##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2007Oro

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
    Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   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


17Item 1B.


Unresolved Staff Comments


24Item 2.


Properties


24Item 3.


Legal Proceedings


25Item 4.


Submission of Matters to a Vote of Security
    Holders


25Part IIItem 5.


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


26Item 6.


Selected Financial Data


27Item 7.


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


31Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


55Item 8.


Financial Statements and Supplementary Data


55Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


95Item 9A.


Controls and Procedures


95Item 9B.


Other Information


96Part IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


96Item 11.


Executive Compensation


99Item 12.


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


117Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


120Item 14.


Principal Accounting Fees and Services


121Part IVItem 15.


Exhibits, Financial Statements and Schedules


122Exhibit List


123Signatures


127EX-4.6: FORM OF WARRANT FOR THE PURCHASE OF COMMON STOCKEX-12.1: STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1: SUBSIDIARIES OF HAIGHTS CROSS COMMUNICATIONS, INC. AND 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
  Form 10-K, Sundance/Newbridge
    
    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. A sale process for Sundance/Newbridgebusiness
    began in November 2007, and on March 17, 2008 the Board of
    Directors resolved to initiate a phased wind-down of the
    operations of Sundance/Newbridge.
    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, Coach and 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
  Recapitalization
    and Strategic Review
    , Sundance/Newbridge Options
    Publishing Triumph Learning Triumph Learning Recorded Books Oakstone Publishing undance/Newbridge.
  Business
    Segments
    K-12
    Supplemental Education
  Sundance Publishing Newbridge Educational
    Publishing.
 4




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##### Table of Contents



Sundance/Newbridge
  Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge Triumph Learning
  Sundance Publishing/Newbridge Educational
    Publishing. Sundance Sundance Newbridge
 5




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##### Table of Contents



Sundance/Newbridge
  Product Line

Grades

DescriptionNewbridge Discovery Links  
     Science(Discovery Links 2) Social Studies(Discovery Links) Discovery Links Nonfiction Big Books

K-5th

Non-fiction, guided reading programs and teaching resources,
    containing photographs and supporting text designed to engage
    students. 50 titles available in Big Book format for whole group
    instruction.Sundance Alpha Kids

K-2nd

A large collection of guided readers of graduating difficulty to
    support small group instruction, with an additional assessment
    kit available.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.Newbridge Early Science

K-2nd

Standards-based science program with Big Books and matching
    student books at three levels for differentiated instructionNewbridge Reading Quest

6th-8th

Leveled content-area reading for teaching social studies and
    science.Sundance Hi-Lo Reading

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-3rd

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.Sundance/Newbridge Nonfiction Theme Sets

1st-3rd

Theme Sets in science, social studies and math with Big Books,
    matching student books, and theme-related leveled readers for
    differentiated instruction.Newbridge Fluency Practice

3rd -5th

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

1st -5th

Five fiction and five 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
 6




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Test-prep
    and Intervention
  Triumph Learning. Coach Buckle Down Options Publishing. T Coach Buckle Down
  Options Publishing Triumph
    Learning Options Publishing Triumph Learning Options Publishing Triumph Learning Triumph Learning Triumph
    Learning Sundance/Newbridge
  Triumph Learning Coach Buckle Down U.S. K-12 Triumph Learning
  Triumph Learning Triumph
    Learnings Coach 200-300 Buckle Down 175-225
  Triumph Learning Buckle Down
  Product Line

Grades

DescriptionCoach

1-12th

Approximately 850 state-specific test-prep workbooks
    covering 21 states; and 450 complementary skills books and
    collections of state-specific practice tests.Buckle Down

3rd-12th

Approximately 560 state-specific test-prep workbooks
    covering 17 states; 40 nationally standardized test
    preparation books; collections of state-specific practice tests.   Triumph Learning Coach Buckle Down
 7




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##### Table of Contents



Options Publishing. Options
    Publishing Options Publishing 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
  Triumph Learning Coach Buckle Down Options Publishing
  Library
  Recorded Books Recorded Books
  Recorded Books.  Recorded Books Recorded Books Recorded Books Recorded Books Recorded Books Recorded
    Books
 8




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Recorded Books Recorded Books Recorded Books
  Recorded Books The Modern
    Scholar Pimsleur Language Recorded Books Recorded Books Audio Adventures Landmark
  Recorded Books 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
   9




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##### Table of Contents



Oakstone Medical
  Oakstone Medical CMEinfo CMEinfo CMEinfo Practical Reviews CMEinfo , Oakstone Medical
  Oakstone Wellness Publishing.  Oakstone Wellness Top Health Oakstone Wellness Personal Best
  Oakstone Medical 30-year
  Oakstone
  Seasonality
    Customers
    K-12 Supplemental Education. Sundance Newbridge
  Test-prep and Intervention.  Triumph Learning
  Library.  Recorded Books Recorded Books
 10




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Medical Education.  Oakstone Medical Publishing and/or
  Product
    and Content Development
      Identification of New Product Lines.
  Development of New Titles. Recorded Books Oakstone Medical Oakstone Wellness
    K-12
    Supplemental Education
  Sundance/Newbridge
   11




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##### Table of Contents



Test-Prep
    and Intervention
  Triumph Learning Coach Triumph
    Learning Coach Triumph Learnings Coach Triumph
    Learnings
  Triumph Learning Triumph Learning Triumph Learning Triumph
    Learning
  Triumph Learnings Buckle Down Buckle Down
  Triumph Learnings Options Publishing Options Publishing Options Publishing
  Library
  Recorded Books Recorded Books Recorded Books Recorded Books Recorded Books Recorded Books
  Recorded Books Recorded Books
 12




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##### Table of Contents



Recorded Books
  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
  Sales and
    Marketing
     13




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##### Table of Contents



K-12
    Supplemental Education
  Sundance/Newbridge Sundance/Newbridge
  Sundance/Newbridge
  Sundance/Newbridge
  Test-prep
    and Intervention
  Triumph Learning Triumph Learning Triumph Learning Triumph Learning Triumph Learning Triumph Learning
  Triumph Learnings Buckle Down Triumph Learning Buckle Down Buckle
    Down Options Publishing
  Triumph Learnings Options Publishing Options
    Publishing Options Publishing Options Publishing
  Library
  Recorded Books Recorded Books Recorded Books
  Recorded Books Recorded Books
 14




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##### Table of Contents



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




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##### Table of Contents



Medical Education.  Oakstone Medical Practical
    Reviews Oakstone
    Wellness
  Seasonality
    and Quarterly Results of Operations
    Production
    and Fulfillment
        Intellectual
    Property
      Environmental
    Regulation
   16




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##### Table of Contents



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.
  Risks
    Related to Our Business
  Our
    substantial leverage and indebtedness and our working capital
    deficiency may adversely affect our ability to operate our
    business as a going concern following the maturity of our senior
    secured term loans.
        
    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, investments
    and alliances and other general corporate requirements; 17




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
    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 or extending existing 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.  Our
    sales strategy entails significant risks.
  Triumph Learning Recorded Books Oakstone Publishing and/or
  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;
    amend or otherwise alter debt and other material
    agreements; and
    alter the business we conduct.   18




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A
    change of control in us could result in an event of default
    under our debt agreements.
    Our
    debt agreements will restrict our use of proceeds that we
    receive from any sales of our assets.
    We
    will be required to pay significant premiums if we elect to
    voluntarily redeem our senior notes and senior discount notes
    prior to their maturity
    We
    have a history of losses, which we expect to continue, and we
    might not ever achieve or maintain profitability.
  Form 10-K.
 19




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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.
  We operate in highly competitive markets.
    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 that may cause us to incur significant costs
    and may divert management attention.
   20




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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.
   21




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Our
    business may be adversely affected by an increase in paper or
    postage costs.
    A
    limited number of stockholders own a large percentage of our
    common stock and will be able to influence or control
    substantially all corporate decisions.
    
    interests in our outstanding senior secured term loans, senior
    notes, senior discount notes or other obligations;
    investments in media businesses and businesses that support or
    enhance media properties, including publishing businesses;
    ownership of controlling or non-controlling interests in media
    and related businesses, including publishing businesses, some of
    which may compete with us; and
    the participation in the acquisition of one or more of our
    business units in connection with our sales process.    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.
   22




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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.
    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 and in the course of such compliance have
    discovered a material weakness in our internal controls, which
    if not properly remediated could result in misstatements in our
    financial statements in future periods.
  Form 10-K
 23




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Future
    transactions may limit our ability to use our net operating loss
    carryforwards.
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.  Options Publishing
  Leased Locations As of December 31, 2006

Use

Sq. Ft.


Expiration Date302 N Washington Ave, Moorestown, NJ(3)(7)

Office


250


February 28,20098310 Capital of Tx Hy, Austin, TX(2)

Office


2,910


April, 30, 2009One 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, 2010301 Bugeye Square, Prince Frederick, MD(1)

Warehouse


9,000


March 31, 2010826-828
    Broadway, New York, NY(1)

Recording Studios


11,500


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

Office


9,955


March 31, 2011200 Skipjack Road, Prince Frederick, MD(1)

Warehouse


23,000


November 30, 2012Units 4 Rearsby Business Park, Rearsby, UK(1)

Warehouse/Office


20,000


December 31, 2015100 Corporate Parkway, Birmingham, AL(3)

Office


32,624


January 31, 2013     (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. 24




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##### Table of Contents



(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 lease was renewed after the expiration date.    Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.  Form 8-K
 25




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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
    Recent
    Sales of Unregistered Securities; Use of Proceeds from
    Registered Securities.
  and/or
 26




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Item 6.
    Selected
    Financial Data.  Form 10-K.
  Year Ended December 31,2003


2004


2005


2006


2007(Dollars in thousands)Consolidated Statements of OperationsData:Revenue:K-12 Supplemental Education

$
44,763


$
48,450


$
43,096


$
34,296


$
27,293Test-prep and Intervention


25,171



34,421



64,501



73,909



86,074Library


61,137



68,878



76,626



81,328



84,529Medical Education


18,188



19,144



26,262



32,471



34,050Total revenue


149,259



170,893



210,485



222,004



231,946Cost of goods sold


45,925



52,998



60,864



62,429



65,388Selling, general and administrative expense(1)


61,751



74,300



94,527



105,709



116,528Amortization of pre-publication costs(2)


6,835



9,106



13,150



17,733



19,032Goodwill impairment charges(3)














34,812



Asset impairment charges(4)














2,886



10,723Depreciation and amortization


2,099



2,954



5,038



5,499



5,782Income (loss) from operations


32,649



31,535



36,906



(7,064
)


14,493Gain on troubled debt restructuring(8)


















115,489Interest expense and other(5)(6)


(34,226
)


(50,281
)


(61,215
)


(66,256
)


(62,272
)(Loss) income before taxes, discontinued operations and
    cumulative effect of accounting change


(1,577
)


(18,746
)


(24,309
)


(73,320
)


67,710Benefit (provision) for income tax


(3,510
)


(3,880
)


(4,952
)


1,601



(4,038
)(Loss) income before discontinued operations and cumulative
    effect of accounting change


(5,087
)


(22,626
)


(29,261
)


(71,719
)


63,672Loss from discontinued operations


(289
)


(3,788
)


(4,976
)


(1,136
)


(122
)Cumulative effect of accounting change(7)










2,213







Net (loss) income

$
(5,376
)

$
(26,414
)

$
(32,024
)

$
(72,855
)

$
63,550   27




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##### Table of Contents



Year Ended December 31,2003


2004


2005


2006


2007(Dollars in thousands)Other Financial Data:EBITDA(9)

$
41,583


$
43,595


$
55,094


$
53,866


$
50,030Additions to pre-publication costs(2)


10,833



12,163



21,877



22,852



21,778Additions to property and equipment


2,815



3,248



3,831



2,759



2,976Interest expense(5),(6)


19,928



48,194



59,328



65,787



61,772Net cash provided by (used in):Operating activities


30,026



21,233



24,491



25,930



20,229Investing activities


(6,079
)


(93,306
)


(29,483
)


(24,234
)


(24,803
)Financing activities


6,798



116,569



(1,802
)


(1,393
)


(3,426
)Ratio of earnings to fixed charges(10)


















2.0   As of December 31,2003


2004


2005


2006


2007(Dollars in thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
32,389


$
78,581


$
69,592


$
69,847



61,784Working capital (deficiency)


49,588



94,647



76,483



72,841



(61,518
)Total assets


265,522



399,703



401,319



362,686



344,713Total debt(6)(8)


239,750



492,848



520,743



552,769



414,882Redeemable preferred stock(6)(8)


143,663



36,882



37,717



41,051



Total stockholders deficit


(163,897
)


(192,819
)


(228,121
)


(303,918
)


(146,829
)    (1)
    
    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, 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. For the year ended
    December 31, 2007, our selling, general and administrative
    expense includes restructuring charges of $2.6 million
    related to Sundance/Newbridge, Buckle Down Publishingand
    Options Publishing businesses.(2)
    
    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 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.(3)
    
    On January 1, 2002 we adopted SFAS No. 142,
    Goodwill and Other Intangible Assets. We performed
    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/Newbridgeand Options Publishing
    businesses. (See Note 9, Goodwill, of our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.) 28




---



##### Table of Contents



(4)
    
    Results of operations for the year ended December 31, 2006
    included a $2.9 million impairment of pre-publication costs
    related to our Sundance/Newbridge business due to the
    continued declines in revenues and operating profits. During the
    second quarter 2007 the Company completed an impairment test of
    the pre-publication assets of the Sundance/Newbridgebusiness at the series level, due to continued declines in
    revenues and operating profits, which resulted in a
    $2.2 million charge. On November 5, 2007 the Board of
    Directors authorized a plan to sell the Sundance/Newbridgebusiness and subsequently authorized the orderly wind-down
    of this business. Since Management could not assure a sale could
    be completed within 12 months this business was not
    considered a discontinued operation. A valuation of the long
    term assets at fair value was prepared in connection with the
    plan to orderly wind down the Sundance/Newbridgebusiness
    and as a result an impairment charge of $7.9 million was
    recorded in the fourth quarter of 2007. In addition, the fourth
    quarter of 2007 included a restructuring of our Test-prep and
    Interventionsegment with the consolidating of our
    Options Publishingbusiness into our Triumph Learningbusiness. In connection with the consolidation, our building
    located in Merrimack, New Hampshire was abandoned and offered
    for sale resulting in a $0.6 million impairment charge from
    a fair value assessment of the building.(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)
    
    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
    Series B Senior Preferred Stock (Preferred B)
    be classified as interest expense on a going forward basis. (See
    Note 16, Equity and Redeemable Preferred Stock,
    of our consolidated financial statements included elsewhere in
    this Annual Report on
    Form 10-K.)
    On August 10, 2007, we consummated the Recapitalization
    Agreement and under the terms of the Recapitalization Agreement,
    holders of our previously outstanding Series A Preferred
    Stock (Preferred A), Preferred B and Series C
    Preferred Stock (Preferred C) converted their shares
    into shares of common stock. (See Recapitalization
    Transaction in Note 3 of our consolidated financial
    statements included elsewhere in this Annual Report on
    Form 10-K)(7)
    
    The financial statements for the year ended December 31,
    2005 include a change in accounting 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. On August 10,
    2007 we consummated the recapitalization pursuant to the
    Recapitalization Agreement (See Recapitalization
    Transaction in Note 3 of our consolidated financial
    statements included elsewhere in this Annual Report on
    Form 10-K).
    Upon the closing of the Recapitalization Agreement, all
    outstanding shares of Preferred Warrants were converted into
    warrants to acquire common stock at an agreed upon rate.(8)
    
    On August 10, 2007, we consummated the Recapitalization
    Agreement and under the terms of the Recapitalization Agreement,
    holders of our previously outstanding Preferred A, Preferred B
    and Preferred C converted their shares into shares of common
    stock. (See Recapitalization Transaction in
    Note 3 of our consolidated financial statements included
    elsewhere in this Annual Report on
    Form 10-K).
    The Company recorded a gain of $115.5 million on troubled
    debt restructuring in the year ended December 31, 2007,
    based on the difference in carrying value of the Preferred B
    compared to the fair value, based on an independent appraisal,
    of the common shares exchanged. The gain includes approximately
    $1.9 million in transaction costs and a $2.8 million
    benefit from consequential balance sheet write offs, primarily
    the unamortized portion of the deferred gain on Preferred B. The
    recapitalization of the Preferred A and Preferred C also
    resulted in gains based on their carrying value compared to the
    fair value of the common shares exchanged, but because of their
    classification as equity instruments, the gains of
    $33.0 million and $1.3 million, respectively, are
    reflected as Gain on Recapitalization in the calculation of net
    income available to common stockholders. 29




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##### Table of Contents



(9)
    
    We define EBITDA as net income (net loss) before
    interest, taxes, depreciation, amortization, discontinued
    operations, cumulative effect of a change in accounting and gain
    on troubled debt restructuring. 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;
    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 30




---



##### Table of Contents



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 31,2003


2004


2005


2006


2007(Dollars in thousands)Reconciliation of net loss to
    EBITDA:Net (loss) income

$
(5,376
)

$
(26,414
)

$
(32,024
)

$
(72,855
)


63,550Cumulative effect of accounting change










(2,213
)






Net loss from discontinued operations


289



3,788



4,976



1,136



122Gain on troubled debt restructuring(8)


















115,489Interest expense and other expense (income), including income
    taxes


37,736



54,161



66,167



64,655



66,310Income (loss) from operations


32,649



31,535



36,906



(7,064
)


14,493Amortization of pre-publication costs


6,835



9,106



13,150



17,733



19,032Goodwill and asset impairment charges














37,698



10,723Depreciation and amortization of intangibles


2,099



2,954



5,038



5,499



5,782EBITDA

$
41,583


$
43,595


$
55,094


$
53,866


$
50,030   (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. Earnings for the year ended
    December 31, 2007 included a $115.5 million gain on
    troubled debt restructuring. Excluding the impact of this gain,
    earning would have been insufficent to cover fixed charges  by
    $47.8 million. 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 Form 10-K,
 31




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##### Table of Contents



Form 10-K Form 10-K,
  and/or and/or
  Form 10-K
 32




---



##### Table of Contents



Recent
    Developments
            Options Publishing Triumph
    Learning Options Publishing Triumph Learning Options Publishing Triumph Learning Triumph Learning
 33




---



##### Table of Contents



Triumph Learning Sundance/Newbridge
  Sundance/Newbridge
  Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge Triumph Learning
  Subsequent
    Events
  Triumph Learning, Recorded Books Oakstone
    Publishing Sundance/Newbridge Sundance/Newbridge.
  Going
    Concern Considerations
  and/or
 34




---



##### Table of Contents



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 Sundance Publishingand Newbridge Educational Publishing, imprints and we
    also offer non-proprietary supplemental reading and literature
    products for the K-12 market.
    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 CMEinfoimprint. 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, Coach, Buckle Down Publishing Options
    Publishing
  Library. Recorded Books
  Medical Education. Oakstone Publishing
  Critical
    Accounting Policies
   35




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##### Table of Contents



Revenue
    and Expense Recognition
        Pre-Publication
    Costs
  work-for-hire
  Goodwill
    and Other Intangible Assets
     36




---



##### Table of Contents



Direct
    Response Advertising Costs
  product-by-product 12-18 months. Oakstone Publishing
    Inventory
    and Related Obsolescence
  first-in,
  Income
    Taxes
    Redeemable
    Capital Stock
  , , , No. 150-5, No. 150-5),
   37




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##### Table of Contents



Results
    of Operations
    Year Ended December 31,2007


2006


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

$
27,293



11.8
%

$
34,296



15.4
%

$
43,096



20.5
%Test-Prep and Intervention


86,074



37.1
%


73,909



33.3
%


64,501



30.6
%Library


84,529



36.4
%


81,328



36.6
%


76,626



36.4
%Medical Education(2)


34,050



14.7
%


32,471



14.7
%


26,262



12.5
%Total revenue


231,946



100.0
%


222,004



100.0
%


210,485



100.0
%Cost of goods sold


65,388



28.2
%


62,429



28.1
%


60,864



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


59,283



25.5
%


58,556



26.4
%


52,491



24.9
%Fulfillment and distribution


19,003



8.2
%


18,027



8.1
%


16,083



7.7
%General and administrative


35,610



15.4
%


28,719



12.9
%


25,953



12.4
%Restructuring charges


2,632



1.1
%


407



0.2
%






0.0
%Total Selling, general and administrative expense


116,528



50.2
%


105,709



47.6
%


94,527



45.0
%Amortization of pre-publication costs


19,032



8.2
%


17,733



8.0
%


13,150



6.2
%Goodwill and other asset impairment charges(3)


10,723



4.6
%


37,698



17.0
%






Depreciation/amortization of intangibles


5,782



2.6
%


5,499



2.5
%


5,038



2.4
%Income(Loss) from operations


14,493



6.2
%


(7,064
)


(3.2
)%


36,906



17.5
%Interest expense


61,772



26.6
%


65,787



29.6
%


59,328



28.2
%Gain on troubled debt restructuring(5)


(115,489
)


(49.8
)%














Other expenses, net of interest income


500



0.2
%


469



0.2
%


1,887



0.8
%Income(Loss) before income taxes and discontinued operations


67,710



29.2
%


(73,320
)


(33.0
)%


(24,309
)


(11.5
)%Tax benefit (provision)


(4,038
)


(1.7
)%


1,601



0.7
%


(4,952
)


(2.4
)%Income(Loss) before discontinued operations


63,672



27.5
%


(71,719
)


(32.3
)%


(29,261
)


(13.9
)%Loss from discontinued operations


(122
)


(0.1
)%


(1,136
)


(0.5
)%


(4,976
)


(2.4
)%Income(Loss) before cumulative effect of accounting change


63,550



27.4
%


(72,855
)


(32.8
)%


(34,237
)


(16.3
)%Cumulative effect of accounting change(4)







%







%


2,213



1.1
%Net Income(Loss)

$
63,550



27.4
%

$
(72,855
)


(32.8
)%

$
(32,024
)


(15.2
)%     (1)
    
    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.(2)
    
    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 CMEinfo prospectively from its
    acquisition date of June 17, 2005.(3)
    
    Results of operations for the year ended December 31, 2006
    include goodwill impairment charges of $24.4 million,
    related to our Sundance/Newbridgebusiness which is 100%
    of our K-12 Supplemental 38




---



##### Table of Contents



Education segment, and $10.4 million of our Options
    Publishing business, which is included within our Test-prep
    and Intervention segment. Results of operations for the year
    ended December 31, 2006 also included a $2.9 million
    impairment of pre-publication costs related to our
    Sundance/Newbridgebusiness due to the continued declines
    in revenues and operating profits.During the second quarter 2007 the Company completed an
    impairment test of the pre-publication assets
    Sundance/Newbridgebusiness at the series level, due to
    continued declines in revenues and operating profits, which
    resulted in a $2.2 million charge. On November 5, 2007
    the Board of Directors authorized a plan to sell the
    Sundance/Newbridgebusiness and subsequently authorized
    the orderly wind-down of the business. A valuation of the
    business at fair value was prepared in connection with the plan
    to divest the Sundance/Newbridge business and as a result an
    impairment charge of $7.9 million was recorded in the
    fourth quarter of 2007.In addition, the fourth quarter of 2007 included a restructuring
    of our Test-prep and Interventionsegment with the
    consolidating of our Options Publishingbusiness into our
    Triumph Learningbusiness. In connection with the
    consolidation, our building located in Merrimack, New Hampshire
    was abandoned and offered for sale resulting in a
    $0.6 million impairment charge from a fair value assessment
    of the building.(4)
    
    The cumulative effect of accounting change for the year ended
    December 31, 2005 results from the accounting treatment
    related to the Preferred Warrants pursuant to
    FSP-FAS 150-5.(5)
    
    On August 10, 2007, we consummated the Recapitalization
    Agreement and under the terms of the Recapitalization Agreement,
    holders of our previously outstanding Preferred A, Preferred B
    and Preferred C converted their shares into shares of common
    stock. (See Recapitalization Transaction in
    Note 3 of our consolidated financial statements included
    elsewhere in this Annual Report on
    Form 10-K).
    The Company recorded a gain of $115.5 million on troubled
    debt restructuring in the year ended December 31, 2007,
    based on the difference in carrying value of the Preferred B
    compared to the fair value, based on an independent appraisal,
    of the common shares exchanged. The gain includes approximately
    $1.9 million in transaction costs and a $2.8 million
    benefit from consequential balance sheet write offs, primarily
    the unamortized portion of the deferred gain on Preferred B. The
    recapitalization of the Preferred A and Preferred C also
    resulted in gains based on their carrying value compared to the
    fair value of the common shares exchanged, but because of their
    classification as equity instruments, the gains of
    $33.0 million and $1.3 million, respectively, are
    reflected as Gain on Recapitalization in the calculation of net
    income available to common stockholders. 39




---



##### Table of Contents



Year
    Ended December 31, 2007 Compared To Year Ended
    December 31, 2006
    Years Ended December 31,2007


2006(In thousands)RevenueK-12 Supplemental Education

$
27,293



11.8
%

$
34,296



15.4
%Test Prep and Intervention


86,074



37.1
%


73,909



33.3
%Library


84,529



36.4
%


81,328



36.6
%Medical Education


34,050



14.7
%


32,471



14.7
%Total Revenue


231,946



100.0
%


222,004



100.0
%Cost of goods sold


65,388



28.2
%


62,429



28.1
%Selling, general and administrative expenses:Marketing and sales


59,283



25.5
%


58,556



26.4
%Fulfillment and distribution


19,003



8.2
%


18,027



8.1
%General and administrative expense


35,610



15.4
%


28,719



12.9
%Restructuring charges


2,632



1.1
%


407



0.2
%Total selling, general and administrative expenses


116,528



50.2
%


105,709



47.6
%Amortization of pre-publication costs


19,032



8.2
%


17,733



8.0
%Goodwill and other asset impairment charges(1)


10,723



4.6
%


37,698



17.0
%Depreciation expense/amortization of intangibles


5,782



2.6
%


5,499



2.5
%Income (loss) from operations


14,493



6.2
%


(7,064
)


(3.2
)%Interest expense


61,772



26.6
%


65,787



29.6
%Gain on troubled debt restructuring(2)


(115,489
)


(49.8
)%






Other expenses, net of interest income


500



0.2
%


469



0.2
%Income(loss) before taxes


67,710



29.2
%


(73,320
)


(33.0
)%Tax (provision) benefit


(4,038
)


(1.7
)%


1,601



0.7
%Income (loss) before discontinued operations


63,672



27.5
%


(71,719
)


(32.3
)%Loss from discontinued operations


(122
)


(0.1
)%


(1,136
)


(0.5
)%Net income (loss)

$
63,550



27.4
%

$
(72,855
)


(32.8
)%     (1)
    
    Results of operations for the year ended December 31, 2006
    include goodwill impairment charges of $24.4 million,
    related to our Sundance/Newbridgebusiness which is 100%
    of our K-12 Supplemental Education segment, and
    $10.4 million of our Options Publishingbusiness,
    which is included within our Test-prep and Intervention segment.
    Results of operations for the year ended December 31, 2006
    also included a $2.9 million impairment of pre-publication
    costs related to our Sundance/Newbridge business due to
    the continued declines in revenues and operating profits.During the second quarter 2007 the Company completed an
    impairment test of the pre-publication assets
    Sundance/Newbridgebusiness at the series level, due to
    continued declines in revenues and operating profits, which
    resulted in a $2.2 million charge. On November 5, 2007
    the Board of Directors authorized a plan to sell the
    Sundance/Newbridgebusiness and subsequently authorized
    the orderly wind-down of the business. A valuation of the
    business at fair value was prepared in connection with the plan
    to wind-down the Sundance/Newbridgebusiness and as a
    result an impairment charge of $7.9 million was recorded in
    the fourth quarter of 2007.In addition, the fourth quarter of 2007 included a restructuring
    of our Test-prep and Intervention segment with the consolidating
    of our Options Publishingbusiness into our Triumph
    Learning business. In connection with the consolidation, our
    building located in Merrimack, New Hampshire was abandoned and
    offered for sale resulting in a $0.6 million impairment
    charge from a fair value assessment of the building. 40




---



##### Table of Contents



(2)
    
    On August 10, 2007, we consummated the Recapitalization
    Agreement and under the terms of the Recapitalization Agreement,
    holders of our previously outstanding Preferred A, Preferred B
    and Preferred C converted their shares into shares of common
    stock. (See Recapitalization Transaction in
    Note 3 of our consolidated financial statements included
    elsewhere in this Annual Report on
    Form 10-K).
    The Company recorded a gain of $115.5 million on troubled
    debt restructuring in the year ended December 31, 2007,
    based on the difference in carrying value of the Preferred B
    compared to the fair value, based on an independent appraisal,
    of the common shares exchanged. The gain includes approximately
    $1.9 million in transaction costs and a $2.8 million
    benefit from consequential balance sheet write offs, primarily
    the unamortized portion of the deferred gain on Preferred B. The
    recapitalization of the Preferred A and Preferred C also
    resulted in gains based on their carrying value compared to the
    fair value of the common shares exchanged, but because of their
    classification as equity instruments, the gains of
    $33.0 million and $1.3 million, respectively, are
    reflected as Gain on Recapitalization in the calculation of net
    income available to common stockholders.  Revenue
    K-12 Supplemental Education.
  Test-prep and Intervention. Coach Buckle Down/Options Publishing 2005-2006 Triumph Learnings Triumph Learning
  Library. Playaway Recorded
    Books Plugged-in to Reading
  Medical Education. Wellness
 41




---



##### Table of Contents



Cost of
    Goods Sold
    K-12 Supplemental Education.
  Test-prep and Intervention.
  Library. MyLibraryDV
  Medical Education. info
  Selling,
    General & Administrative Expense
  Sundance/ Newbridge Options
    Publishing
  K-12 Supplemental Education.
  Test-prep and Intervention. Options Publishing Options
    Publishing
 42




---



##### Table of Contents



Library. MyLibraryDV
  Medical Education.
  Corporate.
  Amortization
    of Pre-Publication Costs
    Goodwill
    and Asset Impairment Charges
  Sundance/Newbridge Options Publishing Sundance/Newbridge
  Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge
  Options Publishing Triumph
    Learning
  Depreciation
    Expense and Amortization of Intangibles
    Interest
    Expense
   43




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##### Table of Contents



Twelve Months EndedDecember 31,2007


2006(In thousands)Interest expense:Term Loans

$
12,630


$
11,991113/4% senior
    notes


19,975



19,975121/2% senior
    discount notes  non-cash


13,515



11,972Series B senior preferred stock  non-cash


15,061



21,574Other


699



364Total interest expense


61,880



65,876Less: capitalized interest


(108
)


(89
)Net Interest expense

$
61,772


$
65,787       Gain on
    Troubled Debt Restructuring
    Discontinued
    Operations
  Triumph Learning College
  Provision
    for Income Taxes
   44




---



##### Table of Contents



Sundance/Newbridge WF Howes
  Net
    Income and Loss
  Sundance/Newbridge Options Publishing Sundance/Newbridge
 45




---



##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2006 Compared To Year Ended
    December 31, 2005
    Years Ended December 31,2006


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

$
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(2)


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


17,733



8.0
%


13,150



6.2
%Goodwill and other asset impairment charges(3)


37,733



17.0
%







%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)


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(4)







%


2,213



1.1
%Net loss

$
(72,855
)


(32.8
)%

$
(32,024
)


(15.2
)%     (1)
    
    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.(2)
    
    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.(3)
    
    Results of operations for the year ended December 31, 2006
    include goodwill impairment charges of $24.4 million,
    related to our Sundance/Newbridgebusiness which is 100%
    of our K-12 Supplemental Education segment, and
    $10.4 million of our Options Publishingbusiness,
    which is included within our Test-prep and Intervention segment.
    Results of operations for the year ended December 31, 2006
    also included a $2.9 million impairment of pre-publication
    costs related to our Sundance/Newbridge business due to
    the continued declines in revenues and operating profits.(4)
    
    The cumulative effect of accounting change for the year ended
    December 31, 2005 results from the accounting treatment
    related to the Preferred Warrants pursuant to
    FSP-FAS 150-5. 46




---



##### Table of Contents



Revenue
  Scott Publishing CMEinfo
  K-12 Supplemental Education. Sundance/Newbridge Sundance/Newbridge
  Test-prep and Intervention. Triumph Learning Buckle Down
  Options Publishin 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
 47




---



##### Table of Contents



Cost of
    Goods Sold
    K-12 Supplemental Education.
  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.
 48




---



##### Table of Contents



Buckle Downs
  Library. Recorded Books
    Unlimited
  Medical Education. Scott Publishing CMEinfo
  Corporate.
  Amortization
    of Pre-Publication Costs
  Buckle Down Publishing Options Publishing, Scott
    Publishing CMEinfo.
  Goodwill
    and Other Asset Impairment Charges
  Sundance/Newbridge Options Publishing Options Publishing Sundance/Newbridge
  Depreciation
    Expense and Amortization of Intangibles
   49




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##### Table of Contents



Scott Publishing CMEinfo
  Interest
    Expense
        Year Ended December 31,2006


2005(In thousands)Interest expense: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
   50




---



##### Table of Contents



Sundance/Newbridge Options Publishing. WF Howes,
  Cumulative
    Effect of Accounting Change
  FAS 150-5.
  Net
    Loss
  Sundance/Newbridge Options Publishing Sundance/Newbridge
  Contractual
    Obligations and Commitments
  Financing
    Arrangements
  Term Loans.
    Senior Notes. 3 4 3 4
 51




---



##### Table of Contents



pari passu
  Senior Discount Notes. 1 2 pari passu
  Off
    Balance Sheet Arrangements
      Payments Due By PeriodLess Than








AfterContractual Obligations

1 Year


1-2 Years


3-5 Years


5 Years


Total(In thousands)Operating leases

$
3,210


$
4,091


$
1,670


$



$
8,971Term loans(1)


132,636















132,636113/4% Senior
    notes


19,975



39,950



189,975







249,900121/2% Senior
    discount notes






25,313



152,531







177,844Total

$
155,821


$
69,354


$
344,176


$



$
569,351     (1)
    
    The 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
    $133.5 million, including the maturity of the outstanding
    principal of $124.9 million, in less than 1 year for
    the Term Loans.  Liquidity
    and Capital Resources
  3 4
   52




---



##### Table of Contents



and/or
      Cash
    Flows
   53




---



##### Table of Contents



Capital
    Expenditures
    Recorded Books
  Seasonality
    and Quarterly Results of Operations
      Year Ended December 31, 2006First Quarter


Second Quarter


Third Quarter


Fourth Quarter(Dollars in thousands)Revenue

$
51,490


$
56,899


$
58,940


$
54,675Income (loss) from operations(1)


4,674



(15,517
)


8,477



(4,698
)Net loss(1)


(12,529
)


(28,669
)


(9,320
)


(22,337
)   Year Ended December 31, 2007First Quarter


Second Quarter


Third Quarter


Fourth Quarter(Dollars in thousands)Revenue

$
52,933


$
57,864


$
63,685


$
57,464Income (loss) from operations(3)


6,049



5,370



7,022



(3,948
)Net income(loss)(2)(3)


(12,643
)


(14,406
)


107,013



(16,414
)  54




---



##### Table of Contents



(1)
    
    The second quarter 2006 loss from operations and the net loss
    was impacted by the recording of a $27.3 million asset
    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 and
    Intervention segment.(2)
    
    Net income for the third quarter ended September 30, 2007
    benefited from the $115.6 million gain on troubled debt
    restructuring.(3)
    
    The fourth quarter 2007 loss from operations and net loss was
    impacted by the recording of asset impairment charges
    of$7.9 million and $0.6 million related to our K-12
    Supplemental Education and Test-prep and Intervention segments,
    respectively.  Inflation
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.            Item 8.
    Financial
    Statements and Supplementary Data 55




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
        and/or
  150-5,
      56




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
61,784


$
69,847Accounts receivable, net


26,504



22,462Inventory, net


19,573



23,242Direct response advertising costs  current portion,
    net


3,965



3,838Prepaid royalties


6,342



6,135Prepaid expenses and other current assets


2,994



2,658Total current assets


121,162



128,182Pre-publication costs, net


40,620



45,173Direct response advertising costs, net


8,232



7,389Property and equipment, net


10,638



11,279Goodwill


135,566



135,566Intangible assets, net


21,565



24,242Deferred financing costs, net


6,499



10,347Other assets


490



508Total assets

$
344,772


$
362,686LIABILITIES, REDEEMABLE PREFERRED STOCK AND
    STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities

$
33,607


$
30,862Accrued interest


8,948



9,039Deferred subscription revenue


15,275



14,140Current portion of long term debt


124,850



1,300Total current liabilities


182,680



55,341Long term liabilities:Senior secured term loan






124,850113/4% senior
    notes


171,670



172,146121/2% senior
    discount notes


118,362



104,847Series B senior preferred stock, redeemable, $.001 par
    value, 6,000,000 shares authorized,
    2,000,230 shares issued and outstanding at
    December 31,2006; 6,000,000 shares authorized, none
    outstanding at December 31, 2007






149,626Deferred tax liability


18,474



14,905Deferred gain on Series B cancellation and other long term
    liabilities


415



3,838Total long term liabilities


308,921



570,212Commitments (Note 18)Redeemable preferred stock:Series A preferred stock, redeemable, $.001 par value,
    30,000 shares authorized, 22,476 shares  issued 
    and outstanding at December 31, 2006; 30,000 shares
    authorized, none outstanding at December 31, 2007






39,196Series C preferred stock, redeemable, $.001 par value,
    3,500 shares authorized, issued and outstanding at
    December 31, 2006; 3,500 shares authorized, none
    outstanding at December 31, 2007






1,855Total redeemable preferred stock






41,051Stockholders deficit:Common stock, $.001 par value, 30,000,000 shares
    authorized, 20,012,914 shares issued and outstanding at
    December 31, 2006 and $.0003 par value,
    30,000,000 shares authorized, 9,966,229 
    shares issued and outstanding at December 31, 2007


3



20Accumulated other comprehensive income


755



658Accumulated deficit


(147,587
)


(304,596
)Total stockholders deficit


(146,829
)


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

$
344,772


$
362,686    57




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(In thousands)Revenue

$
231,946


$
222,004


$
210,485Costs and expenses:Cost of goods sold


65,388



62,429



60,864Marketing and sales


59,283



58,556



52,491Fulfillment and distribution


19,003



18,027



16,083General and administrative


35,610



28,719



25,953Restructuring charges


2,632



407



Amortization of pre-publication costs


19,032



17,733



13,150Goodwill impairment charges






34,812



Asset impairment charges


10,723



2,886



Depreciation expense and amortization of intangibles


5,782



5,499



5,038Total costs and expenses


217,453



229,068



173,579Income (loss) from operations


14,493



(7,064
)


36,906Other (income) expenses:Interest expense


61,772



65,787



59,328Interest income


(3,173
)


(2,921
)


(1,872
)Amortization deferred financing costs


3,423



3,381



3,579Gain on troubled debt restructuring


(115,489
)






Other expense (income)


250



9



180Total other expenses (income)


(53,217
)


66,256



61,215Income (loss) before income taxes, discontinued operations and
    cumulative effect of accounting change


67,710



(73,320
)


(24,309
)(Provision) benefit for income taxes


(4,038
)


1,601



(4,952
)Income (loss) before discontinued operations and cumulative
    effect of accounting change


63,672



(71,719
)


(29,261
)Discontinued operations:Loss from operations of discontinued operations










(3,731
)Loss on disposal of discontinued operations


(122
)


(1,136
)


(1,245
)Income (loss) before cumulative effect of accounting change


63,550



(72,855
)


(34,237
)Cumulative effect of accounting change










2,213Net income (loss)


63,550



(72,855
)


(32,024
)Gain on recapitalization


34,353







Preferred stock dividends and accretion


(2,182
)


(3,334
)


(3,048
)Net income (loss) available to common stockholders

$
95,721


$
(76,189
)

$
(35,072
)    58




---



##### 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, 2005


20,000


$
20


$
526


$
(193,365
)

$
(192,819
)Comprehensive loss: Net loss














(32,024
)


(32,024
)Foreign currency translation adjustment










(242
)






(242
)Total comprehensive loss


















(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


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
)Comprehensive income: Net income














63,550



63,550Foreign currency translation adjustment










97







97Total comprehensive loss


















63,647Stock based compensation expense














4



4Issuances of restricted stock


337



1







1,531



1,532Recapitalization transactions


(10,384
)


(11
)






59,746



59,735Gain on recapitalization














34,353



34,353Change in par value of common stock






(7
)






7



Preferred stock dividends and accretion














(2,182
)


(2,182
)Balance as of December 31, 2007


9,966


$
3


$
755


$
(147,587
)

$
(146,829
)    59




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Operating activities from Continuing OperationsNet income (loss) from continuing operations

$
63,672


$
(71,719
)

$
(29,261
)Adjustments to reconcile net income (loss) from continuing
    operations to net cash provided by operating activities:Gain on troubled debt restructuring  non-cash


(115,489
)






Non-cash interest expense


28,576



33,546



29,069Allowance for doubtful accounts


2,942



4,078



3,831Allowance for obsolescence


3,463



2,498



1,164Depreciation and amortization of property and equipment,
    pre-publication costs and intangibles


24,814



23,232



18,188Amortization of deferred financing costs


3,423



3,382



3,579Amortization of premium on
    113/4% senior
    notes


(476
)


(484
)


(491
)Asset impairment charges


10,723



37,698



Deferred taxes  non-cash


3,569



(1,939
)


4,640Other non-operating income  non-cash


2,220



13



16Changes in operating assets and liabilities:Accounts receivable


(6,995
)


(5,238
)


(5,235
)Inventory


(1,932
)


(3,437
)


(2,451
)Prepaid expenses, royalty advances and other current assets


(1,056
)


790



(497
)Direct response advertising costs


(1,165
)


(534
)


(1,556
)Other assets


18



(18
)


(21
)Accounts payable, accrued and other liabilities


2,878



2,384



2,938Accrued interest


(91
)


168



483Deferred subscription revenue


1,135



1,510



95Net cash provided by operating activities from continuing
    operations


20,229



25,930



24,491Investing activities from Continuing OperationsAdditions to pre-publication costs


(21,778
)


(22,852
)


(21,877
)Additions to property and equipment


(2,976
)


(2,759
)


(3,831
)Additions to intangible assets


(55
)


(39
)


(20
)Acquisitions, net of cash acquired






907



(12,255
)Proceeds from sale of business






500



8,500Proceeds from sale of assets


6



9



Net cash used in investing activities from continuing operations


(24,803
)


(24,234
)


(29,483
)Financing activities from Continuing OperationsTransaction cost-troubled debt restructuring and recapitalization


(2,038
)






Repayment of senior secured term loan


(1,300
)


(1,300
)


(1,300
)Proceeds from exercise of stock options






11



9Additions to deferred financing costs


(88
)


(104
)


(511
)Net cash used in financing activities from continuing operations


(3,426
)


(1,393
)


(1,802
)Effect of exchange rates on cash


89



245



(154
)Cash flows of discontinued operationsOperating cash flows


(152
)


(293
)


1Investing cash flows










(2,042
)Net cash used in discontinued operations


(152
)


(293
)


(2,041
)Net (decrease) increase in cash and cash equivalents


(8,063
)


255



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


69,847



69,592



78,581Cash and cash equivalents at end of year

$
61,784


$
69,847


$
69,592Supplemental disclosureCash paid during the year for:Interest

$
32,885


$
32,102


$
29,740Income taxes

$
371


$
523


$
44    60




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007
 (In thousands)
  1.
    Nature of
    Business and Organization  Sundance/Newbridge
        
    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. A sale process for
    Sundance/Newbridge businessbegan in November 2007, and
    on March 17, 2008 the Board of Directors resolved to initiate a
    phased wind-down of the operations of Sundance/Newbridge.
    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, Coachand Buckle Down.The Company also offers skills assessment products and
    intervention materials for struggling math and reading students
    under the widely known Options Publishingimprint.
    Library:  The Company publishes unabridged
    audiobooks and other products for adults and children, under the
    Recorded Booksimprint, 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 Publishingimprint 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 Bestbrands. 61




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Basis
    of Presentation
  Going
    Concern Considerations
  and/or
   62




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
  Scott Publishing info Chelsea House Chelsea House
  Use of
    Estimates
    Concentrations
    of Credit Risk
   63




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair
    Value and Credit Risk of Financial Instruments
  3 4 1 2
    December 31, 2007Carrying Value


Fair ValueSenior secured term loan

$
124,850


$
124,850113/4% senior
    notes


171,670



175,961121/2% senior
    discount notes


118,362



113,400   Cash
    Equivalents
    Revenue
    and Expense Recognition
      Shipping
    and Handling
    Inventory
    and Related Obsolescence
  first-in,
  Prepaid
    Royalties
   64




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Advertising
    product-by-product 12-18 months. Oakstone Publishing
      Pre-Publication
    Costs
  work-for-hire
  Property
    and Equipment
   65




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
  Goodwill
    and Other Intangible Assets
      Long-Lived
    Assets
  Accounting for
    the Impairment or Disposal of Long-Lived Assets
  Stock-Based
    Compensation
     66




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Taxes
    Foreign
    Currency Translation
    Redeemable
    Capital Stock
  , , , No. 150-5, No. 150-5),
    Reclassification
  Chelsea House Chelsea House
  Recent
    Accounting Pronouncements
  Fair Value
    Measurement
 67




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair
    Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of SFAS 115
  3.
    Recapitalization
    Transaction         68




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Acquisitions  Scott
    Publishing
  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 infos
 69




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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   info Scott Publishing
  5.
    Accounts
    Receivable    December 31,2007


2006Accounts receivable

$
28,909


$
25,629Less allowance for doubtful accounts


2,405



3,167Accounts receivable, net

$
26,504


$
22,462   6.
    Inventory    December 31,2007


2006Supplies

$
1,354


$
1,371Work-in-process


599



1,013Finished goods


24,593



24,54126,546



26,925Less allowance for obsolescence


6,973



3,683Inventory, net

$
19,573


$
23,242   Sundance/Newbridge
 70




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    Pre-publication
    Costs    December 31,2007


2006Pre-publication costs

$
106,421


$
92,851Less accumulated amortization


65,801



47,678Pre-publication costs, net

$
40,620


$
45,173     8.
    Property
    and Equipment    December 31,2007


2006Furniture and fixtures

$
2,276


$
2,429Office equipment and software


13,852



12,509Land and building


4,041



4,784Leasehold improvements


2,569



2,76822,738



22,490Less accumulated depreciation


12,100



11,211Property and equipment, net

$
10,638


$
11,279     Options
    Publishing Options Publishing
  9.
    Goodwill    Sundance/Newbridge
 71




---



##### Table of Contents



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

$
170,252CMEinfoacquisition


126Goodwill impairment charge- Sundance/Newbridge


(24,393
)Goodwill impairment charge- Options Publishing


(10,419
)Goodwill, December 31, 2006 and 2007

$
135,566   Scott Publishing CMEinfo
  10.
    Intangibles    December 31,


December 31,Definite Life Assets

Lives


2007


2006Customer list


10 years


$
23,240


$
23,240Non-compete agreements


3-5 years



1,900



1,900Other


5 years



167



17125,307



25,311Less: accumulated amortization






(8,597
)


(5,898
)16,710



19,413Trademarks


Indefinite



4,855



4,829Net intangible assets





$
21,565


$
24,242    72




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    TotalAmortization of intangibles:2008


2,7332009


2,6712010


2,4252011


2,3272012


2,325Thereafter


4,229$
16,710   11.
    Accounts
    Payable and Accrued Liabilities    December 31,2007


2006Trade accounts payable

$
10,916


$
13,175Accrued liabilities


12,011



9,371Accrued management incentive


5,595



4,963Accrued compensation and related taxes and benefits


3,070



3,168Accrued restructuring costs


1,965



105Accrued disposition costs


50



80Accounts payable and accrued liabilities

$
33,607


$
30,862   12.
    Restructuring
    Charges  Buckle Down Publishing Buckle Down Publishing
  Options Publishing Triumph
    Learning Options Publishing Triumph Learning Options Publishing Triumph Learning Triumph
    Learning
 73




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Triumph Learning Sundance/Newbridge
  Sundance/Newbridge
  Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge Triumph
  Options Buckle Down Options Publishing Sundance/Newbridge
 74




---



##### Table of Contents



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


Lease


Relocationand


Terminations


and


TotalRelated


Costs


Other


ConsolidationBuckle Down  Warehouse 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






105







105Restructuring expense






75







75Cash paid






(109
)






(109
)Accrued restructuring liability as of December 31, 2007

$



$
71


$



$
71Options Publishing  Consolidation with Buckle
    DownAmount expected to be incurred

$
954


$



$
61


$
1,015Accrued restructuring liability as of December 31, 2006














Restructuring expense


845







61



906Cash paid


(219
)






(61
)


(280
)Accrued restructuring liability as of December 31, 2007

$
626


$



$



$
626Abandonment of Sundance/Newbridge businessAmount expected to be incurred

$
2,730


$



$
51


$
2,781Accrued restructuring liability as of December 31, 2006














Restructuring expense


1,409







51



1,460Cash paid


(141
)






(51
)


(192
)Accrued restructuring liability as of December 31, 2007

$
1,268


$



$



$
1,268   Options
    Publishing Buckle Down
  13.
    Asset
    Impairment Charges  K-12
    Supplemental Education Sundance/Newbridge Sundance/Newbridge Sundance/Newbridge
  Test-prep and Intervention Options Publishing Triumph Learning
 75




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    14.
    Income
    Taxes        December 31,2007


2006


2005(Restated Note 2)Current income tax expense:Foreign

$
(469
)

$
(338
)

$
(312
)Deferred income tax expense:U.S. Federal


(3,569
)


1,939



(4,640
)Total benefit (provision for) income taxes

$
(4,038
)

$
1,601


$
(4,952
)    76




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Deferred tax assets:Net operating loss carryforwards

$
53,225


$
44,697Goodwill


6,323



8,095Interest on
    121/2% Senior
    Discount Note


13,126



9,423Allowance for doubtful accounts and notes


1,805



2,102Inventory reserves


2,377



1,156Other definite life intangible assets


1,574



610Restructuring


766



Other


200



249Total deferred tax assets


79,396



66,332Deferred tax liabilities:Goodwill and other indefinite life assets


(18,474
)


(14,905
)Direct response advertising


(4,758
)


(4,491
)Depreciation


(356
)


(630
)Total deferred tax liabilities


(23,588
)


(20,026
)Net deferred tax assets before valuation allowance


55,808



46,306Less valuation allowance


(74,282
)


(61,211
)Net deferred tax liabilities

$
(18,474
)

$
(14,905
)          77




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006


2005Statutory rate


34
%


34
%


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


5
%


6
%


6
%Change in valuation allowance


20
%


(22
)%


(15
)%Non-deductible interest expense


11
%


(13
)%


(31
)%Gain on troubled debt restructuring


(67
)%



%



%Other


3
%


(3
)%


(12
)%Effective tax rate


6
%


2
%


(18
)%     15.
    Financing
    Arrangements  Senior
    Secured Revolving Credit Facility, Term Loans,
    113/4% Senior
    Notes
  3 4
      3 4
  pari passu
 78




---



##### Table of Contents



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


Book ValuePremium


As of


As ofIssuance


Due


Face


(Discount)


December 31,


December 31,Instrument

Date


Date


Amount


At Issuance


2007


2007Haights Cross:First Term Loan


08/20/03



08/15/08


$
100,000







9.37
%

$
95,750Second Term Loan


12/10/04



08/15/08


$
30,000







8.37
%


29,100124,850113/4% 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
%


31,670171,670Haights Cross Communications:121/2% Senior
    discount notes


02/02/04



08/15/11


$
135,000


$
(61,347
)


12.5
%


118,362Total debt





















$
414,882  79




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
124,8502009


2010


2011


305,0002012


Total


429,850Less: Unamortized discounts and other


(14,968
)$
414,882   16.
    Equity
    and Redeemable Preferred Stock  ,
      Buckle Down Publishing ,
    17.
    Stock
    Based Compensation   80




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  de minimus.
      18.
    Commitments    OccupancySpace


EquipmentYear ending December 31:2008

$
2,984


$
2262009


2,463



1912010


1,325



1122011


781



1042012


779



6Total minimum payments

$
8,332


$
639      81




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  19.
    Savings
    Plan      20.
    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
 82




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  th
  2005Revenue

$
6,594Cost of goods sold


2,061Marketing and sales


1,622Fulfillment and distribution


606General and administrative


988Amortization of pre-publication costs


1,770Impairment loss  pre-publication costs


3,211Depreciation expense


68Loss from operations

$
(3,732
)   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 Chelsea House Publishers.
  21.
    Segment
    Reporting   83




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Chelsea House Publishers
  Sundance/Newbridge Triumph Learning,
    Buckle Down Publishing Options Publishing Recorded Books Oakstone
    Publishing Scott Publishing info
      K-12Supplemental


Test-Prep &





MedicalEducation


Intervention


Library


Education


Corporate


Consolidated2007Revenue

$
27,293


$
86,074


$
84,529


$
34,050


$



$
231,946Cost of good sold


8,842



16,734



29,873



9,939







65,388Marketing and sales


11,201



23,725



14,626



9,731







59,283Fulfillment and distribution


3,350



6,427



5,841



3,385







19,003General and administrative


2,983



8,379



7,768



3,523



12,957



35,610Restructuring charges


1,460



1,172















2,632Asset impairment charges


10,158



565















10,723Amortization of pre-publication costs


3,505



8,891



5,388



1,248







19,032Depreciation expense and amortization of intangibles


907



2,879



794



1,148



54



5,782Income (loss) from operations

$
(15,113
)

$
17,302


$
20,239


$
5,076


$
(13,011
)

$
14,493Interest expense

$
3,635


$
17,317


$
4,878


$
5,276


$
30,666


$
61,772Capital expenditures  property and equipment


660



734



731



771



80



2,976Capital expenditures  pre-publication costs


2,612



11,940



6,045



1,181







21,778Goodwill






50,488



64,513



20,565







135,566Total assets


8,737



117,476



107,353



42,851



68,355



344,772   84




---



##### 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 of pre-publication costs


4,536



7,212



4,831



1,154







17,733Asset impairment charges


2,886



















2,886Goodwill 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   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  85




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  22.
    Condensed
    Consolidated Financial Statements  3 4 Article 3-10(d) Regulation S-X.
    Year Ended December 31, 2007Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)Revenue

$



$



$
231,946


$



$
231,946Costs and expenses


265



12,747



204,441







217,453Income (loss) from operations


(265
)


(12,747
)


27,505







14,493Equity in the income (loss) of subsidiaries


(18,835
)


(10,548
)






29,383



Loss from discontinued operations






(122
)










(122
)Other (income)/expenses


(82,650
)


(4,582
)


38,053







(49,179
)Net income (loss)

$
63,550


$
(18,835
)

$
(10,548
)

$
29,383


$
63,550   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, 2005Parent





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
)  86




---



##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31, 2007Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


Consolidated(In thousands)AssetsCurrent assets

$
3,872


$
56,759


$
60,531


$



$
121,162Investment in subsidiaries


(15,313
)


231,094







(215,781
)


Long term assets


1,448



6,276



215,886







223,610Total assets

$
(9,993
)

$
294,129


$
276,417


$
(215,781
)

$
344,772Liabilities, Redeemable Preferred Stock and Stockholders
    DeficitCurrent liabilities

$



$
137,554


$
45,126


$



$
182,680Long term liabilities


136,836



171,888



197







308,921Stockholders deficit:Common stock


3















3Accumulated deficit


(146,832
)


(15,313
)


231,094



(215,781
)


(146,832
)Total stockholders deficit


(146,829
)


(15,313
)


231,094



(215,781
)


(146,829
)Total liabilities, redeemable preferred stock and
    stockholders deficit

$
(9,993
)

$
294,129


$
276,417


$
(215,781
)

$
344,772   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  87




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2007Parent





GuarantorGuarantor


HCOC


Subsidiaries


Eliminations


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

$
(110
)

$
(2,722
)

$
23,061


$



$
20,229Investing activities from continuing operations:Additions to pre-publication costs










(21,778
)






(21,778
)Additions to property and equipment






(80
)


(2,896
)






(2,976
)Additions to intangibles










(55
)






(55
)Intercompany activity


2,303



(3,411
)


1,108







Proceeds from sale of businesses and assets










6







6Net cash used in investing activities


2,303



(3,491
)


(23,615
)






(24,803
)Financing activities of continuing operations:Transaction cost- troubled debt restructuring and
    recapitalization


(2,038
)














(2,038
)Repayment of senior secured term loan






(1,300
)










(1,300
)Additions to deferred financing costs






(88
)










(88
)Net cash provided by financing activities


(2,038
)


(1,388
)










(3,426
)Effect of exchange rates on cash










89







89Net cash provided by discontinued operations






(152
)










(152
)Net change in cash and cash equivalents


155



(7,753
)


(465
)






(8,063
)Cash and cash equivalents at beginning of period


3,717



63,990



2,140







69,847Cash and cash equivalents at end of period

$
3,872


$
56,237


$
1,675


$



$
61,784   88




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##### 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   89




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##### 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



(2,872
)


2,076







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 exercise 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  90




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  23.
    Related
    Party Transaction        24.
    Subsequent
    Events  Triumph Learning, Recorded Books Oakstone
    Publishing Sundance/Newbridge
 91




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC.  PARENT COMPANY
  Schedule I 
    Condensed Financial Information
  Condensed
    Balance Sheets
  As of December 31,2007


2006(Restated)(In thousands)ASSETSCurrent assets

$
3,872


$
3,718Investment in subsidiary


(15,313
)


4,193Long term assets


1,448



2,127Total assets

$
(9,993
)

$
10,038LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities

$



$
Long term debt


118,362



254,473Other long term liabilities


18,474



18,432Redeemable preferred stock






41,051Stockholders deficit:Common stock


3



20Accumulated deficit


(146,832
)


(303,938
)Total stockholders deficit


(146,829
)


(303,918
)Total liabilities and stockholders deficit

$
(9,993
)

$
10,038   Condensed
    Statements of Operations
  Year Ended December 31,2007


2006


2005(In thousands)Revenues

$



$



$
General and administrative expenses


265



125



787Operating loss


(265
)


(125
)


(787
)Equity in net (loss) income of subsidiary


(18,835
)


(40,788
)


608Other income (expense)


82,650



(31,942
)


(31,845
)Net income (loss)

$
63,550


$
(72,855
)

$
(32,024
)  92




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##### Table of Contents



Condensed
    Statements of Cash Flows
  Year Ended December 31,2007


2006


2005(In thousands)Cash provided by (used in):Operating activities

$
(110
)

$
21


$
(694
)Investing activities


2,303



115



796Financing activities


(2,038
)


10



9Net change in cash


155



146



111Cash at beginning of period


3,717



3,571



3,460Cash at the end of the year

$
3,872


$
3,717


$
3,571   1.
    Basis of
    Presentation   93




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##### Table of Contents



HAIGHTS
    CROSS COMMUNICATIONS, INC. AND SUBSIDIARIES
  Schedule II 
    Valuation and Qualifying Account Summary
  For the Years ended December 31, 2007, 2006 and 2005:
  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, 2007:Allowance for doubtful accounts and returns

$
(3,167
)


(2,942
)










3,704
(3)

$
(2,405
)Allowance for senior secured promissory note(5)

$
(3,604
)


(341
)













$
(3,945
)Allowance for valuation of deferred tax asset

$
(61,211
)


(13,071
)













$
(74,282
)Allowance for inventory obsolescence

$
(3,683
)


(5,600
)










2,310
(4)

$
(6,973
)Year ended December 31, 2006:Allowance for doubtful accounts and returns

$
(3,487
)


(4,078
)










4,398
(3)

$
(3,167
)Allowance for senior secured promissory note(5)

$
(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
(4)

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

$
(3,351
)


(3,831
)


53
(1)






3,642
(3)

$
(3,487
)Allowance for senior secured promissory note(5)

$
(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
(4)

$
(2,749
)     (1)
    
    Relates to an adjustment to the valuation of Options
    Publishingand reserves added with the Scott Publishingand CMEinfo acquisitions(2)
    
    Relates to reserves added with the acquisitions of Scott
    Publishingand CMEinfo.(3)
    
    Primarily relates to return of products.(4)
    
    Relates to the destruction of obsolete inventory.(5)
    
    Relates to sale of Triumph College (see Note 20 in our
    consolidated financial statements included elsewhere in this
    Annual Report on
    Form 10-K.) 94




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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) Disclosure
    Controls and Procedures
  Rule 15d-15 Rule 15d-15(e),
    (b) Internal
    Control Over Financial Reporting
  Rule 15d-15(f). Rule 15d-15 Internal
    Control  Integrated Framework (COSO)
  Options Publishing Sundance/Newbridge
     95




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##### Table of Contents



(c) Changes
    in Internal Control over Financial Reporting
      
    Hiring key leadership accounting personnel to focus on our
    technical accounting issues and managing the monthly close
    process and the SEC reporting process;
    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
    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 Corporate Governance.    Name

Age

PositionPaul J. Crecca


50


Director, Chief Executive Officer and President; President of
    Haights Cross Operating CompanyLinda Koons


53


Executive Vice President and PublisherKevin M. McAliley


48


Executive Vice President and President of Triumph LearningMark Kurtz


43


Senior Vice President and Chief Financial OfficerMelissa L. Linsky


49


Senior Vice President  Finance and Planning, TreasurerPaul A. Konowitch


53


President, Sundance/Newbridge Educational PublishingNancy McMeekin


53


President, Oakstone PublishingScott Williams


46


President, Recorded BooksEugene I. Davis


53


DirectorCurry E. Ford


36


DirectorJohn McKenna


40


DirectorT.J. Vigliotta


34


Director  96




---



##### Table of Contents



Executive
    Officers
  Paul J. Crecca
  Linda Koons Editor-in-Chief
  Kevin M. McAliley Triumph Learning
  Mark Kurtz
  Melissa L. Linsky magna cum laude
  Business
    Presidents
  Paul A. Konowitch Sundance/Newbridge Educational Publishing
 97




---



##### Table of Contents



Nancy McMeekin Oakstone
    Publishing Oakstone Publishing
  Scott Williams Recorded
    Books
  Directors
  Eugene I. Davis
  Curry E. Ford
  John McKenna
  Thomas J. Vigliotta
 98




---



##### Table of Contents



Audit
    Committee and Audit Committee Financial Expert
    Regulation S-K Rule 10A-3
  Nomination
    and Election of Directors
    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
   99




---



##### Table of Contents




    Peter J. Quandt, our former Chairman, Chief Executive Officer
    and President (through August 24, 2007);
    Paul J. Crecca, our Executive Vice President (through
    August 24, 2007) and Chief Financial Officer (through
    December 5, 2007), Interim Chief Executive Officer and
    Interim President (August 24, 2007 
    November 5, 2007), and Chief Executive Officer and
    President (effective November 5, 2007);
    Mark Kurtz, our Vice President, Finance and Accounting, and
    Chief Accounting Officer (through December 5, 2007), and
    Senior Vice President and Chief Financial Officer (effective
    December 5, 2007);
    Kevin M. McAliley, our Executive Vice President and the
    President of Triumph Learning;
    Linda Koons, our Executive Vice President and Publisher; and
    Melissa L. Linsky, our Vice President, Finance and Planning
    (through December 5, 2007) and Treasurer, and Senior
    Vice President  Finance & Planning
    (effective December 5, 2007).    Employment
    and Noncompetition Agreements
  Background.
  Use of Compensation Consultant.
    
    The Companys highly leveraged capital structure had
    impeded the growth of stockholder value in recent periods, and a
    resolution to these capital structure issues was a high priority
    for the Company;
    A successful resolution of the Companys capital structure
    issues would require a dedicated effort from the Companys
    management team, and the Board of Directors believed that a
    successful resolution would be much more likely to occur if
    Messrs. Quandt and Crecca remained with the Company
    throughout this critical period; 100




---



##### Table of Contents




    The Board of Directors believed that its other senior
    management, and the senior managers of the Companys
    businesses, were more likely to remain with the Company if
    Messrs. Quandt and Crecca also remained with the Company;
    The Board of Directors believed that the Companys highly
    leveraged capital structure had 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 were served by ensuring that its key executives had
    cash compensation that adequately motivated them to remain with
    the Company through the next several years;
    The Board of Directors, after reviewing the opinion and analysis
    of the Consultant, believed 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
    amount, were within industry standards, acknowledged their long
    and dedicated service to the Company and their importance to the
    Company going forward, served to motivate them to remain with
    the Company during the challenging period of the Companys
    capital structure issues and beyond, and was 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 would receive a material benefit by having
    Messrs. Quandt and Crecca restricted from competing with
    the Company (previously, they were not subject to noncompetition
    covenants).      Amended Agreement.
  Certain
    other Components of Executive Compensation
  Separation and Release Agreement.
  Enhanced Severance Plan.
  Transaction Bonus Plan.
 101




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##### Table of Contents



Oversight
    Over Compensation Decisions
  Role of the Board of Directors and our Compensation Committee
    in Establishing Compensation.
    Role of Executives in Establishing
    Compensation.
  Role of Compensation Consultants.
  Objectives
    of Compensation Programs
    Compensation Philosophy.
 102




---



##### Table of Contents



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.
    Retention during a sales process.  Our adoption
    of our Enhanced Severance Plan and Transaction Bonus Plan
    provided retention incentives to employees during our
    exploration of strategic alternatives for the Company, and
    subsequently, during our current sales process.    Company Compensation Policies.
  
    Cash should be a 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 restricted stock is
    difficult for both the Company and a restricted stock 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.
    Base salary should be the largest component of cash
    compensation.For each named executive officer,
    base salary is typically 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.
    Annual cash incentives should be linked to
    performance.Other than in connection with the
    minimum bonus amount payable under the employment agreement with
    Mr. 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 and Transaction Bonuses should be
    structured to advance both executive retention and
    motivation.Each grant of restricted stock that
    the Company issued to the two principal officers,
    Mr. Quandt and Mr. Crecca, generally vested over a
    three year period or upon certain other events, such as a sale
    event of the Company. Similarly, a participants ability to
    receive a transaction bonus requires that the employee remain
    continuously employed by the Company from the date he or she
    becomes a participant in the plan through the relevant payment
    dates. 103




---



##### Table of Contents



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. When
    appropriate, the Company also considers changes to base salary
    pay during the year. For example, Messrs. Crecca and Kurtz
    and Ms. Linsky were rewarded in 2007 with an increase in
    salary at the time of their promotions. The Company also
    increased Mr. McAlileys base salary in 2007. 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 performance and to the
    participants contribution to the achievement of
    non-financial Company and individual goals. For 2007, the plan
    was designed to pay 60% of the award opportunity based on the
    achievement of pre-defined financial goals (described below),
    and 40% 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 had
    2,400,000 shares of common stock authorized for grants
    under its Restated 2000 Stock Option and Grant Plan. In
    connection with the recapitalization on August 10, 2007,
    this plan and all outstanding awards thereunder were terminated.
    The Company no longer uses stock options as incentive
    compensation.
    Restricted Stock.  In connection with the
    closing of the recapitalization, we issued Messrs. Quandt
    and Crecca restricted stock in the amount of 225,000 and
    75,000 shares of common stock, respectively. As noted
    above, the recapitalization eliminated substantially all of the
    prior equity (options and shares) owned by the executive
    officers of the Company. The issuances of restricted stock were
    made to Messrs. Quandt and Crecca to realign the interests
    of these executive officers with the stockholders of the Company.
    Transaction Bonus Plan.  In October 2007, we
    adopted a Transaction Bonus Plan pursuant to which selected
    employees are eligible to receive a transaction incentive bonus
    if certain conditions are satisfied. We evaluated and selected
    each participating employees range of transaction bonuses
    at the time of the adoption of the plan and notified each
    employee of their bonus range. Each employees bonus range
    was selected based on that particular employees value to
    the business unit and the sales process.
    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 104




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##### Table of Contents




    All named executive officers received automobile allowances
    ranging in value from $7,500 to $16,000 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 employment and
    noncompetition agreements and Mr. Quandts release and
    settlement agreement (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 2007, 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 were
    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. Ms. Melissa Linsky, our Senior Vice
    President, Finance and Planning, Treasurer, 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 2007, Ms. Koons, Ms. Linsky and
    Messrs. McAliley and Kurtz (prior to his promotion to Chief
    Financial Officer) were the named executive officers eligible to
    participate in this plan. For 2007, Ms. Linsky received
    $37,625 under this plan and Mr. Kurtz received $43,718.  Elements of Post-Termination Compensation and
    Benefits.
  
    Salary continuation.  Each of Ms. Koons,
    Ms. Linsky and Messrs. McAliley 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 Mr. McAliley would continue to receive their
    then-current base salary for a period of 12 months
    following termination of employment, and Ms. Linsky and
    Mr. Kurtz would receive such salary continuation for a
    period of six months following termination of employment. In
    July of 2007, we adopted an enhanced severance plan that
    provides additional severance coverage to participating
    employees if such employees employment with us or the
    employees business unit is terminated involuntarily
    without cause or voluntarily for good reason (as
    defined in the plan) during the one year period following the
    sale of the Company or the applicable business unit. Taking into
    effect the application of this enhanced severance plan in
    addition to the severance benefits described above,
    Ms. Koons and Mr. McAliley would receive salary
    continuation for an aggregate of 18 months and
    Ms. Linsky and Mr. Kurtz for 12 months.
    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. 105




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##### Table of Contents



Employment and Noncompetition Agreement.
    Terms of
    Employment Agreement (as amended)


Provision


Paul J. CreccaTerm:


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:


$435,000 commencing on December 5, 2007 and for the year 2008,
    increasing by 4% in each subsequent year of the term.Annual bonus:


Minimum annual cash bonus equal to 50% of the base salary in
    effect for the applicable year.Other benefits:


Mr. Crecca 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 or by executive without Good Reason (as
    defined in the agreement):


Mr. Crecca 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, Mr. Crecca 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 amounts owed above for termination for Cause
    or by executive without Good Reason, Mr. Crecca will be
    entitled to (a) a cash lump sum payment of a pro-rated annual
    cash bonus for the year in which the termination occurs, such
    bonus (before pro-ration) equal to the greater of (i) the
    current year target amount or (ii) the actual bonus paid or
    payable for the prior year; plus (b) 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.Mr. Crecca will also be entitled to amounts payable under the
    noncompetition agreement described below. 106




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##### Table of Contents



Provision


Paul J. CreccaDefinition of Cause


Cause means: 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.In 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, including
    the former holders of the Series A and Series B preferred stock
    that converted into common stock in the recapitalization, have
    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).  107




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##### Table of Contents



Terms
    of Noncompetition Agreement
  Provision


Paul J. CreccaTerm


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 $25,000 during the
    12 month period following the terminationRestrictive covenants


Mr. Crecca may not: 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.


Impact
    of Performance on Compensation
  Performance goals for 2007.
  
    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. Crecca , Mr. Kurtz , Ms. Koons , and
    Ms. Linsky 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).     108




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##### Table of Contents



Target Bonus Percentages.
  Target BonusName

PercentagePaul J. Crecca


50.0
%Linda Koons


44.0
%Kevin M. McAliley


40.0
%Mark Kurtz


35.0
%Melissa Linsky


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


BonusPaul J. Crecca


50
%


10
%


40
%


100
%Linda Koons


50
%


10
%


40
%


100
%Kevin M. McAliley


50
%


10
%


40
%


100
%Mark Kurtz


50
%


10
%


40
%


100
%Melissa Linsky


50
%


10
%


40
%


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

% of Bonus Percentage Allocation Achieved85%

50%100%

100%115% or higher

150%    109




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##### Table of Contents



2007 Financial Goals.
  Overall
    Haights Cross Communications Goals
  EBITDA

Cash FlowThreshold

Target


Maximum

Threshold


Target

Maximum(85%)

(100%)


(115% or higher)

(85%)


(100%)

(115% or higher)(In thousands)

(In thousands)$48,379

$
56,916


$65,453

$
(35,992
)

$(31,297)

$
(26,602
)   Triumph Learning Triumph
    Learning
  2007 Individual Goals.
    
    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 2007.
  Triumph Learning Sundance/Newbridge
  Name

Percentage of Base SalaryMr. Crecca


72.11
%Ms. Koons


63.45
%Mr. McAliley


60.00
%Mr. Kurtz


50.48
%Ms. Linsky


50.48
%  110




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##### Table of Contents



Compensation
    Committee Report
  Regulation S-K
      Compensation
    of Named Executive Officers
    Summary
    Compensation Table
  Non-


Change inEquity


Pension ValueIncentive


andPlan


NonqualifiedStock


Option


Compen-


DeferredBonus


Awards


Awards


sation


Compensation


All OtherSalary


($)


($)


($)


($)


Earnings


Compensation ($)


TotalName and Principal Position

Year


($)


(5)


(6)


(7)


(8)


($)


(9)


($)Peter J. Quandt


2007


$
326,359


$



$
1,385,775


$



$







$
2,842,044


$
4,554,178Former Chairman of the Board, Chief Executive Officer and
    President(1)


2006



484,478



266,463



















52,776



803,717Paul J. Crecca


2007



379,631



273,838



60,327















21,750



735,546Chief Executive Officer and President(2)


2006



344,698



181,667



















22,943



549,308Kevin M. McAliley


2007



346,942















208,165







20,850



575,957Executive Vice President and President of Triumph Learning


2006



326,874















188,319







19,510



534,703Linda Koons


2007



307,230















195,019







38,250



540,499Executive Vice President and Publisher


2006



295,231















119,570







37,205



452,006Mark Kurtz


2007



219,850















154,726







14,250



388,826Senior Vice President, and Chief Financial Officer(3)


2006



209,115















74,493







13,000



296,608Melissa Linsky


2007



216,810















147,098







14,250



378,158Senior Vice President  Finance &
    Planning(4)     (1)
    
    Peter J. Quandt ceased to be our Chairman of the Board, Chief
    Executive Officer and President on August 10, 2007.(2)
    
    Paul J. Crecca served in 2007 as our Executive Vice President
    (through August 24, 2007) and Chief Financial Officer
    (through December 5, 2007), Interim Chief Executive Officer
    and Interim President (August 24, 2007 
    November 5, 2007), and Chief Executive Officer and
    President (effective November 5, 2007).(3)
    
    Mark Kurtz served in 2007 as our Vice President, Finance and
    Accounting, and Chief Accounting Officer (through
    December 11, 2007) and our Senior Vice President and
    Chief Financial Officer (effective December 11, 2007).(4)
    
    Melissa L. Linsky served in 2007 as our Vice President, Finance
    and Planning (through December 5, 2007) and Treasurer,
    and Senior Vice President  Finance &
    Planning (effective December 5, 2007). 111




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##### Table of Contents



(5)
    
    Represents the minimum required bonus paid to Mr. Paul J.
    Crecca pursuant to his employment agreement. See Terms of
    Employment Agreement.(6)
    
    The fair value of each share of restricted stock awarded during
    the year ended December 31, 2007 was $6.16 per share of
    common stock based upon a valuation received by a third party
    and after due consideration of all other relevant factors and
    reasonably available information. Messrs. Quandt and Crecca
    each paid $0.001 for each share of restricted stock. Each of
    these awards was subject to forfeiture and vested in one-third
    increments on
    August 9th
    of each of 2008, 2009 and 2010. Subsequently,
    Mr. Quandts entire award vested on August 24, 2007
    pursuant to his separation agreement. See Amounts Payable
    per Release and Separation Agreement with
    Peter J. Quandt.(7)
    
    In connection with the Recapitalization Agreement on
    August 10, 2007, all equity incentive plans and any
    outstanding awards thereunder were terminated.(8)
    
    Represents non-equity incentive payments earned pursuant to our
    Annual Management/Employee Bonus Plan. For Ms. Linsky and
    Mr. Kurtz, also includes $37,625 and $43,718, respectively,
    earned under our 2007 Expense Savings Incentive Plan.(9)
    
    We paid Mr. Quandt $2,568,478 in connection with his
    Release and Separation Agreement and, since the termination of
    his employment, monthly payments of $62,500 pursuant to his
    non-competition agreement.For Messrs. Quandt and Crecca, prior year amounts in this
    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.For each named executive officer, the amounts in this column
    also consist of: (i) contributions made by the Company
    under our 401(k) plan; and (ii) car allowances. For
    Ms. Koons, amounts in this column also include a housing
    allowance of $24,000 that the Company pays as part of a
    relocation arrangement agreed to upon her hiring.  Incentive
    Plans
  Restated 2000 Stock Option and Grant Plan.
  Annual Management/ Employee Bonus Plan.
      2007 Expense Savings Incentive Plan.
 112




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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


Shares


Securities


Price of


FairEstimated Future Payouts Under Non-Equity 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)


PricePeter J. Quandt





$



$



$




























Paul J. Crecca





$
94,908


$
189,816


$
284,724



























Linda Koons





$
67,590


$
135,181


$
202,771



























Kevin M. McAliley





$
69,388


$
138,777


$
208,165



























Mark Kurtz





$
38,474


$
76,948


$
115,422



























Melissa Linsky





$
37,942


$
75,884


$
113,826     (1)
    
    These amounts reflect the Threshold, Target and Maximum bonuses
    payable to our named executive officers under awards granted
    pursuant to our 2007 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, Paul J. Crecca received the minimum bonus payments under
    his new employment agreements and were not paid pursuant to his
    non-equity incentive plan awards.    Outstanding
    Equity Awards at Fiscal Year-End
  Option Awards

Stock AwardsEquityIncentiveEquity

PlanIncentive

Awards:Plan

MarketAwards:

orEquity









Number of

PayoutIncentive







Market

Unearned

Value ofPlan





Number of

Value of

Shares,

UnearnedAwards:





Shares or

Shares or

Units or

Shares,Number of

Number of

Number of





Units of

Units of

Other

Units orSecurities

Securities

Securities





Stock

Stock

Rights

OtherUnderlying

Underlying

Underlying

Option



That

That

That

RightsUnexercised

Unexercised

Unexercised

Exercise

Option

Have

Have Not

Have

ThatOptions (#)

Options (#)

Unearned

Price

Expiration

Not

Vested

Not

HaveName

Exercisable

Unexercisable

Options (#)

($)

Date

Vested (#)

($)

Vested (#)

Not Vested(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)Paul J. Crecca(1)






















75,000


$
462,000   Option
    Exercises and Stock Vested
  Option Awards


Stock AwardsNumber of Shares





Number of SharesAcquired on


Value Realized on


Acquired on


Value Realized onName

Exercise (#)


Exercise ($)


Vesting (#)


Vesting ($)(a)

(b)


(c)


(d)


(e)Peter J. Quandt(1)(2)










225,000


$
1,386,000  113




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##### Table of Contents



(1)
    
    In connection with the recapitalization on August 10, 2007,
    Messrs. Quandt and Crecca received restricted stock awards
    in the amount shown. Each of these awards was subject to
    forfeiture and vested in one-third increments on August 9th
    of each of 2008, 2009 and 2010. The fair value of each share of
    restricted stock awarded during the year ended December 31,
    2007 was $6.16 per share of common stock based upon a valuation
    received by a third party and after due consideration of all
    other relevant factors and reasonably available information.
    Messrs. Quandt and Crecca each paid $0.001 for each share
    of restricted stock.(2)
    
    Mr. Quandts entire award vested on August 24,
    2007 pursuant to his separation agreement. See Amounts
    Payable per Release and Separation Agreement with Peter J.
    Quandt.  Option
    Exercises and Option Grants
    Post-Employment
    Compensation
  Pension Benefits/401(k) Plan.
  Nonqualified Deferred Compensation.
  Other Post-Employment Payments. employees-at-will
   114




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##### Table of Contents



Potential
    Payments Upon Termination or Change of Control
  Paul J. Crecca.
  Involuntary Not for


Involuntary forVoluntary


Permanent





Termination for


Cause


Good ReasonExecutive Benefit

Termination


Disability


Death


Cause


Termination(1)


Termination(1)Accrued vacation

$
36,250


$
36,250


$
36,250


$
36,250


$
36,250


$
36,250Cash bonus through date of termination

$
217,500


$
217,500


$
217,500


$
217,500


$
217,500


$
217,500Cash severance

















$
870,000


$
870,000Noncompetition payments





$
300,000


$
300,000






$
300,000


$
300,000Total

$
253,750


$
553,750


$
553,750


$
253,750


$
1,423,750


$
1,423,750     (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 50.0% of his base salary.  Other Named Executive Officers.
  Cost of COBRA ReimbursementName

Salary Continuation


During Salary Continuation Period


TotalKevin M. McAliley

$
31,667 per month for 18 months


$
351 per month for 18 months


$
576,324Linda Koons

$
25,833 per month for 18 months


$
1,012 per month for 18 months


$
483,210Mark Kurtz

$
20,833 per month for 12 months


$
1,012 per month for 12 months


$
262,140Melissa Linsky

$
20,833 per month for 12 months


$
351 per month for 12 months


$
254,208   Amounts
    Payable per Release and Separation Agreement with Peter J.
    Quandt
  Peter J. Quandt.
  
    a lump sum payment of $2,568,479; and
    monthly payments of $62,500 (for the twenty (20) months
    following the separation).   115




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##### Table of Contents



Transaction
    Bonus Plan
      Name

Minimum


MaximumPaul J. Crecca, President and Chief Executive Officer

$
218,000


$
3,045,000Kevin M. McAliley, Executive Vice President and President of
    Triumph Learning Group

$
190,000


$
2,010,000Linda Koons, Executive Vice President and Publisher

$
77,500


$
310,000Mark Kurtz, Senior Vice President and Chief Financial Officer

$
71,775


$
217,500Melissa L. Linsky, Treasurer, and Senior Vice
    President  Finance & Planning

$
72,006


$
218,200   DIRECTOR
    COMPENSATION
    Fees Earned








Non- Equity


All Otheror Paid


Stock


Option


Incentive Plan


CompensationName(1)

in Cash


Awards ($)


Awards ($)


Compensation ($)


($)


TotalEugene Davis, Chairman(3)

$
109,624


$
29,101














$
138,725T.J. Vigliotta(2)(3)

$
32,904


$
19,401














$
52,305Curry Ford(2)(3)

$
48,104


$
19,401














$
67,505John McKenna(3)

$
63,495


$
16,666














$
80,161Paul J. Crecca(1)






















     (1)
    
    Paul Crecca served as a member of the Board from January 1,
    2007  August 10, 2007 and joined the Board again
    on August 24, 2007. Mr. Crecca received no
    compensation for serving as a director. Mr. Creccas
    2007 compensation is reflected in the Summary Compensation table
    above.(2)
    
    Fees shown on the table as payable to Mr. Ford were in fact
    made to Glenview Capital Management, LLC, for which
    Mr. Ford serves as Managing Director. Payments shown as
    payable to Mr. Vigliotta were made to Monarch Alternative
    Capital LP, for whom Mr. Vigliotta serves as a Principal.(3)
    
    Each non-employee member of the Board of Directors received a
    restricted stock award of 8,117 shares of our common stock,
    with the Chairman receiving 12,175 shares. The restricted
    stock granted pursuant to all of these awards was to vest on
    February 10, 2008, except for Mr. McKennas grant
    which had a vesting date of February 21, 2008. In January
    2008, prior to the vesting of his restricted stock,
    Mr. Vigliotta elected to forfeit all of his restricted
    stock. In January 2008, prior to the vesting of his restricted
    stock, Mr. Curry elected to forfeit all of his restricted
    stock in exchange for an issuance by the Company to Glenview
    Capital Management, LLC, of an equivalent amount under the same
    terms and conditions. Subsequently, we issued to Glenview
    Capital Management, LLC, which has designated Mr. Ford to
    serve as our director, a restricted stock award of 116




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##### Table of Contents



8,117 shares. All outstanding restricted stock awards fully
    vested on February 10, 2008 for issuances to Mr. Davis
    and Glenview Capital Management, LLC and February 21, 2008
    for the issuance to Mr. McKenna.  Cash Compensation.
  
    Annual Payments.  
    An annual retainer for members of the Board of $30,000, payable
    $7,500 per quarter.
    An annual retainer for the Chairman of the Board of $105,000
    (effective August 24, 2007).
    $5,000 annual retainer for each committee on which such
    non-employee director served ($10,000 if such non-employee
    director served as the Chairman of such committee).  
    Board and Committee Meeting Fees.  
    $3,000 for each meeting of the Board or Committee at which the
    non-employee director was physically present.
    $1,500 for each meeting of the Board or Committee at which the
    non-employee director participated by telephone.  Equity Compensation.
  Compensation Committee Interlocks and Insider
    Participation.
  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.   117




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Shares Beneficially OwnedTotalVotingName of Beneficial Owner

Common Stock


PercentMacKay Shields LLC


2,376,447
(1)(2)


23.8
%Monarch Alternative Capital LP


2,130,316
(1)(3)


21.4
%Glenview Capital Management, LLC


1,418,033
(1)(4)


14.2
%Media/Communications Partners III Limited Partnership and
    affiliates


1,179,135
(1)(5)


11.8
%Deephaven Distressed Opportunities Trading Ltd.


606,170
(1)(6)


6.1
%New York Life Investment Management LLC


865,938
(7)


8.7
%Peter J. Quandt


303,736
(1)(8)


3.1
%Paul J. Crecca


75,000



*Eugene I. Davis


12,175



*John A. McKenna. Jr.


8,117



*Curry Ford


0



0TJ Vigliotta


0



0Linda Koons


0



0Kevin M. McAliley


0



0Mark W. Kurtz


0



0Melissa Linsky


0



0All directors and named executive officers as a group
    (9 persons)


95,292



1
%     (1)
    
    These beneficial holders are parties to a Shareholders Agreement
    (Shareholders Agreement) whereby the only voting
    provisions contained in such agreement require the parties
    thereto to vote for the director nominees of certain of the
    parties. Under the rules promulgated by the SEC, each party to
    the Shareholders Agreement may be deemed to beneficially own the
    shares beneficially owned by all parties to the Shareholders
    Agreement. As of March 11, 2008, the parties to the
    Shareholders Agreement collectively owned an aggregate of
    8,013,837 shares (or 80.1%) of our outstanding Common Stock.(2)
    
    MacKay Shields LLC (MacKay Shields), an investment
    adviser registered under Section 203 of the Investment
    Advisers Act of 1940, is deemed to be the beneficial owner of
    shares of its clients as a result of acting as investment
    adviser to these clients with sole power to vote or dispose of
    the stock. The total represents 2,357,482 shares of common
    stock and warrants to purchase 18,965 shares of common
    stock held by clients for whom MacKay Shields serves as
    investment advisor.MacKay Shields disclaims beneficial ownership for any shares
    which may be deemed beneficially owned by it, including without
    limitation the stock and warrants held by other parties to the
    Shareholders Agreement, for purposes of this disclosure except
    to the extent of its pecuniary interest therein, if any, and the
    reporting herein of such securities shall not be construed as an
    admission of beneficial ownership thereof for any other purpose. 118




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(3)
    
    Monarch Alternative Capital LP is the investment advisor to the
    other three Monarch entities named herein and may be deemed to
    be the beneficial owner of the stock and warrants held by those
    funds. Michael Weinstock, Andrew Herenstein, Christopher Santana
    and Josiah Rotenberg are Managing Principals of Monarch
    Alternative Capital LP and may be deemed to be the beneficial
    owner of the stock and warrants held by the Monarch entities
    named herein. The total includes 1,559,746 shares of common
    stock and warrants to purchase 7,878 shares of common stock
    held by Monarch Debt Recovery Master Fund Ltd;
    214,470 shares of common stock and warrants to purchase
    890 shares of common stock held by Monarch Income Master
    Fund Ltd; and 346,442 shares of common stock and
    warrants to purchase 890 shares of common stock held by
    Monarch Opportunities Master Fund Ltd.The entities and individuals listed above disclaim beneficial
    ownership for any shares which may be deemed beneficially owned
    by them, including without limitation the stock and warrants
    held by other parties to the Shareholders Agreement, for
    purposes of this disclosure except to the extent of their
    pecuniary interest therein, if any, and the reporting herein of
    such securities shall not be construed as an admission of
    beneficial ownership thereof for any other purpose.(4)
    
    Larry Robbins is the Chief Executive Officer and Senior Managing
    Member of Glenview Capital Management, LLC, the Investment
    Manager of each of Glenview Capital Partners, L.P., Glenview
    Institutional Partners, L.P. and Glenview Capital Master Fund,
    Ltd. As such, he and Glenview Capital Management, LLC may be
    deemed to exercise shared voting and investment control over the
    stock and warrants held by the entities listed above. The total
    includes 431,721 shares of common stock and warrants to
    purchase 3,431 shares of common stock held by Glenview
    Institutional Partners, L.P; 175,606 shares of common stock
    and warrants to purchase 1,398 shares of common stock held
    by Glenview Capital Partners, L.P; 791,311 shares of common
    stock and warrants to purchase 6,449 shares of common stock
    held by Glenview Capital Master Fund, Ltd.; and
    8,117 shares of common stock held by Glenview Capital
    Management, LLC.The entities and individual listed above disclaim beneficial
    ownership for any shares which may be deemed beneficially owned
    by them, including without limitation the stock and warrants
    held by other parties to the Shareholders Agreement, for
    purposes of this disclosure except to the extent of their
    pecuniary interest therein, if any, and the reporting herein of
    such securities shall not be construed as an admission of
    beneficial ownership thereof for any other purpose.(5)
    
    The total includes 1,120,170 shares of common stock
    beneficially owned by Media/Communications Partners III
    Limited Partnership and 58,965 shares of common stock
    beneficially owned by M/C Investors L.L.C. Christopher S.
    Gaffney is a Manager and holds an ownership interest in these
    entities and may be deemed to be the beneficial owner of the
    stock and warrants held by the entities named herein. The two
    entities listed herein are affiliated investment entities whose
    sole general partners or managing members share individual
    general partners and thus each entity may be deemed to
    beneficially own the stock held by the other entity.The entities listed above and Mr. Gaffney disclaim
    beneficial ownership for any shares which may be deemed
    beneficially owned by them, including without limitation the
    stock and warrants held by other parties to the Shareholders
    Agreement, for purposes of this disclosure except to the extent
    of their pecuniary interest therein, if any, and the reporting
    herein of such securities shall not be construed as an admission
    of beneficial ownership thereof for any other purpose.(6)
    
    The total includes 601,310 shares of common stock and
    warrants to purchase 4,860 shares of common stock
    beneficially owned by Deephaven Distressed Opportunities Trading
    Ltd.The entity listed above disclaims beneficial ownership for any
    shares which may be deemed beneficially owned by it, including
    without limitation the stock and warrants held by other parties
    to the Shareholders Agreement, for purposes of this disclosure
    except to the extent of its pecuniary interest therein, if any,
    and the reporting herein of such securities shall not be
    construed as an admission of beneficial ownership thereof for
    any other purpose.(7)
    
    This total includes 777,405 shares of common stock and
    warrants to purchase 6,258 shares of common stock
    beneficially owned by New York Life Investment Management LLC
    (New York Life) and 81,608 shares of common
    stock and warrants to purchase 667 shares of common stock
    held by third party clients of New York Life. New York Life
    serves as investment manager for those third party clients and
    has voting and investment 119




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##### Table of Contents



power related to such stock and warrants. New York Life may be
    deemed to beneficially own the stock and warrants held by those
    third parties.New York Life disclaims beneficial ownership for any shares
    which it may be deemed to beneficially own for purposes of this
    disclosure except to the extent of its pecuniary interest
    therein, if any, and the reporting herein of such securities
    shall not be construed as an admission of beneficial ownership
    thereof for any other purpose.(8)
    
    The total includes 303,736 shares of common stock
    beneficially owned by Mr. Quandt.Mr. Quandt disclaims beneficial ownership for any shares
    which he may be deemed to beneficially own, including without
    limitation the stock and warrants held by other parties to the
    Shareholders Agreement, for purposes of this disclosure except
    to the extent of his pecuniary interest therein, if any, and the
    reporting herein of such securities shall not be construed as an
    admission of beneficial ownership thereof for any other purpose.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  st th st th st th st th st th th st th st
  and/or
      and/or
 120




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##### Table of Contents



and/or
        Item 14.
    Principal
    Accountant Fees and Services.    Audit Fees. Form 10-Q,
  Audit-Related Fees.
  Tax Fees.
  All Other Fees.
   121




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##### Table of Contents



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

56Balance Sheets

57Consolidated Statements of Operations

58Consolidated Statements of Changes in Stockholders Deficit

59Consolidated Statements of Cash Flows

60Notes to Consolidated Financial Statements

612. Financial Statement SchedulesSchedule I  Condensed Financial Information

91Schedule II  Valuation and Qualifying Account
    Summary

93     Exhibits.
 122




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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 Amendment dated August 10, 2007 to 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
    Current Report on
    Form 8-K
    filed August 16, 20073
.1(b)

Certificate of Amendment dated June 28, 2007 to Second
    Amended and Restated Certificate of Incorporation of Haights
    Cross Communications, Inc., incorporated by reference to
    Exhibit 3.1(a) of Haights Cross Communications, Inc.s
    Quarterly Report on
    Form 10-Q
    filed November 14, 20073
.1(c)

Certificate of Amendment dated January 29, 2008 to 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
    Current Report on
    Form 8-K
    filed January 31, 20083
.1(d)

Certificate of Elimination of Shares of Haights Cross
    Communications, Inc. Designated as Series C Preferred Stock
    dated January 30, 2008, incorporated by reference to
    Exhibit 3.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed January 31, 20083
.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
.2(a)

Amendment to the Bylaws of Haights Cross Communications, Inc.
    dated August 10, 2007, incorporated by reference to
    Exhibit 3.2 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed August 16, 20073
.2(b)

Amendment to the Bylaws of Haights Cross Communications, Inc.
    dated September 21, 2007, incorporated by reference to
    Exhibit 3.1 of Haights Cross Communications, Inc.s
    Current Report on
    Form 8-K
    filed September 27, 20073
.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, 2003 123




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##### Table of Contents



ExhibitNo.

Exhibit Description3
.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, 20034
.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, 20044
.6*

Form of Warrant for the Purchase of Shares of Common Stock of
    Haights Cross Communications, Inc.10
.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, 2003 124




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##### Table of Contents



ExhibitNo.

Exhibit Description10
.2

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
.3+

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
.4

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
.5

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
.6+

Description of the Haights Cross Communications, Inc. Annual
    Management/ Employee Bonus Plan for fiscal year 2007,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed April 6, 200710
.7+

Description of the Haights Cross Communications, Inc. Annual
    Management/ Employee Bonus Plan for fiscal year 2008,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed February 11, 200810
.8+

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
.9+

Employment Agreement, dated January 31, 2007, by and
    between Haights Cross Communications, Inc. and Paul J. Crecca,
    incorporated by reference to Exhibit 10.3 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.10+

Amendment dated December 11, 2007 to the Employment
    Agreement between Haights Cross Communications, Inc. and Paul J.
    Crecca, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed December 11, 200710
.11+

Noncompetition Agreement, dated January 31, 2007, by and
    between Haights Cross Communications, Inc. and Paul J. Crecca,
    incorporated by reference to Exhibit 10.4 of Haights Cross
    Communications, Inc.s Current Report on
    Form 8-K
    filed February 2, 200710
.12

Recapitalization Agreement, dated June 29, 2007 by and
    among Haights Cross Communications, Inc. and the Investors named
    therein, incorporated by reference to Exhibit 10.1 of
    Haights Cross Communications, Inc.s Current Report on
    Form 8-K
    filed July 6, 200710
.13

Shareholders Agreement by and among Haights Cross
    Communications, Inc. and the Investors named therein dated
    August 10, 2007, incorporated by reference to
    Exhibit 10.1 of Haights Cross Communications, Inc.s
    Current Report of
    Form 8-K
    filed August 16, 200710
.14

Amendment dated January 29, 2008 to Shareholders Agreement
    dated August 10, 2007, incorporated by reference to
    Exhibit 10.1 of Haights Cross Communications, Inc.s
    Current Report of
    Form 8-K
    filed January 31, 200810
.15

Indemnification Agreement by and between Haights Cross
    Communications, Inc. and Eugene Davis dated August 10,
    2007, incorporated by reference to Exhibit 10.2 of Haights
    Cross Communications, Inc.s Current Report of
    Form 8-K
    filed August 16, 2007 125




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##### Table of Contents



ExhibitNo.

Exhibit Description10
.16

Indemnification Agreement by and between Haights Cross
    Communications, Inc. and T.J. Vigliotta dated August 10,
    2007, incorporated by reference to Exhibit 10.3 of Haights
    Cross Communications, Inc.s Current Report of
    Form 8-K
    filed August 16, 200710
.17

Indemnification Agreement by and between Haights Cross
    Communications, Inc. and Curry Ford dated August 10, 2007,
    incorporated by reference to Exhibit 10.4 of Haights Cross
    Communications, Inc.s Current Report of
    Form 8-K
    filed August 16, 200710
.18

Indemnification Agreement by and between Haights Cross
    Communications, Inc. and John A. McKenna, Jr., dated
    August 21, 2007, incorporated by reference to
    Exhibit 10.1 of Haights Cross Communications, Inc.s
    Current Report of
    Form 8-K
    filed August 22, 200710
.19

Release and Settlement Agreement by and among Haights Cross
    Communications, Inc. and the other parties named therein dated
    August 10, 2007, incorporated by reference to
    Exhibit 10.6 of Haights Cross Communications, Inc.s
    Current Report of
    Form 8-K
    filed August 16, 200710
.20+

Separation and Release Agreement dated August 24, 2007 by
    and between Peter J. Quandt and Haights Cross Communications,
    Inc., incorporated by reference to Exhibit 10.1 of Haights
    Cross Communications, Inc.s Current Report of
    Form 8-K
    filed August 27, 200710
.21+

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
.22

Indemnification Agreement by and between Haights Cross
    Communications, Inc. and Paul J. Crecca dated September 21,
    2007, incorporated by reference to Exhibit 10.1 of Haights
    Cross Communications, Inc.s Current Report of
    Form 8-K
    filed September 27, 200710
.23+

Haights Cross Communications, Inc. Transaction Bonus Plan,
    incorporated by reference to Exhibit 10.1 of Haights Cross
    Communications, Inc.s Current Report of
    Form 8-K
    filed October 15, 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. and
    Subsidiaries of Haights Cross Operating Company24
.1*

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

Rule 13a-14(a)/15d-14(a)
    Certification of Paul J. Crecca31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification of Mark Kurtz32
**     +
    
    Indicates a management contract or any compensatory plan,
    contract or arrangement*
    
    Filed herewith**
    
    Haights Cross Communications, Inc. 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, Haights Cross Communications, Inc. 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. 126




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SIGNATURES      By:
    /s/  PAUL
    J. CRECCA   Director, Chief Executive Officer and President
 (Principal Executive Officer)
    POWER OF
    ATTORNEY
    Form 10-K,
  Signature

Title

Date/s/  PAUL
    J. CRECCAPaul
    J. Crecca

Chief Executive Officer and President

March 31, 2008/s/  MARK
    KURTZMark
    Kurtz

Senior Vice President and Chief Financial Officer

March 31, 2008/s/  EUGENE
    I. DAVISEugene
    I. Davis

Chairman, Director

March 31, 2008/s/  CURRY
    E. FORDCurry
    E. Ford

Director

March 31, 2008/s/  JOHN
    MCKENNAJohn
    McKenna

Director

March 31, 2008/s/  T.J.
    VIGLIOTTAT.J.
    Vigliotta

Director

March 31, 2008      127