Three Months Ended
                             March 31, 2009              March 31, 2008              Year Over Year Change
                                         % of                        % of          Favorable / (Unfavorable)
(Dollars in millions)      Amount        sales        Amount        sales             $                 %

Net sales                 $   18.7        100.0      $   15.6         100.0      $       3.1               19.9
Cost of sales
(exclusive of
depreciation and
amortization shown
separately below)             (6.1 )      (32.6 )        (6.5 )       (41.7 )            0.4                6.2

Gross profit                  12.6         67.4           9.1          58.3              3.5               38.5

Research and
development expense           (1.1 )       (5.9 )        (1.4 )        (9.0 )            0.3               21.4
Sales and marketing
expense                       (6.7 )      (35.8 )        (8.5 )       (54.5 )            1.8               21.2
General and
administrative expense        (6.5 )      (34.8 )        (7.9 )       (50.6 )            1.4               17.7
Depreciation and
amortization expense          (4.9 )      (26.2 )        (5.4 )       (34.6 )            0.5                9.3
Lease termination
costs                            -            -         (11.7 )       (75.0 )           11.7              100.0


Loss before interest,
other income and
income taxes                  (6.6 )      (35.3 )      (25.8)        (165.4 )           19.2               74.4

Net interest income
(expense)                     (0.4 )       (2.1 )         0.4           2.6             (0.8 )           (200.0 )
Other income (expense)         1.3          7.0           0.8           5.1              0.5               62.5
Income tax benefit             0.3          1.6             -             -              0.3              100.0


Net loss                  $   (5.4 )      (28.9 )    $  (24.6 )      (157.7 )    $      19.2               78.0

Overview
Adverse developments in the education funding environment, including the reductions in Reading First funding and reductions in available state and local funds as property taxes decline, have significantly decreased the funding available to schools to purchase our products and services. Some school districts have found it difficult to secure alternative funding sources in the midst of the current market conditions. These reductions have impacted our operations during the current year and may continue to have an impact on our future sales, profits, cash flows and carrying value of assets.
The following trends have or may have had a positive impact on our revenues and profitability:
• In February 2009, the American Reinvestment and Recovery Act (ARRA) was passed. The Act provides significant new federal funding for various education initiatives over the next two years. While the education funding is for a broad set of initiatives, a meaningful amount is anticipated to be targeted for programs often used by schools for our products. While success in winning some of these funds for our products is not certain at this time, we believe it has the potential to stabilize some of the negative funding trends which emerged in 2008.

• Sales of our online subscription based products grew significantly in 2008 and we expect growth to continue in the coming years.

• We believe our product diversification, such as growth in the online offerings and new intervention products for higher grades, will allow us to strengthen our ability to sustain share in a troubled market and capture share when the market recovers.

• We believe our focus on usage and partnership with the customer to implement our solutions with fidelity will result in higher success rates and such success, if achieved, will lead to customer retention and growth through reference sales.

• Efforts were taken in 2008 to reduce our cost structure for 2009, including a reduction in force, which better aligns our cost structure to current market conditions.

Sales and gross profit are subject to seasonality with the first and fourth quarters being the weakest.

Net Sales.
Our total net sales increased $3.1 million, or 19.9%, to $18.7 million in the first quarter of 2009. We experienced a decline in order volume in the first quarter of 2009 compared to the first quarter of 2008 due to market conditions and a decline in the education funding environment. However, the company experienced an overall increase in net sales, or revenues, due to higher recognition of deferred revenue. Thus, the recognition in the first quarter of 2009 of revenue deferred from fiscal 2008 served to increase revenue in a period of sales order decline. We defer revenue associated with certain services and technology components and recognize the revenue over the period they are delivered. In fiscal 2008 the company had an increase in revenue deferral rates due to more of these service and technology components in our products. These deferral rates have stabilized in 2009. During the quarter ended March 31, 2009, deferred revenue balances decreased $5.4 million, totaling $29.5 million at December 31, 2008 ,and $24.1 million at March 31, 2009. Comparatively, during the quarter ended March 31, 2008, deferred revenue balances decreased $2.7 million, totaling $21.1 million at December 31, 2007 and $18.4 million at March 31, 2008.
Gross Profit.
Cost of sales includes expenses to print, purchase, handle and warehouse our product and to provide services and support to customers. Our gross profit percentage for the first quarter of 2009 increased 9.1 percentage points to 67.4% compared to 58.3% for the first quarter of 2008. We recognized more deferred revenue in the first quarter of 2009 as compared to the same period of fiscal 2008, which increased net sales during the first quarter of 2009, while cost of sales remained relatively flat. The revenue recognized in the first quarter of 2009 from prior year deferred revenue is largely for technology, which is at a higher margin.
Research and Development Expense.
Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expense for the first quarter of 2009 decreased $0.3 million to $1.1 million compared to the first quarter of 2008, due to the timing of expenditures and the ratio of capitalizable versus non-capitalizable activities performed during the respective quarters.
Sales and Marketing Expense.
Sales and marketing expenditures include all costs related to selling efforts and marketing. Sales and marketing expense for the first quarter of 2009 decreased $1.8 million from the first quarter of 2008 to $6.7 million compared to the first quarter of 2008 primarily due to prior year costs associated with our participation in several 2008 state adoptions as well as the Company's overall initiative to lower costs as a response to the market slow down.

General and Administrative Expense.
General and administrative expenses decreased $1.4 million, or 17.7%, to $6.5 million compared to the first quarter of fiscal 2008. This decrease is primarily attributable to a significant decline in corporate expenses and one-time costs related to activities based in Ann Arbor, Michigan that were required to finalize the restatement efforts and transition the corporate office to Dallas, Texas, as these activities were brought to conclusion by the end of fiscal 2008.
Depreciation and Amortization Expense.
Our depreciation and amortization expense decreased $0.5 million, or 9.3%, to $4.9 million in the first quarter of 2009. The decrease is primarily due to the use of an accelerated depreciation method on our acquired curriculum, which results in higher amortization expense in the previous period when compared to the current period.
Lease Termination Costs.
On January 1, 2008, we entered into an agreement with one of our lessors, Relational, LLC f/k/a Relational Funding Corporation ("Relational") and ProQuest LLC (formerly known as ProQuest-CSA LLC) ("CSA") relating to certain obligations regarding the capital and operating leases for certain property and equipment used at our facilities at 777 Eisenhower Parkway (the "777 Facility") and 789 Eisenhower Parkway (the "789 Facility") in Ann Arbor, Michigan. The aforementioned leases originated as early as fiscal 2005 with up to five year terms. Effective January 1, 2008, we conveyed, assigned, transferred and delivered to CSA all of our right, title and interest and benefit of certain property and equipment. We were released from any and all obligations relating to these leases and Relational, as lessor, consented to such assignments and releases. Due to these assignments, the write off of certain assets and liabilities under capital leases, such as office furniture, phone and power supply systems, and video equipment, totaled a net charge of $0.1 million in the first quarter of 2008.

On January 25, 2008, we entered into a series of agreements with our current landlord, Transwestern Great Lakes, LP ("Transwestern") and CSA relating to certain obligations regarding the long term leases for the facilities in Ann Arbor, Michigan. On March 4, 2008, we paid CSA $11.0 million, a portion of which was distributed to Transwestern for termination of the lease relating to office space at the 777 Facility. Upon the Closing Date of March 7, 2008, we were released from any and all obligations relating to the 15 year lease we previously entered into for the 777 Facility. Through assignment, we were also released from any and all obligations relating to the 15 year lease we previously entered into for office space at the 789 Facility. We assigned all of our rights under the lease for the 789 Facility to CSA and CSA assumed the obligations of tenant under such lease, as amended. Transwestern, as landlord, consented to such assignment. In connection with the termination and assignment of these long term facility leases, certain leasehold improvements and deferred rent were written off, which totaled a net charge of $0.6 million in the first quarter of 2008. We recorded a total charge to expense in the first quarter of 2008 of $11.7 million for all lease termination costs. Net Interest Income (Expense).

                                Three Months Ended              Year Over Year Change
                           March 31,         March 31,        Favorable / (Unfavorable)
   (Dollars in millions)      2009             2008              $                 %

   Interest income         $        -       $       0.4     $      (0.4 )           (100.0 )
   Interest expense              (0.4 )               -            (0.4 )           (100.0 )


   Total                   $     (0.4 )     $       0.4     $      (0.8 )           (200.0 )

Net interest income (expense) for the first quarter of 2009 decreased $0.8 million to ($0.4) million compared to the first quarter of 2008. Interest income declined from $0.4 million in the first quarter of fiscal 2008 to no income for the first quarter of fiscal 2009 as the Company traditionally invests very conservatively in cash deposits and U.S. Treasuries, and the safety and liquidity of these investments in the current economic crisis has led to an interest rate yield near 0%. Interest expense is primarily related to tax-related liabilities resulting from the sales agreements with Snap-On Incorporated and Cambridge Scientific Abstracts, L.P.

Other Income (Expense).
From the date of the sale of ProQuest Information and Learning ("PQIL") in February 2007, we subleased substantial space to the buyer of PQIL through March 2008 resulting in sublease income totaling $0.8 million, which was recognized in other income, for the first quarter of fiscal 2008. Because this sublease expired in the first quarter of fiscal 2008, we did not recognize any sublease income for the first quarter of fiscal 2009.
During the fourth quarter of 2008, the Company provided an opportunity for participants in its Replacement Benefit Plan ("RBP") and its U.S. defined benefit pension plan to receive a discounted lump sum distribution to settle retirement obligations. Prior to the distribution opportunity, both plans were frozen, with no participants entitled to make additional contributions or earn additional service years. Based on the number of participants who chose to receive a discounted lump sum distribution, the Company paid participants approximately $7.9 million in January 2009 for these lump sum payments. As a result of the settlements, the Company recorded a gain in January 2009 of $1.3 million, consisting of $1.1 million related to the RBP settlement and $0.2 million related to the settlement of the U.S. defined benefit pension plan. Income Tax Benefit.
We recorded no income tax benefit or expense for the net loss for the first quarter of 2008 as we cannot assume future taxable income.
For the first quarter of 2009, we recorded income tax benefit of $0.3 million in connection with the partial settlement of our U.S. defined benefit pension plan. The tax benefit recorded was to write-off a portion of the tax benefit included in accumulated other comprehensive income for our U.S. defined benefit pension plan. Other than this item, we recorded no income tax benefit or expense for the loss as we cannot assume future taxable income. Liquidity and Capital Resources
As of March 31, 2009, we did not have any debt with the exception of certain capital leases. Cash and cash equivalents decreased to $50.7 million at March 31, 2009 compared to $67.3 million at December 31, 2008. During the first quarter of 2009, cash used in operating activities was $14.6 million. Use of cash beyond normal season operating use included $7.9 million related to the partial settlement of our legacy employee benefit plans and $4.0 million escrowed in connection with the settlement of the consolidated shareholder securities class actions lawsuit. These payments were partially offset by the receipt of $4.2 million for income taxes receivable.

Cash is seasonal with positive net cash typically generated in the second half of the year. The first half of the year generally results in net cash usage. Positive cash flow is historically generated during the second half of the year because the buying cycle of school districts generally starts at the beginning of each new school year in the fall.
Other significant uses of cash during the first quarter of 2009 included $2.0 million of capital expenditures related to property, equipment, curriculum development costs, and software.
Net proceeds generated from the sale or maturities of marketable securities were $0.1 million.
The Company believes that current cash, cash equivalents and short term investment balances, expected income tax refunds, and cash generated from operations will be adequate to fund the working capital and capital expenditures necessary to support our currently expected sales for the foreseeable future. Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements at March 31, 2009 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our business.
Contractual Obligations
As of March 31, 2009, there have been no material changes in the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.
Recently Issued Financial Accounting Standards In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157", which delayed the effective date of SFAS No. 157 for non-recurring measurements of non-financial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company adopted SFAS No. 157 for all recurring financial assets and liabilities beginning fiscal 2008. The Company adopted SFAS No. 157 for all other nonfinancial assets and liabilities beginning fiscal 2009. The adoption of SFAS No. 157 had no impact on the Company's Condensed Consolidated Financial Statements.
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised), "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R establishes principles and requirements for how an acquirer accounts for business combinations. SFAS No. 141R includes guidance for the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any noncontrolling or minority interest in the acquiree. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies and acquisition-related transaction costs, and the recognition of changes in the acquirer's income tax valuation allowance. SFAS No. 141R applies prospectively and is effective for business combinations made by the Company beginning January 1, 2009. The provisions of SFAS No. 141R are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," ("SFAS No. 160"). Currently, the Company does not have an outstanding noncontrolling interest in one or more subsidiaries, nor does it deconsolidate any subsidiaries. SFAS No. 160 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The provisions of SFAS No. 160 are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements. In April 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position No. FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FAS 142-3"). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets". FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The provisions of FAS 142-3 are effective as of our first quarter ended March 31, 2009; however, there was no impact on our consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("FAS 115-2 and FAS 124-2"), which provides operational guidance for determining other-than-temporary impairments ("OTTI") for debt and equity securities classified as available-for-sale and held-to-maturity. FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009. The Company is currently evaluating the impact, if any, that FAS 115-2 and FAS 124-2 will have on its consolidated financial position, results of operations and cash flows.

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FAS 157-4"), which provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. The Company is currently evaluating the impact, if any, that FAS 157-4 will have on its consolidated financial position, results of operations and cash flows. In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments" ("FAS 107-1 and APB 28-1"), which amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" to require disclosure about fair value of financial instruments in interim financial statements. FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, "Interim Financial Reporting", to require those disclosures in summarized financial information at interim reporting periods. FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009. The Company is currently evaluating the impact that FAS 107-1 and APB 28-1 will have on its consolidated financial position, results of operations and cash flows.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk
The Company does not have material interest rate risk. As of March 31, 2009, the Company does not have any interest rate forwards or option contracts outstanding.
Foreign Currency Risk
The Company does not have material exposure to changes in foreign currency rates. As of March 31, 2009, the Company does not have any outstanding foreign currency forwards or option contracts.

Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Management of the Company, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to Rule 13a-15 of the Exchange Act. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management, including the Chief Executive Officer, Chief Financial Officer and its Board of Directors to allow timely decisions regarding required disclosure.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2009 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting There has been no change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

On May 2, 2006, the Court ordered the four cases consolidated and appointed lead plaintiffs and lead plaintiffs' counsel.
On July 22, 2008, the Company reached an agreement in principle to settle the consolidated shareholder securities class action law suit for $20 million. A Stipulation and Agreement of Settlement was signed by the parties and the Court granted preliminary approval of such agreement. During January 2009, the Company paid $4.0 million and its insurers funded the remaining portion of the . . .