<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                  For the quarterly period ended June 30, 2005

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

       For the transition period from _______________ to _______________.

                          Commission File No. 000-50916

                       Peoples Educational Holdings, Inc.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                         <C>
            Delaware                                     41-1368898
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)
</TABLE>
                    299 Market Street, Saddle Brook, NJ 07663
               (Address of principal executive offices) (Zip Code)

                                 (201) 712-0090
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date: 4,384,198 shares of Common Stock
(par value $0.02 per share) outstanding on July 30, 2005.


                                        1
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I. FINANCIAL INFORMATION

   Item 1: Financial Statements:

           Consolidated Balance Sheets as of June 30, 2005 (Unaudited)
              and December 31, 2004......................................     3
           Unaudited Consolidated Statements of Operations for the Three
              and Six Months Ended June 30, 2005 and 2004................     5
           Unaudited Consolidated Statement of Changes in Stockholders
              Equity.....................................................     6
           Unaudited Consolidated Statements of Cash Flows for the Six
              Months Ended June 30, 2005 and 2004........................     7
           Condensed Notes to Consolidated Financial Statements
              (Unaudited)................................................     8

   Item 2: Management's Discussion and Analysis of Financial Condition
              and Results of Operations..................................    11

   Item 3: Quantitative and Qualitative Disclosures About Market Risk....    20

   Item 4: Controls and Procedures.......................................    20

PART II. OTHER INFORMATION

   Item 1: Legal Proceedings.............................................    21

   Item 2: Unregistered Sales of Equity Securities and Use of Proceeds...    21

   Item 3: Defaults Upon Senior Securities...............................    21

   Item 4: Submission of Matters to a Vote of Security Holders...........    21

   Item 5: Other Information.............................................    21

   Item 6: Exhibits......................................................    21

SIGNATURES...............................................................    22

EXHIBITS.................................................................    23
</TABLE>


                                        2
<PAGE>
                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      (Unaudited)
                                                     June 30, 2005   December 31, 2004
                                                     -------------   -----------------
<S>                                                  <C>             <C>
ASSETS
Current Assets
Cash and Cash Equivalents                             $   495,024       $   134,317
Accounts Receivable Net of Allowance for Doubtful
   Accounts of $40,000 and Allowance for Returns        4,304,352         2,167,814
Inventory                                               2,231,358         1,710,746
Advance Royalties                                              --            21,464
Prepaid Expenses and Other                                323,450           357,442
Income Taxes Receivable                                   661,526           101,026
Deferred Income Taxes                                      71,000            71,000
                                                      -----------       -----------
      Total Current Assets                              8,086,710         4,563,809
                                                      -----------       -----------
Equipment - At Cost, Less Accumulated Depreciation
   of $1,076,000 in 2005 and $920,000 in 2004             982,440           813,992
                                                      -----------       -----------
Other Assets
Deferred Prepublication Costs, Net                     15,271,506        11,666,604
Deposits and Other                                        296,016           101,609
                                                      -----------       -----------
      Total Other Assets                               15,567,522        11,768,213
                                                      -----------       -----------
Total Assets                                          $24,636,672       $17,146,014
                                                      ===========       ===========
</TABLE>

See accompanying condensed notes to consolidated financial statements


                                       3
<PAGE>
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  (Unaudited)
                                                 June 30, 2005   December 31, 2004
                                                 -------------   -----------------
<S>                                              <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long Term Obligations       $   363,642       $   274,327
Accounts Payable                                    6,755,287         3,911,278
Accrued Expenses                                      412,156           822,431
   Deferred Revenue                                   125,041           178,388
                                                  -----------       -----------
      Total Current Liabilities                     7,656,126         5,186,424
                                                  -----------       -----------
Long Term Obligations, less current maturities      6,646,406         3,275,379
Deferred Income Taxes                                 133,000           133,000
                                                  -----------       -----------
Total Liabilities                                  14,435,532         8,594,803
                                                  -----------       -----------
Stockholders' Equity
Common stock, $0.02 par value; authorized
   8,500,000 shares; issued and outstanding
   4,309,198 in 2005 and 3,809,198 in 2004             86,184            76,184

Additional Paid In Capital                          7,283,052         4,796,829
Retained Earnings                                   2,831,904         3,678,198
                                                  -----------       -----------
Total Stockholders' Equity                         10,201,140         8,551,211
                                                  -----------       -----------
Total Liabilities and Stockholders' Equity        $24,636,672       $17,146,014
                                                  ===========       ===========
</TABLE>

See accompanying condensed notes to consolidated financial statements


                                       4
<PAGE>
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                          Three Months Ended          Six Months Ended
                                                               June 30                    June 30
                                                       -----------------------   -------------------------
                                                          2005         2004          2005          2004
                                                       ----------   ----------   -----------   -----------
<S>                                                    <C>          <C>          <C>           <C>
Net Revenue                                            $9,493,361   $8,643,757   $14,416,954   $13,874,332

Cost of Revenue
   Direct Costs                                         4,358,597    3,756,729     6,114,587     5,624,086
   Prepublication Cost Amortization                     1,096,368      898,345     2,092,063     1,625,369
                                                       ----------   ----------   -----------   -----------
   Total                                                5,454,965    4,655,074     8,206,650     7,249,455

Gross Profit                                            4,038,396    3,988,683     6,210,304     6,624,877

Selling, General and Administrative Expenses            3,874,791    3,249,695     7,451,119     6,032,646
                                                       ----------   ----------   -----------   -----------

Income (Loss) from Operations                             163,605      738,988    (1,240,815)      592,231

Other Income (Expense)                                      1,187       (5,200)       (3,902)      (18,670)
Interest Expense                                          (97,202)     (23,742)     (162,077)      (38,228)
                                                       ----------   ----------   -----------   -----------

Net Income (Loss) Before Income Taxes                      67,590      710,046    (1,406,794)      535,333

Federal and State Income Tax Expense (Benefit)             29,500      283,800      (560,500)      214,000
                                                       ----------   ----------   -----------   -----------
Net Income (Loss)                                      $   38,090   $  426,246   $  (846,294)  $   321,333
                                                       ==========   ==========   ===========   ===========
Net Income (Loss) per Common Share
   Basic                                               $     0.01   $     0.11   $     (0.22)  $      0.08
   Diluted                                             $     0.01   $     0.11   $     (0.22)  $      0.08

Weighted-average Number of Common Shares Outstanding
   Basic                                                3,964,754    3,809,198     3,886,976     3,809,198
   Diluted                                              4,431,142    3,943,845     3,886,976     3,876,522
                                                       ==========   ==========   ===========   ===========
</TABLE>

See accompanying condensed notes to consolidated financial statements


                                       5
<PAGE>
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
                                                         Additional
                                               Common      Paid-In     Retained
                                               Stock       Capital     Earnings       Total
                                             ---------   ----------   ----------   -----------
<S>                                          <C>         <C>          <C>          <C>
Balance, December 31, 2004                    $76,184    $4,796,829   $3,678,198   $ 8,551,211

Net Proceeds from the Sale of Common Stock     10,000     2,486,223                  2,496,223
Net Loss                                                                (846,294)     (846,294)
                                              -------    ----------   ----------   -----------
Balance, June 30, 2005                        $86,184    $7,283,052   $2,831,904   $10,201,140
                                              =======    ==========   ==========   ===========
</TABLE>


                                       6
<PAGE>
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                Six Months Ended
                                                         -----------------------------
                                                         June 30, 2005   June 30, 2004
                                                         -------------   -------------
<S>                                                      <C>             <C>
Cash Flows From Operating Activities
Net Income (Loss)                                         $  (846,294)    $   321,333
Adjustments to Reconcile Net Income (Loss) to Net Cash
   Provided by Operating Activities
   Depreciation                                               155,549         131,164
   Amortization of Prepublication Costs
      and Intangible Assets                                 2,092,077       1,625,369
Changes in Assets and Liabilities
   Accounts Receivable                                     (2,136,538)     (2,141,531)
   Inventory                                                 (520,612)        135,087
   Prepaid Expense and Other                                   33,992          47,186
   Advance Royalties                                           21,464          80,925
   Deposits and Other                                        (194,407)         21,726
   Accounts Payable and Accrued Expenses                    2,433,734         679,655
   Deferred Revenue                                           (53,347)             --
   Income Taxes Payable or Refundable                        (560,500)        131,000
                                                          -----------     -----------
      Net Cash Provided by Operating Activities               425,118       1,031,914
                                                          -----------     -----------

Cash Flows From Investing Activities
   Purchases of Equipment                                    (324,011)       (278,850)
   Expenditures for Prepublication Costs                   (5,696,965)     (3,230,281)
                                                          -----------     -----------
      Net Cash Used in Investing Activities                (6,020,976)     (3,509,131)
                                                          -----------     -----------

Cash Flows From Financing Activities
   Net (Payments) Borrowings Under Line of Credit          (1,681,914)      3,200,776
   Net Proceeds From the Sale of Common Stock               2,496,223              --
   Proceeds from Term Loan                                  5,000,000              --
   Proceeds from Long Term Debt                               307,063         300,836
   Principal Payments on Long Term Debt                      (164,807)       (101,092)
                                                          -----------     -----------
      Net Cash Provided By Financing Activities             5,956,565       3,400,520
                                                          -----------     -----------
      Net Increase in Cash and Cash Equivalents               360,707         923,303

Cash and Cash Equivalents
   Beginning of Period                                        134,317         426,629
                                                          -----------     -----------
   End of Period                                          $   495,024     $ 1,349,932
                                                          ===========     ===========

Supplemental Cash Flow Information
   Cash Payments for:
      Interest                                            $   162,077     $    38,228
      Income Taxes                                        $        --     $    84,000
                                                          ===========     ===========
</TABLE>

See accompanying condensed notes to consolidated financial statements


                                       7
<PAGE>
Peoples Educational Holdings, Inc., and Subsidiary
Condensed Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
by the Company without audit and in accordance with the instructions to Form
10-Q and therefore do not include all information and disclosures necessary for
a fair presentation of financial position, results of operations, and cash flows
in conformity with accounting principles generally accepted in the United States
of America. These unaudited financial statements contain, in the opinion of
management, all adjustments (consisting of normal accruals and other recurring
adjustments) necessary for a fair presentation of the consolidated financial
position, results of operations, and cash flows for the periods presented. The
operating results for the period ended June 30, 2005, are not necessarily
indicative of the operating results to be expected for the full fiscal year.
Accordingly, these condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes included in our Annual Report on Form 10-KSB for the year ended December
31, 2004.

Management is required to make certain estimates and assumptions which affect
the amounts of assets, liabilities, revenue and expenses we have reported, and
our disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ materially from these estimates and
assumptions.

NOTE 2 - Revenue Recognition and Accounts Receivable

The Company recognizes revenue upon shipment and estimates returns, if the right
of return exists. The allowances for returns as of June 30, 2005, and December
31, 2004, were $495,000 and $433,000, respectively. These allowances are
recorded as a reduction of accounts receivable and revenue and are determined
based on the Company's historical returns experience, which is monitored on a
monthly and annual basis. The Company recognizes its subscription-based revenue
from the Measuring Up e-Path pro rata over the life of the agreement.

NOTE 3 - Basic and Diluted Per Share Amounts

Basic per share amounts are computed, generally, by dividing net income or loss
by the weighted average number of common shares outstanding. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments, unless their effect is anti-dilutive thereby reducing the
loss or increasing the income per common share. Due to the net loss for the six
months ended June 30, 2005, common stock equivalents of approximately 453,000
shares would have been anti-dilutive, and as a result were excluded from the
calculation of diluted loss per share.

NOTE 4- Deferred Prepublication Costs

Deferred prepublication costs are capitalized and amortized over a three or
five-year period (the estimated lives of the related publication) using the
straight-line method beginning on the in-stock date of the publication. The
activity in deferred prepublication costs and the balances as of June 30, 2005
and 2004, are as follows:

<TABLE>
<CAPTION>
                                      Three Months Ended           Six Months Ended
                                            June 30                    June 30
                                   ------------------------   -------------------------
                                       2005         2004          2005          2004
                                   -----------   ----------   -----------   -----------
<S>                                <C>           <C>          <C>           <C>
Balances, Beginning                $13,072,895   $7,596,816   $11,666,604   $ 6,960,585
   Prepublication Cost Additions     3,294,979    1,862,024     5,696,965     3,225,279
   Amortization Expense             (1,096,368)    (898,345)   (2,092,063)   (1,625,369)
                                   -----------   ----------   -----------   -----------
Balances, Ending                   $15,271,506   $8,560,495   $15,271,506   $ 8,560,495
                                   ===========   ==========   ===========   ===========
</TABLE>


                                       8
<PAGE>
The estimated future amortization expense related to deferred prepublication
costs is as follows:

<TABLE>
<S>                                    <C>
For the remainder of 2005              $2,547,000
For the year ended December 31, 2006    4,865,000
For the year ended December 31, 2007    3,587,000
For the year ended December 31, 2008    2,403,000
For the year ended December 31, 2009    1,253,000
Thereafter                                617,000
</TABLE>

NOTE 5 -  Financing Arrangements

In May of 2005, the Company entered into a new $12 million financing facility,
which consists of a revolving line of credit and a term loan:

     -    The revolving line of credit provides for advances up to $7,000,000
          and expires in May 2010. The interest rate on the revolving line of
          credit is in a range from LIBOR plus 1.75% to LIBOR plus 2.25%, with
          the exact interest rate based on the ratio of the Company's Total
          Funded Debt to EBITDA. At June 30,2005, $1.4 million was outstanding
          under this facility, and $5.6 million was still available for
          borrowing.

     -    The term loan is for $5,000,000 and matures in May 2012. The term loan
          provides for payments of interest only for the first twelve months and
          for 72 equal monthly payments of principal and interest thereafter
          until maturity. The term loan bears interest at the same rate as the
          revolving line of credit. We do have the option to convert the term
          loan to a fixed rate, at prevailing rates anytime within the first 12
          months of the agreement.

Borrowings under the facility are secured by substantially all Company assets.
The credit agreement contains certain financial covenants, calculated on a
consolidated basis for the Company and its subsidiaries, which, among other
things, impose a maximum ratio of senior funded debt to EBITDA, require the
Company to maintain a minimum debt service coverage ratio, a minimum annual
EBITDA and a minimum stockholders' equity, and prohibit net losses on a fiscal
year basis. The credit agreement also provides that the Company may not declare
or pay dividends, if an event of default exists or would exist under the credit
agreement after giving effect to the dividend.

NOTE 6 - Stock-Based Compensation

The Company grants options to its employees under its 1998 Stock Plan. As
permitted under accounting principles generally accepted in the United States of
America, these grants are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, compensation cost is recognized for those grants
whose exercise price is less than the fair market value of the stock on the date
of grant. There was no compensation expense recorded for employee grants for the
three and six-month periods ended June 30, 2005 and 2004.

Had compensation cost for all of the stock-based compensation grants and
warrants issued been determined based on the fair values at the grant date
consistent with the provisions of Financial Accountings Standards Board ("FASB")
Statement No. 123, the Company's net income (loss) and net income (loss) per
basic and diluted common share would have been as indicated below.


                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                           Three Months Ended     Six Months Ended
                                                                June 30                June 30
                                                          -------------------   --------------------
                                                            2005       2004        2005       2004
                                                          --------   --------   ---------   --------
<S>                                                       <C>        <C>        <C>         <C>
Net Income (Loss) as reported                             $ 38,090   $426,246   $(846,294)  $321,333
Deduct total stock-based employee compensation
   expense determined under the fair value-based
   method for all rewards                                  (57,392)   (34,604)   (114,785)   (69,208)
Net Income (Loss), proforma                               $(19,302)  $391,642   $(961,079)  $252,125
Basic Net Income (Loss) per Common Share, as reported     $   0.01   $   0.11   $   (0.22)  $   0.08
Basic Net Income (Loss) per Common Share, proforma            0.00       0.10       (0.25)      0.07
Diluted Net Income (Loss) per Common Share, as reported       0.01       0.11       (0.22)      0.08
Diluted Net Income (Loss) per Common Share, proforma          0.00       0.10       (0.25)      0.07
</TABLE>

The above pro forma effects on net income (loss) and net income (loss) per basic
and diluted common share are not likely to be representative of the effects on
reported net income (loss) or net income (loss) per common share for future
years because options vest over several years and additional awards generally
are made each year.

In December 2004, FASB published FASB Statement No. 123 (revised 2004),
Share-Based Payment ("FAS 123(R)" or the "Statement"). FAS 123(R) requires that
the compensation cost relating to share-based payment transactions, including
grants of employee stock options, be recognized in financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments issued. FAS 123(R) covers a wide range of share-based compensation
arrangements including stock options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. FAS 123(R)
is a replacement of FASB Statement No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretive guidance.

This Statement will require entities to measure the cost of employee services
received in exchange for stock options based on the grant-date fair value of the
award, and to recognize the cost over the period the employee is required to
provide services for the award. FAS 123(R) permits entities to use any
option-pricing model that meets the fair value objective in the Statement. The
Company will be required to apply FAS 123(R) beginning the first quarter of
2006.

FAS 123(R) allows two methods for determining the effects of the transition: the
modified prospective transition method and the modified retrospective method of
transition.

The Company has not yet completed their study of the transition methods or made
any decisions about how the Company will adopt FAS 123(R). The pro forma
compensation costs presented above and in prior filings for the Company have
been calculated using a Black-Scholes option pricing model and may not be
indicative of amounts which should be expected in future years. No decisions
have been made as to which option-pricing model is most appropriate for the
Company for future awards.

NOTE 7 - Income Taxes

Income tax benefit for the quarter and year to date, ended June 30, 2005 and
2004 was computed using an estimated combined federal and state tax rate of
approximately 40%. The overall tax rate is expected to remain at approximately
40% for the remainder of 2005.


                                       10
<PAGE>
NOTE 8 - Stock Offering

On June 2, 2005, the Company completed a public offering of common stock for the
sale of 500,000 shares at $6.30 per share. The proceeds of approximately $3.2
million were offset by approximately $650,000 in related offering costs,
resulting in net proceeds of $2.5 million. All of the shares were sold by the
Company. On July 6, 2005, an additional 75,000 shares of common stock were sold
pursuant to the exercise of the underwriter's over-allotment option, which
resulted in additional net proceeds to the Company of approximately $400,000.

NOTE 9 -Recently Issued Accounting Standards

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and
Error Corrections. This new standard replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements. Among other changes, Statement 154 requires retrospective
application of a voluntary change in accounting principle with all prior period
financial statements presented on the new accounting principle, unless it is
impracticable to do so. Statement 154 also requires accounting for a change in
method of depreciating or amortizing a long-lived nonfinancial asset as a change
in estimate (prospectively) effected by a change in accounting principle.
Further, the Statement requires that correction of errors in previously issued
financial statements be termed a "restatement." The new standard is effective
for accounting changes and correction of errors made in fiscal years beginning
after December 15, 2005. Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years beginning after
June 1, 2005. We do not believe the adoption of FASB Statement 154 will have a
material effect on our financial position or results of operations.

In March 2005, the FASB issued FASB Interpretation No.47, or "FIN 47," which
clarifies terminology in FASB Statement No. 143, Accounting for Asset Retirement
Obligations. FIN 47 clarifies when an entity has sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is
effective for us in fiscal 2006. We do not expect adoption of FIN 47 to have a
material impact on our consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements regarding the Company, its
wholly owned subsidiary, The Peoples Publishing Group, Inc. ("PPG"), and their
markets as defined in section 21E of the Securities Exchange Act of 1934. These
forward-looking statements involve a number of risks and uncertainties,
including (1) changes in demand from customers, (2) changes in product or
customer mix or revenues and in the level of operating expenses, (3) rapidly
changing technologies and the Company's ability to respond thereto, (4) the
impact of competitive products and pricing, (5) federal, state and local levels
of educational spending, (6) the Company's and PPG's ability to retain qualified
personnel, (7) PPG's ability to retain its distribution agreements in the
College Preparation market, (8) the sufficiency of PPG's copyright protection,
and (9) PPG's ability to continue to rely on the services of a third party
warehouse, and other factors disclosed below and throughout this report. The
actual results that the Company or PPG achieve may differ materially from any
forward-looking statements due to such risks and uncertainties. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report, including the discussion set forth below and in
the Company's other reports filed with the Securities and Exchange Commission
from time to time that attempt to advise interested parties of the risks and
factors that may affect the Company's business and results of operations.


                                       11
<PAGE>
SEASONALITY

Each of our product lines has its own seasonality. The average revenue
percentage by quarter for 2003 and 2004 is summarized in the table below.

<TABLE>
<CAPTION>
                                1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
                                -----------   -----------   -----------   -----------
<S>                             <C>           <C>           <C>           <C>
Test Preparation & Assessment       20%           23%           29%           28%
College Preparation                  7%           25%           58%           10%
Instruction                         17%           26%           34%           23%
   Total Revenue                    15%           24%           40%           21%
</TABLE>

THREE MONTHS ENDED JUNE 30, 2005 VS. THREE MONTHS ENDED JUNE 30, 2004

Overview

Net revenue increased 9.8% for the second quarter of 2005 compared to the same
period in 2004. Net income for the quarter was $38,000 in 2005, compared to
$426,000 in 2004. The decrease in net income is a result of higher cost of
revenue, as a percent of revenue, due to product revenue mix and higher selling,
marketing, general and administrative expenses resulting primarily from the
planned, broad scale, new product line launches and increases in general
corporate overhead.

<TABLE>
<CAPTION>
                                             Three Months Ended June 30,
                                  ------------------------------------------------
                                     2005         2004       Variance   % Variance
                                  ----------   ----------   ---------   ----------
<S>                               <C>          <C>          <C>         <C>
Net Revenue
Test Preparation and Assessment   $5,243,000   $5,524,000   $(281,000)     (5.1%)
College Preparation                3,536,000    2,826,000     710,000      25.1%
Instruction                          638,000      294,000     344,000     117.0%
Professional Development              76,000           --      76,000       n/a
                                  ----------   ----------   ---------     -----
   Total                          $9,493,000   $8,644,000   $ 849,000       9.8%
                                  ==========   ==========   =========     =====
Net Income                        $   38,000   $  426,000   $(388,000)
</TABLE>

NET REVENUE

Test Preparation and Assessment

We create and sell print and Internet materials for use by schools to help
prepare students for required state proficiency tests, grades 2-12. Our
proprietary Measuring Up(R) test preparation and assessment products are
standards-based, state-customized, instruction and classroom assessment tools
designed to be an integral part of a school's instructional program throughout
the school year.

In addition to our Measuring Up(R) print products, we have an electronic
product, Measuring Up e-Path(TM). Measuring Up e-Path(TM) is an
Internet-delivered assessment product developed for us by Cisco Learning
Institute. Measuring Up e-Path(TM) enables schools and school districts to
provide classroom level assessments, which, in turn, allows for informed
instruction relative to state standards. Measuring Up e-Path(TM) delivers a
detailed prescriptive instructional path for individual students tied into our
other instructional materials or to other products in use within a school or
district.

Test Preparation and Assessment product line revenue for the second quarter of
2005 was $5.2 million, a decrease of $281,000 from the same period in 2004. The
5.1% decrease for the second quarter of 2005 versus 2004 followed a growth of
74.4% for the second quarter of 2004 versus 2003. This resulted in a


                                       12
<PAGE>
net growth of 65.6% in revenue for the second quarter of 2005 versus 2003. The
revenue fluctuation from 2004 to 2005 is due to several factors including the
timing of a large sales order and changes in state learning standards and test
formats. During 2004, we received and billed a large district order, of
approximately $536,000. However, the equivalent order in 2005 is anticipated to
be received during the third quarter. In addition, in late 2004, and early 2005,
several states in which we have product, had or were in the process of changing
their learning standards or test formats.

Although this has had a short-term impact on revenue, it represents a long-term
opportunity, as we have responded to the market needs and published revised
products to meet those changes. Many of revised products were completed during
the first six months of 2005 with the balance to be completed during the third
quarter. These revised products will be available for sale during the third and
fourth quarters, which are historically the largest two revenue quarters for
this product line. In addition, we continue to develop new products in existing
states, especially California. At June 30, 2005, we had state specific product
in 11 states. We will continue to significantly invest in the development of new
proprietary materials for this product line as we feel this niche will continue
to be a fast growth area in the future. The Test Preparation and Assessment
market is highly competitive and competitors may pursue similar development and
expansion efforts.

College Preparation

We have the exclusive U.S. high school distribution rights for college textbooks
and related instruction materials published by two major college publishers. In
2004, we expanded our product offerings by entering into semi-exclusive
(exclusive for certain market segments and geographical areas) distribution
contracts with five high school publishers and a niche college publisher. In
addition to these distributed products, we also began, in late 2004 publishing
our own proprietary products for the college preparation market. At June 30,
2005 we had developed 12 new products. The college preparation products that we
offer are utilized in a wide range of Advanced Placement, honors, electives and
other high-level high school courses.

College Preparation product line revenue for the second quarter of 2005 was $3.5
million compared to $2.8 million in 2004, an increase of 25.1%. Revenue from the
two major college publishers was up $659,000 from the prior year. The
proprietary products and the new distribution agreements within this line
accounted for the balance of the increase during the second quarter. The Company
had no proprietary products during the same period in the prior year. We are
continuing to invest in new proprietary product development as we continue to be
optimistic about the opportunities for growth in this market niche.

Instruction

In response to the market demands generated by the No Child Left Behind Act of
2002, we made a strategic decision to shift our product line focus away from
general remedial instruction and multicultural education materials to
state-specific, standards-based materials. In late 2003, we established an
editorial team in Austin, Texas to develop supplemental educational materials
for this market niche. These materials provide supplemental instruction on
particular subject areas such as reading comprehension, mathematics problem
solving, and vocabulary development. We published the first of these new
products early in the fourth quarter of 2004. Essential to this strategy is the
market alignment of the Instruction and Test Preparation and Assessment products
so that both product lines are suitable for sale to an identical customer base
with an identical sales force. We continue to sell remedial and multicultural
texts and related materials that were previously developed, but we are not
investing in new development for these products.

Instruction revenue for the second quarter increased from $294,000 in 2004 to
$638,000 for the same period in 2005. The increase is a result of the new
state-specific, standards-based materials, which generated revenue of $471,000.
This increase was partially offset by a decrease in remedial and


                                       13
<PAGE>
multicultural products revenue, as we continue to shift our strategic focus away
from these products.

Professional Development

In late December 2004, we released our first print based Highly Qualified
Teacher or HQT(TM) professional development product. The initial release was in
one state, but as of June 30, 2005 we had 24 products in a total of three
states. HQT(TM) modules meet the NCLB requirements that professional development
should meet state content standards and HQT(TM) standards. Along with beginning
proprietary publishing, we entered into a nonexclusive school distribution
agreement with the largest and most prestigious professional development
association.

Professional Development revenue for the quarter was $76,000. This product was
still under development during the same period in 2004.

GROSS PROFIT AND COST OF REVENUE

Gross Profit for the second quarter of 2005 and 2004 remained constant at $4.0
million. Gross Profit as a percent of revenue decreased from 46.1% in 2004 to
42.5% in 2005. The decrease is primarily due to a change in revenue mix. College
Preparation which has significantly lower gross profit then the other product
lines increased from 32.7% of revenue for the second quarter of 2004 to 37.2%
for the same period in 2005. In addition, Instruction revenue, which also has a
lower gross margin than Testing and Assessment revenue, increased from 3.4% of
total revenue in 2004 to 7.7% in 2005. Prepublication cost amortization for the
quarter increased from $898,000 in 2004 to $1.1 million in 2005, as a result of
our continued commitment to the development of new product.

Cost of Revenue consists of two components, direct costs and prepublication cost
amortization. Direct costs consist of (1) product cost, which includes paper,
printing, binding, and prepress costs for proprietary products and product
purchases for nonproprietary products, (2) royalties on proprietary products,
and (3) warehousing and shipping costs for all products.

Direct costs increased from 43.5% in 2004 to 45.9% in 2005. Product cost, a
component of direct costs, increased as a percent of revenue from 34.9% in 2004
to 38.7% in 2005, due to the product revenue mix as discussed above. This
increase was primarily offset by a decrease in royalty expense due to an
increase in revenue not subject to royalties.

Prepublication costs include one-time expenses associated with developing and
producing new or revised proprietary products. It includes all editorial
expenses, writing, page design and makeup, art and other permissions, prepress,
and any other costs incurred up to the print/bind stage of the books. These
prepublication costs also include expenses incurred for other forms of product
development, such as expert reviews. Prepublication costs are capitalized and
expensed over a three or five-year period, based upon the product. We believe
our amortization policy is in line with industry practice. For the second
quarter of 2005, we amortized $1.1 million of prepublication costs, compared to
$898,000 in 2004. The fluctuation is a result of an increase in the number of
products being amortized, including our new product offerings. Prepublication
expenditures serve as an important financial indicator of a company's commitment
to new product development. Our prepublication expenditures increased 76% from
$1.9 million in 2004 to $3.3 million in 2005.


                                       14
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                Three Months Ended June 30,
                                      -----------------------------------------------
                                         2005         2004      Variance   % Variance
                                      ----------   ----------   --------   ----------
<S>                                   <C>          <C>          <C>        <C>
Selling, General and Administrative   $3,875,000   $3,250,000   $625,000      19.2%
</TABLE>

Marketing expenses within this expense category increased $268,000 for the
three-month period ended June 30, 2005 compared to the same period in the prior
year. The increase is primarily due to additional expenses related to our
planned, broad scale, new product line launches, including promotion, exhibit,
book sample, catalog, internet and travel expense, which in total increased
$149,000 in 2005 compared to the same period in 2004. In addition, salaries and
related expenses increased $97,000 due to increased headcount and increased
salaries for existing staff.

Selling expenses within this category increased $151,000, primarily in salary
and related expenses ($99,000) as a result of the investment in our sales
infrastructure throughout 2004. Travel expense increased $92,000 due to
increased headcount and the promotion of our new product lines. This was offset
by a decrease in 3rd party commission expense.

General and administrative expenses within this category increased by $206,000
from 2004 to 2005. This fluctuation is due to a $137,000 increase in salaries
and related expenses resulting from increased headcount and increases for
existing staff, and a $53,000 increase in general office expense. In addition,
legal and accounting expenses increased $47,000 as a result of Sarbanes-Oxley
compliance requirements.

SIX MONTHS ENDED JUNE 30, 2005 VS. SIX MONTHS ENDED JUNE 30, 2004

Overview

Net revenue increased 3.9% for the six-months ended June 30, 2005 compared to
the same period in 2004. We had a net loss of $846,000 in 2005 compared to net
income of $321,000 for the same period in 2004. The decrease in net income is a
result of higher cost of revenue, as a percent of revenue, due to product
revenue mix and higher selling, marketing, general and administrative expenses
resulting primarily from our planned, broad scale, new product line launches and
increases in general corporate overhead.

<TABLE>
<CAPTION>
                                                Six Months Ended June 30,
                                  ----------------------------------------------------
                                      2005          2004        Variance    % Variance
                                  -----------   -----------   -----------   ----------
<S>                               <C>           <C>           <C>           <C>
Net Revenue
Test Preparation and Assessment   $ 9,233,000   $ 9,854,000   $  (621,000)    (6.3%)
College Preparation                 4,186,000     3,578,000       608,000     17.0%
Instruction                           862,000       442,000       420,000     95.0%
Professional Development              136,000            --       136,000      n/a
                                  -----------   -----------   -----------     ----
   Total                          $14,417,000   $13,874,000   $   543,000      3.9%
                                  ===========   ===========   ===========     ====

Net Income (Loss)                 $  (846,000)  $   321,000   $(1,167,000)
</TABLE>


                                       15
<PAGE>
NET REVENUE

Test Preparation and Assessment

Test Preparation and Assessment product line revenue for the six months ended
June 30, 2005 was $9.2 million, a decrease of 6.3% compared to the same period
in 2004. The decrease from 2004 to 2005 follows a revenue growth of 61.7% for
the six-month period ending June 30, 2004 versus 2003. This resulted in a net
growth of 51.5% in revenue for the first six months of 2005 versus 2003. The
revenue fluctuation from 2004 to 2005 is due to several factors including the
timing of a large sales order and changes in state learning standards and test
formats. During 2004, we received and billed a large district order, of
approximately $536,000, however the equivalent order in 2005 is anticipated to
be received during the third quarter. In addition, in late 2004, and early 2005
several states in which we have product, had or were in the process of changing
their learning standards or test formats.

Although this has had a short-term impact on revenue, it represents a long-term
opportunity, as we have responded to the market needs and published revised
products to meet those changes. Many of revised products were completed during
the first six months of 2005, with the balance to be completed during the third
quarter. These revised products will be available sale during the third and
fourth quarters, which are historically the largest two revenue quarters for
this product line. In addition, we continue to develop new products in existing
states, especially California. We will continue to significantly invest in the
development of new proprietary materials for this product line as we feel this
niche will continue to be a fast growth area in the future. The Test Preparation
and Assessment market is highly competitive and competitors may pursue similar
development and expansion efforts.

College Preparation

College Preparation product line revenue for 2005 was $4.2 million, an increase
of 17.0% from the same period in the prior year. Revenue from the two major
college publishers was up $513,000 from the prior year. The new proprietary
products within this line, and the new distribution agreements accounted for the
balance of the increase in 2005. The Company had no proprietary products during
the same period in the prior year. We are continuing to invest in new
proprietary product development, and we will continue our sales and marketing
efforts into the private and parochial school markets as we continue to be
optimistic about the opportunities for growth in this market niche.

Instruction

Instruction revenue increased from $442,000 in 2004 to $862,000 for the same
period in 2005. The increase is a result of the new state-specific,
standards-based materials, which generated revenue of $607,000. This was
partially offset by the decrease in remedial and multicultural products, as we
continue to shift our strategic focus away from these products.

Professional Development

Professional Development revenue for the six-month ended June 30, 2005 was
$136,000. This product was still under development during the same period in
2004.

GROSS PROFIT AND COST OF REVENUE

Gross Profit for the six months ended June 30, 2005 was $6.2 million compared to
$6.6 million in for the same period in 2004. Gross Profit as a percent of
revenue decreased from 47.7% in 2004 to 43.1% in 2005. The decrease is partially
due to revenue mix. College Preparation which has significantly lower gross
profit then the other product lines increased from 25.8% of total revenue in
2004 to 29.0% in 2005. In addition, Instruction revenue, which also has a lower
gross margin than Testing and Assessment


                                       16
<PAGE>
revenue, increased from 3.2% of total revenue in 2004 to 6.0% in 2005.
Prepublication cost amortization increased from $1.6 million to $2.1 million as
a result of our continued commitment to the development of new product.

Cost of Revenue consists of two components, direct costs and prepublication cost
amortization. Direct costs consist of (1) product cost, which includes paper,
printing, binding, and prepress costs for proprietary products and product
purchases for nonproprietary products, (2) royalties on proprietary products,
and (3) warehousing and shipping costs for all products.

Direct costs for 2005 increased from 40.5% in 2004 to 42.4% in 2005. Product
cost, a component of direct costs increased from 31.0% of revenue in 2004 to
34.2% in 2005, due to product revenue mix as discussed above. This increase was
partially offset by a decrease in royalty expense as a result of an increase in
non-royalty revenue and a decrease in warehouse fulfillment expense.

For 2005, we amortized $2.1 million of prepublication costs, compared to $1.6
million in 2004. The fluctuation is a result of an increase in the number of
products being amortized, including our new product offerings. Prepublication
expenditures serve as an important financial indicator of a company's commitment
to new product development. Prepublication expenditures increased 76% from $3.2
million in 2004 to $5.7 million in 2005.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                  Six Months Ended June 30,
                                      -------------------------------------------------
                                         2005         2004       Variance    % Variance
                                      ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>
Selling, General and Administrative   $7,451,000   $6,033,000   $1,418,000      23.5%
</TABLE>

Marketing expenditures within this category, increased $655,000 for the
six-month period ended June 30, 2005 compared to the same period in the prior
year. The increase is primarily due to additional expenses related to our
planned, broad scale, new product line launches including promotion, exhibit,
book sample, catalog, internet and travel expense which in total increased
$436,000 in 2005 compared to 2004. In addition, salaries and related expenses
increased $173,000 due to increased headcount and increases for existing staff.

Selling expense within this category increased $375,000 from 2004 to 2005,
primarily in salary and related expenses ($273,000) as a result of investment in
our sales infrastructure throughout 2004. In addition, travel expense increased
($126,000) due to increased headcount and promotion of our new product lines.
These increases were offset by a decrease in 3rd party commission expense.

The general and administrative expenditures portion increased by $388,000 for
the first six months of 2005 compared to the same period in 2004. Salaries and
related expenses rose, $268,000 as a result of increased headcount and salary
adjustments for existing personnel. General office expense increased $51,000 and
legal and accounting expenses increased $54,000 as a result of Sarbanes-Oxley
compliance requirements.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the six-month period ending June
30, 2005 was $425,000. Cash was primarily provided by our predepreciation and
amortization profitability, and an increase in accounts payable and accrued
expenses, offset primarily by increases in accounts receivable, inventory, and
refundable income taxes.

Accounts receivable increased $2.1 million due to the cyclical nature of the
business. Revenue for the


                                       17
<PAGE>
last two months of the second quarter of 2005 was $3.0 million higher than the
last two month of the fourth quarter, accounting for the higher outstanding
balance. The higher revenue was offset by increased collections. This type of
increase is consistent with prior years. Inventory increased as a result of new
product offerings and the seasonal increase necessary to support third and
fourth quarters anticipated revenue. Accounts payable and accrued expenses
increased $2.4 million to cover increased cash requirements related to higher
accounts receivable and inventory levels caused by the cyclical nature of our
revenue cycle.

Net cash used in investing activities was $6.0 million, consisting primarily of
prepublication cost expenditures of $5.7 million, and equipment purchases of
$300,000.

Net cash provided by financing activities was $6.0 million, consisting of
proceeds from long-term debt and term debt of $5.3 million, and $2.5 million in
net proceeds from the sale of 500,000 shares, offset by net repayments under our
line of credit of $1.7 million, and principal payments on long-term debt of
$165,000.

In May of 2005, we entered into a new $12 million financing facility, which
consists of a revolving line of credit and a term loan:

     -    The revolving line of credit provides for advances up to $7,000,000
          and expires in May 2010. The interest rate on the revolving line of
          credit is in a range from LIBOR plus 1.75% to LIBOR plus 2.25%, with
          the exact interest rate based on the ratio of the Company's Total
          Funded Debt to EBITDA . At June 30,2005, $1.4 million was outstanding
          under this facility, and $5.6 million was still available for
          borrowing.

     -    The term loan is for $5,000,000 and matures in May 2012. The term loan
          provides for payments of interest only for the first twelve months and
          for 72 equal monthly payments of principal and interest thereafter
          until maturity. The term loan bears interest at the same rate as the
          revolving line of credit. We do have the option to convert the term
          loan to a fixed rate, at prevailing rates anytime within the first 12
          months of the agreement.

Borrowings under the facility are secured by substantially all Company assets.
The credit agreement contains certain financial covenants, calculated on a
consolidated basis for the Company and its subsidiaries, which, among other
things, impose a maximum ratio of senior funded debt to EBITDA, require the
Company to maintain a minimum debt service coverage ratio, a minimum annual
EBITDA and a minimum stockholders' equity, and prohibit net losses on a fiscal
year basis. The credit agreement also provides that the Company may not declare
or pay dividends, if an event of default exists or would exist under the credit
agreement after giving effect to the dividend.

On June 2, 2005, we completed a public offering of common stock, netting
approximately $2.5 million from the sale of 500,000 shares. The common stock was
priced at $6.30 per share. All of the shares were sold by the Company. On July
6, 2005, we sold an additional 75,000 shares of common stock pursuant to the
exercise of the underwriter's over-allotment option, which resulted in
additional net proceeds of approximately $400,000.


                                       18
<PAGE>
A summary of our contractual cash obligations at June 30, 2005, excluding
outstanding line of credit balances, is as follows:

<TABLE>
<CAPTION>
                                                            PAYMENTS DUE BY PERIOD
                                  --------------------------------------------------------------------------
                                               REMAINDER
CONTRACTUAL CASH OBLIGATIONS         TOTAL      OF 2005       2006         2007         2008         2009
-------------------------------   ----------   ---------   ----------   ----------   ----------   ----------
<S>                               <C>          <C>         <C>          <C>          <C>          <C>
Term Loan
   (including interest portion)   $3,862,000    $150,000   $  730,000   $  994,000   $  994,000   $  994,000
Capital Leases
   (including interest portion)      741,000     210,000      303,000      198,000       30,000           --
Operating Leases                   2,297,000     292,000      580,000      563,000      475,000      387,000
                                  ----------    --------   ----------   ----------   ----------   ----------
Total                             $6,900,000    $652,000   $1,613,000   $1,755,000   $1,499,000   $1,381,000
                                  ==========    ========   ==========   ==========   ==========   ==========
</TABLE>

We believe that our cash and borrowing availability under our financing
arrangements, together with cash generated from operations, will be sufficient
to meet our normal cash needs for the remainder of 2005. We intend to continue
investing in prepublication costs for our proprietary products, using cash
generated from operations, a portion of the proceeds from the public offering of
our common stock, and borrowings under financing arrangements. As we develop
more products, additional investments in inventory will be required.

OFF-BALANCE SHEET ARRANGEMENTS

None

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

The Company's significant accounting policies are summarized in the footnotes to
our financial statements included in our December 31, 2004 Form 10-KSB. Some of
our accounting policies require management to exercise significant judgment in
selecting the appropriate assumptions for calculating financial estimates. These
judgments are subject to an inherent degree of uncertainty. These judgments are
based on our historical experience, known trends in our industry, terms of
existing contracts and other information from outside sources, as appropriate.
Actual results may differ from these estimates under different assumptions and
conditions. Certain of the most critical policies that require significant
judgment are as follows:

Revenue Recognition

The Company recognizes revenue upon shipment and estimates returns, if the right
of return exists. The allowances for returns are recorded as a reduction of
accounts receivable and are determined based on the Company's historical returns
experience, which is monitored on a monthly and annual basis. The Company
recognizes its subscription based revenue from its Measuring Up e-Path(TM)
pro-rata over the life of the agreement.

Deferred Prepublication Costs

Deferred prepublication costs are recorded at their original cost and amortized
over a three or five-year period, based on the estimated lives of the related
publications. The net carrying value of the deferred prepublication costs is
periodically reviewed and compared to an estimate of future sales. If future
sales are not sufficient to realize the net carrying value of the asset, an
impairment charge is recognized.

Allowance for Doubtful Accounts

The Company provides credit to its customers on a customer-by-customer basis.
The Company reviews the accounts receivable aging on a monthly basis along with
historical loss experience to estimate its allowance for doubtful accounts. The
allowance for doubtful accounts of $40,000 is believed to be adequate for any
exposure to loss at June 30, 2005.


                                       19
<PAGE>
Allowance for Excess and Slow-Moving Inventory

The Company continuously monitors its inventory on hand for salability. This
monitoring includes review of historical sales experience, projected sales
activity by title, and any planned changes to a title that are known by
management. Any slow-moving or non-salable inventory identified is reserved or
written down at that time. The reserve of $30,000 at June 30, 2005 is believed
to be adequate to cover inventory loss exposure.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk results from fluctuations in interest rates.
The Company is exposed to market risk related to interest rates. Based on
average floating rate borrowing of $7.0 million, a one percent change in the
applicable rate would have caused the Company's annual interest expense to
change by approximately $70,000. The Company's management believes that these
amounts are not material to the Company's earnings.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the "1934
Act") as of the end of the period covered by this report. Based on that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in the reports
it files or submits under the 1934 Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.

(b) Changes in Internal Controls.

There have been no changes in internal control over financial reporting during
the fiscal quarter ended June 30, 2005, that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.


                                       20
<PAGE>
                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     During the three months ended June 30, 2005, the Company did not issue any
     securities without registration under the Securities Act of 1933.

     During the three months ended June 30, 2005, the Company did not repurchase
     any of its equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 1, 2005, the Company held its Annual Meeting of Stockholders. At the
meeting, the following persons were elected to the Company's Board of Directors:

<TABLE>
<CAPTION>
                       Votes      Votes
                        For      Against
                     ---------   -------
<S>                  <C>         <C>
Brian Beckwith       3,529,341     8,192
John Bergstrom       3,525,941    11,592
Richard Casabonne    3,529,341     8,192
Anton Christianson   3,537,533         0
James Dolan          3,537,533         0
Diane Miller         3,529,091     8,442
James Peoples        3,529,341     8,192
</TABLE>

The appointment of the Company's auditors, McGladrey & Pullen LLP, was ratified
by the stockholders, with 3,534,588 votes for; 2,790 votes against; 155 votes
abstaining.

An amendment to the Company's 1998 Stock Plan increasing the number of shares
available for issuance under the plan by 200,000 shares, was approved by the
stockholders, with 3,500,567 votes for; 12,642 votes against; 150 votes
abstaining.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

<TABLE>
<S>            <C>
Exhibit 31.1   CEO Certification pursuant to Rule 13a-14(a).

Exhibit 31.2   CFO Certification pursuant to Rule 13a-14(a).

Exhibit 32.1   CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2   CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>


                                       21
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

Dated: August 12, 2005                 PEOPLES EDUCATIONAL HOLDINGS, INC.


                                       By: /s/ Brian T. Beckwith
                                           -------------------------------------
                                           Brian T. Beckwith
                                           President and Chief Executive Officer


                                       22