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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A





Amendment No. 1



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007

OR



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

For the transition period from              to

Commission file number 000-32469





THE PRINCETON REVIEW, INC.

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 22-3727603                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|2315 Broadway New York, New York         |  | 10024     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code:

(212) 874-8282





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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer   x    Non-accelerated filer   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No   x

The Company had 27,606,198 shares of $0.01 par value common stock outstanding at May 11, 2007.









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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A amends Part I, Items 1 and 2 and Part II, Item 6 of the Quarterly Report on Form 10-Q of The Princeton Review, Inc. (the Company) for the first quarter ended
March 31, 2007 and 2006, as filed with the Securities and Exchange Commission on May 15, 2007 (the Quarterly Report) to correct errors which occurred when the company did not properly account for deferred income taxes relating
to goodwill and intangibles that are amortizable for tax purposes but not accounting purposes. This Amendment also includes certain reclassifications in connection with the financial results associated with the SES Services division previously
reported in the Test Preparation Services division. The condensed consolidated financial statements have been recasted for all periods presented to show Test Preparation Services and SES separately.

For convenience and ease of reference, the Company is filing the Quarterly Report in its entirety with the applicable changes. Unless otherwise stated,
all information contained in this amendment is as of May 15, 2007, the filing date of the Quarterly Report. This Form 10-Q/A does not reflect events or transactions occurring after such filing date or modify or update those disclosures in the
Quarterly Report that may have been affected by events or transactions occurring subsequent to such filing date. No information in the Quarterly Report other than as set forth above is amended hereby. Currently-dated certifications from our
President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer have been included as exhibits to this amendment.



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TABLE OF CONTENTS



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |     
|Item 1.    |  | Condensed Consolidated Financial Statements                                           |  | 4   
|           |  | Condensed Consolidated Balance Sheets                                                 |  | 4   
|           |  | Condensed Consolidated Statements of Operations                                       |  | 5   
|           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 6   
|           |  | Notes to Condensed Consolidated Financial Statements                                  |  | 7   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16  
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 19  
|Item 4.    |  | Controls and Procedures                                                               |  | 21  
|PART II.   |  | OTHER INFORMATION                                                                     |  |     
|Item 1.    |  | Legal Proceedings                                                                     |  | 22  
|Item 1A.   |  | Risk Factors                                                                          |  | 22  
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 22  
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 22  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 22  
|Item 5.    |  | Other Information                                                                     |  | 23  
|Item 6.    |  | Exhibits                                                                              |  | 23  
|SIGNATURES |  | 24                                                                                   



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PART I. FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

THE PRINCETON REVIEW, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)



|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                 |  | March 31,2007           |         |   | December 31,2006 |  
|                                                                                                                                                                 |  | As Restated (unaudited) |         |   | As Restated      |  
|ASSETS:                                                                                                                                                          |  |                         |         |   |                  |   |         |  
|Current assets:                                                                                                                                                  |  |                         |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                        |  | $                       | 14,519  |   |                  | $ | 10,822  |  
|Accounts receivable, net of allowance of $3,602 in 2007 and $2,848 in 2006                                                                                       |  |                         | 31,651  |   |                  |   | 31,020  |  
|Other receivables, principally related parties                                                                                                                   |  |                         | 1,029   |   |                  |   | 2,123   |  
|Inventory                                                                                                                                                        |  |                         | 2,678   |   |                  |   | 2,950   |  
|Prepaid expenses                                                                                                                                                 |  |                         | 1,463   |   |                  |   | 1,653   |  
|Other current assets                                                                                                                                             |  |                         | 1,106   |   |                  |   | 2,612   |  
|Other current assets related to discontinued operations                                                                                                          |  |                         |        |   |                  |   | 4,258   |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|Total current assets                                                                                                                                             |  |                         | 52,446  |   |                  |   | 55,438  |  
|Furniture, fixtures, equipment and software development, net                                                                                                     |  |                         | 14,931  |   |                  |   | 18,340  |  
|Goodwill                                                                                                                                                         |  |                         | 31,006  |   |                  |   | 31,006  |  
|Investment in affiliates                                                                                                                                         |  |                         | 1,639   |   |                  |   | 1,639   |  
|Other intangibles, net                                                                                                                                           |  |                         | 10,933  |   |                  |   | 11,527  |  
|Other assets                                                                                                                                                     |  |                         | 5,196   |   |                  |   | 1,744   |  
|Other assets related to discontinued operations                                                                                                                  |  |                         |        |   |                  |   | 1,980   |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|Total assets                                                                                                                                                     |  | $                       | 116,151 |   |                  | $ | 121,674 |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|                                                                                                                                                                 |  |                        
|LIABILITIES & STOCKHOLDERS EQUITY:                                                                                                                              |  |                         |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                             |  |                         |         |   |                  |   |         |  
|Line of credit                                                                                                                                                   |  | $                       |        |   |                  | $ | 3,000   |  
|Accounts payable                                                                                                                                                 |  |                         | 13,539  |   |                  |   | 15,220  |  
|Accrued expenses                                                                                                                                                 |  |                         | 9,048   |   |                  |   | 11,277  |  
|Current maturities of long-term debt                                                                                                                             |  |                         | 1,231   |   |                  |   | 1,369   |  
|Deferred income                                                                                                                                                  |  |                         | 20,670  |   |                  |   | 24,238  |  
|Liabilities related to discontinued operations                                                                                                                   |  |                         |        |   |                  |   | 2,541   |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                        |  |                         | 44,488  |   |                  |   | 57,645  |  
|Deferred rent                                                                                                                                                    |  |                         | 2,529   |   |                  |   | 2,557   |  
|Long-term debt                                                                                                                                                   |  |                         | 16,889  |   |                  |   | 14,127  |  
|Deferred Tax Liability                                                                                                                                           |  |                         | 3,873   |   |                  |   | 3,703   |  
|Fair value of derivatives and warrant                                                                                                                            |  |                         | 320     |   |                  |   | 181     |  
|Series B-1 Preferred Stock, $0.01 par value; 10,000 shares authorized; 6,000 shares issued and outstanding at March 31, 2007 and
December 31, 2006, respectively |  |                         | 6,000   |   |                  |   | 6,000   |  
|Stockholders equity                                                                                                                                             |  |                         |         |   |                  |   |         |  
|Preferred stock, $0.01 par value; 4,990,000 shares authorized, none issued and outstanding                                                                       |  |                         |        |   |                  |   |        |  
|Common stock, $0.01 par value; 100,000,000 shares authorized; 27,601,268 issued and outstanding at March 31, 2007 and December 31,
2006                          |  |                         | 276     |   |                  |   | 276     |  
|Additional paid-in capital                                                                                                                                       |  |                         | 117,251 |   |                  |   | 117,082 |  
|Accumulated deficit                                                                                                                                              |  |                         | (75,149 | ) |                  |   | (79,573 | )
|Accumulated other comprehensive loss                                                                                                                             |  |                         | (326    | ) |                  |   | (324    | )
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                       |  |                         | 42,052  |   |                  |   | 37,461  |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                       |  | $                       | 116,151 |   |                  | $ | 121,674 |  
|                                                                                                                                                                 |  |                         |         |   |                  |   |         |  

See accompanying notes to the condensed consolidated financial statements.



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THE PRINCETON REVIEW, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)



|                                                                  |  |                             |        |   |             |   |        |  
|----------------------------------------------------------------- |  | --------------------------- | ------ | - | ----------- | - | ------ | -
|                                                                  |  | Three Months EndedMarch 31, |       
|                                                                  |  | 2007                        |        |   | 2006        |  
|                                                                  |  | As Restated                 |        |   | As Restated |  
|                                                                  |  | (Unaudited)                 |       
|Revenue                                                           |  |                             |        |   |             |   |        |  
|Test Preparation Services                                         |  | $                           | 20,863 |   |             | $ | 23,135 |  
|SES Services                                                      |  |                             | 6,225  |   |             |   | 2,760  |  
|K-12 Services                                                     |  |                             | 13,082 |   |             |   | 7,717  |  
|                                                                  |  |                             |        |   |             |   |        |  
|Total revenue                                                     |  |                             | 40,170 |   |             |   | 33,612 |  
|Cost of revenue                                                   |  |                             |        |   |             |   |        |  
|Test Preparation Services                                         |  |                             | 8,368  |   |             |   | 7,265  |  
|SES Services                                                      |  |                             | 2,844  |   |             |   | 919    |  
|K-12 Services                                                     |  |                             | 6,928  |   |             |   | 5,195  |  
|                                                                  |  |                             |        |   |             |   |        |  
|Total cost of revenue                                             |  |                             | 18,140 |   |             |   | 13,379 |  
|                                                                  |  |                             |        |   |             |   |        |  
|Gross Profit                                                      |  |                             | 22,030 |   |             |   | 20,233 |  
|                                                                  |  |                             |        |   |             |   |        |  
|Operating expenses                                                |  |                             | 22,652 |   |             |   | 22,227 |  
|Loss from operations                                              |  |                             | (622   | ) |             |   | (1,994 | )
|Interest income (expense), net                                    |  |                             | (344   | ) |             |   | (30    | )
|Other income (expense), net                                       |  |                             | (75    | ) |             |   | 60     |  
|Equity in the income (loss) of affiliates                         |  |                             |       |   |             |   | (66    | )
|                                                                  |  |                             |        |   |             |   |        |  
|Income (loss) before income taxes                                 |  |                             | (1,041 | ) |             |   | (2,030 | )
|(Provision) benefit for income taxes                              |  |                             | 8      |   |             |   | (116   | )
|                                                                  |  |                             |        |   |             |   |        |  
|Net income (loss) from continuing operations                      |  |                             | (1,033 | ) |             |   | (2,146 | )
|Discontinued operations                                           |  |                             |        |   |             |   |        |  
|Income (loss) from discontinued operations                        |  |                             | 1,198  |   |             |   | 122    |  
|Gain from disposal of discontinued operations                     |  |                             | 4,539  |   |             |   |       |  
|(Provision) benefit for income taxes                              |  |                             | (178   | ) |             |   | (50    | )
|                                                                  |  |                             |        |   |             |   |        |  
|Income (loss) from discontinued operations                        |  |                             | 5,559  |   |             |   | 72     |  
|Net income (loss)                                                 |  |                             | 4,526  |   |             |   | (2,074 | )
|Dividends and accretion on Series B-1 Preferred Stock             |  |                             | (103   | ) |             |   | (157   | )
|                                                                  |  |                             |        |   |             |   |        |  
|Income (loss) attributed to common stockholders                   |  | $                           | 4,423  |   |             | $ | (2,231 | )
|                                                                  |  |                             |        |   |             |   |        |  
|Earnings (loss) per share                                         |  |                             |        |   |             |   |        |  
|Basic and diluted Income (loss) from continuing operations        |  | $                           | (0.04  | ) |             | $ | (0.08  | )
|Income (loss) from discontinued operations                        |  |                             | 0.20   |   |             |   |       |  
|                                                                  |  |                             |        |   |             |   |        |  
|Net income (loss) attributed to common stockholders               |  | $                           | 0.16   |   |             | $ | (0.08  | )
|                                                                  |  |                             |        |   |             |   |        |  
|Weighted average shares used in computing income (loss) per share |  |                             |        |   |             |   |        |  
|Basic                                                             |  |                             | 27,576 |   |             |   | 27,572 |  
|                                                                  |  |                             |        |   |             |   |        |  
|Diluted                                                           |  |                             | 27,576 |   |             |   | 27,572 |  
|                                                                  |  |                             |        |   |             |   |        |  

See accompanying notes to the condensed consolidated financial statements.



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THE PRINCETON REVIEW, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)



|                                                                                         |  |                                     |        |   |             |   |        |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ----------- | - | ------ | -
|                                                                                         |  | For the Three MonthsEnded
March 31, |       
|                                                                                         |  | 2007                                |        |   | 2006        |  
|                                                                                         |  | As Restated                         |        |   | As Restated |  
|                                                                                         |  | (unaudited)                         |       
|Cash flows provided by (used for) operating activities:                                  |  |                                     |        |   |             |   |        |  
|Income (loss) from continuing operations                                                 |  | $                                   | (1,033 | ) |             | $ | (2,146 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                     |        |   |             |   |        |  
|Depreciation                                                                             |  |                                     | 728    |   |             |   | 414    |  
|Amortization                                                                             |  |                                     | 1,464  |   |             |   | 1,438  |  
|Bad debt expense                                                                         |  |                                     | 838    |   |             |   | 674    |  
|Deferred Income Tax Liability                                                            |  |                                     | 170    |   |             |   | 166    |  
|Deferred rent                                                                            |  |                                     | (30    | ) |             |   | 80     |  
|Stock based compensation                                                                 |  |                                     | 151    |   |             |   | 170    |  
|Other, net                                                                               |  |                                     | 152    |   |             |   | 100    |  
|Net change in operating assets and liabilities:                                          |  |                                     |        |   |             |   |        |  
|Accounts receivable                                                                      |  |                                     | 3,704  |   |             |   | (1,566 | )
|Inventory                                                                                |  |                                     | 272    |   |             |   | (30    | )
|Prepaid expenses                                                                         |  |                                     | 190    |   |             |   | (302   | )
|Other assets                                                                             |  |                                     | 308    |   |             |   | (572   | )
|Accounts payable and accrued expenses                                                    |  |                                     | (3,907 | ) |             |   | (2,705 | )
|Deferred income                                                                          |  |                                     | (3,568 | ) |             |   | 3,327  |  
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) operating activities                                     |  |                                     | (561   | ) |             |   | (952   | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Cash provided by (used for) investing activities:                                        |  |                                     |        |   |             |   |        |  
|Purchases of furniture, fixtures, equipment and software development                     |  |                                     | (506   | ) |             |   | (1,366 | )
|Additions to capitalized K-12 content, capitalized course costs                          |  |                                     | (4     | ) |             |   | (1,010 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) investing activities                                     |  |                                     | (510   | ) |             |   | (2,376 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Cash flows provided by (used for) financing activities:                                  |  |                                     |        |   |             |   |        |  
|Proceeds from revolving credit facility                                                  |  |                                     | 3,000  |   |             |   |       |  
|Payments of borrowings under revolving credit facility                                   |  |                                     | (3,000 | ) |             |   |       |  
|Capital lease payments                                                                   |  |                                     | (376   | ) |             |   | (227   | )
|Dividends on Series B-1 Preferred Stock                                                  |  |                                     | (103   | ) |             |   | (157   | )
|Proceeds from exercise of options                                                        |  |                                     | 18     |   |             |   |       |  
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) financing activities                                     |  |                                     | (461   | ) |             |   | (384   | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Total cash flows used in continuing operations                                           |  |                                     | (1,532 | ) |             |   | (3,712 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Cash Flows from Discontinued Operations                                                  |  |                                     |        |   |             |   |        |  
|Income from discontinued operations                                                      |  |                                     | 1,020  |   |             |   | 72     |  
|Gain on disposal of discontinued operations                                              |  |                                     | (4,539 | ) |             |   | (1,378 | )
|Other adjustments to reconcile net income to net cash provided by operating activities   |  |                                     | 1,748  |   |             |   | (1,329 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) operating activities                                     |  |                                     | (1,771 | ) |             |   | (1,306 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Cash received from disposal of discontinued operations                                   |  |                                     | 7,000  |   |             |   |       |  
|Other cash provided by investing activities                                              |  |                                     |       |   |             |   | 158    |  
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) investing activities                                     |  |                                     | 7,000  |   |             |   | 158    |  
|                                                                                         |  |                                     |        |   |             |   |        |  
|Net cash provided by (used for) discontinued operations                                  |  |                                     | 5,229  |   |             |   | (1,148 | )
|                                                                                         |  |                                     |        |   |             |   |        |  
|Increase (decrease) in cash and cash equivalents                                         |  |                                     | 3,697  |   |             |   | (4,860 | )
|Cash and cash equivalents, beginning of period                                           |  |                                     | 10,822 |   |             |   | 8,002  |  
|                                                                                         |  |                                     |        |   |             |   |        |  
|Cash and cash equivalents, end of period                                                 |  | $                                   | 14,519 |   |             | $ | 3,142  |  
|                                                                                         |  |                                     |        |   |             |   |        |  



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THE PRINCETON REVIEW, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

The
accompanying unaudited interim consolidated financial statements include the accounts of The Princeton Review, Inc. and its wholly-owned subsidiaries, The Princeton Review Canada Inc. and Princeton Review Operations L.L.C., as well as the
Companys national advertising fund (together, the Company).

The following unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures reflect all adjustments, consisting only of normal recurring accruals, that are, in the opinion of
management, necessary for a fair presentation of the interim financial statements and are adequate to make the information not misleading. The interim consolidated financial statements should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31, 2006 included in the Companys Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. The results of operations for the three-months ended
March 31, 2007 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Products and Services

The following table summarizes the Companys revenue and cost of revenue for the three-months ended March 31, 2007 and 2006:



|                      |  |                             |        |      |   |       
|--------------------- |  | --------------------------- | ------ | ---- | - | ------
|                      |  | Three Months EndedMarch 31,
|                      |  | 2007                        |        | 2006
|                      |  | (In thousands)(unaudited)  
|Revenue               |  |                             |        |      |   |       
|Services              |  | $                           | 36,897 |      | $ | 29,933
|Products              |  |                             | 1,593  |      |   | 1,526 
|Other                 |  |                             | 1,680  |      |   | 2,153 
|                      |  |                             |        |      |   |       
|Total revenue         |  | $                           | 40,170 |      |   | 33,612
|                      |  |                             |        |      |   |       
|Cost of Revenue       |  |                             |        |      |   |       
|Services              |  | $                           | 17,557 |      | $ | 12,378
|Products              |  |                             | 547    |      |   | 865   
|Other                 |  |                             | 36     |      |   | 136   
|                      |  |                             |        |      |   |       
|Total cost of revenue |  | $                           | 18,140 |      | $ | 13,379
|                      |  |                             |        |      |   |       

Services revenue includes course fees, professional development, subscription fees and marketing
services fees. Products revenue includes sales of workbooks, test booklets and printed tests, sales of course material to independently owned franchises and fees from a publisher for manuscripts delivered. Other revenue includes royalties from
independently owned franchises and royalties and marketing fees received from publishers.

New Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115, (SFAS No. 159). This standard permits entities to measure many financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

The provisions of SFAS No. 159 are effective beginning in our fiscal year 2009 and are currently not expected to have a material
effect on our consolidated financial statements.



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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS No. 157), to establish a consistent framework for measuring fair value and expand disclosures on fair value measurements. The provisions of SFAS No. 157 are effective beginning in our fiscal year 2009 and are currently
not expected to have a material effect on our consolidated financial statements.

In July 2006, the Financial Accounting Standards Board
(FASB) released FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting and reporting for
uncertainties in income taxes and prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 prescribes a
two-step evaluation process for tax positions. The first step is recognition based on a determination of whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The second step is to measure a tax position that meets the more-likely-than-not threshold. The tax position is measured at the largest amount of benefit that is greater than 50%
likely of being realized upon ultimate settlement. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. FIN 48 is effective beginning in the first
quarter of fiscal 2007 and the adoption of this pronouncement did not have a significant impact on the Companys consolidated financial statements.

In February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan Amendment of FASB Statements No. 133 and 140(SFAS No. 155). SFAS No. 155
allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders election. SFAS No. 155 also clarifies and amends certain
other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for fiscal years ending after September 15, 2006. The adoption of this pronouncement did not have a significant impact on the Companys
consolidated financial statements.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (GAAP) in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant
accounting estimates used include estimates for uncollectible accounts receivable, deferred tax valuation allowances, impairment write-downs, amortization lives assigned to intangible assets, and fair value of assets and liabilities. Actual results
could differ from those estimated.

Reclassifications

Certain balances have been reclassified to conform to the current quarters presentation.

2. Restatement to 2006 and prior financial statements

The Company has restated its 2006 and 2005 consolidated financial statements to correct its accounting for income taxes and more specifically, to record a deferred tax liability for its territorial marketing rights and increase its
valuation allowance related to deferred tax assets.

Territorial marketing rights represent an indefinite-lived intangible asset for which
the tax basis is zero. When the Company converted from a Subchapter S to C-corporation in 2000, deferred taxes were required to be recognized for temporary differences pursuant to SFAS No. 109; however, it was determined that the Company did not
record a deferred tax liability for the territorial marketing rights. The correction amounted to $600,000, which is reflected in the consolidated financial statements as a restatement of the opening retained earnings as of January 1, 2005.

In 2004, as a result of the cumulative historical losses incurred and uncertainty as to when the Company would generate sufficient taxable
income, the Company established a full valuation allowance against its deferred tax assets. In determining the required valuation allowance, the Company inappropriately offset the deferred tax liability for goodwill against the deferred tax assets.
However, due to uncertainty as to the timing of its reversal, the deferred tax liability should not have been included as a source of future taxable income in ultimately determining the required valuation allowance. The correction increases the
valuation allowance by $3.1 million and $2.4 million as of December 31, 2006 and 2005. The cumulative impact for prior years of $1.8 million is reflected as a restatement of the opening retained earnings as of January 1, 2005.



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Accordingly, the following changes have been made to the Companys consolidated balance sheet,
statements of operations, stockholders equity as of March 31, 2007 and December 31, 2006 and for the quarter and year then ended. Changes to the statements of cash flows have not been separately presented as they have no effect on
the cash provided by or used in operations. Disclosures in Note 11 Income Taxes have also been restated. Additionally, any other footnotes reflected by the restatement have been noted as such.

(amounts in thousands, except for share)

|                                                      |  |                       |        |   |          |   |        |  
|----------------------------------------------------- |  | --------------------- | ------ | - | -------- | - | ------ | -
|                                                      |  | As PreviouslyReported |        |   | Restated |  
|Quarter ended March 31, 2007 (Income Statement)       |  |                       |        |   |          |   |        |  
|(Provision) benefit for income taxes                  |  | $                     |       |   |          | $ | 8      |  
|Net income (loss) attributable to common shareholders |  | $                     | 4,593  |   |          | $ | 4,423  |  
|Net income (loss) per share                           |  | $                     | 0.17   |   |          | $ | 0.16   |  
|                                                      |  |                      
|Balance sheet data March 31, 2007                     |  |                       |        |   |          |   |        |  
|Deferred income taxes                                 |  | $                     |       |   |          | $ | 3,873  |  
|Shareholders equity                                   |  | $                     | 45,925 |   |          | $ | 42,052 |  
|                                                      |  |                      
|Quarter ended March 31, 2006 (Income Statement)       |  |                       |        |   |          |   |        |  
|(Provision) benefit for income taxes                  |  | $                     |       |   |          | $ | (116   | )
|Net loss attributable to common shareholders          |  | $                     | (2,065 | ) |          | $ | (2,231 | )
|Net loss per share                                    |  | $                     | (0.08  | ) |          | $ | (0.08  | )
|                                                      |  |                      
|Balance sheet data December 31, 2006                  |  |                       |        |   |          |   |        |  
|Deferred income taxes                                 |  | $                     |       |   |          | $ | 3,703  |  
|Shareholders equity                                   |  | $                     | 41,163 |   |          | $ | 37,461 |  

3. Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS No. 123), using the modified prospective
transition application method. Under this method, compensation expense is recognized for employee awards granted, modified, or settled subsequent to December 31, 2005, and the unvested portion of awards granted to employees in prior years.
Compensation expense is recognized on a straight-line method over the requisite service period.

There were no stock option or restricted
stock awards in the first quarter of 2007.

Total stock-based compensation expense recorded for the quarter ended March 31, 2007 and
2006 was $151,000 and $170,000, respectively.

4. Line of Credit

Credit Agreement

On April 10, 2006, the Company entered into a Credit Agreement (the
Credit Agreement), among the Company, Princeton Review Operations, L.L.C., a wholly owned subsidiary of the Company (Operations), Golub Capital CP Funding, LLC and such other lenders who become signatory from time to time,
and Golub Capital Incorporated (Golub), as Administrative Agent.

The Credit Agreement, as amended, provides for a revolving
credit facility with a term of five years and a maximum aggregate principal amount of $15.0 million (the Credit Facility). Operations is a guarantor of the Companys obligations under the Credit Agreement.

The Companys borrowings under the Credit Facility are secured by a first priority lien on all of the Companys and Operations assets. In
addition, the Company pledged all of its equity interests in its subsidiaries, and all other equity investments held by the Company to Golub as security for the Credit Facility.

The Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limits
on the Companys ability to make investments and incur indebtedness and liens, maintenance of a minimum level of EBITDA of the Companys Test Preparation Services Division, and maintenance of a minimum net worth. The Credit Agreement
contains customary events of default for facilities of this type (with customary grace periods and materiality



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thresholds, as applicable) and provides that, upon the occurrence and continuation of an event of default, the interest rate on all outstanding obligations
will be increased and payment of all outstanding loans may be accelerated and/or the lenders commitments may be terminated.

At
December 31, 2006, the Company failed the minimum net worth covenant and obtained a waiver of that covenant through January 1, 2008. On February 16, 2007, the Company entered into a third amendment of the Credit Agreement (the
Third Amendment). The Third Amendment required the Company to (i) repay to Golub $3.0 million from the proceeds of the sale of the Companys Admissions Services technology business and (ii) set the amount of the Credit
Facility at $12.0 million. This $3 million payment was made by the Company on February 19, 2007.

Pursuant to the Third Amendment
which increased the annual interest rate of the Credit Facility, outstanding amounts under the Credit Facility up to $10.0 million bear interest at rates based on either (A) 300 basis points over the greater of (x) the prime rate and
(y) the Federal Funds Rate plus 50 basis points or (B) 400 basis points over the London Interbank Offered Rate (LIBOR), at the Companys election and in accordance with the terms of the Credit Agreement. Outstanding
amounts under the Credit Facility in excess of $10.0 million (or the borrowing base amount, if lower) bear the following annual interest rates: either (A) 400 basis points over the greater of (x) the prime rate and (y) the Federal
Funds Rate plus 50 basis points or (B) 500 basis points over the LIBOR rate, at the Companys election and in accordance with the terms of the Credit Agreement.

On March 29, 2007, the Company entered into a further amendment of the Credit Agreement (the Fourth Amendment). Under the Fourth Amendment, the maximum borrowing amount was increased to $15.0 million,
and the Company drew down the full available amount on March 30, 2007. The term of the Credit Facility remains unchanged at five years from the date of the original Credit Agreement. The terms for the annual interest rate for the facility are
the same as those under the Third Amendment.

5. Series B-1 Preferred Stock

On June 4, 2004, the Company sold 10,000 shares of its Series B-1 Preferred Stock to Fletcher International, Ltd. (Fletcher) for proceeds
of $10,000,000. In May 2006, 4,000 shares of Series B-1 Preferred Stock were redeemed in cash, leaving 6,000 shares outstanding. These shares are convertible into common stock at any time (the Holder Conversion Option). Prior to
conversion, each share accrues dividends at an annual rate of the greater of 5% and the 90-day LIBOR plus 1.5% (6.85% at March 31, 2007), subject to adjustment. Dividends are payable, whether or not declared by the Board of Directors out of
funds legally available therefor, in cash or registered shares of common stock, at the Companys option. At the time of issuance of the Series B-1 Preferred Stock, each share of Series B-1 Preferred Stock was convertible into a number of shares
of common stock equal to: (1) the stated value of one share of Series B-1 Preferred Stock plus accrued and unpaid dividends, divided by (2) the conversion price of $11.00, subject to adjustment. In accordance with the terms of the
agreement with the holder, the conversion price was decreased to $8.0860 per share (as of March 31, 2007), because effectiveness of the registration statement relating to the Series B-1 Preferred Stock shares was delayed and the Company
thereafter failed to maintain its effectiveness. The Company may be required to further reduce the conversion price upon certain events such as the issuance of common stock at a price below the conversion price or if the Company fails to keep the
registration statement current.

The holder may redeem its shares of the Series B-1 Preferred Stock, in lieu of converting such shares at
any time for shares of common stock unless the Company satisfies the conditions for cash redemption. If the holder elects to redeem its shares and the Company does not elect to make such redemption in cash, then each share of Series B-1 Preferred
Stock will be redeemed for a number of shares of common stock equal to: (1) the stated value of $1,000 per share of Series B-1 Preferred Stock plus accrued and unpaid dividends, divided by (2) 102.5% of the prevailing price of common stock
at the time of delivery of a redemption notice (based on an average daily trading price formula). If the holder elects to redeem its shares and the Company elects to make such redemption in cash, then the holder will receive funds equal to the
product of: (1) the number of shares of common stock that would have been issuable if the holder redeemed its shares of Series B-1 Preferred Stock for shares of common stock; and (2) the closing price of the common stock on the NASDAQ
Global Market on the date notice of redemption was delivered. As of June 4, 2014 the Company may redeem any shares of Series B-1 Preferred Stock then outstanding. If the Company elects to redeem such outstanding shares, the holder will receive
funds equal to the product of: (1) the number of shares of Series B-1 Preferred Stock so redeemed, and (2) the stated value of $1,000 per share of Series B-1 Preferred Stock, plus accrued and unpaid dividends.

In addition, the Company granted the holder certain rights entitling the holder to purchase up to 20,000 shares of additional preferred stock, at a price
of $1,000 per share, for an aggregate additional consideration of $20,000,000 (the Warrant). These rights to purchase additional shares are legally detachable from the Series B-1 Preferred Stock and may be exercised by the holder
separately from actions taken with regard to the originally issued Series B-1 Preferred Stock. The agreement with the holder provides that any



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shares of additional preferred stock will have the same conversion ratio as the Series B-1 Preferred Stock, except that the conversion price will be the
greater of (1) $11.00, or (2) 120% of the prevailing price of common stock at the time of exercise of the rights (based on an average daily trading price formula), subject to adjustment upon the occurrence of certain events. Due to the
delay in the effectiveness of the registration statement relating to the Series B-1 Preferred Stock, and the Companys failure to maintain its effectiveness as required by the agreement with the holder, the conversion price for any such
additional series of preferred stock was reduced, and, as of March 31, 2007, the greater of (1) $8.0860 or (2) 88.21% of the prevailing price of common stock at the time of exercise of the rights. These rights may be exercised by the
holder on one or more occasions commencing July 1, 2005, and for the 24-month period thereafter, which period may be extended under certain circumstances, including extension by one day for each day the registration requirements are not met.
The Agreement with the holder also provides that shares of additional preferred stock will be redeemable upon terms substantially similar to those of the Series B-1 Preferred Stock.

The Series B-1 Preferred Stock also contains a provision (the Make-whole Provision) that indicates that if the Company is party to a certain
acquisition, asset sale, capital reorganization or other transaction in which the power to cast the majority of the eligible votes at a meeting of the Companys shareholders is transferred to a single entity or group, upon consummation of the
transaction, the holder is entitled to receive (at the holders election)

a) the consideration to which the holder would have been
entitled had it converted the Series B-1 Preferred Stock into common stock immediately prior to consummation,

b) the consideration to
which the holder would have been entitled had it redeemed the Series B-1 Preferred Stock for common stock immediately prior to consummation, or

c) cash, initially equal to 160% of the aggregate redemption amount of the Series B-1 Preferred Stock less 5% of the redemption amount for each full year the Series B-1 Preferred Stock was outstanding.

Embedded derivatives and warrant

Under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities(SFAS 133), certain contractual terms that meet the accounting definition of a derivative must be accounted
for separately from the financial instrument in which they are embedded. The Company has concluded that the Holder Conversion Option and the Make-whole Provision constitute embedded derivatives.

The Holder Conversion Option meets SFAS 133s definition of an embedded derivative. In addition, the Holder Conversion Option is not considered
conventional because the number of shares received by the holder upon exercise of the option could change under certain conditions. The Holder Conversion Option is considered an equity derivative and its economic characteristics are not
considered to be clearly and closely related to the economic characteristics of the Series B-1 Preferred Stock, which is a considered more akin to a debt instrument than equity.

Similarly, the embedded Make-whole Provision also must be accounted for separately from the Series B-1 Preferred Stock. The Make-whole Provision
specifies if certain events (such as a business combination) that constitute a change of control occur, the Company may be required to settle the Series B-1 Preferred Stock at 160% of its face amount. Accordingly, the Make-whole Provision meets SFAS
133s definition of a derivative, and its economic characteristics are not considered clearly and closely related to the economic characteristics of the Series B-1 Preferred Stock.

Accordingly, under SFAS 133, these two embedded derivatives are required to be bundled into a single derivative instrument and accounted for separately
from the Series B-1 Preferred Stock at fair value.

In addition, as described above, when the Company issued the Series B-1 Preferred
Stock, it granted the holder the Warrant to purchase up to 20,000 shares of additional preferred stock at a price of $1,000 per share.

The
preferred shares that the holder is entitled to receive, upon exercise of the Warrant, may be redeemed at a future date. Statement of Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity(SFAS 150), requires that a warrant which contains an obligation that may require the issuer to redeem the shares in cash, be classified as a liability and accounted for at fair value.



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The Company determined that the fair value of the combined embedded derivatives and Warrant at inception
was $2.6 million and increased long-term liabilities by $1.7 million for the embedded derivatives and $854,000 for the fair value of the Warrant. In subsequent periods, these liabilities are accounted for at fair value, with changes in fair value
recognized in earnings. In addition, the Company recognized a discount to the recorded value of the Series B-1 Preferred Stock resulting from the allocation of proceeds to the embedded derivatives and Warrant. This discount was accreted as a
preferred stock dividend to increase the recorded balance of the Series B-1 Preferred Stock to it redemption value at its earliest possible redemption date (November 28, 2005).

The embedded derivatives and Warrant were valued at each fiscal quarter-end using a valuation model that combines the Black-Scholes option pricing
approach with other analytics. Key assumptions used in the pricing model were based on the terms and conditions of the embedded derivatives and Warrant and the actual stock price of the Companys common stock at each fiscal quarter-end.
Adjustments were made to the conversion option value to reflect the impact of potential registration rights violations and the attendant reductions in the conversion price of the underlying shares. Other assumptions included a volatility rate
ranging from 25% - 40%, and a risk-free rate corresponding to the estimated life of the security, based on its likelihood of conversion or redemption. The estimated life ranged from a high of four years at the inception of the Series B-1 Preferred
Stock in June 2004, to just under two years at March 31, 2007.

The value of the Make-whole Provision explicitly considered the
present value of the potential premium that would be paid related to, and the probability of, an event that would trigger its payment. The probability of a triggering event was assumed to be very low at issuance, escalating to a 2% probability in
year three and beyond. These assumptions were based on managements estimates of the probability of a change of control event occurring

Since the dividend rate on the Series B-1 Preferred Stock adjusts with changes in market rates due to the LIBOR-Index provision, the key component in the valuation of the Warrant is the estimated value of the underlying embedded conversion
option. Accordingly, similar assumptions to those used to value the compound derivative were used to value the Warrant, including, the fiscal quarter-end stock price, the exercise price of the conversion option adjusted for changes based on the
registration rights agreement, an assumed volatility rate ranging from 25% - 40% and risk-free rate based on the estimated life of the Warrant.

Dividends

For the three months ended March 31, 2007 and 2006, cash dividends in the amount of $103,000 and
$157,000, respectively, were paid to the Series B-1 Preferred stockholder.

6. Segment Information

The Companys operations are aggregated into three reportable segments. The operating segments reported below are the segments of the Company for
which separate financial information is available and for which operating income is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance.

The following segment results include the allocation of certain information technology costs, accounting services, executive management costs, legal
department costs, office facilities expenses, human resources expenses and other shared services. The allocations are made to the divisions on the basis of equivalent bought-in third party services.

The majority of the Companys revenue is earned by the Test Preparation Services division, which sells a range of services including test
preparation, tutoring and academic counseling. Test Preparation Services derives its revenue from Company operated locations and from royalties from, and product sales to, independently-owned franchises. Test Preparation Services Division also
includes the revenue associated with Admissions Services, previously reported as a separate division, which earns revenue from subscription, transaction and marketing fees from higher education institutions, counseling services and from selling
advertising and sponsorships (see Note 9). The Supplemental Educational Services (SES) division, previously included within our Test Preparation Services division, delivers state aligned research based academic tutoring instruction to students in
schools in need of improvement in school districts throughout the country. The K-12 Services division earns fees from assessment, intervention materials sales and professional development services it renders to K-12 schools and from its content
development work. Additionally, each division earns royalties and other fees from sales of its books published by Random House.

In
connection with the transaction described in Note 9, financial results associated with the admissions publications and college counseling services previously reported in the Admissions Services division have been reclassified for all periods
presented into Test Preparation Services and K-12 Services, respectively.

The segment results include EBITDA for the periods indicated. As
used in this report, EBITDA means earnings before interest, income taxes, depreciation and amortization. The Company believes that EBITDA, a non-GAAP financial measure, represents a useful measure for evaluating its financial performance because it
reflects earnings trends without the impact of certain non-cash and non-operations-related charges or income. The Companys management uses EBITDA to measure the operating profits or losses of



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the business. Analysts, investors and rating agencies frequently use EBITDA in the evaluation of companies, but the Companys presentation of EBITDA is
not necessarily comparable to other similarly titled measures of other companies because of potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to net income (loss) as an indicator of the Companys
operating performance, or as an alternative to any other measure of performance calculated in conformity with GAAP.



|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | ----------- | - | ------------ |  | --------- | ------ |  | ----- | ------ | - |  | - | ------- | -
|                                                            |  | Three Months Ended March 31, 2007(in
thousands)(as restated) |       
|                                                            |  | TestPreparationServices                                      |        | SESServices |   | K-12Services |  | Corporate |        |  | Total |       
|Revenue                                                     |  | $                                                            | 20,863 |             | $ | 6,225        |  | $         | 13,082 |  | $     |       |   |  | $ | 40,170  |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Operating expense (including depreciation and amortization) |  | $                                                            | 10,946 |             |   | 1,430        |  | $         | 4,372  |  | $     | 5,904  |   |  | $ | 22,652  |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Operating income (loss)                                     |  |                                                              | 1,551  |             |   | 1,949        |  |           | 1,782  |  |       | (5,904 | ) |  |   | (622    | )
|Depreciation and amortization                               |  |                                                              | 524    |             |   | 1            |  |           | 1,112  |  |       | 555    |   |  |   | 2,192   |  
|Other income (expense)                                      |  |                                                              |       |             |   |             |  |           |       |  |       | (75    | ) |  |   | (75     | )
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Segment EBITDA                                              |  | $                                                            | 2,075  |             | $ | 1,950        |  | $         | 2,894  |  | $     | (5,424 | ) |  | $ | 1,495   |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Total segment assets                                        |  | $                                                            | 56,323 |             | $ | 23           |  | $         | 30,600 |  | $     | 29,205 |   |  | $ | 116,151 |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Segment goodwill                                            |  | $                                                            | 31,006 |             |   |             |  | $         |       |  | $     |       |   |  | $ | 31,006  |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  
|Expenditures for long lived assets                          |  | $                                                            | 146    |             | $ | 14           |  | $         | 63     |  | $     | 287    |   |  | $ | 510     |  
|                                                            |  |                                                              |        |             |   |              |  |           |        |  |       |        |   |  |   |         |  



|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | ----------- | - | ------------ |  | - | --------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                                            |  | Three Months Ended March 31, 2006(in
thousands)(as restated) |       
|                                                            |  | TestPreparationServices                                      |        | SESServices |   | K-12Services |  |   | Corporate |   |  | Total |       
|Revenue                                                     |  | $                                                            | 23,135 |             | $ | 2,760        |  | $ | 7,717     |   |  | $     |       |   |  | $ | 33,612  |  
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Operating expense (including depreciation and amortization) |  | $                                                            | 12,341 |             |   | 1,499        |  | $ | 4,123     |   |  | $     | 4,264  |   |  | $ | 22,227  |  
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Operating income (loss)                                     |  |                                                              | 3,615  |             |   | 342          |  |   | (1,687    | ) |  |       | (4,264 | ) |  |   | (1,994  | )
|Depreciation and amortization                               |  |                                                              | 728    |             |   |             |  |   | 814       |   |  |       | 310    |   |  |   | 1,852   |  
|Other income (expense)                                      |  |                                                              |       |             |   |             |  |   |          |   |  |       | (6     | ) |  |   | (6      | )
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Segment EBITDA                                              |  | $                                                            | 4,343  |             | $ | 342          |  | $ | (873      | ) |  | $     | (3,960 | ) |  | $ | (148    | )
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Total segment assets                                        |  | $                                                            | 54,052 |             | $ | 9            |  | $ | 20,556    |   |  | $     | 27,842 |   |  | $ | 102,459 |  
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Segment goodwill                                            |  | $                                                            | 31,006 |             | $ |             |  | $ |          |   |  | $     |       |   |  | $ | 31,006  |  
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  
|Expenditures for long lived assets                          |  | $                                                            | 505    |             | $ | 9            |  | $ | 1,061     |   |  | $     | 801    |   |  | $ | 2,376   |  
|                                                            |  |                                                              |        |             |   |              |  |   |           |   |  |       |        |   |  |   |         |  

Reconciliation of operating income (loss) to net income (loss) (in thousands):



|                                             |  |                             |        |   |             |   |        |  
|-------------------------------------------- |  | --------------------------- | ------ | - | ----------- | - | ------ | -
|                                             |  | Three Months EndedMarch 31, |       
|                                             |  | 2007                        |        |   | 2006        |  
|                                             |  | As Restated                 |        |   | As Restated |  
|Total income (loss) from reportable segments |  | $                           | (622   | ) |             | $ | (1,994 | )
|Unallocated amounts:                         |  |                             |        |   |             |   |        |  
|Interest income (expense)                    |  |                             | (344   | ) |             |   | (30    | )
|Other income (expense)                       |  |                             | (75    | ) |             |   | 60     |  
|Equity in loss of affiliate                  |  |                             |       |   |             |   | (66    | )
|(Provision) benefit for income taxes         |  |                             | 8      |   |             |   | (116   | )
|                                             |  |                             |        |   |             |   |        |  
|Income (loss) from continuing operations     |  |                             | (1,033 | ) |             |   | (2,146 | )
|Discontinued operations                      |  |                             | 5,559  |   |             |   | 72     |  
|                                             |  |                             |        |   |             |   |        |  
|Net income (loss)                            |  | $                           | 4,526  |   |             | $ | (2,074 | )
|                                             |  |                             |        |   |             |   |        |  



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7. Income (loss) Per Share

Basic and diluted net income (loss) per share information for all periods is presented under the requirements of SFAS No. 128, Earnings per Share.Basic net income (loss) per share is computed by dividing
net income (loss) attributed to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is determined in the same manner as basic net income (loss) per share except that
the number of shares is increased assuming exercise of dilutive stock options, warrants and convertible securities and dividends related to convertible securities are added back to net income (loss) attributed to common stockholders. The calculation
of diluted net income (loss) per share excludes potential common shares if the effect is antidilutive.

A reconciliation of net income
(loss) and the number of shares used in computing basic per share are as follows.



|                                                          |  |                               |        |   |      |   |        |  
|--------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------ | -
|                                                          |  | Three Months EndedMarch 31,   |       
|                                                          |  | 2007                          |        |   | 2006 |  
|                                                          |  | (In thousands ) (As Restated) |       
|Income (loss) from continuing operations                  |  | $                             | (1,033 | ) |      | $ | (2,146 | )
|Income (loss) from discontinued operations                |  |                               | 5,559  |   |      |   | 72     |  
|Less preferred dividends                                  |  |                               | (103   | ) |      |   | (157   | )
|                                                          |  |                               |        |   |      |   |        |  
|Net income (loss) attributed to common stockholders       |  | $                             | 4,423  |   |      | $ | (2,231 | )
|                                                          |  |                               |        |   |      |   |        |  
|Weighted average common shares outstanding for the period |  |                               | 27,576 |   |      |   | 27,572 |  
|                                                          |  |                               |        |   |      |   |        |  
|Basic and diluted earnings per share:                     |  |                               |        |   |      |   |        |  
|Income (loss) from continuing operations                  |  | $                             | (0.04  | ) |      | $ | (0.08  | )
|Income (loss) from discontinued operations                |  |                               | 0.20   |   |      |   |       |  
|                                                          |  |                               |        |   |      |   |        |  
|Net income (loss) attributed to common stockholders       |  | $                             | 0.16   |   |      | $ | (0.08  | )
|                                                          |  |                               |        |   |      |   |        |  

The following were excluded from the computation of diluted earnings per common share because of
their antidilutive effect.



|                                                                        |  |                             |  |      
|----------------------------------------------------------------------- |  | --------------------------- |  | -----
|                                                                        |  | Three Months EndedMarch 31,
|                                                                        |  | 2007                        |  | 2006 
|                                                                        |  | (In thousands)             
|Net effect of dilutive stock options-based on the treasury stock method |  | 156                         |  | 161  
|Effect of convertible preferred stock-based on the if converted method  |  | 1,093                       |  | 1,839
|                                                                        |  |                             |  |      
|                                                                        |  | 1,249                       |  | 2,000

8. Comprehensive Income (Loss)

The components of comprehensive (loss) for the three months ended March 31, 2007 and 2006 are as follows:



|                                                      |  |                             |       |   |      |   |        |  
|----------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ------ | -
|                                                      |  | Three Months EndedMarch 31, |      
|                                                      |  | 2007                        |       |   | 2006 |  
|                                                      |  | (In thousands)              |      
|                                                      |  | ( As Restated)              |      
|Net income (loss) attributable to common stockholders |  | $                           | 4,423 |   |      | $ | (2,231 | )
|Foreign currency translation adjustment               |  |                             | (2    | ) |      |   | 7      |  
|                                                      |  |                             |       |   |      |   |        |  
|Total comprehensive income (loss)                     |  | $                           | 4,421 |   |      | $ | (2,224 | )
|                                                      |  |                             |       |   |      |   |        |  

9. Restructuring

In April 2006, the Company announced and commenced implementation of a restructuring program. The restructuring included, among other things, streamlining our software development groups and reducing staff in some
administrative functions to better align the cost structure with revenue and growth expectations. The restructuring charge incurred during 2006 was approximately $827,000 and consists of severance-related payments for all employees terminated in
connection with the restructuring. At December 31, 2006, substantially all of the severance payments had been made.



14



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10. Disposal of Assets

On February 16, 2007, the Company completed its sale of certain assets of the Companys Admissions Services Division. The Company sold to Embark Corp. the assets related to providing electronic application
and prospect management tools to schools and higher education institution customers (the Admissions Tech Business). The purchase price consisted of $7,000,000, subject to customary closing adjustments. Additionally, the Company is
entitled to an earn-out of up to an additional $1.25 million based upon certain achievements of the Admissions Tech Business in 2007. The Company recorded a gain on the sale of these assets in the amount of $4.5 million.

The following table includes certain summary income statement information related to the Admissions Tech Business, reflected as discontinued operations
for the periods presented:



|                                           |  |                             |       |      |   |      
|------------------------------------------ |  | --------------------------- | ----- | ---- | - | -----
|                                           |  | Three Months EndedMarch 31,
|                                           |  | 2007                        |       | 2006
|                                           |  | (In thousands)             
|Revenue                                    |  | $                           | 2,454 |      | $ | 1,498
|Cost of revenue                            |  |                             | 337   |      |   | 483  
|                                           |  |                             |       |      |   |      
|Gross margin                               |  |                             | 2,117 |      |   | 1,015
|Operating expenses(1)                      |  |                             | 919   |      |   | 893  
|Interest expense                           |  |                             |      |      |   |     
|Other income (expense), net                |  |                             |      |      |   |     
|                                           |  |                             |       |      |   |      
|Income (loss) before income taxes          |  |                             | 1,198 |      |   | 122  
|(Provision) benefit for income taxes       |  |                             |      |      |   |     
|                                           |  |                             |       |      |   |      
|Income (loss) from discontinued operations |  | $                           | 1,198 |      | $ | 122  
|                                           |  |                             |       |      |   |      



|(1) | Excludes corporate overhead expense previously allocated to the Admissions Tech Business in accordance with Emerging Issues Task Force Issue No. 87-24, Allocation of
Interest Expense to Discontinued Operations. The amount of corporate overhead expense added back to the Companys continuing operations totaled $69,800 and $380,400 for the three months ended March 31, 2007 and 2006,
respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net assets of the discontinued operations were as follows as of December 31, 2006.



|                                                             |  |                  |      
|------------------------------------------------------------ |  | ---------------- | -----
|                                                             |  | December 31,2006
|                                                             |  | (In thousands)  
|Current assets                                               |  | $                | 4,258
|                                                             |  |                  |      
|Furniture, fixtures, equipment and software development, net |  |                  | 138  
|Goodwill                                                     |  |                  | 500  
|Other intangibles, net                                       |  |                  | 1,283
|Other assets                                                 |  |                  | 59   
|                                                             |  |                  |      
|Non-current assets                                           |  |                  | 1,980
|                                                             |  |                  |      
|Total assets related to discontinued operations              |  | $                | 6,238
|                                                             |  |                  |      
|Current liabilities                                          |  | $                | 2,541
|                                                             |  |                  |      
|Total liabilities related to discontinued operations         |  | $                | 2,541
|                                                             |  |                  |      

11. Subsequent Events

The Company entered into a Services and License Agreement, dated as of April 27, 2007 (the Agreement), with Higher Edge Marketing Services, Inc. (the Licensee), a company controlled by
Young Shin, a former executive officer and head of the Companys Admissions Services division. Pursuant to the terms of the Agreement, the Licensee will provide ongoing collection and management services to the Company in connection with
certain of the Companys marketing agreements with post-secondary institutions. The term of the Agreement is seven years, and it provides for renewal at the end of the term under certain circumstances.



15



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The Company will pay the Licensee certain collection and management fees for outstanding amounts
collected by Licensee and for other services provided in managing the agreements. The Licensee will pay the Company a variable royalty from 30% to 50% on amounts collected by the Licensee under new marketing agreements entered into by the Licensee
after the date of the Agreement. The Licensees payments to the Company are subject to increasing annual minimum amounts. In addition, the Licensee will pay the Company a 5% royalty on all amounts received by the Licensee generated from the
sale of any other goods or services to any post-secondary educational institution.

The Company agreed to lend money to the Licensee for
use as working capital for the business in a maximum amount equal to 50% of certain amounts collected by the Licensee under the Agreement. Outstanding amounts will accrue interest monthly at prime (as quoted by the Companys lenders) and must
be repaid no later than the first anniversary of the Agreement. The Company also agreed to provide the Licensee with a line of credit for initial working capital needs. Funds drawn on the line of credit will accrue interest at an annual rate of 18%
and must be repaid no later than 18 months from the date of the Agreement. The aggregate financing obligation of the Company under the Agreement is capped at $300,000.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

All statements in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by words such as believe, intend, expect, may, could,
would, will, should, plan, project, contemplate, anticipate or similar statements. Because these statements reflect our current views concerning future events, these
forward-looking statements are subject to risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to demand for our
products and services; our ability to compete effectively and adjust to rapidly changing market dynamics; the timing of revenue recognition from significant contracts with schools and school districts; market acceptance of our newer products and
services; continued federal and state focus on assessment and remediation in K-12 education; and the other factors described under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006 filed
with the SEC. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Overview

The Princeton Review provides educational products and services to students, parents,
educators and educational institutions. These products and services include integrated classroom-based and online instruction, professional development for teachers and educators, print and online materials and lessons, and higher education
marketing. We operate our businesses through three business segments.

The Test Preparation Services division derives the majority of its
revenue from classroom-based and Princeton Review online test preparation courses and tutoring services. This division also receives royalties from its independent franchisees, which provide classroom-based courses under the Princeton Review brand.
Additionally, this division receives royalties, advances and copy edit fees from Random House for books authored by The Princeton Review. The Test Preparation Services division has historically accounted for the majority of our overall revenue and
accounted for approximately 50% of our overall revenue in the first three months of 2007.

The Supplemental Educational Services Division
(SES), provides state aligned research based academic tutoring instruction to students in schools in need of improvement in school districts throughout the country.

The K-12 Services division provides a number of services to K-12 schools and school districts, including assessment, professional development and intervention materials (workbooks and related products). As a result of
the increased emphasis on accountability and the measurement of student performance in public schools, this division continues to see growing demand by the public school market for its products and services as evidenced by the number of new
contracts and the continued growth in sales prospects. Additionally, this division receives college counseling fees paid by high schools.

Until February 2007, the Admissions Services division derived most of its revenue from the sale of web-based admissions and related application management products to educational institutions (Higher Education Technology
Services). In February 2007, we sold our web-based admissions and application management business for $7.0 million in cash and a potential earn-out of up to $1.25 million. In connection with this transaction, the other businesses operated by
this division (college counseling and admissions publications) were transferred to the K-12 Services and Test Preparation Services divisions, respectively. The only remaining business



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operated by our Admissions Services division is providing higher education marketing services to post secondary schools. In April 2007, the Company
outsourced the business of selling these marketing services to post secondary schools to Higher Edge Marketing, Inc., as more fully described in Note 10 to our consolidated financial statements. Under this new arrangement, the sales and customer
support functions related to this business will be performed by Higher Edge Marketing and we will be responsible solely for the fulfillment function. Accordingly, all of the remaining employees in this division were transferred to other divisions,
or terminated and re-hired by Higher Edge Marketing, Inc. As a result, Higher Edge Marketing will contract with post secondary schools directly and will pay us a royalty on the fees it receives from post secondary schools for marketing services.

In connection with the sale of the Higher Education Technology Services business, financial results associated with this business have
been reclassified as discontinued operations. Additionally, financial results associated with admissions publications and college counseling services previously reported in the Admissions Services division, have been reclassified for all periods
presented into Test Preparation Services and K-12 Services, respectively.

Results of Operations

Comparison of Three Months Ended March 31, 2007 and 2006

Revenue

For the three months ended March 31, 2007, total revenue increased by $6.6 million, or
19.5%, from $33.6 million in 2006 to $40.2 million in 2007.

Test Preparation Services revenue decreased by $2.3 million, or 9.8%, from
$23.1 million in 2006 to $20.9 million in 2007. This decrease is primarily due to lower revenues generated by our Higher Education Institutional marketing partnership and by lower enrollments in SAT and MCAT courses, partially offset by higher
tutoring revenue.

SES services revenues increased $3.4 million, or 126%, from $2.8 million in 2006 to $6.2 million in 2007. This increase
is primarily due to higher enrollments in New York and Chicago markets.

K-12 Services revenue increased by $5.4 million, or 70%, from $7.7
million in 2006 to $13.1 million in 2007. This increase is primarily related to an increase in assessment services revenue of $6.4 million, including approximately $3.5 million related to contracts serviced in the latter part of 2006 but whose
revenue was deferred until 2007, when the contracts were fully executed.

Cost of Revenue

For the three months ended March 31, 2007, total cost of revenue increased by $4.8 million, or 35.6%, from $13.4 million in 2006 to $18.1 million in
2007.

Test Preparation Services cost of revenue increased by $1.1 million, or 15.2%, from $7.3 million in 2006 to $8.4 million in 2007.
This increase is due to greater site rent expense, increases in teacher and tutoring pay as well as higher costs of content expenditures for books and courses. Gross margin declined from 69% to 60% primarily due to the higher site rent costs, lower
average class size resulting from decreased enrollments in the SAT and MCAT courses and product mix.

SES services cost of revenue
increased by $1.9 million , or 209%, from $0.9 million in 2006 to $2.8 million in 2007. This increase is due to the greater site rent expense and costs to service the greater number of SES courses. Gross margin for the SES division declined from 67%
to 54% directly related to the costs to service greater numbers of students in the New York and Chicago markets.

K-12 Services cost of
revenue increased by $1.7 million, or 33.4%, from $5.2 million in 2006 to $6.9 million in 2007, primarily due to costs to service the increased assessment business. Gross margin increased from 32% to 47% primarily due to product mix. The revenue in
the first quarter of 2007 was more heavily weighted with the higher margin assessment services as compared to the first quarter of 2006 which had a greater portion of lower margin professional development revenues.

Operating Expenses



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For the three months ended March 31, 2007, operating expenses increased by $425,000, or 2.0%, from
$22.2 million in 2006 to $22.7 million in 2007.



| |  |  | Test Preparation Services operating expenses decreased by $1.4 million, or 11.3%, from $12.3 million in 2006 to $10.9 million in 2007. This decrease is primarily
related to reduction in salary expense in anticipation of the sale of the Higher Education Technology Service business and the outsourcing of the marketing services business
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SES Services operating expenses decreased by $69,000, or 4.6% from $$1.5million in 2006 to $1.4million in 2007. The reduction is primarily related to lower training
costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | K-12 Services expenses increased by $249,000, or 6.0%, from $4.1 million in 2006 to $4.4 million in 2007. This increase is primarily related to increased
depreciation expense on capitalized development projects.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate operating expense increased by $1.6 million, or 38.5%, from $4.3 million in 2006 to $5.9 million in 2007 due to higher professional fees of approximately
$547,000, greater software maintenance costs of approximately $283,000 and increased depreciation expense of approximately $245,000 primarily due to the Oracle ERP system implemented during the second quarter of 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest Expense

For the three months ended
March 31, 2007, net interest expense increased by $314,000 from $30,000 in 2006 to $344,000 in 2007 as a result of the increased debt under our credit facility.

Discontinued Operations

On February 16, 2007, we completed the sale of certain assets,
representing the Higher Education Technology Services business of the Admissions Services Division, having reached the conclusion that this line of business could not be grown profitably on a long-term basis and was non-strategic to our overall
educational services business. The net assets disposed of were principally technology equipment, software, and certain intangibles, net of accounts payable and deferred income. The purchase price consisted of $7,000,000, subject to customary closing
adjustments. Additionally, we will be entitled to an earn-out of up to an additional $1.25 million based upon certain achievements of the sold business in 2007. We recorded a gain of $4.5 million as a result of the sale. The Company realized
approximately $1.2 million in operating income during the first quarter of 2007 related to this business compared to approximately $123,000 in the first quarter of 2006.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents on
hand, collections from customers and our credit facility. At March 31, 2007, we had $14.5 million of cash and cash equivalents compared to $10.8 million at December 31, 2006. The $3.7 million increase in cash from the December 31,
2006 balance is from the net proceeds of the sale of the Higher Education Technology Services business in February 2007.

Our Test
Preparation Services division has historically generated, and continues to generate, the largest portion of our cash flow from its retail classroom and tutoring courses. These customers usually pay us in advance or contemporaneously with the
services we provide, thereby supporting our short-term liquidity needs. Increasingly, however, across all of our divisions, we are generating a greater percentage of our cash from contracts with institutions such as schools and school districts and
post-secondary institutions, all of which pay us in arrears. Typical payment performance for these institutional customers, once invoiced, ranges from 60 to 90 days. Additionally, the long contract approval cycles and/or delays in purchase order
generation with some of our contracts with large institutions or school districts can contribute to the level of variability in the timing of our cash receipts.

Cash provided by (used for) operating activities from continuing operations is our net income (loss) adjusted for certain non-cash items and changes in operating assets and liabilities. During the first three months
of 2007, cash used for operating activities was $561,000, compared to cash used for operating activities of $952,000 during the first three months of 2006.

During the first three months of 2007, investing activities from continuing operations used $510,000 of cash as compared to $2.4 million used during the comparable period in 2006. Cash used in each of the periods
relates primarily to additions to internally



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developed software. These expenditures were reduced in 2007, as compared to 2006, as part of a planned reduction in capital spending.

Financing cash flows from continuing operations consist primarily of transactions related to our debt and equity structure. There were financing
expenditures of approximately $461,000 and $384,000 for the first three months of 2007 and 2006, respectively, principally related to capital lease payments and dividends paid on our Series B-1 Preferred Stock.

In November 2006, due to a restatement of our financial statements we were unable to timely file our Form 10-Q for the third quarter of 2006, resulting
in our failing to maintain an effective registration statement for the benefit of the holder of our Series B-1 Preferred Stock. If the holder requests redemption of the Series B-1 Preferred Stock we must redeem for cash because it cannot redeem for
registered shares of common stock. Accordingly, there is the possibility that we may be required to fund any future redemptions in cash until we are again able to maintain an effective resale registration statement for the benefit of the holder of
the Series B-1 Preferred Stock in accordance with the terms of the agreement governing the registration requirements. On March 30, 2007, we borrowed $3 million pursuant to an increase negotiated in our existing credit facility in order to
provide the funds necessary to effect any such potential redemption.

Our future liquidity needs will depend on, among other factors, the
timing and extent of technology development expenditures, new business bookings, the timing and collection of receivables and continuing initiatives designed to improve operating cash flow. We believe that our current cash balances and anticipated
operating cash flow, after budgeted cost reductions, will be sufficient to fund our normal operating requirements for the next 12 months. However, in the event of unanticipated cash needs, we may need to secure additional capital within this
timeframe.

Seasonality in Results of Operations

We experience, and we expect to continue to experience, seasonal fluctuations in our revenue because the markets in which we operate are subject to seasonal fluctuations based on the scheduled dates for standardized
admissions tests and the typical school year. These fluctuations could result in volatility or adversely affect our stock price. We typically generate the largest portion of our test preparation revenue in the third quarter. However, as SES revenue
grows, we expect this revenue will be concentrated in the fourth and first quarters, or to more closely reflect the after school programs greatest activity during the school year. Our K-12 Services division may also experience seasonal
fluctuations in revenue, which is dependent on the school year, and it is expected that the revenue from new school sales during the year will be recognized primarily in the fourth quarter and the first quarter of the following year.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our portfolio of marketable securities includes primarily short-term money market funds. The fair value of our portfolio of marketable securities would not be significantly impacted by either a 100 basis point
increase or decrease in interest rates due primarily to the short-term nature of the portfolio. Our Series B-1 Preferred Stock requires the payment of quarterly dividends at the greater of 5% or 1.5% above 90-day LIBOR (5.35% at March 31,
2007). During the three months ended March 31, 2007 and 2006, we paid dividends on the Series B-1 Preferred Stock in an aggregate amount of $103,000 and $157,000, at an average rate of 5.3% and 6.3% in 2007 and 2006, respectively. A 100 basis
point increase in the dividend rate would have resulted in a $100,000 increase in dividends paid during these periods.

Borrowings under
our credit agreement, bear interest at the following rates: Outstanding amounts under the credit facility up to $10.0 million bear interest at rates based on either (A) 300 basis points over the greater of (x) the prime rate and
(y) the Federal Funds Rate plus 50 basis points or (B) 400 basis points over LIBOR, at our election. Outstanding amounts under the credit facility in excess of $10.0 million (or the borrowing base amount, if lower) bear interest at either
(A) 400 basis points over the greater of (x) the prime rate and (y) the Federal Funds Rate plus 50 basis points or (B) 500 basis points over the LIBOR rate, at our election. During the three months ended March 31, 2007, we
paid interest on borrowings under our credit agreement in an aggregate amount of $341,000 at a weighted average interest rate of 10.2%. A 100 basis point increase in the interest rate would have resulted in a $33,000 increase in interest paid during
this period.

As more fully described in Note 4 to our condensed consolidated financial statements, we must account for the embedded
derivatives and warrant related to our Series B-1 Preferred Stock. Other than these embedded derivatives, we do not hold any derivative financial instruments.



19



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Revenue from our international operations and royalty payments from our international franchisees
constitute an insignificant percentage of our revenue. Accordingly, our exposure to exchange rate fluctuations is minimal.



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##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------

We
conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act, (Disclosure Controls) as of the end of
the period covered by this Quarterly Report. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Scope of the Controls Evaluation

The
evaluation of our Disclosure Controls included a review of the controls objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in this Quarterly Report. In the course of
the controls evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly
basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the controls can be reported in our Quarterly Reports on Form 10-Q and in our Annual Reports on Form 10-K. Many of the components of our
Disclosure Controls are also evaluated on an ongoing basis by other personnel in our accounting, finance and legal functions. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and to modify them on an
ongoing basis as necessary. A control system can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
procedures. Because of inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusions

As described in detail in Item 9A of the companys 2006 Form 10-K, (Form 10-K) the
companys management assessed the effectiveness of the companys internal control over financial reporting as of December 31, 2006. Managements assessment identified four material weaknesses in internal control over financial
reporting as of that date. These material weaknesses were identified in the areas of financial statement close process, estimating the collectability of accounts receivable, revenue recognition and the accounting for embedded derivatives contained
within the Series B-1 Preferred Stock and the related warrant. In light of these material weaknesses identified by management, which have not been remediated as of the end of the period covered by this Quarterly Report, our CEO and CFO concluded,
after the evaluation described above, that our Disclosure Controls were not effective, as of the end of the period covered by this Quarterly Report, in ensuring that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.

Changes in
Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred
during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for the activities described below. We have implemented certain remediation
measures and are in the process of designing and implementing additional remediation measures for the material weaknesses described in the Form 10-K. Such remediation activities include the following:



| |  |  | We have hired and continue to hire more qualified and experienced accounting personnel to perform the month end review and closing processes as well as provide
additional oversight and supervision within the accounting department.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are in the process of establishing more rigorous review procedures to ensure that account reconciliations and amounts recorded are substantiated by detailed and
contemporaneous documentary support and that reconciling items are investigated, resolved and recorded in a timely manner.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are initiating a formal contract review process to establish and document the revenue recognition events and methodology at the time the contract is signed which
will be reviewed and signed off by both the finance personnel and the project managers so that there is a clear understanding of what events will trigger revenue recognition and establish the amounts to be recognized for each event.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We are initiating programs providing ongoing training and professional education and development plans for the accounting department and improving internal
communications procedures throughout the company.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the foregoing remediation efforts, we will retain a
consulting firm to assist with the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On
September 10, 2003, CollegeNET, Inc. filed suit in Federal District Court in Oregon, alleging that The Princeton Review infringed a patent owned by CollegeNET, U.S. Patent No. 6,460,042 (the 042 Patent), related to the
processing of on-line applications. CollegeNET never served The Princeton Review and no discovery was ever conducted. However, apparently based on adverse rulings in related lawsuits concerning the same 042 Patent (the Related
Litigation), CollegeNET dismissed the 2003 case against The Princeton Review without prejudice on January 9, 2004.

On
August 2, 2005, the Court of Appeals for the Federal Circuit issued an opinion favorable to CollegeNET in its appeal from the adverse rulings in the Related Litigation.

The next day, on August 3, 2005, CollegeNET again filed suit against The Princeton Review alleging infringement of the same 042 Patent that
was the subject of the earlier action. On November 21, 2005, CollegeNET filed an amended complaint, which added a second patent, U.S. Patent No. 6,910,045 (the 045 Patent), to the lawsuit. The Princeton Review was served
with the amended complaint on November 22, 2005, and filed its answer and counterclaims on January 13, 2006, which was later amended on February 24, 2006. On March 20, 2006 CollegeNET filed its Reply to The Princeton
Reviews Counterclaims. CollegeNET seeks injunctive relief and unspecified monetary damages.

The Princeton Review filed a request
with the United Stated Patent and Trademark Office (PTO) for ex parte reexamination of CollegeNETs 042 Patent on September 1, 2005. The Princeton Review filed another request with the PTO for ex parte reexamination of
CollegeNETs 045 Patent on December 12, 2005. The PTO granted The Princeton Reviews requests and ordered reexamination of all claims of the CollegeNET 042 patent on October 31, 2005 and ordered reexamination of all
claims of the 045 Patent on January 27, 2006.

On March 29, 2006, the court granted The Princeton Reviews motion to
stay all proceedings in the lawsuit pending completion of the PTOs reexaminations of the CollegeNET patents. On November 9, 2006, the PTO issued a Non-Final Office Action rejecting all 44 claims of the 042 Patent. On January 9,
2007, CollegeNet filed a response to the Non-Final Office Action with the PTO. The Princeton Review cannot predict the likely outcome of these proceedings but believes that it has meritorious defenses to CollegeNETs claims and intends to
vigorously defend.



|Item 1A. | Risk Factors
|-------- | ------------

There have been
no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Not applicable.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not applicable.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

Not applicable.



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##### Table of Contents

|Item 5. | Other Information
|------- | -----------------

Not
applicable.



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                         
|2.16*         |  | Asset Purchase Agreement, dated February 16, 2007, among MRU Holdings, Inc., Embark Corp., and The Princeton Review, Inc., (incorporated herein by reference to Exhibit 10.1 to our Current Report
on Form 8-K (File No. 000-32469), filed with the Securities and Exchange Commission on February 16, 2007).                                                                                                       
|              | 
|10.51*        |  | Employment Agreement, dated January 19, 2007, between Stephen Melvin and The Princeton Review, Inc. (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No.
000-32469), filed with the Securities and Exchange Commission on January 16, 2007).                                                                                                                               
|              | 
|10.52*        |  | Letter Agreement, dated February 1, 2007, among The Princeton Review, Inc., Princeton Review Operations, L.L.C., the lenders party thereto and Golub Capital Incorporated as administrative agent
to the lenders (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-32469), filed with the Securities and Exchange Commission on February 1, 2007).                  
|              | 
|10.53*        |  | Limited Waiver, Consent and Third Amendment to Credit Agreement, dated as of February 16, 2007, among The Princeton Review, Inc., the lenders party thereto and Golub Capital Incorporated as
administrative agent to the lenders (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-32469), filed with the Securities and Exchange Commission on February 16, 2007).
|              | 
|31.1          |  | Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                     
|              | 
|31.2          |  | Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                     
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                             



|* | Previously filed with original Quarterly Report on Form 10-Q filed on May 15, 2007.
|- | -----------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



THE PRINCETON REVIEW, INC.By:

/s/ STEPHEN RICHARDSStephen RichardsChief Operating Officer and Chief Financial Officer(Duly Authorized Officer and Principal Financial and Accounting Officer)


March 17, 2008



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