**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

| Delaware                                                                                    |   | 41-1368898                                          |
|---------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction ofincorporation                or organization) |   | (I.R.S.                Employer Identification No.) |

| 299                Market Street, Saddle Brook, NJ 07663                                 |
|------------------------------------------------------------------------------------------|
| (Address                of principal executive offices) (Zip Code)                       |
|                                                                                     |
| (201)                712-0090                                                            |
| (Registrant’s                telephone number, including area                code) |

| Large accelerated filer  ̈                                                                                |                                       | Accelerated filer  ̈ |
|------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|------------------------------------|
| Non-accelerated filer  ̈ (Do not check if a smaller reporting company) | Smaller reporting company x |

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|                      |                                                                                                                                                                  | Page   |
|---------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                      |                                                                                                                                                                  |   |
| PART                I.    | FINANCIAL                INFORMATION                                                                                                                                  |   |
|                      |                                                                                                                                                                  |   |
| Item                1:    | Financial                Statements:                                                                                                                                  |   |
|                      |                                                                                                                                                                  |   |
|                      | Condensed                Consolidated Balance Sheets as of August 31, 2008 (Unaudited) and                May 31,                2008 and August 31, 2007 (Unaudited) | 3      |
|                      | Condensed                Consolidated Statements of Income for the Three Months Ended August                31,                2008 and 2007 (Unaudited)              | 4      |
|                      | Condensed                Consolidated Statements of Cash Flows for the Three Months Ended                August                31, 2008 and 2007 (Unaudited)          | 5      |
|                      | Condensed                Notes to Consolidated Financial Statements (Unaudited)                                                                                       | 6      |
|                      |                                                                                                                                                                  |   |
| Item                2:    | Management’s                Discussion and Analysis of Financial Condition and Results of                Operations                                             | 9      |
|                      |                                                                                                                                                                  |   |
|                      |                                                                                                                                                                  |   |
| Item                4(T): | Controls                and Procedures                                                                                                                                | 15     |
|                      |                                                                                                                                                                  |   |
|                      |                                                                                                                                                                  |   |
| PART                II.   | OTHER                INFORMATION                                                                                                                                      |   |
|                      |                                                                                                                                                                  |   |
| Item                1:    | Legal                Proceedings                                                                                                                                      | 16     |
|                      |                                                                                                                                                                  |   |
| Item                2:    | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                            | 16     |
|                      |                                                                                                                                                                  |   |
| Item                3:    | Defaults                Upon Senior Securities                                                                                                                        | 16     |
|                      |                                                                                                                                                                  |   |
| Item                4:    | Submission                of Matters to a Vote of Security Holders                                                                                                    | 16     |
|                      |                                                                                                                                                                  |   |
| Item                5:    | Other                Information                                                                                                                                      | 16     |
|                      |                                                                                                                                                                  |   |
| Item                6:    | Exhibits                                                                                                                                                              | 16     |
|                      |                                                                                                                                                                  |   |
| SIGNATURES                | 17                                                                                                                                                                    |
|                      |                                                                                                                                                                  |   |
| EXHIBITS                  |                                                                                                                                                                  |

----

**Part      I **

**Financial      Information**

**Item      1. Financial Statements**

**PEOPLES      EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|                                                                                                                                            |   | UNAUDITED                 |   |                   |   | UNAUDITED                 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|------------------------|--------|---------------------------|--------|
| (In Thousands-Except Share Data)                                                                                                 |   | August 31, 2008 |   | May 31, 2008 |   | August 31, 2007 |   |
| ASSETS                                                                                                                                     |   |                      |   |                   |   |                      |   |   |   |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Current                Assets                                                                                                                   |   |                      |   |                   |   |                      |   |   |   |   |
| Cash                and Cash Equivalents                                                                                                        |   | $                         | 71     |                   | $      | 53                        |   | $ | 156 |   |
| Accounts                Receivable Net of Allowances for                                                                                        |   |                      |   |                   |   |                      |   |   |   |   |
| Doubtful                Accounts and Returns                                                                                                    |   |                      | 7,786  |                   |   | 3,664                     |   |   | 7,792 |   |
| Inventory                                                                                                                                       |   |                      | 3,946  |                   |   | 4,394                     |   |   | 4,869 |   |
| Prepaid                Expenses and Other                                                                                                       |   |                      | 327    |                   |   | 404                       |   |   | 451 |   |
| Prepaid                Marketing Expenses                                                                                                       |   |                      | 1,103  |                   |   | 829                       |   |   | 1,145 |   |
| Deferred                Income Taxes                                                                                                            |   |                      | 802    |                   |   | 1,024                     |   |   | 871 |   |
| Total                Current Assets                                                                                                             |   |                      | 14,035 |                   |   | 10,368                    |   |   | 15,284 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Equipment                - At Cost, Less Accumulated Depreciation                                                                               |   |                      |   |                   |   |                      |   |   |   |   |
| of                $2,070, $1,994 and $1,767, respectively                                                                                       |   |                      | 551    |                   |   | 566                       |   |   | 655 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Other                Assets                                                                                                                     |   |                      |   |                   |   |                      |   |   |   |   |
| Deferred                Prepublication Costs, Net                                                                                               |   |                      | 14,857 |                   |   | 15,200                    |   |   | 17,080 |   |
| Deferred                Income Taxes                                                                                                            |   |                      | 976    |                   |   | 1,536                     |   |   | 386 |   |
| Trademarks,                Net                                                                                                                  |   |                      | 189    |                   |   | 191                       |   |   | 170 |   |
| Prepaid                Expenses and Other                                                                                                       |   |                      | 299    |                   |   | 263                       |   |   | 329 |   |
| Prepaid                Marketing Expenses                                                                                                       |   |                      | 371    |                   |   | 495                       |   |   | 901 |   |
| Total                Other Assets                                                                                                               |   |                      | 16,692 |                   |   | 17,685                    |   |   | 18,866 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Total                Assets                                                                                                                     |   | $                         | 31,278 |                   | $      | 28,619                    |   | $ | 34,805 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                             |   |                      |   |                   |   |                      |   |   |   |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Current                Liabilities                                                                                                              |   |                      |   |                   |   |                      |   |   |   |   |
| Current                Maturities of Long Term Obligations                                                                                      |   | $                         | 2,043  |                   | $      | 2,042                     |   | $ | 603 |   |
| Accounts                Payable                                                                                                                 |   |                      | 10,387 |                   |   | 4,906                     |   |   | 11,312 |   |
| Accrued                Compensation                                                                                                             |   |                      | 363    |                   |   | 247                       |   |   | 373 |   |
| Other                Accrued Expenses                                                                                                           |   |                      | 360    |                   |   | 347                       |   |   | 378 |   |
| Deferred                Revenue                                                                                                                 |   |                      | 526    |                   |   | 475                       |   |   | 564 |   |
| Total                Current Liabilities                                                                                                        |   |                      | 13,679 |                   |   | 8,017                     |   |   | 13,230 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Long                Term Obligations, Less Current Maturities                                                                                   |   |                      | 9,708  |                   |   | 14,046                    |   |   | 13,208 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Total                Liabilities                                                                                                                |   |                      | 23,387 |                   |   | 22,063                    |   |   | 26,438 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Commitments                and Contingencies                                                                                                    |   |                      |   |                   |   |                      |   |   |   |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Stockholders'                Equity                                                                                                             |   |                      |   |                   |   |                      |   |   |   |   |
| Preferred                Stock, authorized 1,500,000 shares; none issued                                                                        |   |                      |   |                   |   |                      |   |   |   |   |
| Common                Stock, $0.02 par value; authorized 8,500,000 shares;                issued:                                               |   |                      |   |                   |   |                      |
| 4,470,734                shares as of August 31, 2008 and May 31, 2008 and 4,441,173 shares                as of                August 31, 2007 |   |                      | 89     |                   |   | 89                        |   |   | 89 |   |
| Additional                Paid In Capital                                                                                                       |   |                      | 8,024  |                   |   | 8,013                     |   |   | 7,887 |   |
| Retained                Earnings (Accumulated Deficit)                                                                                          |   |                      | (158   | )                      |   | (1,482                    | )      |   | 455 |   |
| Treasury                Stock - 16,232 shares for all periods, at cost                                                                          |   |                      | (64    | )                      |   | (64                       | )      |   | (64 | ) |
| Total                Stockholders' Equity                                                                                                       |   |                      | 7,891  |                   |   | 6,556                     |   |   | 8,367 |   |
|                                                                                                                                            |   |                      |   |                   |   |                      |   |   |   |   |
| Total                Liabilities and Stockholders' Equity                                                                                       |   | $                         | 31,278 |                   | $      | 28,619                    |   | $ | 34,805 |   |

----

**PEOPLES      EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

|                                                                 |   | **Three Months Ended** |   |
|----------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                 |   | **August 31,**              |   |
|                                                                 |   | **2008**                         |   | **2007** |   |
|                                                                 |   |                             |   |   |   |
| Revenue,                Net                                          |   | $                                | 15,997 |   | $ | 16,867 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Cost                of Revenue                                       |   |                             |   |   |   |   |   |
| Direct                Costs                                          |   |                             | 8,407  |   |   | 8,703 |   |
| Prepublication                Cost Amortization                      |   |                             | 1,658  |   |   | 1,703 |   |
| Total                                                                |   |                             | 10,065 |   |   | 10,406 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Gross                Profit                                          |   |                             | 5,932  |   |   | 6,461 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Selling,                General and Administrative Expenses          |   |                             | 3,590  |   |   | 4,129 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Income                from Operations                                |   |                             | 2,342  |   |   | 2,332 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Other                Expenses, Net                                   |   |                             | 8      |   |   | 12 |   |
| Interest                Expense                                      |   |                             | 228    |   |   | 388 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Income                Before Income Taxes                            |   |                             | 2,106  |   |   | 1,932 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Income                Tax Expense                                    |   |                             | 782    |   |   | 769 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Net                Income                                            |   | $                                | 1,324  |   | $ | 1,163 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Net                Income per Common Share:                          |   |                             |   |   |   |   |   |
| Basic                and Diluted                                     |   | $                                | 0.30   |   | $ | 0.26 |   |
|                                                                 |   |                             |   |   |   |   |   |
| Weighted-average                Number of Common Shares Outstanding: |   |                             |   |   |   |   |   |
| Basic                                                                |   |                             | 4,455  |   |   | 4,409 |   |
| Diluted                                                              |   |                             | 4,455  |   |   | 4,499 |   |

----

| **PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY**                |   |   |   |
|-----------------------------------------------------------------------------------------------|--------|--------|--------|
| **CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)** |   |
|                                                                                          |   |   |   |

| (In Thousands)                                                                                            |   | **Three Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                           |   | **August 31,**              |   |
|                                                                                                           |   | **2008**                         |   | **2007** |   |
| Cash Flows From                Operating Activities                                                  |   |                             |   |   |   |   |   |
| Net                Income                                                                                      |   | $                                | 1,324  |   | $ | 1,163 |   |
| Adjustments                to Reconcile Net Income to Net Cash Provided by Operating                Activities |   |                             |   |   |   |   |   |
| Depreciation                                                                                                   |   |                             | 76     |   |   | 75 |   |
| Amortization                of Prepublication Costs and Intangible Assets                                      |   |                             | 1,661  |   |   | 1,704 |   |
| Stock-Based                Compensation                                                                        |   |                             | 11     |   |   | 12 |   |
| Market                Value Adjustment of Interest Rate Swap                                                   |   |                             | (12    | ) |   | - |   |
| Deferred                Income Taxes                                                                           |   |                             | 782    |   |   | 769 |   |
| Changes                in Assets and Liabilities                                                               |   |                             |   |   |   |   |   |
| Accounts                Receivable                                                                             |   |                             | (4,122 | ) |   | (3,831 | ) |
| Inventory                                                                                                      |   |                             | 448    |   |   | 401 |   |
| Prepaid                Expenses and Other                                                                      |   |                             | 41     |   |   | (76 | ) |
| Prepaid                Marketing Expenses                                                                      |   |                             | (150   | ) |   | (372 | ) |
| Accounts                Payable and Accrued Expenses                                                           |   |                             | 5,610  |   |   | 4,885 |   |
| Deferred                Revenue                                                                                |   |                             | 51     |   |   | 237 |   |
| Net                Cash Provided By Operating Activities                                                       |   |                             | 5,720  |   |   | 4,967 |   |
|                                                                                                           |   |                             |   |   |   |   |   |
| Cash                Flows From Investing Activities                                                            |   |                             |   |   |   |   |   |
| Purchases                of Equipment                                                                          |   |                             | (61    | ) |   | (33 | ) |
| Expenditures                for Intangibles                                                                    |   |                             | (1     | ) |   | (30 | ) |
| Expenditures                for Prepublication Costs                                                           |   |                             | (1,315 | ) |   | (1,603 | ) |
| Net                Cash Used In Investing Activities                                                           |   |                             | (1,377 | ) |   | (1,666 | ) |
|                                                                                                           |   |                             |   |   |   |   |   |
| Cash                Flows From Financing Activities                                                            |   |                             |   |   |   |   |   |
| Net                Payments Under Line of Credit                                                               |   |                             | (3,815 | ) |   | (3,187 | ) |
| Principal                Payments On Long-Term Debt                                                            |   |                             | (510   | ) |   | (56 | ) |
| Net                Cash Used In Financing Activities                                                           |   |                             | (4,325 | ) |   | (3,243 | ) |
|                                                                                                           |   |                             |   |   |   |   |   |
| Net                Increase in Cash and Cash Equivalents                                                       |   |                             | 18     |   |   | 58 |   |
|                                                                                                           |   |                             |   |   |   |   |   |
| Cash                and Cash Equivalents                                                                       |   |                             |   |   |   |   |   |
| Beginning                of Period                                                                             |   |                             | 53     |   |   | 98 |   |
| End                of Period                                                                                   |   | $                                | 71     |   | $ | 156 |   |
|                                                                                                           |   |                             |   |   |   |   |   |
| Supplemental                Cash Flow Information                                                              |   |                             |   |   |   |   |   |
| Cash                Payments for:                                                                              |   |                             |   |   |   |   |   |
| Interest                                                                                                       |   | $                                | 212    |   | $ | 344 |   |

| See                Notes to Condensed Consolidated Financial Statements |   |   |   |
|-------------------------------------------------------------------------|--------|--------|--------|

----

**Peoples      Educational Holdings, Inc., and Subsidiary**

**Notes      to Condensed Consolidated Financial Statements (UNAUDITED)**

**NOTE      1**

**Reclassifications:      **

**NOTE      2**

----

**Peoples      Educational Holdings, Inc., and Subsidiary**

**Notes      to Condensed Consolidated Financial Statements (UNAUDITED)**

**NOTE      3**

**NOTE      4 **

| (In                Thousands)                |   |            |   |
|----------------------------------------------|--------|-----------------|--------|
|                                         |   | August 31, |   | May 31, |   | August 31, |   |
|                                         |   | 2008            |   | 2008 |   | 2007 |   |
| Balances,                Beginning           |   | $               | 15,200 |   | $ | 17,180 |   | $ | 17,180 |   |
| Prepublication                Cost Additions |   |            | 1,315  |   |   | 4,724 |   |   | 1,603 |   |
| Amortization                Expense          |   |            | (1,658 | ) |   | (6,704 | ) |   | (1,703 | ) |
| Balances,                Ending              |   | $               | 14,857 |   | $ | 15,200 |   | $ | 17,080 |   |

| For                  the remainder of fiscal 2009               |   | $      | 4,833  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|
| For                  the year ended May 31, 2010                |   |   | 4,700  |   |
| For                  the year ended May 31, 2011                |   |   | 3,164  |   |
| For                  the year ended May 31, 2012                |   |   | 1,640  |   |
| For                  the year ended May 31, 2013 and thereafter |   |   | 520    |   |
|                                                            |   | $      | 14,857 |   |

**NOTE      5**

| (In                Thousands)        |   |            |   |               |   |            |   |
|--------------------------------------|--------|-----------------|--------|--------------------|--------|-----------------|--------|
|                                 |   | August 31, |   | May 31,  |   | August 31, |   |
|                                 |   | 2008            |   | 2008               |   | 2007            |   |
| Total                Prepaid Balance |   | $               | 1,474  |               | $      | 1,324           |   | $ | 2,046 |   |
| Less                current portion  |   |            | 1,103  |               |   | 829             |   |   | 1,145 |   |
| Long-term                balance     |   | $               | 371    |               | $      | 495             |   | $ | 901 |   |

----

**Peoples      Educational Holdings, Inc., and Subsidiary**

**Notes      to Condensed Consolidated Financial Statements (UNAUDITED)**

| (In                Thousands)                   |   |   |   |
|-------------------------------------------------|--------|--------|--------|
|                                            |   |   |   |
| For                the remainder of fiscal 2009 |   | $      | 979    |   |
| For                the year ended May 31, 2010  |   |   | 495    |   |

**NOTE      6**

|   | · | The                revolving line of credit provides for advances up to $10 million                and                expires in March 2012. The interest rate on the revolving line of                credit                is in a range from LIBOR plus 2.0% to LIBOR plus 2.25%, or prime                to prime                plus 0.5%, with the exact interest rate based on the ratio of the                Company’s total funded debt to EBITDA. At August 31, 2008, $2.5 million                was outstanding under this facility, and $7.5 million was available                for                borrowing. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                term loan is for $10 million and matures in December 2012. The term                loan                provided for payments of interest only for the first twelve months                and for                20 equal quarterly payments of principal and interest which began                on March                31, 2008. The term loan bears interest at the same rate as the revolving                line of credit for $4.5 million of the $9 million outstanding. We                entered                into a swap agreement to fix the interest rate on the balance of                the term                loan for three years at a rate of 5.3% plus an interest spread of                2.00% to                2.25% based upon our total funded debt to EBITDA ratio. After the                three-year period, the interest rate reverts back to a variable rate.                The                change in the fair value of the interest rate swap is recognized                as                interest expense or income during each reporting period. For the                three                month period ended August 31, 2008, we have recorded $12,000 of interest                income as a result of the mark-to-market interest rate adjustment. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      7**

----

**Peoples      Educational Holdings, Inc., and Subsidiary**

**Notes      to Condensed Consolidated Financial Statements (UNAUDITED)**

**NOTE      8**

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

**FORWARD**
**LOOKING      STATEMENTS**

**SEASONALITY**

|                                                              |   | Jun - Aug |   | Sep - Nov |   | Dec - Feb |   | Mar - May |   |
|-------------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|---------------------|--------|---------------------|--------|
|                                                              |   | 1st Quarter    |   | 2nd Quarter    |   | 3rd Quarter    |   | 4th Quarter    |   |
| Test Preparation,                Assessment, and Instruction |   |                | 28%    |                     |   | 25%                 |   |                | 21%    |   |   | 26% |   |
| College                Preparation                                |   |                | 65%    |                |   | 14%                 |   |                | 6%     |  |   | 15% |   |
| Total                Revenue                                      |   |                | 41%    |                |   | 21%                 |   |                | 16%    |   |   | 22% |   |

----

**PRODUCT      OVERVIEW**

**Test      Preparation, Assessment, and Instruction Product Group**

|   | · | We                create and sell print and web-based materials targeted to grades                1-12 to                help students prepare for state proficiency tests. The Measuring                Up®                Test                Preparation and Assessment print products are sold in twelve states.                Measuring Up®                is                positioned as standards-based, state customized instruction and classroom                assessment, designed to be an integral part of a school’s instructional                program throughout the school year. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Measuring                Up e-Path®,                a                web-based assessment product developed in conjunction with Cisco                Learning                Systems, provides schools and districts the ability to provide formative                classroom level assessments, which, in turn, allows for informed                instruction relative to state standards. Measuring Up e-Path®                delivers a detailed prescriptive instructional path for individual                students tied into our instructional materials or to other products                in use                within a school or district. The strategy is to help educators assess                a                child’s strengths and weaknesses relative to the state standards and then                provide a Personal Prescriptive Path®                for remediation. The assessment data can be aggregated using                NCLB-compliant reporting at the class, school and district level                and can                be used to drive not only student learning, but teacher professional                development as well. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                have two product lines within this grouping: Focused Instruction                and                remedial, multicultural and professional development related materials.                Focused Instruction materials provide standards–based, state-specific                supplemental instruction on particular subject areas such as reading                comprehension, mathematics problem solving, and vocabulary development.                Essential to this strategy is the market alignment of the Focused                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 our backlist remedial,                multicultural and professional development materials, but we are                not                investing in new development for these                products. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**College      Preparation Product Group **

|   | · | We                have the exclusive U.S. high school distribution rights for college                textbooks and related instruction materials published by two major                college                publishers. In addition to these distributed products, we also publish                our                own proprietary products for the college preparation market. 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.** **Distribution                revenue consists of direct billings to customers, as well as commissions                earned on sales generated by our marketing efforts though billed                directly                by the college publishers. Such sales, for which the commission rate                varies, include purchases by schools through online bookstores and                sales                derived as a result of purchases made through state adoption contracts. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**RESULTS      OF OPERATIONS**

***Three      Months Ended August 31, 2008 vs. Three Months Ended August 31,      2007***

| (Amounts in Thousands - Except Per Share Data) |   | Three Months Ended August 31, |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                              |   | 2008                                              |   | 2007 |   |
| Revenue                                                                           |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Test                Preparation, Assessment and Instruction                       |   | $                                                 | 6,651  |   |   | 41.6 | % | $ | 7,347 |   |   | 43.6 | % |
| College                Preparation                                                |   |                                              | 9,346  |   |   | 58.4 | % |   | 9,520 |   |   | 56.4 | % |
| Total                Revenue                                                      |   |                                              | 15,997 |   |   | 100.0 | % |   | 16,867 |   |   | 100.0 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of Revenue                                                    |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Direct                Costs                                                       |   |                                              | 8,407  |   |   | 52.5 | % |   | 8,703 |   |   | 51.6 | % |
| Prepublication                Cost Amortization                                   |   |                                              | 1,658  |   |   | 10.4 | % |   | 1,703 |   |   | 10.1 | % |
| Total                Cost Of Revenue                                              |   |                                              | 10,065 |   |   | 62.9 | % |   | 10,406 |   |   | 61.7 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Gross                Profit                                                       |   |                                              | 5,932  |   |   | 37.1 | % |   | 6,461 |   |   | 38.3 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                General and Administrative Expenses                       |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Marketing                and Selling                                              |   |                                              | 2,246  |   |   | 14.0 | % |   | 2,911 |   |   | 17.3 | % |
| General                and Administrative                                         |   |                                              | 1,344  |   |   | 8.4 | % |   | 1,218 |   |   | 7.2 | % |
| Total                Selling, General and Administrative Expenses                 |   |                                              | 3,590  |   |   | 22.4 | % |   | 4,129 |   |   | 24.5 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Operating                Income                                                   |   |                                              | 2,342  |   |   | 14.7 | % |   | 2,332 |   |   | 13.8 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Other                Expenses, Net                                                |   |                                              | 8      |   |   | 0.1 | % |   | 12 |   |   | 0.1 | % |
| Interest                Expense                                                   |   |                                              | 228    |   |   | 1.4 | % |   | 388 |   |   | 2.3 | % |
| Income                Before Taxes                                                |   |                                              | 2,106  |   |   | 13.2 | % |   | 1,932 |   |   | 11.4 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                 |   |                                              | 782    |   |   | 4.9 | % |   | 769 |   |   | 4.6 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Net                Income                                                         |   | $                                                 | 1,324  |   |   | 8.3 | % | $ | 1,163 |   |   | 6.8 | % |
|                                                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Net                Income per Common Share:                                       |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                and Diluted                                                  |   | $                                                 | 0.30   |   |   |   |   | $ | 0.26 |   |   |   |   |

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**REVENUE**

**COST      OF REVENUE**

|   | · | Direct                costs as a percentage of revenue were 52.5% for the quarter ended                August                31, 2008 compared to 51.6% during the same period in the prior year.                The                percentage increase is due to revenue mix, as College Preparation                revenue                for the quarter increased from 56.4% of the total revenue in the                prior                year, to 58.4% in the current year. College Preparation direct costs                are                substantially higher than the direct cost of Testing, Assessment                and                Instruction, as the majority of College Preparation revenue consists                of                non-proprietary products. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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.                Prepublication costs are capitalized and expensed on a straight-line                basis                over a three- or five-year period, based upon the product. We believe                our                amortization policy is in line with industry practice. For the three                months ended August 31, 2008 we amortized $1.7 million of prepublication                costs, which was consistent with the same period in the prior year. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**MARKETING      AND SELLING**

**GENERAL      AND ADMINISTRATIVE**

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**INTEREST      EXPENSE**

**LIQUIDITY      AND CAPITAL RESOURCES**

|   | · | The                revolving line of credit provides for advances up to $10 million                and                expires in March 2012. The interest rate on the revolving line of                credit                is in a range from LIBOR plus 2.0% to LIBOR plus 2.25%, or prime                to prime                plus 0.5%, with the exact interest rate based on the ratio of the                Company’s total funded debt to EBITDA. At August 31, 2008, $2.5 million                was outstanding under this facility, and $7.5 million was available                for                borrowing. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                term loan is for $10 million and matures in December 2012. The term                loan                provided for payments of interest only for the first twelve months                and for                20 equal quarterly payments of principal and interest which began                on March                31, 2008. The term loan bears interest at the same rate as the revolving                line of credit for $4.5 million of the $9 million outstanding. We                entered                into a swap agreement to fix the interest rate on the balance of                the term                loan for three years at a rate of 5.3% plus an interest spread of                2.00% to                2.25% based upon our total funded debt to EBITDA ratio. After the                three-year period, the interest rate reverts back to a variable rate.                The                change in the fair value of the interest rate swap is recognized                as                interest expense or income during each reporting period. For the                three                month period ended August 31, 2008, we have recorded $12,000 of interest                income as a result of the mark-to-market interest rate adjustment. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**OFF-BALANCE      SHEET ARRANGEMENTS**

**CRITICAL      ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES**

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**Item      4(T). Controls and Procedures**

**Evaluation      of Disclosure Controls and Procedures**

**Changes      in Internal Control over Financial Reporting**

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**PART      II**

**OTHER      INFORMATION**

**Item      1. Legal Proceedings**

**Item      2. Unregistered Sales of Equity Securities and Use of      Proceeds**

**Item      3. Defaults Upon Senior Securities**

**Item      4. Submission of Matters to a Vote of Security Holders**

**Item      5. Other Information**

**Item      6. Exhibits**

| Exhibit 31.1 |         | CEO Certification pursuant to Rule 13a-14(a).                                                                                                                                                                 |
|-------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |         |                                                                                                                                                                                                                                   |
| Exhibit 31.2 |         | CFO Certification pursuant to Rule 13a-14(a).                                                                                                                                                                 |
|              |         |                                                                                                                                                                                                                                   |
| Exhibit 32   |    | Certification of the CEO and                  the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant                  to Section                  906 of the Sarbanes-Oxley Act of                  2002. |

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**SIGNATURES**

| Dated:                  October 15, 2008 | **PEOPLES                  EDUCATIONAL HOLDINGS, INC.**                 |
|------------------------------------------|-------------------------------------------------------------------------|
|                                     |                                                                    |
|                                     | By:                  /s/ Brian T. Beckwith                              |
|                                     | Brian                  T. Beckwith                                      |
|                                     | President                  and Chief Executive                  Officer |

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