30,000Repayment of senior secured term
    loan


(1,300
)


(1,300
)


(1,000
)Repurchase of Series B Senior
    preferred stock










(13,999
)Proceeds from exercise of stock
    options


11



9



Additions to deferred financing
    costs


(104
)


(511
)


(5,235
)Net cash (used in) provided by
    financing activities from continuing operations


(1,393
)


(1,802
)


116,569Effect of exchange rates on cash


245



(154
)


162Cash flows of discontinued
    operationsOperating cash flows


(293
)


1



4,023Investing cash flows






(2,042
)


(2,489
)Net cash (used in) provided by
    discontinued operations


(293
)


(2,041
)


1,534Net (decrease) increase in cash and
    cash equivalents


255



(8,989
)


46,192Cash and cash equivalents at
    beginning of year


69,592



78,581



32,389Cash and cash equivalents at end of
    year

$
69,847


$
69,592


$
78,581Supplemental
    disclosureCash paid during the year for:Interest

$
32,102


$
29,740


$
21,855Income taxes

$
523


$
44


$
    61




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
    2006
 (In thousands)
  1.
    Nature of
    Business and Organization          
    K-12 Supplemental Education:  The Company
    publishes supplemental reading materials for the kindergarten
    through eighth grade, or PreK-8, marketed under the
    well-recognized imprints Sundance Publishingand
    Newbridge Educational Publishing, and the Company also
    offers non-proprietary supplemental reading and literature
    products for the K-12 market.
    Test-prep and Intervention:  The Company
    publishes state-specific test preparation materials for K-12
    competency tests under our well-recognized imprints and brands
    such as Triumph Learning, Coach and Buckle Down.
    The Company also offers skills assessment products and
    intervention materials for struggling math and reading students
    under the widely known Options Publishing imprint.
    Library:  The Company publishes unabridged
    audiobooks and other products for adults and children, under the
    Recorded Books imprint, and markets these titles, as well as
    selected non-proprietary audiobooks and other products,
    primarily to public libraries and schools.
    Medical Education:  The Company publishes audio
    and video-based continuing medical education, or CME, materials
    for doctors and other health care professionals under the
    Oakstone Publishing imprint and self-study CME courses
    under the Companys CMEinfobrand. The Company also
    publishes personal wellness information products for companies
    seeking to improve employee awareness of health and wellness
    issues under the Top Healthand Personal Best
    brands.  2.
    Summary
    of Significant Accounting Policies  Restatement
    of Financial Statements
  Form 10-K
 62




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Deferred
    Income Tax Restatement
    CMEinfo Scott Publishing
    Series A
    Preferred Stock Warrants
  150-5, No. 150-5), No. 150-5
  No. 150-5
  No. 150-5,
  No. 150-5
 63




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31, 2005As Previously





AsReported


Adjustment


RestatedAssets:Goodwill, net

$
169,424


$
828


$
170,252Total Assets


400,491



828



401,319Liabilities:Deferred Tax Liability


14,830



2,014



16,844Total Long term Liabilities


538,375



2,014



540,389Redeemable preferred stock:Series A preferred stock


38,404



(2,213
)


36,191Total redeemable preferred stock


39,930



(2,213
)


37,717Stockholders deficit:Accumulated deficit


(229,452
)


1,027



(228,425
)Total stockholders deficit

$
(229,148
)

$
1,027


$
(228,121
)     Year Ended December 2005


Year Ended December 2004AsAs Previously





As


Previously





AsReported


Adjustment


Restated


Reported


Adjustment


RestatedLoss before income taxes,
    discontinued operations and cumulative effect of accounting
    change

$
(24,309
)





$
(24,309
)

$
(18,746
)





$
(18,746
)Benefit (provision) for income taxes


(15,142
)

$
10,190



(4,952
)


(47
)

$
(3,833
)


(3,880
)(Loss) income before discontinued
    operations and cumulative effect of accounting change


(39,451
)


10,190



(29,261
)


(18,793
)


(3,833
)


(22,626
)Discontinued Operations:Loss from operations of
    discontinued operations


(3,731
)






(3,731
)


(2,076
)






(2,076
)Loss on disposal of discontinued
    operations


(1,245
)






(1,245
)


(1,712
)






(1,712
)Loss before cumulative effect of
    accounting change


(44,427
)


10,190



(34,237
)


(22,581
)


(3,833
)


(26,414
)Cumulative effect of accounting
    change






2,213



2,213











Net (loss) income


(44,427
)


12,403



(32,024
)


(22,581
)


(3,833
)


(26,414
)Preferred stock dividends and
    accretion


(3,048
)






(3,048
)


(2,735
)






(2,735
)Net loss available to common
    stockholders

$
(47,475
)

$
12,403


$
(35,072
)

$
(25,316
)

$
(3,833
)

$
(29,149
)  64




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Principles
    of Consolidation
  Buckle Down Publishing Options Publishing Scott Publishing info Chelsea House
  Use of
    Estimates
    Concentrations
    of Credit Risk
    Fair
    Value and Credit Risk of Financial Instruments
  3 4 1 2
    December 31, 2006Carrying Value


Fair ValueSenior secured term loan

$
126,150


$
126,150113/4% senior
    notes


172,146



176,450121/2% senior
    discount notes


104,847



87,750Preferred Warrants


0



0  65




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash
    Equivalents
    Revenue
    and Expense Recognition
      Shipping
    and Handling
    Inventory
  first-in,
  Prepaid
    Royalties
    Advertising
    product-by-product
 66




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Pre-Publication
    Costs
  work-for-hire
  Property
    and Equipment
  98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
  Goodwill
    and Other Intangible Assets
     67




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Long-Lived
    Assets
  Accounting for
    the Impairment or Disposal of Long-Lived Assets
  Stock-Based
    Compensation
      Income
    Taxes
    Foreign
    Currency Translation
   68




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Redeemable
    Capital Stock
  No. 150-5,
  Reclassification
  Chelsea House Chelsea House
  Recent
    Accounting Pronouncements
     69




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Acquisitions  Buckle
    Down Publishing
      As of April 15,2004Working capital, net (excluding
    cash acquired)

$
1,769Pre-publication costs


3,600Property and equipment


193Intangibles


9,000Net assets acquired


14,562Goodwill recorded


11,717Net cost

$
26,279   Options
    Publishing
   70




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     As of December 3,2004Working capital, net (excluding
    cash acquired)

$
1,865Pre-publication costs


5,570Property and equipment


1,929Intangibles


14,930Net assets acquired


24,294Goodwill recorded


28,577Net cost

$
52,871   Scott
    Publishing
  ® Scott Publishing Scott Publishing Scott Publishing Scott Publishings
    As of April 15,2005Working capital, net (excluding
    cash acquired)

$
176Intangibles


1,560Deferred tax


(296
)Net assets acquired


1,440Goodwill recorded


2,187Net cost

$
3,627   CMEinfo
  info.com, Inc. info info info
 71




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  infos
    As of June 15,2005Working capital, net (excluding
    cash acquired)

$
(168
)Pre-publication costs


890Property and equipment


60Intangibles


4,420Deferred tax


(532
)Net assets acquired


4,670Goodwill recorded


2,891Net cost

$
7,561   Pro
    Forma Financial Information
  Buckle Down Publishing Options
    Publishing
  ProformaHCC as


Proforma


Options


HCCFor the Year Ended December 31, 2004

Reported


Buckle Down


Publishing


ProformaRevenue

$
170,893


$
2,721


$
18,259


$
191,873Cost of goods sold


52,998



634



3,187



56,819Marketing and sales


38,820



634



6,159



45,613Fulfillment and distribution


13,295



295



936



14,526General and administrative


22,185



381



1,251



23,817Amortization of pre-publication
    costs


9,106



540



1,332



10,978Depreciation expense &
    amortization of intangibles


2,954



520



1,441



4,915Income (loss) from operations


31,535



(283
)


3,953



35,205Other expense


54,161



103



6,633



60,897Loss before discontinued operations


(22,626
)


(386
)


(2,680
)


(25,692
)Loss from discontinued operations


(3,788
)










(3,788
)Net loss

$
(26,414
)

$
(386
)

$
(2,680
)

$
(29,480
)   info Scott Publishing
 72




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Accounts
    Receivable    December 31,2006


2005Accounts receivable

$
25,629


$
24,791Sundry receivables






1,500Total accounts receivable


25,629



26,291Less allowance for doubtful
    accounts


3,167



3,487Accounts receivable, net

$
22,462


$
22,804   info
  5.
    Inventory    December 31,2006


2005Supplies

$
1,371


$
1,059Work-in-process


1,013



716Finished goods


24,541



23,27826,925



25,053Less allowance for obsolescence


3,683



2,749Inventory, net

$
23,242


$
22,304   6.
    Pre-publication
    Costs    December 31,2006


2005Pre-publication costs

$
92,851


$
89,557Less accumulated amortization


47,678



46,716Pre-publication costs, net

$
45,173


$
42,841     Sundance/Newbridge
 73




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Property
    and Equipment    December 31,2006


2005Furniture and fixtures

$
2,429


$
2,678Office equipment and software


12,509



12,654Land and building


4,784



4,782Leasehold improvements


2,768



2,37122,490



22,485Less accumulated depreciation


11,211



11,182Property and equipment, net

$
11,279


$
11,303     8.
    Goodwill    Sundance/Newbridge,
  Options Publishing
 74




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Goodwill, January 1, 2004

$
166,179Scott
    Publishingacquisition


2,187CMEinfoacquisition


2,766Options Publishingacquisition


(839
)Other


(41
)Goodwill, December 31, 2005

$
170,252CMEinfoacquisition


126Goodwill impairment charge-
    Sundance/Newbridge


(24,393
)Goodwill impairment charge-
    Options Publishing


(10,419
)Goodwill, December 31, 2006

$
135,566   Scott Publishing CMEinfo
  9.
    Intangibles    December 31,


December 31,Definite Life Assets

Lives


2006


2005Customer list


10 years


$
23,240


$
23,240Non-compete agreements


3-5 years



1,900



1,900Other


5 years



171



17925,311



25,319Less: accumulated amortization






(5,898
)


(3,196
)19,413



22,123Trademarks


Indefinite



4,829



4,811Net intangible assets





$
24,242


$
26,934    75




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     TotalAmortization of intangibles:2007

$
2,7242008


2,7182009


2,6632010


2,4172011


2,321Thereafter


6,570$
19,413   10.
    Accounts
    Payable and Accrued Liabilities    December 31,2006


2005Trade accounts payable

$
13,175


$
11,284Accrued liabilities


9,371



8,873Accrued management incentive


4,963



5,005Accrued compensation and related
    taxes and benefits


3,168



2,906Accrued restructuring costs


105



Accrued disposition costs


80



238Accrued acquisition costs






227Accounts payable and accrued
    liabilities

$
30,862


$
28,533   11.
    Income
    Taxes    December 31,2006


2005


2004(Restated Note 2)Current income tax expense:Foreign

$
(338
)

$
(312
)

$
(47
)Deferred income tax expense:U.S. Federal


1,939



(4,640
)


(3,833
)Total benefit (provision for)
    income taxes

$
1,601


$
(4,952
)

$
(3,880
)    76




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005(Restated Note 2)Deferred tax assets:Net operating loss carryforwards

$
44,697


$
39,927Goodwill


8,095



1,186Interest on
    121/2% Senior
    Discount Note


9,423



5,807Allowance for doubtful accounts
    and notes


2,102



1,024Inventory reserves


1,156



573Other definite life intangible
    assets


610



1,046Other


249



140Total deferred tax assets


66,332



49,703Deferred tax liabilities:Goodwill and other indefinite life
    assets


(14,905
)


(16,844
)Direct response advertising


(4,491
)


(4,277
)Depreciation


(630
)


(566
)Total deferred tax liabilities


(20,026
)


(21,687
)Net deferred tax assets before
    valuation allowance


46,306



28,016Less valuation allowance


(61,211
)


(44,860
)Net deferred tax liabilities

$
(14,905
)

$
(16,844
)          77




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005


2004(Restated Note 2)Statutory rate


34
%


34
%


34
%State and local income taxes (net
    of federal benefit)


6
%


6
%


6
%Change in valuation allowance


(22
)%


(15
)%


(3
)%Non-deductible interest expense


(13
)%


(31
)%


(44
)%Other


(3
)%


(12
)%


(10
)%Effective tax rate


2
%


(18
)%


(17
)%   12.
    Financing
    Arrangements  3 4 1 2
  Senior
    Secured Revolving Credit Facility, Senior Secured Term Loans,
    113/4%
    Senior Notes
  3 4
  and/or
    3 4
   78




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      121/2% Senior
    Discount Notes
  1 2
    Interest Rate


Book ValuePremium


As of


As ofIssuance


Due


Face


(Discount)


December 31,


December 31,Instrument:

Date


Date


Amount


At Issuance


2006


2006Haights Cross:Senior secured term loan


08/20/03



08/20/08


$
100,000







9.88
%

$
96,750Senior secured term loan


12/10/04



08/20/08


$
30,000







8.88
%


29,400$
126,150113/4% Senior
    notes


08/20/03



08/15/11


$
140,000







11.75
%

$
140,000113/4% Senior
    notes


12/10/04



08/15/11


$
30,000


$
3,150



11.75
%


32,146$
172,146Haights Cross Communications:121/2% Senior
    discount notes


02/02/04



08/15/11


$
135,000


$
(61,347
)


12.5
%

$
104,847Series B preferred (See
    Note 13)


12/10/99



12/10/11


$
50,006


$
(3,410
)


16.0
%


149,626Total debt





















$
552,769  79




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007

$
1,3002008


124,8502009


2010


2011


456,459Total


582,609Less: Unamortized discounts and
    other


(29,840
)$
552,769   13.
    Equity
    and Redeemable Preferred Stock         80




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           Buckle Down Publishing
 81




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Form S-3 Form S-3
  14.
    Stock
    Option Plan       82




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           WeightedNumber of


AverageShares


Exercise PriceBalance as of December 31,
    2003


1,334,200



1.61Granted in 2004


587,500



1.00Forfeited in 2004


(366,555
)


2.27Cancelled in 2004






Balance as of December 31,
    2004


1,555,145



1.71Granted in 2005


254,000



1.12Exercised in 2005


(8,300
)


1.13Forfeited in 2005


(218,485
)


1.55Cancelled in 2005


(12,203
)


1.71Balance as of December 31,
    2005


1,570,157



1.64Granted in 2006


601,500



0.59Exercised in 2006


(4,614
)


2.24Forfeited in 2006


(184,090
)


1.47Balance as of December 31,
    2006


1,982,953


$
1.33  83




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options OutstandingWeighted-





Options ExercisableAverage


Weighted-





Weighted-Remaining


Average





AverageOptions


Contractual


Exercise


Options


ExerciseExercise Price

Outstanding


Life


Price


Exercisable


Price$0.50


477,500



9.67 years


$
0.50






$
0.50$0.83


199,000



5.00 years


$
0.83



199,000


$
0.83$1.00


659,245



8.13 years


$
1.00



257,996


$
1.00$1.19


89,500



5.00 years


$
1.19



89,500


$
1.19$1.53


42,301



8.36 years


$
1.53



9,051


$
1.53$2.48


153,000



5.05 years


$
2.48



153,000


$
2.48$2.84


362,407



6.75 years


$
2.84



362,407


$
2.841,982,953



7.56 years


$
1.33



1,070,954


$
1.82       2006


2005


2004Risk free interest rate


4.71
%


4.07
%


4.25
%Expected dividend yield


0
%


0
%


0
%Expected lives


6 years



6 years



6 yearsExpected volatility


54
%


0
%


0
%Weighted-average fair value of
    options granted

$
0.02


$
0.09


$
0.0     15.
    Commitments   84




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OccupancySpace


EquipmentYear ending December 31:2007

$
2,802


$
2912008


2,158



1802009


1,635



1262010


554



922011


45



3Total minimum payments

$
7,194


$
692           16.
    Savings
    Plan     85




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   17.
    Discontinued
    Operations  Triumph
    Learning College
      Chelsea
    House Publishers
  Chelsea House Publishers Chelsea House Publishers Chelsea House
    Publishers Chelsea
    House Publishers Chelsea House Publishers. Chelsea House Publishers
 86




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   th
  Years Ended December 31,2005


2004Revenue

$
6,594


$
11,345Cost of goods sold


2,061



5,022Marketing and sales


1,622



2,215Fulfillment and distribution


606



975General and administrative


988



2,382Amortization of pre-publication
    costs


1,770



2,698Impairment loss 
    pre-publication costs


3,211



Depreciation expense


68



130Loss from operations

$
(3,732
)

$
(2,077
)   Chelsea House Publishers Chelsea House Publishers
  August 8,2005Assets and liabilities:Working capital, net (excluding
    cash)

$
4,904Pre-publication costs, net


3,897Property and equipment, net


156Net assets on date of sale

$
8,957Calculation of loss on sale:Proceeds

$
9,000Less: book value of net assets sold


(8,957
)43Less: accrued transaction costs


(935
)Loss on disposal of Chelsea
    House Publishers

$
(892
)   Chelsea House
    Publishers Chelsea
    House Publishers
  18.
    Restructuring
    Charges  Buckle Down Publishing
 87




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Severance and


Lease Terminations





Totalrelated


Costs


Relocation and Other


ConsolidationWarehouse and Order Fulfillment
    ConsolidationAmount expected to be incurred

$
65


$
180


$
162


$
407Accrued restructuring liability as
    of December 31, 2005














Restructuring expense


65



180



162



407Cash paid


(65
)


(75
)


(162
)


(302
)Accrued restructuring liability as
    of December  31, 2006

$
0


$
105


$
0


$
105   Buckle Down Publishing
  19.
    Segment
    Reporting    Chelsea House Publishers
  Sundance/Newbridge Triumph Learning,
    Buckle Down Publishing Options Publishing Recorded Books Oakstone
    Publishing Scott Publishing info
   88




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     K-12Supplemental


Test-Prep &





MedicalEducation


Intervention


Library


Education


Corporate


Consolidated2006Revenue

$
34,296


$
73,909


$
81,328


$
32,471


$



$
222,004Cost of good sold


9,824



14,666



28,239



9,700







62,429Marketing and sales


14,702



19,982



14,644



9,228







58,556Fulfillment and distribution


3,683



5,171



5,923



3,250







18,027General and administrative


3,775



7,957



7,172



3,480



6,335



28,719Restructuring charges






407















407Amortization and write-off of
    pre-publication costs


7,422



7,212



4,831



1,154







20,619Goodwill impairment charges


24,393



10,419















34,812Depreciation expense and
    amortization of intangibles


829



2,800



834



974



62



5,499Income (loss) from operations

$
(30,332
)

$
5,295


$
19,685


$
4,685


$
(6,397
)

$
(7,064
)Interest expense

$
2,684


$
14,399


$
5,355


$
4,443


$
38,906


$
65,787Capital expenditures 
    property and equipment


452



438



1,059



801



9



2,759Capital expenditures 
    
    pre-publication costs


4,649



11,709



5,399



1,095







22,852Goodwill






50,488



64,513



20,565







135,566Total assets


19,869



118,274



103,972



41,995



78,576



362,686   89




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  K-12Supplemental


Test-Prep &





MedicalEducation


Intervention


Library


Education


Corporate


Consolidated2005Revenue

$
43,096


$
64,501


$
76,626


$
26,262


$



$
210,485Cost of good sold


10,927



13,521



28,623



7,793







60,864Marketing and sales


13,461



17,787



13,591



7,652







52,491Fulfillment and distribution


4,074



4,040



5,236



2,733







16,083General and administrative


3,046



6,884



5,796



3,426



6,801



25,953Amortization of pre-publication
    costs


3,731



4,706



4,139



574







13,150Depreciation expense and
    amortization of intangibles


825



2,727



717



642



127



5,038Income (loss) from operations

$
7,032


$
14,836


$
18,524


$
3,442


$
(6,928
)

$
36,906Interest expense

$
2,576


$
13,167


$
6,009


$
3,504


$
34,072


$
59,328Capital expenditures 
    property and equipment


817



831



1,164



943



76



3,831Capital expenditures 
    pre- publication costs


5,236



10,086



5,384



1,171







21,877Goodwill, restated


24,393



60,906



64,513



20,440







170,252Total assets


52,634



123,342



99,360



42,230



83,753



401,319   K-12Supplemental


Test-Prep &





MedicalEducation


Intervention


Library


Education


Corporate


Consolidated2004Revenue

$
48,450


$
34,421


$
68,878


$
19,144


$



$
170,893Cost of good sold


12,530



7,846



27,480



5,142







52,998Marketing and sales


13,144



7,656



12,497



5,523







38,820Fulfillment and distribution


4,556



2,443



4,459



1,837







13,295General and administrative


3,342



5,334



5,036



2,201



6,272



22,185Amortization of pre-publication
    costs


3,076



2,218



3,564



248







9,106Depreciation expense and
    amortization of intangibles


680



827



734



504



209



2,954Income (loss) from operations

$
11,122


$
8,097


$
15,108


$
3,689


$
(6,481
)

$
31,535Interest expense

$
2,824


$
6,818


$
6,744


$
2,716


$
29,092


$
48,194Capital expenditures 
    property and equipment


858



891



1,255



188



56



3,248Capital expenditures 
    
    pre- publication costs


4,149



3,469



4,438



107







12,163Goodwill


24,393



61,786



64,513



15,487







166,179Total assets


50,420



116,521



99,045



25,203



108,514



399,703  90




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  20.
    Condensed
    Consolidated Financial Statements  3 4 Article 3-10(d) Regulation S-X.
    Year Ended December 31, 2006Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Revenue

$



$



$
222,004


$



$
222,004Costs and expenses


125



6,272



222,671







229,068Income (loss) from operations


(125
)


(6,272
)


(667
)






(7,064
)Equity in the income (loss) of
    subsidiaries


(40,788
)


(33,624
)






74,412



Loss from discontinued operations






(1,136
)










(1,136
)Other (income)/expenses


31,942



(244
)


32,957







64,655Net income (loss)

$
(72,855
)

$
(40,788
)

$
(33,624
)

$
74,412


$
(72,855
)   Year Ended December 31, 2005 (Restated)Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Revenue

$



$



$
210,485


$



$
210,485Costs and expenses


787



6,140



166,652







173,579Income (loss) from operations


(787
)


(6,140
)


43,833







36,906Equity in the income (loss) of
    subsidiaries


608



4,900







(5,508
)


Loss from discontinued operations






(1,245
)


(3,731
)






(4,976
)Other (income)/expenses


31,845



(3,093
)


35.202







63,954Net income (loss)

$
(32,024
)

$
608


$
4,900


$
(5,508
)

$
(32,024
)   Year Ended December 31, 2004 (Restated)Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Revenue

$



$



$
170,893


$



$
170,893Costs and expenses






6,481



132,877







139,358Income (loss) from operations






(6,481
)


38,016







31,535Equity in the income (loss) of
    subsidiaries


2,167



6,832







(8,999
)


Loss from discontinued operations






(1,780
)


(2,008
)






(3,788
)Other (income)/expenses


28,581



(3,596
)


29,176







54,161Net income (loss)

$
(26,414
)

$
2,167


$
6,832


$
(8,999
)

$
(26,414
)  91




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31, 2006Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)AssetsCurrent assets

$
3,718


$
64,437


$
60,027


$



$
128,182Investment in subsidiaries


4,193



241,564







(245,757
)


Long term assets


2,127



8,295



224,082







234,504Total assets

$
10,038


$
314,296


$
284,109


$
(245,757
)

$
362,686Liabilities, Redeemable Preferred
    Stock and Stockholders DeficitCurrent liabilities

$



$
13,107


$
42,234


$



$
55,341Long term liabilities


272,905



296,996



311







570,212Redeemable preferred stock


41,051















41,051Stockholders deficit:Common stock


20















20Accumulated deficit


(303,938
)


4,193



241,564



(245,757
)


(303,938
)Total stockholders deficit


(303,918
)


4,193



241,564



(245,757
)


(303,918
)Total liabilities, redeemable
    preferred stock and stockholders deficit

$
10,038


$
314,296


$
284,109


$
(245,757
)

$
362,686   As of December 31, 2005(Restated)Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)AssetsCurrent assets

$
3,571


$
65,533


$
58,713


$



$
127,817Investment in subsidiaries


44,714



279,141







(323,855
)


Long term assets


2,505



12,144



258,853







273,502Total assets

$
50,790


$
356,818


$
317,566


$
(323,855
)

$
401,319Liabilities, Redeemable Preferred
    Stock and Stockholders DeficitCurrent liabilities

$



$
13,324


$
38,010


$



$
51,334Long term liabilities


241,194



298,780



415







540,389Redeemable preferred stock


37,717















37,717Stockholders deficit:Common stock


20















20Accumulated deficit


(228,141
)


44,714



279,141



(323,855
)


(228,141
)Total stockholders deficit


(228,121
)


44,714



279,141



(323,855
)


(228,121
)Total liabilities, redeemable
    preferred stock and stockholders deficit

$
50,790


$
356,818


$
317,566


$
(323,855
)

$
401,319  92




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2006Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Cash provided by (used in):Operating activities of continuing
    operations

$
21


$
(3,668
)

$
29,577


$



$
25,930Investing activities from
    continuing operations:Additions to pre-publication costs










(22,852
)






(22,852
)Additions to property and equipment






(9
)


(2,750
)






(2,759
)Additions to intangibles










(39
)






(39
)Intercompany activity


115



4,213



(4,328
)






Acquisitions, net of cash acquired










907







907Proceeds from sale of businesses
    and assets






500



9







509Net cash provided by (used in)
    investing activities


115



4,704



(29,053
)






(24,234
)Financing activities of continuing
    operations:Proceeds from exercise of stock
    options


10















11Repayment of senior secured term
    loan






(1,300
)










(1,300
)Additions to deferred financing
    costs






(103
)










(104
)Net cash provided by (used in)
    financing activities


10



(1,403
)










(1,393
)Effect of exchange rates on cash










245







245Net cash used in discontinued
    operations






(293
)










(293
)Net change in cash and cash
    equivalents


146



(660
)


769







255Cash and cash equivalents at
    beginning of period


3,571



64,650



1,371







69,592Cash and cash equivalents at end
    of period

$
3,717


$
63,990


$
2,140


$



$
69,847   93




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2005Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Cash provided by (used in):Operating activities of continuing
    operations

$
(694
)

$
712


$
24,473


$



$
24,491Investing activities from
    continuing operations:Additions to pre-publication costs










(21,877
)






(21,877
)Additions to property and equipment






(76
)


(3,755
)






(3,831
)Additions to intangibles










(20
)






(20
)Intercompany activity


796



(2,871
)


2,075







Acquisitions, net of cash acquired






(12,255
)










(12,255
)Proceeds from sale of businesses
    and assets






8,500











8,500Net cash provided by (used in)
    investing activities


796



(6,702
)


(23,577
)






(29,483
)Financing activities of continuing
    operations:Repayment of senior secured term
    loan






(1,300
)










(1,300
)Proceeds from exerciser of stock
    options


9















9Additions to deferred financing
    costs






(511
)










(511
)Net cash provided by (used in)
    financing activities


9



(1,811
)










(1,802
)Effect of exchange rates on cash










(154
)






(154
)Net cash used by discontinued
    operations






(1,488
)


(553
)






(2,041
)Net change in cash and cash
    equivalents


111



(9,290
)


190







(8,989
)Cash and cash equivalents at
    beginning of period


3,460



73,940



1,181







78,581Cash and cash equivalents at end
    of period

$
3,571


$
64,650


$
1,371


$



$
69,592   94




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2004Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Cash provided by (used in):Operating activities of continuing
    operations

$
332


$
1,088


$
19,813


$



$
21,233Investing activities from
    continuing operations:Additions to pre-publication costs










(12,163
)






(12,163
)Additions to property and equipment






(56
)


(3,192
)






(3,248
)Additions to intangibles










(28
)






(28
)Intercompany activity


(53,517
)


57,596



(4,079
)






Acquisitions, net of cash acquired






(77,896
)










(77,896
)Proceeds from sale of businesses
    and assets










29







29Net cash used in investing
    activities


(53,517
)


(20,356
)


(19,433
)






(93,306
)Financing activities of continuing
    operations:Proceeds from
    121/2%
    senior discount notes


73,653















73,653Proceeds from
    113/4%
    senior notes






33,150











33,150Proceeds from senior secured term
    loan






30,000











30,000Purchase of Series B Senior
    preferred stock


(13,999
)














(13,999
)Repayment of senior secured term
    loan






(1,000
)










(1,000
)Additions to deferred financing
    costs


(3,009
)


(2,226
)










(5,235
)Net cash provided by financing
    activities


56,645



59,924











116,569Effect of exchange rates on cash










162







162Net cash provided by discontinued
    operations










1,534







1,534Net change in cash and cash
    equivalents


3,460



40,656



2,076







46,192Cash and cash equivalents at
    beginning of period






33,284



(895
)






32,389Cash and cash equivalents at end
    of period

$
3,460


$
73,940


$
1,181


$



$
78,581   21.
    Subsequent
    Event  Delay
    in Filing Periodic Reports
    Form 12b-25 Form 10-K
 95




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 8-K Form 10-K
  Effect of late filing on our financial reporting
    covenants. Form 10-K Form 10-Q. Form 10-K, Form 10-Q
  and/or and/or
    
    We received a default notice from the agent under the Facility
    on May 14, 2007, which stated that we were in default of
    the annual financial information delivery covenant for our
    failure to timely furnish to the agent under the Facility our
    annual financial information for our fiscal year ended
    December 31, 2006. We received a second default notice from
    the agent under the Facility on June 12, 2007, which stated
    that an Event of Default would not be deemed to occur as a
    result of failing to timely furnish the annual financial
    information for our fiscal year ended December 31, 2006 if
    we furnished such information to the agent by July 12,
    2007. On July 12, 2007, we received a third notice from the
    agent under the Facility extending the cure period to
    July 26, 2007.
    We received default notices from the trustee under the
    indentures on May 29, 2007, which stated that an Event of
    Default would not be deemed to occur as a result of failing to
    timely file with the SEC our annual financial information for
    the fiscal year ended December 31, 2006 included in
    this Annual Report on
    Form 10-K
    if we filed this report within 60 days of the date of
    notice.
    We received a default notice from the agent under the agreements
    for our Senior Secured Term Loans on June 19, 2007, which
    stated that an Event of Default would not be deemed to occur as
    a result of failing to timely file with the SEC our annual
    financial information for the fiscal year ended
    December 31, 2006 included in this Annual Report on
    Form 10-K
    and our quarterly financial information for our fiscal quarter
    ended March 31, 2007 (to be included in our Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2007) if we filed such
    reports within 60 days of the date of notice.  Form 10-K and/or and/or and/or
 96




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q and/or
  Form 10-K Form 10-Q
  Investigation of disagreements with
    Mr. Davis.
    
    The employment agreements were not misleading and did not have
    secret terms, and no director that voted upon the agreements was
    deprived of relevant information that would have affected his
    vote. Accordingly, Mr. Davis claim of
    fraud was not supported.
    Messrs. Gaffney and Gormley were not interested
    in the agreements and their involvement in negotiating the
    agreements did not constitute a conflict of interest.
    The engagement of the compensation consultant by the company was
    the functional equivalent of engagement by the Board
    of Directors, insofar as Messrs. Gaffney and Gormley, who
    constituted two of the three directors (Mr. Davis being the
    third) who would have made the decision to engage the
    consultant, knew of, and approved, the engagement.
    The report of the compensation consultant was supported by
    legitimate bases.  Form 10-K Form 10-K.
  Recapitalization
   97




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    Our stockholders, including Mr. Quandt, would enter into a
    Shareholders Agreement providing for, among other things, a new
    six-member Board of Directors to be composed of Mr. Quandt
    and five persons designated by various former Preferred B
    and Preferred A holders; and
    We would enter into a release agreement with the applicable
    Preferred B holders, pursuant to which, among other things, such
    holders would dismiss the pending legal action described above
    under Item 3  Legal Proceedings.   98




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC.  PARENT COMPANY
  Schedule
    I  Condensed Financial Information
  Condensed
    Balance Sheets
  As of December 31,2006


2005(Restated)(In thousands)ASSETSCurrent assets

$
3,718


$
3,571Investment in subsidiary


4,193



44,714Long term assets


2,127



2,505Total assets

$
10,038


$
50,790LIABILITIES AND
    STOCKHOLDERS DEFICITCurrent liabilities

$



$
Long term debt


254,473



220,663Other long term liabilities


18,432



20,531Redeemable preferred stock


41,051



37,717Stockholders deficit:Common stock


20



20Accumulated deficit


(303,938
)


(228,141
)Total stockholders deficit


(303,918
)


(228,121
)Total liabilities and
    stockholders deficit

$
10,038


$
50,790   Condensed
    Statements of Operations
  Year Ended December 31,2006


2005


2004(Restated)


(Restated)(In thousands)Revenues

$



$



$
General and administrative expenses


125



787



Operating loss


(125
)


(787
)


Equity in net (loss) income of
    subsidiary


(40,788
)


608



2,167Other expense


(31,942
)


(31,845
)


(28,581
)Net loss

$
(72,855
)

$
(32,024
)

$
(26,414
)  99




---



##### Table of Contents



Condensed
    Statements of Cash Flows
  Year Ended December 31,2005


20042006


(Restated)


(Restated)(In thousands)Cash provided by (used in):Operating activities

$
21


$
(694
)

$
332Investing activities


115



796



(53,517
)Financing activities


10



9



56,645Net change in cash


146



111



3,460Cash at beginning of period


3,571



3,460



Cash at the end of the year

$
3,717


$
3,571


$
3,460   1.
    Basis of
    Presentation   100




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  Schedule
    II  Valuation and Qualifying Account
    Summary
  For the Years ended December 31, 2006, 2005(restated)
    and 2004 (restated):
  AdditionsBalance at


Charged to





Charged toBeginning of


Costs and





Other





Balance atYear


Expenses





Accounts


Deductions


End of YearDescription

(Credit)


(Credit)


Acquisitions


Debit/(Credit)


Debit


(Credit)Year ended December 31,
    2006:Allowance for doubtful accounts
    and returns

$
(3,487
)


(4,078
)










4,398
(4)

$
(3,167
)Allowance for senior secured
    promissory note(6)

$
(2,282
)


(1,322
)













$
(3,604
)Allowance for valuation of
    deferred tax asset

$
(44,860
)


(16,351
)













$
(61,211
)Allowance for inventory
    obsolescence

$
(2,749
)


(2,499
)










1,565
(5)

$
(3,683
)Year ended December 31,
    2005, as restated:Allowance for doubtful accounts
    and returns

$
(3,351
)


(3,831
)


53
(1)






3,642
(4)

$
(3,487
)Allowance for senior secured
    promissory note(6)

$
(1,780
)


(502
)













$
(2,282
)Allowance for valuation of
    deferred tax asset

$
(40,684
)


(4,176
)













$
(44,860
)Allowance for inventory
    obsolescence

$
(2,032
)


(1,163
)


(47
)(2)






493
(5)

$
(2,749
)Year ended December 31,
    2004, as restated:Allowance for doubtful accounts
    and returns

$
(3,411
)


(3,023
)


(209
)(3)






3,292
(4)

$
(3,351
)Allowance for senior secured
    promissory note(6)

$




(1,780
)













$
(1,780
)Allowance for valuation of
    deferred tax asset

$
(39,935
)


(749
)













$
(40,684
)Allowance for inventory
    obsolescence

$
(1,120
)


(976
)


(437
)(3)






501
(5)

$
(2,032
)     (1)
    
    Relates to a $90,000 adjustment to the valuation of Options
    Publishing and reserves added with the Scott Publishingand CMEinfoacquisitions(2)
    
    Relates to reserves added with the acquisitions of Scott
    Publishing and CMEinfo.(3)
    
    Relates to reserves added with the acquisitions of Buckle
    Downand OptionsPublishing.(4)
    
    Primarily relates to return of products.(5)
    
    Relates to the destruction of obsolete inventory.(6)
    
    Relates to sale of Triumph College (see Note 17 in our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.) 101




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a) Evaluation
    of Disclosure Controls and Procedures
  Rule 15d-15 Rules 13a-15(a) FSP 150-5
    Form 10-K
  (b) Changes
    in Internal Controls over Financial Reporting
      
    Improving our documentation and training related to policies and
    procedures for the controls related to our significant accounts
    and processes;
    Educating and training our management and staff to improve
    technical expertise with respect to these technical areas;
    Engaging expert resources to assist with tax and goodwill
    valuation accounting; and 102




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##### Table of Contents




    Re-allocating and/or relocating duties of finance personnel to
    enhance review and monitoring procedures.     Item 9B.
    Other
    Information.    Part III   Item 10.
    Directors,
    Executive Officers and Key Employees of the
    Registrant.    Name

Age

PositionPeter J. Quandt


58


Chairman, Chief Executive Officer
    and PresidentPaul J. Crecca


49


Director, Executive Vice President
    and Chief Financial OfficerLinda Koons


52


Executive Vice President and
    PublisherKevin M. McAliley


47


Executive Vice President and
    President of Triumph LearningMark Kurtz


42


Vice President, Finance and
    Accounting, and Chief Accounting OfficerMelissa L. Linsky


48


Vice President, Finance and
    Planning, and TreasurerDavid Berset


52


President, Recorded BooksPaul A. Konowitch


52


President, Sundance/Newbridge
    Educational PublishingNancy McMeekin


52


President, Oakstone PublishingBarbara Russell


59


President, Options Publishing*Christopher S. Gaffney


44


DirectorStephen F. Gormley


56


DirectorEugene I. Davis


52


Director      Executive
    Officers
  Peter J. Quandt
  Paul J. Crecca
 103




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##### Table of Contents



Linda Koons Editor-in-Chief
  Kevin M. McAliley Triumph Learning
  Mark Kurtz
  Melissa L. Linsky magna cum laude
  Business
    Presidents
  David Berset Recorded Books Recorded Books Recorded Books
  Paul A. Konowitch Sundance/Newbridge Educational Publishing
  Nancy McMeekin Oakstone
    Publishing Oakstone Publishing
 104




---



##### Table of Contents



Directors
  Christopher S. Gaffney summa cum laude
  Stephen F. Gormley
  Eugene I. Davis
  Corporate
    Governance
  The
    Board
  Form 10-K,
 105




---



##### Table of Contents



Audit
    Committee and Audit Committee Financial Expert
  Regulation S-K Rule 10A-3
  Board
    Meetings
    Nomination
    and Election of Directors; Participation in Compensation
    Deliberations
  ,
     106




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##### Table of Contents



Code
    of Business Conduct and Ethics
    Item 11.
    Executive
    Compensation.  Compensation
    Discussion and Analysis
  The following discussion and analysis should be read in
    conjunction with the Compensation of Named Executive
    Officers and related tables that are presented immediately
    below.
  Introduction
    
    Peter J. Quandt, our Chairman, Chief Executive Officer and
    President;
    Paul J. Crecca, our Executive Vice President and Chief Financial
    Officer;
    Kevin M. McAliley, our Executive Vice President and President of
    Triumph Learning;
    Linda Koons, our Executive Vice President and Publisher;
    Mark Kurtz, our Vice President, Finance and Accounting, and
    Chief Accounting Officer; and
    Paul Konowitch, our former Senior Vice President of Corporate
    Development, and currently the President of Sundance/Newbridge
    Educational Publishing.    New
    Employment and Noncompetition Agreements
  Background.
  Use of Compensation Consultant.
 107




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##### Table of Contents



New Agreements
  
    The companys highly leveraged capital structure has
    impeded the growth of stockholder value in recent periods, and a
    resolution to these capital structure issues is a high priority
    for the company;
    A successful resolution of the companys capital structure
    issues will require a dedicated effort from the companys
    management team, and the Board of Directors believes that a
    successful resolution will be much more likely to occur if
    Messrs. Quandt and Crecca remain with the company
    throughout this critical period;
    The Board of Directors believes that its other senior
    management, and the senior managers of the companys
    businesses, are more likely to remain with the company if
    Messrs. Quandt and Crecca also remain with the company;
    The Board of Directors believes that the companys highly
    leveraged capital structure has caused the equity component of
    the companys compensation program to become increasingly
    less effective in motivating and retaining its officers and
    employees and, accordingly, that the companys best
    interests are served by ensuring that its key executives have
    cash compensation that adequately motivates them to remain with
    the company through the next several years;
    The Board of Directors, after reviewing the opinion and analysis
    of the Consultant, believes the severance amounts payable to
    Messrs. Quandt and Crecca (while greater than the amounts
    to which they were entitled prior to execution of the
    agreements), as well as the events triggering payment of such
    amounts, are well within industry standards, acknowledge their
    long and dedicated service to the company and their importance
    to the company going forward, serves to motivate them to remain
    with the company during this challenging period and beyond, and
    is fair and reasonable in absolute terms relative to privately
    held companies similar in size to the company (as measured by
    revenue and enterprise value); and
    The company will receive a material benefit by having
    Messrs. Quandt and Crecca restricted from competing with
    the company (currently, they are not subject to noncompetition
    covenants).    Effect of New Agreements on 2006
    Compensation.
  Oversight
    Over Compensation Decisions
  Role of the Board of Directors in Establishing
    Compensation.
 108




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##### Table of Contents



Role of Executives in Establishing
    Compensation.
  Compensation Activities.
    Objectives
    of Compensation Programs
    Compensation Philosophy.
  Compensation Objectives.
  
    Compensation will be related to
    performance.  The proportion of an
    individuals total compensation that varies with
    achievement of company and individual performance measures
    increases as the individuals business responsibilities
    increase. Thus, a material portion of executive compensation
    should be directly linked to achieving specific financial and
    non-financial objectives, which also serves to align the named
    executive officers interests with those of the
    companys investors.
    Compensation will be competitive and cost
    effective.  The company desires to attract,
    motivate and retain key employees. The company will pay total
    cash compensation (base salary plus performance-based cash
    incentives) in amounts necessary to achieve these goals and
    which will be of fair value relative to other positions in the
    company.  Company Compensation Policies.
  
    Founders with significant equity stakes do not require
    further equity incentives.  As a founder of the
    company, Mr. Quandt has significant equity ownership in the
    company. The Board of Directors believes that 109




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##### Table of Contents



Mr. Quandts ownership stake provides a level of
    motivation that would not be appreciably enhanced through the
    grant of further equity incentives. Accordingly, Mr. Quandt
    to date has not received any stock options and is compensated
    solely through his salary, cash bonus and limited perquisites.  
    Cash should be the principal component of
    compensation.  The companys equity
    securities are not publicly traded, and the true compensatory
    value to be accorded to the companys stock options is
    difficult for both the company and an option recipient to
    determine. Accordingly, the companys compensation policy
    is to focus most heavily on providing the opportunity for its
    named executive officers to earn total cash compensation at
    levels that enable the company to achieve the motivation and
    retention goals described above, and to provide stock option
    grants as an additional reward for superior performance rather
    than as a substitute for cash compensation.
    Base salary should be the largest component of cash
    compensation.  For each named executive officer,
    base salary is the largest component of cash compensation, with
    cash bonuses being significantly less than an officers
    base salary. In this regard, the company generally views base
    salary as compensation for the named executive officer to
    perform the essential elements of his or her job, and cash
    bonuses as a reward for superior company and individual
    performance.
    Cash incentives should be linked to
    performance.  Other than in connection with the
    minimum bonus amounts payable under the new employment
    agreements with Messrs. Quandt and Crecca, corporate-level
    executive officers are judged against overall company
    performance, while business unit officers are judged against the
    performance of their specific unit. The company believes that
    this policy properly reflects the fact that corporate-level
    executive officers, who have operational control over all
    business units, should be compensated based on overall
    performance, while unit officers, who have operational control
    only over their individual units, are properly compensated based
    on individual unit performance.
    Equity incentives should be structured to advance both
    executive retention and motivation.  Each grant of
    stock options that the company makes generally consists of two
    equal tranches. The first tranche is subject to time-based
    vesting, typically over a three-year period, and serves as a
    retention incentive. The second tranche is subject to
    performance-based vesting, typically over a two-year or
    three-year period, and serves as a performance incentive, with
    the vesting of each tranche subject to the companys (or
    the applicable business units) achievement of specified
    annual financial goals.    Compensation
    Programs Design and Elements of Compensation
    Elements of In-Service Compensation.
  
    Base salaries.  The company typically agrees
    upon a base salary with a named executive officer at the time of
    initial employment, which may or may not be reflected in an
    employment agreement. The amount agreed upon reflects the
    companys views as to the individual executives
    experience and future potential, scope of anticipated
    responsibilities, skills, expertise, potential to add value
    through performance and competitive salary practices. The
    company also considers the named executive officers
    projected future total compensation, emphasizing
    performance-based compensation in lieu of base salary
    adjustments.
    Cash performance incentives.  The company
    typically adopts an Annual Management/Employee Bonus Plan. The
    plans purpose is to motivate and reward participants for
    their contributions to the companys performance by tying a
    material portion of their cash compensation to the
    companys annual financial 110




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##### Table of Contents



performance and to the participants contribution to the
    achievement of non-financial company and individual goals. For
    our participating named executive officers, the plan is designed
    to pay 55%-60% of the award opportunity based on the achievement
    of pre-defined financial goals (described below), and 40%-45% of
    the award opportunity based on individual performance goals.
    These goals are recommended by our senior management and
    approved by the Board of Directors. The operation of this plan
    as it relates to our named executive officers is described in
    more detail below.  
    Stock options.  The company has
    2,400,000 shares of common stock authorized for grants
    under its stock option plan. The Board of Directors generally
    targets a number of shares equal to 1% of the companys
    outstanding common shares, or approximately 200,000 shares,
    plus any shares that were returned to the plan upon termination
    of previously granted options, for grant under the plan in each
    year.    
    Perquisites.  The companys general policy
    is to compensate its named executive officers at a level that
    eliminates the need for company-provided perquisites and enables
    each individual officer to provide for his or her own needs.
    Accordingly, in 2006, the company provided only the following
    perquisites to its named executive officers, the amounts of
    which are detailed in the tables below:  
    All named executive officers received automobile allowances
    ranging in value from $7,500 to $22,000 for the year;
    Mr. Quandt and Mr. Crecca were reimbursed for personal
    legal expenses that each incurred in connection with the
    preparation and negotiation of their new employment and
    noncompetition agreements (discussed below); and
    Ms. Koons received a monthly housing allowance as part of
    the relocation arrangement agreed to by the company upon her
    hiring.  
    Special cash incentives.  For 2006, the Board
    of Directors adopted an Expense Savings Incentive Plan, which is
    a special incentive plan designed to promote the identification
    of business improvements that translate into cost savings across
    our businesses. Under the terms of the plan, management and
    employees (other than Messrs. Quandt and Crecca, who are
    not eligible to participate under the plan), are credited with
    identifying and implementing business improvements leading to
    future cost savings can be awarded a cash bonus equal to 20% of
    the annualized cost savings resulting from the implemented
    improvements. Mr. Crecca, our Chief Financial Officer, has
    full authority over all determinations of bonuses to be paid
    under the plan, including, without limitation, the authority to
    (i) determine whether a particular business improvement
    will have continuing cost savings in future periods, and
    (ii) make all calculations of the annualized cost savings
    upon which awards under the plan will be based.
    In 2006, Ms. Koons and Messrs. McAliley, Kurtz and
    Konowitch were the only named executive officers eligible to
    participate in this plan. For 2006, Mr. McAliley received
    $1,374 under this plan and Mr. Kurtz received $20,000.  Elements of Post-Termination Compensation and
    Benefits.
 111




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##### Table of Contents




    Salary continuation.  Each of Ms. Koons
    and Messrs. McAliley, Konowitch and Kurtz has a written
    agreement under which he or she will receive continuing salary
    payments for a stated period of time following termination of
    employment, unless such termination constitutes termination for
    cause. Under these agreements, Ms. Koons and
    Messrs. McAliley and Konowitch would continue to receive
    their then-current base salary for a period of 12 months
    following termination of employment, and Mr. Kurtz would
    receive such salary continuation for a period of six months
    following termination of employment.
    Benefits continuation.  While the company is
    not obligated pursuant to the salary continuation agreements to
    provide any continuation of benefits, the company has followed a
    policy over the years of reimbursing terminated employees who
    receive salary continuation for the cost of COBRA payments made
    by them during the applicable salary continuation period. The
    company expects that it would follow this policy with its named
    executive officers.    Impact
    of Performance on Compensation
  Performance goals for 2006.
  
    EBITDA means earnings before interest, taxes,
    depreciation and amortization, all as determined in accordance
    with United States generally accepted accounting principles,
    excluding restructuring and restructuring related costs, and,
    for Mr. Kurtz and Ms. Koons only, certain non-cash and
    one-time charges and product development costs.
    Cash flow means cash expenditures for product
    development and fixed assets (i.e., total capital expenditures)
    plus or minus the change in working capital (excluding changes
    in cash).      Target Bonus Percentages.
 112




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##### Table of Contents



Target BonusName

PercentagePeter J. Quandt


55.0
%Paul J. Crecca


44.0
%Linda Koons


44.0
%Kevin M. McAliley


40.0
%Mark Kurtz


27.5
%Paul Konowitch


35.0
%   Allocation of Bonus Percentage by Performance
    Measure.
  Allocation of Target Bonus Percentageby Performance MeasureNon-Financial GoalsFinancial Goals


(% of Target Bonus(% of Target Bonus Percentage)


Percentage)


TotalName

EBITDA


Cash Flow


Individual Goals


BonusPeter J. Quandt


45
%


10
%


45
%


100
%Paul J. Crecca


45
%


10
%


45
%


100
%Linda Koons


50
%


10
%


40
%


100
%Kevin M. McAliley


50
%


10
%


40
%


100
%Mark Kurtz


45
%


10
%


45
%


100
%Paul Konowitch


50
%


10
%


40
%


100
%   Financial Performance and Bonus Achievement
    Levels.
  Financial
    Performance and Bonus Achievement Levels
  % of Performance Goal Achieved

% of Bonus Percentage Allocation Achieved90%


50
%100%


100
%110% or higher


150
%     2006 Financial Goals.
 113




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##### Table of Contents



Overall
    Haights Cross Communications Goals
  EBITDA

Cash FlowThreshold


Target


Maximum

Threshold


Target


Maximum(90%)


(100%)


(110% or higher)

(90%)


(100%)


(110% or higher)(In thousands)

(In thousands)$
53,171


$
59,079


$64,987 or higher

$
(39,153
)

$
(35,594
)

$(32,035) or higher   Triumph Learning Sundance/Newbridge Triumph Learning
  2006 Individual Goals.
  
    Progress in connection with Sarbanes-Oxley implementation;
    Integration of sales teams;
    Achieve product development goals;
    Conduct investor relations activities;
    Lead and/or
    support the companys debt financing and capital structure
    activities, including debt covenant compliance; and
    Manage the companys audit and tax compliance efforts.    Actual
    performance vs. compensation paid for 2006.
  Triumph Learning Sundance/Newbridge
  Name

Percentage of Base SalaryMs. Koons


40.50
%Mr. McAliley


57.43
%Mr. Kurtz


26.06
%Mr. Konowitch


19.25
%  114




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##### Table of Contents



Conclusion
    Actions
    Taken Relating to Current Fiscal Year
  New Employment and Noncompetition
    Agreements.
    Terms of
    Employment Agreements
 Provision


Peter J. Quandt


Paul J. CreccaTerm:


Through December 31, 2009,
    with automatic extensions for periods of one year (the first
    possible extension date being January 1, 2010) unless
    either we or the executive has given written notice to the other
    not later than six months prior to the expiration of the term.


Through December 31, 2008,
    with automatic extensions for periods of one year (the first
    possible extension date being January 1, 2009) unless
    either we or the executive has given written notice to the other
    not later than six months prior to the expiration of the term.Base salary:


$502,302 for the year 2007,
    increasing by 4% in each subsequent year of the term.


$360,000 for the year 2007,
    increasing by 4% in each subsequent year of the term.Annual bonus:


Minimum annual cash bonus equal to
    55% of the base salary in effect for the applicable year.


Minimum annual cash bonus equal to
    44% of the base salary in effect for the applicable year.Other benefits:


Each executive is eligible to
    participate in all the compensation and benefit plans in which
    senior executives of the company are generally eligible to
    participate.Termination:By the company for
    Cause:


Each executive will receive his
    salary through the date of termination and any accrued but
    unpaid vacation, and will retain all of his rights to benefits
    earned prior to termination under benefit plans in which he
    participates (including any earned but unpaid bonus).By executive for any reason,
    including death or permanent disability:


In addition to the foregoing, each
    executive will be entitled to a cash lump sum payment of a
    pro-rated annual cash bonus for the year in which the
    termination occurs.By the Company without Cause or
    by executive for Good Reason (as defined in the agreement),
    subject to entering into a release of claims:


In addition to the foregoing,
    Mr. Quandt will be entitled to a cash lump sum payment
    equal to three (3) times the sum of (i) his base salary
    (calculated at the salary level in effect at the time of
    termination), plus (ii) an amount equal to the higher of
    the current year bonus that would be payable at the target
    level, or the actual bonus paid or payable for performance in
    the year prior to the year of termination, plus (iii) an
    amount equal to the annual cost of medical plan benefits under
    COBRA or similar plan. Will also be entitled to amounts payable
    under the noncompetition agreement described below.


In addition to the foregoing,
    Mr. Crecca will be entitled to a cash lump sum payment
    equal to two (2) times the sum of (i) his base salary
    (calculated at the salary level in effect at the time of
    termination), plus (ii) an amount equal to the higher of
    the current year bonus that would be payable at the target
    level, or the actual bonus paid or payable for performance in
    the year prior to the year of termination, plus (iii) an
    amount equal to the annual cost of medical plan benefits under
    COBRA or similar plan. Will also be entitled to amounts payable
    under the noncompetition agreement described below. 115




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##### Table of Contents



Provision


Peter J. Quandt


Paul J. CreccaDefinition of
    Cause


Cause means, for each executive: any action
    by executive involving theft, fraud, embezzlement or other act
    of similarly grave misconduct that results in significant damage
    to the business or reputation of the company; any
    material breach of the provisions of the employment agreement
    relating to treatment of confidential information, any material
    breach of the noncompetition agreement, or any material breach
    of any other material provision of the employment agreement by
    executive; any action
    by executive involving material malfeasance or material
    misconduct in connection with his employment, continuing failure
    to perform any material duties hereunder, or failure to follow
    any lawful, reasonable and material direction of the Board of
    Directors of the company; or executives
    conviction of any felony that involves dishonesty, fraud, or
    moral turpitude.Definition of Good
    Reason


Good Reason means, for each
    executive: the
    failure of the company to pay any amount due under the
    employment agreement; a material
    breach of the employment agreement by the company; a
    meaningful diminution by the company in the title, status,
    duties, powers, responsibilities or authority of the executive; the
    failure of any successor to the company (through merger or
    acquisition of assets or any other transaction that constitutes
    a sale event in which liabilities of the company of this nature
    are to be assumed) to assume and fully perform all of the
    remaining obligations of the company under the employment
    agreement; or the
    requirement by the company that the executive be based at any
    office more than ten miles from White Plains, New York;provided, however, that none of
    the foregoing events or matters will be deemed to constitute
    Good Reason if the company has, prior to the date of
    termination, fully cured and corrected the event or matter that
    would have constituted Good Reason.1In addition, each executive may
    elect to terminate for Good Reason during the
    period of three months that begins six months after a
    transaction or series of transactions in which the persons who
    on the date of the employment agreement beneficially owned the
    common stock of the company, the Preferred A of the company, and
    the Preferred B of the company have, in the case of each such
    class or series of stock, ceased to beneficially own at least
    50% of that class or series of stock and such persons, in the
    aggregate but regardless of whether acting as a group, no longer
    beneficially own securities of the company that enable them to
    effectively control the company through the power to elect at
    least 50% of the members of the Board of Directors (for this
    purpose, beneficially own and related terms
    have the meaning ascribed to them under Section 13(d) of
    the Exchange Act  116




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##### Table of Contents



Terms
    of Noncompetition Agreements
  Provision


Peter J. Quandt


Paul J. CreccaTerm


While employed by the company and
    for a period of 20 months following termination of
    employment


While employed by the company and
    for a period of 12 months following termination of
    employmentAdditional amounts payable upon
    termination by company without Cause or executive for Good
    Reason or as a result of death or permanent disability


Will receive monthly payments
    equal to $62,500 during the 20 month period following the
    termination.


Will receive monthly payments
    equal to $25,000 during the 12 month period following the
    terminationRestrictive covenants


Neither executive may: engage,
    participate, assist or invest in any competitive business (as
    defined in the agreement); directly
    or indirectly employ, attempt to employ, recruit, other
    otherwise solicit, induce or influence any person to leave
    employment with the company; or solicit or
    encourage any customer or supplier to terminate or otherwise
    modify adversely its business relationship with the companyDefinition of Competitive
    Business


Competitive Business
    means a business conducted in all or any portion of the
    United States which is competitive with any business which
    the company or any of its direct or indirect subsidiaries
    conducts as of and subsequent to the date of the noncompetition
    agreement. Notwithstanding the foregoing, each executive may own
    up to one percent (1%) of the outstanding stock of a publicly
    held corporation which constitutes or is affiliated with a
    Competing Business.   Incentive bonus goals for 2007.
  Board of
    Directors Report
  Regulation S-K Form 10-K.
       117




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##### Table of Contents



Compensation
    of Named Executive Officers
    Summary
    Compensation Table
  Non-


Change inEquity


Pension ValueIncentive


andPlan


NonqualifiedOption


Compen-


DeferredBonus


Stock


Awards


sation


Compensation


All OtherSalary


($)


Awards


($)


($)


Earnings


Compensation ($)


TotalName and Principal Position

Year


($)


(2)


($)


(3)


(4)


($)


(5)


($)Peter J. Quandt


2006


$
484,478


$
266,463


$



$



$







$
52,776


$
803,717Chairman of the Board, Chief
    Executive Officer and PresidentPaul J. Crecca


2006



344,698



181,667



















22,943



549,308Executive Vice President and
    Chief Financial OfficerKevin M. McAliley


2006



326,874















188,319







19,510



534,703Executive Vice President and
    President of Triumph LearningLinda Koons


2006



295,231















119,570







37,205



452,006Executive Vice President and
    PublisherPaul Konowitch(1)


2006



298,651











4,000



50,721







16,299



369,671President, Sundance/Newbridge
    Educational PublishingMark Kurtz


2006



209,115















74,493







13,000



296,608Vice President, Finance and
    Accounting, and Chief Accounting
    Officer     (1)
    
    Paul Konowitch, our former Senior Vice President of Corporate
    Development, was appointed President of our
    Sundance/Newbridge publishing unit effective
    January 9, 2006 and as of such date is no longer an
    executive officer of Haights Cross Communications.(2)
    
    Represents the minimum required bonuses paid to
    Messrs. Peter J. Quandt and Paul J. Crecca pursuant to
    their new employment agreements. See Compensation
    Discussion and Analysis-Actions Taken Relating to Current Fiscal
    Year. For Mr. Crecca, this amount includes a
    non-recurring $30,000 payment for services provided during 2006
    as interim Chief Financial Officer of Sundance/Newbridge.(3)
    
    The fair values of the options granted during the year ended
    December 31, 2006 were estimated on the dates of the grants
    using the Black-Scholes option-pricing model. Based on
    calculated Black-Scholes values, options granted on
    April 3, 2006 had a fair value of $0.10 per share and
    options granted on September 1, 2006 had a fair value of
    $0 per share. See Note 14 to our Consolidated
    Financial Statements included elsewhere in this Annual Report on
    Form 10-K
    for a description of the assumptions used in establishing such
    fair values.(4)
    
    Represents non-equity incentive payments earned pursuant to our
    Annual Management/Employee Bonus Plan. For Messrs. McAliley
    and Kurtz, also includes $1,374 and $20,000, respectively,
    earned under our 2006 Expense Savings Incentive Plan.(5)
    
    For each named executive officer, the amounts in this column
    consist of: (i) contributions made by the company under our
    401(k) plan; and (ii) car allowances. For
    Messrs. Quandt and Crecca, amounts in this 118




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##### Table of Contents



column also include amounts reimbursed to the named executive
    officer for legal fees incurred in connection with the
    preparation and negotiation of his new employment and
    noncompetition agreements.    Incentive
    Plans
  2000 Stock Option and Grant Plan.
       119




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##### Table of Contents



Number of Securities RemainingWeighted-Average


Available for Future IssuanceNumber of Securities to be Issued


Exercise Price


Under Equity CompensationUpon Exercise of Outstanding


of Outstanding Options,


Plans (Excluding SecuritiesPlan Category

Options, Warrants and Rights


Warrants and Rights


Reflected in Column(a))Equity compensation plans approved
    by securityholders


1,982,953


$
1.33



404,133Equity compensation plans not
    approved by securityholders










Total


1,982,953


$
1.33



404,133   Annual Management/ Employee Bonus Plan.
      2006 Expense Savings Incentive Plan.
 120




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##### Table of Contents



Grants of
    Plan-Based Awards
  AllOther


All OtherStock


OptionAwards:


Awards:


Exercise


GrantNumber of


Number of


or Base


DateEstimated Future Payouts Under Non-


Estimated Future Payouts Under


Shares


Securities


Price of


FairEquity Incentive Plan Awards(1)


Equity Incentive Plan Awards(2)


of Stock


Underlying


Option


Value ofGrant


Threshold


Target


Maximum


Threshold


Target


Maximum


or Units


Options


Awards


OptionName

Date


($)


($)


($)


(#)


(#)


(#)


(#)


(#)


($/Sh)


Price(3)Peter J. Quandt





$
132,704


$
265,408


$
398,112



























Paul J. Crecca





$
75,900


$
151,800


$
227,700



























Linda Koons


9/1/06


$
65,560


$
131,120


$
196,680







25,000











25,000


$
0.50



Kevin M. McAliley


9/1/06


$
64,400


$
128,800


$
193,200







15,000











15,000


$
0.50



Paul Konowitch


4/3/06


$
48,125


$
96,250


$
144,375







20,000











20,000


$
1.00


$
0.109/1/06



















10,000











10,000


$
0.50



Mark Kurtz


9/1/06


$
28,753


$
57,507


$
86,230







5,000











5,000


$
0.50



     (1)
    
    These amounts reflect the Threshold, Target and Maximum bonuses
    payable to our named executive officers under awards granted
    pursuant to our 2006 Annual Management/Employee Bonus Plan. All
    such awards have been paid, and the actual amounts paid are set
    forth in the Summary Compensation Table above. As discussed
    above, Messrs. Peter J. Quandt and Paul J. Crecca received
    the minimum bonus payments under their new employment agreements
    and were not paid pursuant to their non-equity incentive plan
    awards.(2)
    
    These numbers relate to outstanding option awards granted under
    our 2000 Stock Option and Grant Plan that are subject to
    performance-based vesting, and reflect the number of shares
    underlying such options that may vest if the applicable
    performance standards are achieved.(3)
    
    The fair values of the options granted during the year ended
    December 31, 2006 were estimated on the dates of the grants
    using the Black-Scholes option-pricing model. Based on
    calculated Black-Scholes values, options granted on
    April 3, 2006 had a fair value of $0.10 per share and
    options granted on September 1, 2006 had a fair value of
    $0 per share. See Note 14 to our Consolidated
    Financial Statements included elsewhere in this Annual Report on
    Form 10-K
    for a description of the assumptions used in establishing such
    fair values. 121




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##### Table of Contents



Outstanding
    Option Awards at Fiscal Year-End
  Option AwardsEquity IncentivePlan Awards:Number of


Number ofSecurities


SecuritiesNumber of


Underlying


UnderlyingSecurities Underlying


Unexercised


Unexercised





OptionUnexercised Options


Options


Unearned


Option


ExpirationName

Exercisable (#)


Unexercisable (#)


Options (#)


Exercise Price ($)


DatePeter J. Quandt


















Paul J. Crecca


37,500










$
2.84



10/1/0201312,500



12,500



7,500


$
1.00



10/1/02014Linda Koons


37,500



37,500



7,500


$
1.00



10/1/02014



25,000



25,000


$
0.50



09/01/2016Kevin M. McAliley


10,000










$
2.48



01/01/201280,000










$
0.83



01/01/201225,000










$
2.84



10/1/020138,750



8,750



5,250


$
1.00



10/1/02014



15,000



15,000


$
0.50



09/01/2016Paul Konowitch


7,500



7,500



4,500


$
1.00



10/1/02014



20,000



20,000


$
1.00



04/03/2016



10,000



10,000


$
0.50



09/01/2016Mark Kurtz


6,000










$
2.48



01/01/201215,000










$
0.83



01/01/201217,500










$
2.84



10/1/020132,500



2,500



1,500


$
1.00



10/1/020141,500



6,000






$
1.53



05/12/2015



5,000



5,000


$
0.50



09/01/2016   Option
    Exercises and Stock Vested
    Post-Employment
    Compensation
  Pension Benefits/401(k) Plan.
  Nonqualified Deferred Compensation.
  Other Post-Employment Payments. employees-at-will
 122




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##### Table of Contents



not-for-cause
  Potential
    Payments Upon Termination or Change of Control
  Peter J. Quandt.
  Involuntary Not


Involuntary forVoluntary


Permanent





Termination for


for Cause


Good ReasonExecutive Benefit

Termination


Disability


Death


Cause


Termination(1)


Termination(1)Accrued vacation

$
41,833


$
41,833


$
41,833


$
41,833


$
41,833


$
41,833Cash bonus through date of
    termination

$
276,266


$
276,266


$
276,266


$
276,266


$
276,266


$
276,266Cash severance

















$
2,385,174


$
2,385,174Noncompetition payments





$
1,250,000


$
1,250,000






$
1,250,000


$
1,250,000Total

$
318,099


$
1,568,099


$
1,568,099


$
318,099


$
3,953,273


$
3,953,273     (1)
    
    Under the terms of his employment agreement, upon an involuntary
    not for cause termination or an involuntary for good reason
    termination, Mr. Quandt, in addition to the other stated
    amounts, is entitled to receive cash severance equal to three
    (3) times the sum of (i) his base salary (calculated
    at the salary level in effect at the time of termination), plus
    (ii) an amount equal to the higher of the current year
    bonus that would be payable at the target level, or the actual
    bonus paid or payable for performance in the year prior to the
    year of termination, plus (iii) an amount equal to the
    annual cost of medical plan benefits under COBRA or similar
    plan. For purposes of this calculation, it is assumed that
    Mr. Quandts bonus for purposes of calculating the
    cash severance is equal to the minimum bonus required under his
    employment agreement of 55.0% of his base salary. 123




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##### Table of Contents



Paul J. Crecca.
  Involuntary Not


Involuntary forVoluntary


Permanent





Termination for


for Cause


Good ReasonExecutive Benefit

Termination


Disability


Death


Cause


Termination(1)


Termination(1)Accrued vacation

$
30,000


$
30,000


$
30,000


$
30,000


$
30,000


$
30,000Cash bonus through date of
    termination

$
158,400


$
158,400


$
158,400


$
158,400


$
158,400


$
158,400Cash severance

















$
1,069,780


$
1,069,780Noncompetition payments





$
300,000


$
300,000






$
300,000


$
300,000Total

$
188,400


$
488,400


$
488,400


$
188,400


$
1,558,180


$
1,558,180     (1)
    
    Under the terms of his employment agreement, upon an involuntary
    not for cause termination or an involuntary for good reason
    termination, Mr. Crecca, in addition to the other stated
    amounts, is entitled to receive cash severance equal to two
    (2) times the sum of (i) his base salary (calculated
    at the salary level in effect at the time of termination), plus
    (ii) an amount equal to the higher of the current year
    bonus that would be payable at the target level, or the actual
    bonus paid or payable for performance in the year prior to the
    year of termination, plus (iii) an amount equal to the
    annual cost of medical plan benefits under COBRA or similar
    plan. For purposes of this calculation, it is assumed that
    Mr. Creccas bonus for purposes of calculating the
    cash severance is equal to the minimum bonus required under his
    employment agreement of 44.0% of his base salary.  Other Named Executive Officers.
  Cost of COBRA ReimbursementName

Salary Continuation


During Salary Continuation Period


TotalLinda Koons

$
24,833 per month for 12 months


$
1,374.16 per month for 12 months


$
314,489Kevin M. McAliley

$
27,916 per month for 12 months


$
415.09 per month for 12 months


$
339,981Paul Konowitch

$
22,916 per month for 12 months






$
275,000Mark Kurtz

$
17,426 per month for 6 months


$
1,374.16 per month for 6 months


$
112,802   Director
    Compensation
  out-of-pocket
   Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    
    each person known by us to be the beneficial owner of more than
    5.0% of such stock;
    each of our directors;
    each named executive officer; and
    all of our directors and named executive officers as a group. 124




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##### Table of Contents



and/or and/or
  Shares Beneficially OwnedSeries A


TotalPreferred


VotingName of Beneficial Owner

Common Stock


Stock


PercentMedia/ Communications
    Partners III Limited Partnership and affiliates


14,342,193
(1)


20,397
(2)


71.7
%Peter J. Quandt


4,784,406



1,362



23.9
%Paul J. Crecca


459,747
(3)


0



2.3
%Linda Koons


52,835
(4)


0



*Kevin M. McAliley


160,416
(4)


0



*Mark Kurtz


50,450
(4)


0



*Christopher S. Gaffney


14,342,192
(1)


20,397
(2)


71.7
%Stephen F. Gormley


14,342,192
(1)


20,397
(2)


71.7
%Eugene I. Davis


0



0



*All directors and named executive
    officers as a group (ten persons)


19,917,198



21,759



97.5
%     *
    
    Less than 1%(1)
    
    This total includes 13,625,218 shares of common stock owned
    by Media/Communications Partners III Limited Partnership
    and 716,975 shares of common stock owned by M/C Investors
    L.L.C. Each of Messrs. Gaffney and Gormley is a limited
    partner and a member of the general partner of
    Media/Communications Partners III Limited Partnership and
    an investor in and managing member of M/C Investors L.L.C. Each
    of Messrs. Gaffney and Gormley disclaims beneficial
    ownership of such shares, except to the extent of his pecuniary
    interest therein.(2)
    
    This total includes 19,377 shares of Preferred A owned by
    Media/Communications Partners III Limited Partnership and
    1,020 shares of Preferred A owned by M/C Investors, L.L.C.
    Each of Messrs. Gaffney and Gormley is a limited partner
    and a member of the general partner of Media/Communications
    Partners III Limited Partnership and an investor in and
    managing member of M/C Investors L.L.C. Each of 125




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##### Table of Contents



Messrs. Gaffney and Gormley disclaims beneficial ownership
    of such shares, except to the extent of his pecuniary interest
    therein.(3)
    
    This total includes 89,747 shares of common stock issuable
    upon exercise of options which were exercisable as of
    April 2, 2007 or within 60 days thereafter.(4)
    
    Consists of shares of common stock issuable upon exercise of
    options which were exercisable as of April 2, 2007 or
    within 60 days thereafter.  Item 13.
    Certain
    Relationships and Related Transactions  day-to-day and/or and/or
  Regulation S-K
  Item 14.
    Principal
    Accountant Fees and Services.    Audit Fees. Form 10-Q,
  Audit-Related Fees.
  Tax Fees.
  All Other Fees.
 126




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statements and Schedules.    Financial Statements.
  Report of
    Ernst & Young LLP, Independent Registered Public
    Accounting Firm


54Consolidated
    Balance Sheets


55Consolidated
    Statements of Operations


56Consolidated
    Statements of Changes in Stockholders Deficit


57Consolidated
    Statements of Cash Flows


58Notes to
    Consolidated Financial Statements


592. Financial
    Statement SchedulesSchedule
    I  Condensed Financial Information


93Schedule II 
    Valuation and Qualifying Account Summary


95     Exhibits.
  ExhibitNo.

Exhibit Description2
.1

Asset Purchase Agreement, dated as
    of March 6, 2004, by and among Haights Cross
    Communications, Inc., Buckle Down Publishing Company and the
    other parties named therein, incorporated by reference to
    Exhibit 2.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed April 20, 20042
.2

Asset Purchase Agreement, dated as
    of November 11, 2004, by and among Haights Cross
    Communications, Inc., Haights Cross Operating Company, Options
    Publishing, LLC, Options Publishing, Inc., and certain
    stockholders of Options Publishing, Inc. named therein,
    incorporated by reference to Exhibit 2.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed December 6, 20042
.3

Purchase and Sale Agreement, dated
    as of November 11, 2004, by and between Options Publishing,
    LLC and Merrimack M&R Realty LLC, incorporated by reference
    to Exhibit 2.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 6, 20043
.1

Second Amended and Restated
    Certificate of Incorporation of Haights Cross Communications,
    Inc., incorporated by reference to Exhibit 3.1 of Haights
    Cross Communications, Inc.s Special Report on
    Form 10-K
    filed April 19, 20043
.1(a)

Certificate of Designations,
    Preferences and Rights of Series C Preferred Stock of
    Haights Cross Communications, Inc., incorporated by reference to
    Exhibit 3.1(a) of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-122750)
    filed February 11, 2005 127




---



##### Table of Contents



ExhibitNo.

Exhibit Description3
.2

Bylaws of Haights Cross
    Communications, Inc., incorporated by reference to
    Exhibit 3.2 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.3

Certificate of Incorporation of
    Haights Cross Operating Company, incorporated by reference to
    Exhibit 3.3 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg. No. 333-109381)
    filed October 2, 20033
.4

Bylaws of Haights Cross Operating
    Company, incorporated by reference to Exhibit 3.4 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.5

Certificate of Formation of
    Triumph Learning, LLC, incorporated by reference to
    Exhibit 3.7 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.6

Amended and Restated Limited
    Liability Company Agreement of Triumph Learning, LLC,
    incorporated by reference to Exhibit 3.8 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.7

Certificate of Formation of
    Oakstone Publishing, LLC, incorporated by reference to
    Exhibit 3.9 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.8

Amended and Restated Limited
    Liability Company Agreement of Oakstone Publishing, LLC,
    incorporated by reference to Exhibit 3.10 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.9

Certificate of Formation of
    Recorded Books, LLC, incorporated by reference to
    Exhibit 3.11 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.10

Amended and Restated Limited
    Liability Company Agreement of Recorded Books, LLC, incorporated
    by reference to Exhibit 3.12 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.11

Certificate of Formation of
    Sundance/ Newbridge Educational Publishing, LLC, incorporated by
    reference to Exhibit 3.13 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.12

Amended and Restated Limited
    Liability Company Agreement of Sundance/ Newbridge Educational
    Publishing, LLC, incorporated by reference to Exhibit 3.14
    of Haights Cross Communications, Inc.s Registration
    Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.13

Articles of Association of W F
    Howes Limited, incorporated by reference to Exhibit 3.17 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.14

Memorandum of Association of W F
    Howes Limited, incorporated by reference to Exhibit 3.18 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.15

Certificate of Formation of
    Options Publishing, LLC, incorporated by reference to
    Exhibit 3.19 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-122750)
    filed February 11, 20053
.16

Limited Liability Company
    Agreement of Options Publishing, LLC, incorporated by reference
    to Exhibit 3.20 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-122750)
    filed February 11, 2005 128




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##### Table of Contents



ExhibitNo.

Exhibit Description4
.1

Indenture, dated as of
    August 20, 2003, by and between Haights Cross Operating
    Company and Wells Fargo Bank Minnesota, N.A., as Trustee,
    incorporated by reference to Exhibit 4.1 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20034
.2

Form of Haights Cross Operating
    Company
    113/4% Senior
    Note due 2011, incorporated by reference to Exhibit 4.2 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20034
.3

Indenture, dated as of
    February 2, 2004, by and between Haights Cross
    Communications, Inc. and Wells Fargo Bank Minnesota, N.A., as
    Trustee, incorporated by reference to Exhibit 4.4 of
    Haights Cross Communications, Inc.s Special Report on
    Form 10-K
    filed April 19, 20044
.4

Form of Haights Cross
    Communications, Inc.
    121/2% Senior
    Discount Note due 2011, incorporated by reference to
    Exhibit 4.5 of Haights Cross Communications, Inc.s
    Special Report on
    Form 10-K
    filed April 19, 20044
.5

Supplemental Indenture, dated as
    of December 10, 2004, by and among Options Publishing, LLC,
    Haights Cross Operating Company, the guarantors signatory
    thereto, and Wells Fargo Bank, N.A., as trustee, supplementing
    the Indenture, dated as of August 20, 2003, among Haights
    Cross Operating Company, the guarantors named therein and Wells
    Fargo Bank, N.A., as trustee, incorporated by reference to
    Exhibit 4.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 15, 200410
.1

Lease Agreement, dated as of
    January 15, 2003, by and between Sundance Publishing, LLC
    and LIT Industrial Limited Partnership, incorporated by
    reference to Exhibit 10.1 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.2

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Christopher S. Gaffney,
    incorporated by reference to Exhibit 10.2 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.3

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Stephen F. Gormley,
    incorporated by reference to Exhibit 10.3 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.4

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Peter J. Quandt,
    incorporated by reference to Exhibit 10.4 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.5

Investors Registration Rights
    Agreement, dated as of December 10, 1999, by and among
    Haights Cross Communications, Inc., Haights Cross Operating
    Company and the Holders (as defined therein), incorporated by
    reference to Exhibit 10.6 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.6+

Haights Cross Communications, Inc.
    Restated 2000 Stock Option and Grant Plan, incorporated by
    reference to Exhibit 10.1 of Haights Cross Communications,
    Inc.s Current Report on
    Form 8-K
    filed September 28, 200410
.7+

Haights Cross Communications, Inc.
    401(k) Savings Plan, incorporated by reference to
    Exhibit 10.9 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 2003 129




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##### Table of Contents



ExhibitNo.

Exhibit Description10
.8

Term Loan Agreement, dated as of
    August 20, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto
    and Bear Stearns Corporate Lending Inc., as Administrative
    Agent, incorporated by reference to Exhibit 10.10 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.9

Revolving Credit Agreement, dated
    as of August 20, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.11 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg. No. 333-109381)
    filed October 2, 200310
.10

Amendment No. 1 and Consent
    No. 1 to Revolving Credit Agreement, dated as of
    January 26, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.11 of Haights Cross Communications,
    Inc.s Special Report on
    Form 10-K
    filed April 19, 200410
.11

Amendment No. 2 and Consent
    No. 2 to Revolving Credit Agreement, dated as of
    January 26, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.12 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-115017)
    filed April 30, 200410
.12

Amendment No. 3 and Consent
    No. 3, dated as of December 1, 2004, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.17 of Haights Cross
    Communications, Incs Annual Report on
    Form 10-K
    filed March 30, 200510
.13

Amendment No. 4 and Waiver
    No. 3, dated as of April 12, 2005, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 15, 200510
.14

Amendment No. 5 and Consent
    No. 4, dated as of August 9, 2005, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Quarterly Report on
    Form 10-Q
    filed November 14, 200510
.15

Amendment No. 6, dated as of
    March 30, 2006, to the Revolving Credit Agreement, dated as
    of August 20, 2003, by and among the Company, the several
    lenders from time to time parties thereto, Bear Stearns
    Corporate Lending, Inc., as Syndication Agent, and The Bank of
    New York, as administrative agent, incorporated by reference to
    Exhibit 10.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed March 30, 200610
.16

Amendment No. 7 and Waiver
    No. 4, dated as of March 28, 2007, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and the Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 3, 2007.10
.17+

Form of incentive stock option
    agreement for options with time based vesting schedules,
    incorporated by reference to Exhibit 10.2 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 2004 130




---



##### Table of Contents



ExhibitNo.

Exhibit Description10
.18+

Form of incentive stock option
    agreement for options with performance based vesting schedules,
    incorporated by reference to Exhibit 10.3 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 200410
.19

Term Loan Agreement, dated as of
    December 10, 2004, by and among Haights Cross Operating
    Company, Bear Stearns & Co. Inc., as lead arranger,
    Bear Stearns Corporate Lending Inc., as Administrative Agent,
    and the lenders party thereto, incorporated by reference to
    Exhibit 1.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 15, 200410
.20+

Description of the Haights Cross
    Communications, Inc. Annual Management/ Employee Bonus Plan,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 6, 200710
.21+

Description of the Haights Cross
    Communications, Inc. 2006 Expense Savings Incentive Plan,
    incorporated by reference to Exhibit 99.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 6, 200710
.22+

Employment Agreement, dated
    January 31, 2007, by and between the Company and Peter J.
    Quandt, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.23+

Noncompetition Agreement, dated
    January 31, 2007, by and between the Company and Peter J.
    Quandt, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.24+

Employment Agreement, dated
    January 31, 2007, by and between the Company and Paul J.
    Crecca, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.25+

Noncompetition Agreement, dated
    January 31, 2007, by and between the Company and Paul J.
    Crecca, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200712
.1*

Statement Regarding Computation of
    Ratio of Earnings to Fixed Charges14
.1

Code of Business Conduct and
    Ethics, incorporated by reference to Exhibit 14 of Haights
    Cross Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 200421
.1*

Subsidiaries of Haights Cross
    Communications, Inc.21
.2*

Subsidiaries of Haights Cross
    Operating Company21
.3

Subsidiaries of Recorded Books,
    LLC, incorporated by reference to Exhibit 21.3 of Haights
    Cross Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200324
.1*

Power of Attorney (Included in
    signature page)31
.1*

Rule 13a-14(a)/15d-14(a)
    Certification of Peter J. Quandt31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification of Paul J. Crecca32
**     +
    
    Indicates a management contract or any compensatory plan,
    contract or arrangement*
    
    Filed herewith**
    
    The Company is not an issuer, as the term is
    defined by Section 2(a)(7) of the Sarbanes-Oxley Act of
    2002 (the Act), because it does not have a class of
    securities registered under Section 12 of the Securities
    Act and it is not required to file reports under
    Section 15(d) of the Exchange Act. Accordingly, the Company
    is not required to file the certifications that are otherwise
    required by 18 U.S.C. Section 1350, which were adopted
    as Section 906 of the Act. 131




---



##### Table of Contents



SIGNATURES      By:
    /s/  PETER
    J. QUANDT   Chairman of the Board of Directors, Chief
 Executive Officer and President
 (Principal Executive Officer)
    POWER OF
    ATTORNEY
    attorney-in-fact, Form 10-K, attorney-in-fact
  Signature

Title

Date/s/  PETER
    J. QUANDTPeter
    J. Quandt

Chairman of the Board of
    Directors, Chief Executive Officer and President

July 19, 2007/s/  PAUL
    J. CRECCAPaul
    J. Crecca

Director, Executive Vice President
    and Chief Financial Officer

July 19, 2007/s/  MARK
    KURTZMark
    Kurtz

Vice President, Finance and
    Accounting and Chief Accounting Officer

July 19, 2007/s/  CHRISTOPHER
    S. GAFFNEYChristopher
    S. Gaffney

Director

July 19, 2007/s/  STEPHEN
    F. GORMLEYStephen
    F. Gormley

Director

July 19, 2007/s/  EUGENE
    I. DAVISEugene
    I. Davis

Director      132




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##### Table of Contents



EXHIBIT INDEX  ExhibitNo.

Exhibit Description2
.1

Asset Purchase Agreement, dated as
    of March 6, 2004, by and among Haights Cross
    Communications, Inc., Buckle Down Publishing Company and the
    other parties named therein, incorporated by reference to
    Exhibit 2.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed April 20, 20042
.2

Asset Purchase Agreement, dated as
    of November 11, 2004, by and among Haights Cross
    Communications, Inc., Haights Cross Operating Company, Options
    Publishing, LLC, Options Publishing, Inc., and certain
    stockholders of Options Publishing, Inc. named therein,
    incorporated by reference to Exhibit 2.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed December 6, 20042
.3

Purchase and Sale Agreement, dated
    as of November 11, 2004, by and between Options Publishing,
    LLC and Merrimack M&R Realty LLC, incorporated by reference
    to Exhibit 2.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 6, 20043
.1

Second Amended and Restated
    Certificate of Incorporation of Haights Cross Communications,
    Inc., incorporated by reference to Exhibit 3.1 of Haights
    Cross Communications, Inc.s Special Report on
    Form 10-K
    filed April 19, 20043
.1(a)

Certificate of Designations,
    Preferences and Rights of Series C Preferred Stock of
    Haights Cross Communications, Inc., incorporated by reference to
    Exhibit 3.1(a) of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-122750)
    filed February 11, 20053
.2

Bylaws of Haights Cross
    Communications, Inc., incorporated by reference to
    Exhibit 3.2 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.3

Certificate of Incorporation of
    Haights Cross Operating Company, incorporated by reference to
    Exhibit 3.3 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.4

Bylaws of Haights Cross Operating
    Company, incorporated by reference to Exhibit 3.4 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.5

Certificate of Formation of
    Triumph Learning, LLC, incorporated by reference to
    Exhibit 3.7 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.6

Amended and Restated Limited
    Liability Company Agreement of Triumph Learning, LLC,
    incorporated by reference to Exhibit 3.8 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.7

Certificate of Formation of
    Oakstone Publishing, LLC, incorporated by reference to
    Exhibit 3.9 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.8

Amended and Restated Limited
    Liability Company Agreement of Oakstone Publishing, LLC,
    incorporated by reference to Exhibit 3.10 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.9

Certificate of Formation of
    Recorded Books, LLC, incorporated by reference to
    Exhibit 3.11 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.10

Amended and Restated Limited
    Liability Company Agreement of Recorded Books, LLC, incorporated
    by reference to Exhibit 3.12 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.11

Certificate of Formation of
    Sundance/ Newbridge Educational Publishing, LLC, incorporated by
    reference to Exhibit 3.13 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 2003 133




---



##### Table of Contents



ExhibitNo.

Exhibit Description3
.12

Amended and Restated Limited
    Liability Company Agreement of Sundance/ Newbridge Educational
    Publishing, LLC, incorporated by reference to Exhibit 3.14
    of Haights Cross Communications, Inc.s Registration
    Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.13

Articles of Association of W F
    Howes Limited, incorporated by reference to Exhibit 3.17 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.14

Memorandum of Association of W F
    Howes Limited, incorporated by reference to Exhibit 3.18 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20033
.15

Certificate of Formation of
    Options Publishing, LLC, incorporated by reference to
    Exhibit 3.19 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-122750)
    filed February 11, 20053
.16

Limited Liability Company
    Agreement of Options Publishing, LLC, incorporated by reference
    to Exhibit 3.20 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg. No. 333-122750)
    filed February 11, 20054
.1

Indenture, dated as of
    August 20, 2003, by and between Haights Cross Operating
    Company and Wells Fargo Bank Minnesota, N.A., as Trustee,
    incorporated by reference to Exhibit 4.1 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 20034
.2

Form of Haights Cross Operating
    Company
    113/4% Senior
    Note due 2011, incorporated by reference to Exhibit 4.2 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg. No. 333-109381)
    filed October 2, 20034
.3

Indenture, dated as of
    February 2, 2004, by and between Haights Cross
    Communications, Inc. and Wells Fargo Bank Minnesota, N.A., as
    Trustee, incorporated by reference to Exhibit 4.4 of
    Haights Cross Communications, Inc.s Special Report on
    Form 10-K
    filed April 19, 20044
.4

Form of Haights Cross
    Communications, Inc.
    121/2%
    Senior Discount Note due 2011, incorporated by reference to
    Exhibit 4.5 of Haights Cross Communications, Inc.s
    Special Report on
    Form 10-K
    filed April 19, 20044
.5

Supplemental Indenture, dated as
    of December 10, 2004, by and among Options Publishing, LLC,
    Haights Cross Operating Company, the guarantors signatory
    thereto, and Wells Fargo Bank, N.A., as trustee, supplementing
    the Indenture, dated as of August 20, 2003, among Haights
    Cross Operating Company, the guarantors named therein and Wells
    Fargo Bank, N.A., as trustee, incorporated by reference to
    Exhibit 4.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 15, 200410
.1

Lease Agreement, dated as of
    January 15, 2003, by and between Sundance Publishing, LLC
    and LIT Industrial Limited Partnership, incorporated by
    reference to Exhibit 10.1 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.2

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Christopher S. Gaffney,
    incorporated by reference to Exhibit 10.2 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.3

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Stephen F. Gormley,
    incorporated by reference to Exhibit 10.3 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.4

Director Indemnification
    Agreement, dated as of December 10, 1999, by and between
    Haights Cross Communications, Inc. and Peter J. Quandt,
    incorporated by reference to Exhibit 10.4 of Haights Cross
    Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 2003 134




---



##### Table of Contents



ExhibitNo.

Exhibit Description10
.5

Investors Registration Rights
    Agreement, dated as of December 10, 1999, by and among
    Haights Cross Communications, Inc., Haights Cross Operating
    Company and the Holders (as defined therein), incorporated by
    reference to Exhibit 10.6 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.6+

Haights Cross Communications, Inc.
    Restated 2000 Stock Option and Grant Plan, incorporated by
    reference to Exhibit 10.1 of Haights Cross Communications,
    Inc.s Current Report on
    Form 8-K
    filed September 28, 200410
.7+

Haights Cross Communications, Inc.
    401(k) Savings Plan, incorporated by reference to
    Exhibit 10.9 of Haights Cross Communications, Inc.s
    Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.8

Term Loan Agreement, dated as of
    August 20, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto
    and Bear Stearns Corporate Lending Inc., as Administrative
    Agent, incorporated by reference to Exhibit 10.10 of
    Haights Cross Communications, Inc.s Registration Statement
    on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.9

Revolving Credit Agreement, dated
    as of August 20, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.11 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200310
.10

Amendment No. 1 and Consent
    No. 1 to Revolving Credit Agreement, dated as of
    January 26, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.11 of Haights Cross Communications,
    Inc.s Special Report on
    Form 10-K
    filed April 19, 200410
.11

Amendment No. 2 and Consent
    No. 2 to Revolving Credit Agreement, dated as of
    January 26, 2003, by and among Haights Cross Operating
    Company, the Several Lenders from time to time parties thereto,
    Bear Stearns Corporate Lending Inc., as Syndication Agent and
    The Bank of New York, as Administrative Agent, incorporated by
    reference to Exhibit 10.12 of Haights Cross Communications,
    Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-115017)
    filed April 30, 200410
.12

Amendment No. 3 and Consent
    No. 3, dated as of December 1, 2004, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.17 of Haights Cross
    Communications, Incs Annual Report on
    Form 10-K
    filed March 30, 200510
.13

Amendment No. 4 and Waiver
    No. 3, dated as of April 12, 2005, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 15, 200510
.14

Amendment No. 5 and Consent
    No. 4, dated as of August 9, 2005, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and The Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Quarterly Report on
    Form 10-Q
    filed November 14, 200510
.15

Amendment No. 6, dated as of
    March 30, 2006, to the Revolving Credit Agreement, dated as
    of August 20, 2003, by and among the Company, the several
    lenders from time to time parties thereto, Bear Stearns
    Corporate Lending, Inc., as Syndication Agent, and The Bank of
    New York, as administrative agent, incorporated by reference to
    Exhibit 10.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed March 30, 2006 135




---



##### Table of Contents



ExhibitNo.

Exhibit Description10
.16

Amendment No. 7 and Waiver
    No. 4, dated as of March 28, 2007, to the Revolving
    Credit Agreement, dated as of August 20, 2003, by and among
    the Company, the several lenders from time to time parties
    thereto, Bear Stearns Corporate Lending, Inc., as Syndication
    Agent, and the Bank of New York, as administrative agent,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 3, 2007.10
.17+

Form of incentive stock option
    agreement for options with time based vesting schedules,
    incorporated by reference to Exhibit 10.2 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 200410
.18+

Form of incentive stock option
    agreement for options with performance based vesting schedules,
    incorporated by reference to Exhibit 10.3 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 200410
.19

Term Loan Agreement, dated as of
    December 10, 2004, by and among Haights Cross Operating
    Company, Bear Stearns & Co. Inc., as lead arranger,
    Bear Stearns Corporate Lending Inc., as Administrative Agent,
    and the lenders party thereto, incorporated by reference to
    Exhibit 1.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed December 15, 200410
.20+

Description of the Haights Cross
    Communications, Inc. Annual Management/ Employee Bonus Plan,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 6, 200710
.21+

Description of the Haights Cross
    Communications, Inc. 2006 Expense Savings Incentive Plan,
    incorporated by reference to Exhibit 99.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 6, 200710
.22+

Employment Agreement, dated
    January 31, 2007, by and between the Company and Peter J.
    Quandt, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.23+

Noncompetition Agreement, dated
    January 31, 2007, by and between the Company and Peter J.
    Quandt, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.24+

Employment Agreement, dated
    January 31, 2007, by and between the Company and Paul J.
    Crecca, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.25+

Noncompetition Agreement, dated
    January 31, 2007, by and between the Company and Paul J.
    Crecca, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200712
.1*

Statement Regarding Computation of
    Ratio of Earnings to Fixed Charges14
.1

Code of Business Conduct and
    Ethics, incorporated by reference to Exhibit 14 of Haights
    Cross Communications, Inc.s Current Report on
    Form 8-K
    filed September 28, 200421
.1*

Subsidiaries of Haights Cross
    Communications, Inc.21
.2*

Subsidiaries of Haights Cross
    Operating Company21
.3

Subsidiaries of Recorded Books,
    LLC, incorporated by reference to Exhibit 21.3 of Haights
    Cross Communications, Inc.s Registration Statement on
    Form S-4
    (Reg.
    No. 333-109381)
    filed October 2, 200324
.1*

Power of Attorney (Included in
    signature page)31
.1*

Rule 13a-14(a)/15d-14(a)
    Certification of Peter J. Quandt31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification of Paul J. Crecca32
**     +
    
    Indicates a management contract or any compensatory plan,
    contract or arrangement*
    
    Filed herewith 136




---



##### Table of Contents



**
    
    The Company is not an issuer, as the term is
    defined by Section 2(a)(7) of the Sarbanes-Oxley Act of
    2002 (the Act), because it does not have a class of
    securities registered under Section 12 of the Securities
    Act and it is not required to file reports under
    Section 15(d) of the Exchange Act. Accordingly, the Company
    is not required to file the certifications that are otherwise
    required by 18 U.S.C. Section 1350, which were adopted
    as Section 906 of the Act. 137