owner of VSS-Cambium Holdings, LLC, which indirectly owns Cambium. Upon completion of the planned mergers, Holdings will be a public company, and anticipates having its common stock approved for listing on the NASDAQ Global Market.
Under the terms of the Merger Agreement, each of our stockholders will be entitled to receive, in exchange for each share of our common stock owned by the stockholder, the following consideration: (i) at the election of the stockholder, either one share of common stock of Holdings or $6.50 in cash, subject to a potential pro-rata reduction; (ii) a pro-rata amount of certain tax refunds received by us prior to the closing of the transaction reduced by the amount of the tax refunds contractually required to be placed in escrow at closing; and (iii) a contingent value right payable periodically on the nine and eighteen month anniversary of the effective time of the mergers and on or about October 15, 2013.
Under applicable accounting guidance for business combinations, Cambium is the accounting acquirer and the Company is the acquiree. As such, if and when the planned mergers are completed, the Company will cease to be a reporting entity and Cambium's financial statements will be the historical financial statements of Holdings. The planned merger is subject to approval by the stockholders of the Company and other closing conditions. The Company expects the merger to be completed no later than year end 2009. Overview
During the third quarter, we began to see the positive impact, both directly and indirectly, of the American Reinvestment and Recovery Act (ARRA) passed in February 2009. 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 education initiatives, we believe that schools and districts may choose to direct some of the funding for programs which use our products. In some instances, if ARRA funding is not used directly for programs using our products, we may still be receiving an indirect benefit. When the ARRA funding is used to assist schools in general to meet their overall financial needs, funds may be freed up to use for our programs. While success in winning some of these funds for our products is not certain at this time, we believe it has the potential to continue to stabilize some of the negative funding trends which emerged in 2008.
The growth in our net sales during the third quarter is attributable in large part to our success in the market for our Vmath and ExploreLearning products. Vmath is our grade 2 - 8 math

intervention and ExploreLearning is our online math and science simulation product. We introduced our current Vmath intervention product in 2005 and have made a series of expansions, investments and revisions. We believe these investments, along with better sales execution and assistance from the ARRA funding, have led to the improvement in sales of Vmath. We acquired ExploreLearning in 2005 and have continued to invest in its development and in expanding the product's sales and marketing efforts. We believe these investments have resulted in increased sales of ExploreLearning since the acquisition.
While ARRA is beginning to provide a positive impact, throughout the third quarter of 2009 we continued to experience the adverse developments in the education funding environment, including the reductions in Reading First funding and reductions in available state and local funds as property tax receipts decline, which 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 market conditions 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 an impact on our revenues and profitability:
• Sales of our online subscription based products grew significantly in 2008. We continue to see growth in 2009 and expect this trend to continue in the coming years.

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

• We believe our focus on product usage and an overall partnership approach 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.

• We performed a goodwill impairment analysis in both the second and third quarters of 2009 as a result of the execution of the Merger Agreement in late June, which is considered a triggering event, and in consideration of the continuing impact of adverse

marketplace and economic conditions. As a result of these analyses, we recorded a goodwill impairment charge of $22.0 million in the second quarter and $5.2 million in the third quarter. Because the terms of the Merger Agreement are fixed, increases in Voyager's booked net assets could result in future goodwill impairment charges.

Sales and gross profit are subject to seasonality with the first and fourth quarters being the weakest.
Third Quarter of Fiscal 2009 Compared to the Third Quarter of Fiscal 2008

                                                                  Three Months Ended
                                                September 30, 2009                  September 30, 2008                    Year Over Year Change
                                                                 % of                                % of               Favorable / (Unfavorable)
(Dollars in millions)                         Amount             sales            Amount             sales               $                    %
Net sales                                   $     32.6            100.0         $     27.3            100.0         $       5.3                  19.4
Cost of sales (exclusive of
depreciation and amortization shown
separately below)                                (10.7 )          (32.8 )            (10.0 )          (36.6 )              (0.7 )                (7.0 )


Gross profit                                      21.9             67.2               17.3             63.4                 4.6                  26.6

Research and development expense                  (1.3 )           (4.0 )             (1.1 )           (4.0 )              (0.2 )               (18.2 )
Sales and marketing expense                       (8.6 )          (26.4 )             (8.0 )          (29.3 )              (0.6 )                (7.5 )
General and administrative expense                (5.9 )          (18.1 )             (8.1 )          (29.7 )               2.2                  27.2
Depreciation and amortization expense             (4.9 )          (15.0 )             (5.3 )          (19.4 )               0.4                   7.5
Goodwill impairment                               (5.2 )          (16.0 )                -                -                (5.2 )              (100.0 )


Loss before interest, other income
and income taxes                                  (4.0 )          (12.3 )             (5.2 )          (19.0 )               1.2                  23.1

Net interest income (expense)                     (0.1 )           (0.3 )              0.1              0.3                (0.2 )              (200.0 )
Other income (expense)                            (0.2 )           (0.6 )                -                -                (0.2 )              (100.0 )
Income tax expense                                (0.4 )           (1.2 )                -                -                (0.4 )              (100.0 )


Net loss                                    $     (4.7 )          (14.4 )       $     (5.1 )          (18.7 )       $       0.4                   7.8

Net Sales.
Total net sales increased $5.3 million, or 19.4%, to $32.6 million in the third quarter of 2009 compared to the third quarter of 2008. The increase in net sales is attributable to an increase in order volume primarily as a result of the positive impact of the American Reinvestment and Recovery Act (ARRA) and its effect on the availability of funds available to school districts, and strong performance by our Vmath and ExploreLearning products. This growth was partially offset by higher revenue deferrals in the third quarter of 2009 versus the third quarter of 2008.
We defer revenue associated with certain services and technology components and recognize the revenue over the period they are

delivered. During the third quarter of 2009, the impact of revenue deferrals resulted in a larger decrease in net sales than in the third quarter of 2008. This is reflective of the higher order volume in the third quarter of 2009 compared to the third quarter of 2008, as well as a greater mix of technology in our sales during the third quarter of 2009, which negatively impacts the year over year revenue comparison, partly offset by the impact of a stabilization of deferral rates in 2009 compared to 2008, which positively impacts the year over year revenue comparison. In fiscal 2008, we 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 third quarter of 2009, deferred revenue balances increased $13.7 million, totaling $21.8 million at June 30, 2009 and $35.5 million at September 30, 2009. Comparatively, during the third quarter of 2008, deferred revenue balances increased $8.2 million, totaling $20.5 million at June 30, 2008 and $28.7 million at September 30, 2008. Gross Profit.
Cost of sales includes expenses to print, purchase, handle and warehouse product and to provide services and support to customers. Our gross profit as a percentage of revenue for third quarter of 2009 increased 3.8 percentage points to 67.2% compared to 63.4% for the third quarter of 2008. The improvement in margin is due to the increase in the mix of revenue we recognized from technology, which is at a higher margin. Research and Development.
Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expense for the third quarter of 2009 increased $0.2 million to $1.3 million compared to the third 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.
Sales and marketing expenditures include all costs related to selling efforts and marketing. Sales and marketing expense for the third quarter of 2009 increased $0.6 million to $8.6 million compared

to the third quarter of 2008, due to higher commission costs commensurate with the increased sales volume in the third quarter of 2009 compared to the third quarter of 2008, partially offset by costs savings from the Company's overall initiative to lower costs as a response to the market slow down. General and Administrative.
Overall, general and administrative expenses decreased $2.2 million, or 27.2%, to $5.9 million compared to the third quarter of fiscal 2008. General and administrative activities for the third quarter of 2009 included $1.0 million of costs directly related to the merger transaction. Excluding these merger costs, general and administrative expenses for the third quarter of 2009 were $4.9 million, a decrease of $3.2 million, or 39.5%, over the prior year quarter. 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 effort, to bring our SEC filings current, and to transition the corporate office to Dallas, Texas. These activities were brought to conclusion by the end of fiscal 2008. Depreciation and Amortization Expense.
Our depreciation and amortization expense in the third quarter of 2009 decreased $0.4 million, or 7.5%, to $4.9 million compared to the third quarter of 2008. The decrease is primarily due to the use of an accelerated depreciation method on our acquired curriculum, which resulted in higher amortization expense in the previous period when compared to the current period. Goodwill Impairment.
We review the carrying value of goodwill for impairment at least annually, and whenever certain triggering events occur. The signing of the Merger Agreement in late June is such a triggering event and so we performed goodwill impairment analyses in both the second and third quarters of 2009, giving due consideration to the continuing impact of adverse marketplace and economic conditions. As a result of these analyses, we recorded goodwill impairment charges of $22.0 million in the second quarter and $5.2 million in the third quarter of 2009.

Net Interest Income (Expense).

                                 Three Months Ended                   Year Over Year Change
                         September 30,         September 30,        Favorable / (Unfavorable)
(Dollars in millions)        2009                  2008                $                 %
Interest income         $             -       $           0.1            (0.1 )            100.0
Interest expense                   (0.1 )                   -            (0.1 )           (100.0 )


Total                   $          (0.1 )     $           0.1     $      (0.2 )           (200.0 )

Net interest income (expense) for the third quarter of 2009 decreased $0.2 million to ($0.1) million compared to the third quarter of 2008. Interest income declined from $0.1 million in the third quarter of 2008 to near zero for the third quarter of 2009 since 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 for the third quarter of 2009 was primarily related to tax-related liabilities resulting from the sales agreement with Snap-On Incorporated and CSA.
Other Income (Expense).
Other income (expense) decreased $0.2 million for the third quarter of 2009 from zero in the third quarter of 2008. Other expense was primarily related to changes in estimates of certain tax-related receivables and liabilities denominated in foreign currencies resulting from the sale agreement with Snap-On Incorporated and Cambridge Scientific Abstracts, L.P. ("CSA"). Income Tax Expense.
We recorded an income tax expense of ($0.4) million for the third quarter of 2009. We revised our tax provision estimate during the quarter to derive an effective annualized tax rate for 2009 of approximately 0%, other than the impact of changes in estimates related to uncertain tax positions.
We recorded no income tax benefit or expense for the net loss in the third quarter of 2008 because we could not assume future taxable income.

Nine Month Period ended September 30, 2009 Compared to the Nine Month Period

ended September 30, 2008

                                                                Nine Months Ended
                                             September 30, 2009                  September 30, 2008                    Year Over Year Change
                                                              % of                                % of               Favorable / (Unfavorable)
(Dollars in millions)                      Amount             sales            Amount             sales                $                     %
Net sales                                $     79.6            100.0         $     76.4            100.0         $         3.2                 4.2
Cost of sales (exclusive of
depreciation and amortization
shown separately below)                       (26.3 )          (33.0 )            (27.8 )          (36.4 )                 1.5                 5.4


Gross profit                                   53.3             67.0               48.6             63.6                   4.7                 9.7

Research and development expense               (3.4 )           (4.3 )             (3.7 )           (4.9 )                 0.3                 8.1
Sales and marketing expense                   (22.6 )          (28.4 )            (25.4 )          (33.2 )                 2.8                11.0
General and administrative expense            (18.4 )          (23.1 )            (24.3 )          (31.8 )                 5.9                24.3
Depreciation and amortization
expense                                       (14.6 )          (18.3 )            (16.1 )          (21.1 )                 1.5                 9.3
Goodwill impairment                           (27.2 )          (34.2 )                -                -                 (27.2 )            (100.0 )
Lease termination costs                           -                -              (11.7 )          (15.3 )                11.7               100.0


Loss before interest, other income
and income taxes                              (32.9 )          (41.3 )            (32.6 )          (42.7 )                (0.3 )              (0.9 )

Net interest income (expense)                  (0.5 )           (0.6 )              0.5              0.7                  (1.0 )             200.0
Other income (expense)                          1.0              1.3                0.8              1.0                   0.2                25.0
Income tax benefit                                -                -                  -                -                     -                   -


Net loss                                 $    (32.4 )          (40.7 )       $    (31.3 )          (41.0 )                (1.1 )              (3.5 )

Net Sales.
Total net sales increased $3.2 million, or 4.2%, to $79.6 million in the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008. The increase in net sales is attributable to an increase in revenue recognized from prior period deferred revenue, as well as the increase in order volume primarily resulting from the positive impact of the American Reinvestment and Recovery Act (ARRA) and its effect on the availability of funds available to school districts that we began to experience in the third quarter of 2009 and strong performance by our Vmath and ExploreLearning products.
We defer revenue associated with certain services and technology components and recognize the revenue over the period they are delivered. In fiscal 2008 we 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 nine month period ended September 30, 2009, deferred revenue balances increased $6.0 million, totaling $29.5 million at December 31, 2008 and $35.5 million at September 30, 2009. Comparatively, during the nine month period ended September 30, 2008, deferred revenue balances increased $7.6 million, totaling $21.1 million at December 31, 2007 and $28.7 million at September 30, 2008.

Gross Profit.
Cost of sales includes expenses to print, purchase, handle and warehouse product and to provide services and support to customers. Our gross profit as a percentage of revenue for the nine month period ended September 30, 2009 increased 3.4 percentage points to 67.0% compared to 63.6% for the nine month period ended September 30, 2008. The improvement in margin is due to the increase in the mix of revenue we recognized from technology, which is at a higher margin.
Research and Development.
Research and development expenditures include costs to research, evaluate and develop educational products, net of capitalization. Research and development expense for the nine month period ended September 30, 2009 decreased $0.3 million to $3.4 million compared to the nine month period ended September 30, 2008, due to the timing of expenditures and the ratio of capitalizable versus non-capitalizable activities performed during the respective quarters.
Sales and Marketing.
Sales and marketing expenditures include all costs related to selling efforts and marketing. Sales and marketing expense for the nine month period ended September 30, 2009 decreased $2.8 million to $22.6 million compared to the nine month period ended September 30, 2009, due to prior year costs associated with our participation in several 2008 state adoptions, and our overall initiative to lower costs as a response to the market slow down, partially offset by higher commission costs commensurate with the increased sales volume. General and Administrative.
Overall, general and administrative expenses for the nine month period ended September 30, 2009 decreased $5.9 million, or 24.3%, to $18.4 million compared to the nine month period ended September 30, 2008. General and administrative activities for the nine month period ended September 30, 2009 include $6.1 million of costs directly related to the merger transaction. Excluding these merger costs, general and administrative expenses for the nine month period ended September 30, 2009 were $12.3 million, a decrease of $12.0 million, or 49.4%, over the nine month period ended September 30, 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 effort, to bring our SEC filings current, and to transition the corporate office to Dallas, Texas. These activities were brought to conclusion by the end of fiscal 2008.

Depreciation and Amortization Expense.
Our depreciation and amortization expense decreased $1.5 million, or 9.3%, to $14.6 million in the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008. The decrease is primarily due to the use of an accelerated depreciation method on our acquired curriculum, which resulted in higher amortization expense in the previous period when compared to the current period.
Goodwill Impairment.
We review the carrying value of goodwill for impairment at least annually, and whenever certain triggering events occur. The signing of the Merger Agreement in late June is such a triggering event and so we performed goodwill impairment analyses in both the second and third quarters of 2009, giving due consideration to the continuing impact of adverse marketplace and economic conditions. As a result of these analyses, we recorded goodwill impairment charges of $22.0 million in the second quarter and $5.2 million in the third quarter of 2009.
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 and 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 . . .