August 12, 2022

Education For Live

Masters Of Education

EDUCATIONAL DEVELOPMENT CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

22 min read

This Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains a discussion of our business, including a general overview
of our segments, our results of operations, our liquidity and capital resources,
and our quantitative and qualitative disclosures about market risk.

The following discussion contains forward-looking statements that reflect our
future plans, estimates, beliefs and expected performance. The forward-looking
statements are dependent upon events, risks and uncertainties that may be
outside of our control. Our actual results could differ materially from those
discussed in these forward-looking statements. See “Cautionary Remarks Regarding
Forward Looking Statements” in the front of this Annual Report on Form 10-K.


Management Summary


We are the exclusive United States trade co-publisher of Usborne children’s
books and the owner of Kane Miller. We operate two separate segments; UBAM and
Publishing, to sell our Usborne and Kane Miller children’s books. These two
segments each have their own customer base. The Publishing segment markets its
products on a wholesale basis to various retail accounts. The UBAM segment
markets its products through a network of independent sales consultants using a
combination of home shows, social media platform events (called “online
parties”) and book fairs. All other supporting administrative activities are
recognized as other expenses outside of our two segments. Other expenses are
primarily compensation of our office, warehouse and sales support staff as well
as the cost of operating and maintaining our corporate offices and distribution
facilities.



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UBAM Division


Our UBAM division uses a multi-level direct selling platform to market books
through independent sales representatives (“consultants”) located throughout the
United States
. The customer base of UBAM consists of individual purchasers, as
well as schools and public libraries. Revenues are primarily generated through
book showings in individual homes, on social media collaboration platforms,
through book fairs with school and public libraries and other events.

An important factor in the continued growth of the UBAM division is the addition
of new sales consultants and the retention of existing consultants. Current
active consultants (defined as those with sales during the past six months)
often recruit new sales consultants. UBAM makes it easy to recruit by providing
sign-up kits for which new consultants can earn rewards including discounted
books and cash based on exceeding certain sales criteria. In addition, our UBAM
division provides our consultants with an extensive operational handbook,
valuable training and an individual website they can customize and use to
operate their business.


                                  Consultants



                                           FY 2022      FY 2021

New Consultants Added During Fiscal Year 26,100 56,100
Active Consultants at End of Fiscal Year 36,100 57,600




Our UBAM division's multi-level marketing platform presently has eight levels of
sales representatives:



  ? Consultants




  ? Team Leaders




  ? Advanced Leaders




  ? Senior Leaders




  ? Executive Leaders




  ? Senior Executive Leaders




  ? Directors




  ? Senior Directors



Upon signing up, sales representatives begin as “Consultants”. Consultants
receive “weekly commissions” from each sale they make; the commission rate they
receive on each sale is determined by the marketing program under which the sale
is made. In addition, Consultants receive a monthly sales bonus once their sales
reach an established monthly goal and other awards (called “Home Office
Challenges”) for meeting other individual sales and recruiting goals for the
month. Consultants who recruit a specified number of other consultants into
their downline “central group” become “Team Leaders”. Upon reaching this Team
Leader level, consultants become eligible to receive “monthly override payments”
which are calculated on sales made from their downline central group of
recruits. Team Leaders that recruit and promote other Team Leaders, and meet
other established criteria, are eligible to become “Advanced Leaders”.

Once Advanced Leaders promote a second level consultant, add additional recruits
and meet other established criteria, they become “Senior Leaders”, “Executive
Leaders”, “Senior Executive Leaders”, “Directors” or “Senior Directors”.
One-time bonus payments are made to consultants at each promotion level.
Executive Leaders and higher receive an additional monthly override payment
based upon the sales of their downline groups. Directors and higher receive an
additional bonus payment if they promote an Advanced Leader to a Senior Leader
from their central group. The maximum override payment a leader can receive is
calculated on three levels below their downline central group.

During fiscal year 2022, internet sales continued to be the largest sales
channel within our UBAM division. The use of social media and party plan
platforms, such as those available on Facebook, continue to be popular sales
tools. These platforms allow consultants to “present” and customers to “attend”
online purchasing events from any geographical location.



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Customer’s internet orders are primarily received via the consultant’s
customized website, which is hosted by the Company. Consultants contact hosts or
hostesses (collectively “hostess”) who then provide a list of contacts to invite
to an online party. During the online party, the consultant answers attendee’s
questions and provides product recommendations. These attendees then select
desired products and place orders via the consultant’s customized website.
Internet orders are processed through a standard online “shopping cart checkout”
and the consultant receives sales credit and commission on the transaction. All
internet orders are shipped directly to the end customer. The hostess earns
discounted books based on the total sales from the attendees at the online
party.

Home parties occur when consultants contact hostesses to hold book shows in
their homes. The consultant assists the hostess in setting up the details for
the show, makes a presentation at the show and takes orders for the books. The
hostess earns discounted books based on the total sales at the party, including
internet orders for those customers who can only attend via online access. Home
party orders are typically shipped to the hostess who then distributes the books
to the end customer. Customer specials are also available when customers, or
their party, order above a specified amount. Additionally, home shows often
provide an excellent opportunity for recruiting new consultants.

UBAM net revenues also includes sales to schools and libraries through
educational consultants. The school and library program includes book fairs
which are held with an organization as the sponsor. The consultant provides
promotional materials to introduce our books to parents. Parents turn in their
orders at a designated time. The book fair program generates discounted books
for the sponsoring organization. UBAM also has various fundraiser programs.
Reach for the Stars is a pledge-based reading incentive program that provides
cash and books to the sponsoring organization and books for the participating
children. An additional fundraising program, Cards for a Cause, offers our
consultants the opportunity to help members of the community by sharing proceeds
from the sale of specific items. Organizations sell variety boxes of
greeting-type cards and donate a portion of the proceeds to help support their
related causes.



Publishing Division



Our Publishing division operates in a market that is highly competitive, with a
large number of retail companies engaged in the selling of books. The Publishing
division’s customer base includes national book chains, regional and local
bookstores, toy and gift stores, school supply stores and museums. To reach
these markets, the Publishing division utilizes a combination of commissioned
sales representatives located throughout the country and a commissioned in-house
sales group located at our headquarters.

The table below shows the percentage of net revenues from our Publishing
division based on market type.


                Publishing Division Net Revenues by Market Type



                             FY 2022       FY 2021
National chain bookstores           2 %           5 %
All other                          98 %          95 %
Total net revenues                100 %         100 %



Publishing uses a variety of methods to attract potential new customers and
maintain current customers. Our employees attend many of the national trade
shows held by the book selling industry each year, allowing us to contact
potential buyers who may be unfamiliar with our books. We actively target the
national book chains through joint promotional efforts and institutional
advertising in trade publications. Our products are then featured in promotions,
such as catalogs, offered by the vendor. We may also seek to acquire, for a fee,
an end cap position (our products are placed on the end of a shelf) in a
bookstore, which we and the publishing industry consider an advantageous
location in the bookstore.

Publishing’s in-house sales group targets the smaller independent book and gift
store customers. This market has seen continued growth over the past several
years as our sales to large bookstore chains have fluctuated based primarily on
the number of promotions that we are able to run in the national chain stores.
Our semi-annual, full-color, 200-page catalogs, are mailed to over 4,000
customers and potential customers. We also offer two display racks to assist
stores in displaying our products.

Our Publishing division activities and sales were significantly impacted during
fiscal year 2021 due to the COVID-19 pandemic. Many of the national trade shows
were canceled and a significant number of our retail customers temporarily
closed to comply with their local health department recommendations. However,
Publishing sales significantly increased this fiscal year due to the addition of
new customers and stores opening back up to pre-pandemic levels.



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Result of Operations


The following table shows our statements of earnings data:


                                     Twelve Months Ended
                                        February 28,
                                   2022              2021
Net revenues                   $ 142,228,800     $ 204,635,100
Cost of goods sold                44,297,500        60,037,000
Gross margin                      97,931,300       144,598,100

Operating expenses
Operating and selling             23,010,400        36,123,700
Sales commissions                 44,377,500        69,977,200
General and administrative        20,302,200        22,541,500
Total operating expenses          87,690,100       128,642,400

Other (income) expense
Interest expense                     916,400           561,000
Other income                      (1,911,100 )      (1,836,100 )

Earnings before income taxes 11,235,900 17,230,800

Income taxes                       2,929,100         4,606,800
Net earnings                   $   8,306,800     $  12,624,000



See the detailed discussion of net revenues, gross margin and operating expenses
by reportable segment below.

The following is a discussion of significant changes in the non-segment related
operating expenses, other income and expenses and income taxes during the
respective periods.



Non-Segment Operating Results



Total operating expenses not associated with a reporting segment were $17.8
million
for fiscal year ended February 28, 2022, compared to $19.4 million for
the same period a year ago. Operating expenses decreased $1.6 million primarily
related to a decrease in warehouse labor of $1.6 million driven by efficiencies
gained from the addition of two new pick-pack-ship lines in fiscal year 2022 and
lower sales, plus a $1.0 million decrease in freight-handling costs from the
decrease in number of outbound shipments, offset by a $0.5 million increase in
depreciation expense related to the addition of the new pick-pack-ship lines and
a $0.5 million increase in warehouse rent for the increase in inventory.

Interest expense increased $0.3 million, to $0.9 million for fiscal year ended
February 28, 2022, compared to $0.6 million reported for fiscal year ended
February 28, 2021 due primarily to the increase in our line of credit and the
addition of the advancing term loans in the current fiscal year.

Income taxes decreased $1.7 million, to $2.9 million for fiscal year ended
February 28, 2022, from $4.6 million for the same period a year ago. This
decrease was primarily related to a decrease in taxable income for the current
fiscal year compared to the prior fiscal year. The effective tax rate decreased
by 0.6%, to 26.1% for fiscal year ended February 28, 2022, as compared to 26.7%
for fiscal year ended February 28, 2021 primarily due to sales mix fluctuations
between states. Our tax rates are higher than the federal statutory rate of 21%
due to the inclusion of state income and franchise taxes.



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UBAM Operating Results


The following table summarizes the operating results of the UBAM segment for the
twelve months ended February 28:


                                             Twelve Months Ended
                                                February 28,
                                           2022              2021
Gross sales                            $ 159,303,800     $ 237,317,700
Less discounts and allowances            (44,187,200 )     (65,099,100 )
Transportation revenue                    13,861,900        23,790,700
Net revenues                             128,978,500       196,009,300

Cost of goods sold                        37,150,600        55,603,000
Gross margin                              91,827,900       140,406,300

Operating expenses
Operating and selling                     18,800,300        31,182,700
Sales commissions                         43,801,300        69,707,200
General and administrative                 4,788,800         6,695,800
Total operating expenses                  67,390,400       107,585,700

Operating income                       $  24,437,500     $  32,820,600

Average number of active consultants          44,900            48,700




UBAM net revenues decreased $67.0 million, or 34.2%, to $129.0 million for
fiscal year ended February 28, 2022, when compared with net revenues of $196.0
million
reported for fiscal year ended February 28, 2021. The average number of
active consultants in fiscal year 2022 was 44,900, a decrease of 3,800, or 7.8%,
from 48,700 in fiscal year 2021. The Company reports the average number of
active consultants as a key indicator for this division. During fiscal year
2021, our active consultants grew from 29,600 at the beginning of the year to
57,600 at the end of the fiscal year. This active consultant growth resulted
from pandemic-related events such as seeking replacement income from loss of
full-time employment, an increase in the need for work-from-home opportunities
and an increased demand for educational products in the home. During fiscal year
2022 our active consultant count has declined due to consultants returning to
full-time work, as well as families experiencing children returning to the
classroom, therefore requiring less learning-from-home materials than they had
in the prior year. While a decrease in sales and consultants has occurred in
fiscal year 2022, our UBAM division’s active consultants and sales continue to
exceed pre-pandemic levels.

UBAM gross margin decreased $48.6 million, or 34.6%, to $91.8 million for fiscal
year ended February 28, 2022, from $140.4 million reported for fiscal year ended
February 28, 2021. Gross margin as a percentage of net revenues decreased 0.4%
to 71.2% for fiscal year 2022 when compared to 71.6% for fiscal year 2021. The
decrease in gross margin as a percentage of net revenues was due to the change
in mix of order types received. In the current fiscal year, our web sales, which
have the lowest discounts and pay the highest commissions decreased, while book
fairs, school and library sales and other in-person sale types increased year
over year, due to the lessening of COVID-19 restrictions and the reopening of
schools and other in-person activities.

Total UBAM operating expenses decreased $40.2 million, or 37.4%, to $67.4
million
during the fiscal year ended February 28, 2022, when compared with
$107.6 million reported for fiscal year ended February 28, 2021. Operating and
selling expenses decreased $12.4 million, to $18.8 million for fiscal year ended
February 28, 2022, from $31.2 million reported in the same period a year ago due
to a $11.4 million decrease in shipping costs associated with the decrease in
volume of orders shipped and a $1.0 million decrease in accruals for the
Company’s annual incentive trip and other consultant rewards associated with the
decrease in UBAM sales. Sales commissions decreased $25.9 million, to $43.8
million
during the fiscal year ended February 28, 2022, when compared to $69.7
million
reported in the same period a year ago primarily due to the decrease in
net revenues. General and administrative expenses decreased $1.9 million, to
$4.8 million during the fiscal year ended February 28, 2022, when compared with
$6.7 million reported for fiscal year ended February 28, 2021. This decrease was
due to $1.5 million of decreased credit card transaction fees associated with
decreased sales volumes and a $0.4 million decrease in promotions and marketing
expenses associated with decreased consultant counts.



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Operating income of our UBAM division decreased $8.4 million, or 25.6%, to $24.4
million
for fiscal year ended February 28, 2022, as compared to $32.8 million
reported for fiscal year ended February 28, 2021. Operating income of the UBAM
division as a percentage of net revenues for the year ended February 28, 2022
was 18.9%, compared to 16.7% for the year ended February 28, 2021, a change of
2.2%. Operating income as a percentage of net revenues changed from the prior
year primarily due to $1.3 million of reduced freight handling costs primarily
from reduced peak surcharges in the current fiscal year due to lower shipping
volumes, a $0.4 million decrease in accrual expenses for the Company’s annual
incentive trip and other consultant rewards resulting from less award earners,
offset by a $0.6 million increase in cost of goods sold resulting from fewer
rebates and discounts associated with purchase volumes as well as increased
ocean freight costs on inbound inventory and $0.3 million in other various cost
changes.



Publishing Operating Results



The following table summarizes the operating results of the Publishing segment
for the twelve months ended February 28:


                                     Twelve Months Ended
                                         February 28,
                                    2022              2021
Gross sales                     $  28,163,000     $ 18,271,900
Less discounts and allowances     (14,922,100 )     (9,715,600 )
Transportation revenue                  9,400           69,500
Net revenues                       13,250,300        8,625,800

Cost of goods sold                  7,146,900        4,434,000
Gross margin                        6,103,400        4,191,800

Total operating expenses            2,463,600        1,620,200

Operating income                $   3,639,800     $  2,571,600



Our Publishing division’s net revenues increased $4.7 million, or 54.7%, to
$13.3 million for fiscal year ended February 28, 2022, when compared with net
revenues of $8.6 million reported for fiscal year ended February 28, 2021. Many
Publishing customers closed their stores during the first and second quarters of
fiscal year 2021 due to the COVID-19 pandemic and did not reopen until the third
or fourth quarter of fiscal year 2021. As such, much of the sales increase
resulted from the return of customer activity to pre-pandemic levels in fiscal
year 2022.

Gross margin increased $1.9 million, to $6.1 million for fiscal year ended
February 28, 2022, from $4.2 million reported for fiscal year ended February 28,
2021
. The increase in gross margin primarily resulted from the increase in net
revenues. Gross margin as a percentage of net revenues decreased 2.5%, to 46.1%
for fiscal year 2022, compared to 48.6% reported the same period a year ago. The
decrease in gross margin percentage resulted primarily from the increase in cost
of goods sold resulting from fewer rebates and discounts associated with
purchase volumes as well as increased ocean freight costs on inbound inventory
and a change in our customer mix. Customers receive varying discounts due to
higher sales volumes and contract terms.

Operating income for the segment increased $1.0 million, or 38.5%, to $3.6
million
for fiscal year ended February 28, 2022, from $2.6 million reported
during the same period last year. The increase in operating income resulted
primarily from increased gross margin from increased sales partially offset by
increased inside sales commissions due to the addition of new retail customers.

Liquidity and Capital Resources

EDC has a history of profitability and positive cash flow. We typically fund our
operations from the cash we generate. We also use available cash to pay down
outstanding bank loan balances, for capital expenditures, to pay dividends and
to acquire treasury stock. We utilized a bank credit facility and other term
loan borrowings to meet our short-term cash needs, as well as fund capital
expenditures, when necessary. As of the end of fiscal year 2022, our revolving
bank credit facility loan balance was $17.7 million with $2.3 million in
available capacity.



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During fiscal year 2022, we experienced negative cash flows from operations of
$21,143,300. These cash flows resulted from:

? net earnings of $8,306,800


Adjusted for:


? depreciation expense of $2,126,700

? share-based compensation expense of $1,046,500

? provision for inventory valuation allowance of $235,700

? provision for doubtful accounts of $115,800


Offset by:


? deferred income taxes of $208,600


Positively impacted by:


? increase in income taxes payable of $111,700


Negatively impacted by:


? increase in inventories, net of $21,396,900

? decrease in accounts payable of $6,201,300

? decrease in accrued salaries, commissions, and other liabilities of $2,868,300

? decrease in deferred revenue of $1,794,300

? increase in accounts receivable of $407,900

? increase in prepaid expenses and other assets of $209,200

During the year our inventories increased significantly as we replenished
quantities at volumes based on fiscal year 2021 sales. As sales during fiscal
year 2022 have decreased, we have reduced purchase order quantities back to more
historical sales levels. We expect our inventory levels to decline in fiscal
year 2023 to more normalized levels.

Cash used in investing activities was $3,940,900 for capital expenditures, which
were comprised of $2,722,900 in equipment purchased to increase our daily
shipping capacity, $618,300 in software upgrades to our proprietary systems that
our UBAM consultants use to monitor their business and place customer orders,
$376,000 in other building and equipment improvements, and $223,700 in patents
and trademarks from the purchase of Learning Wrap-Ups.

Cash provided by financing activities was $23,633,200 which was comprised of
proceeds from term debt of $15,244,700, increase in borrowings on the line of
credit of $12,478,200 and net cash received in treasury stock transactions of
$617,100, offset by payments of $3,429,100 for dividends and payments on term
debt of $1,277,700.

We continue to expect the cash generated from our operations and cash available
through our line of credit with our Bank will provide us the liquidity we need
to support ongoing operations. Cash generated from operations will be used to
pay down our line of credit, expand our product offerings, to liquidate existing
debt, and any excess cash is expected to be distributed to our shareholders.

On February 15, 2021, the Company executed the Amended and Restated Loan
Agreement with MidFirst Bank which replaced the prior loan agreement and
includes multiple loans. Term Loan #1 Tranche A (“Term Loan #1”), originally
totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a
fixed interest rate of 4.23%, with principal and interest payable monthly and a
stated maturity date of December 1, 2025. Term Loan #1 is secured by the primary
office, warehouse and land. Term Loan #1 was amended on April 1, 2021 by
executing the First Amendment to the Loan Agreement which reduced the fixed
interest rate to 3.12% and removed the prepayment premium from the Loan
Agreement. The outstanding borrowings on Term Loan #1 were $10.3 million and
$11.0 million as of February 28, 2022 and February 28, 2021, respectively.

In addition, the Amended and Restated Loan Agreement provides a $6.0 million
Advancing Term Loan #1 to be used to finance planned equipment purchases. The
Advancing Term Loan #1 required interest-only payments through July 15, 2021, at
which time it was converted to a 60-month amortizing term loan maturing July 15,
2026
. The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR
Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to
EBITDA Ratio, with a minimum rate of 3.00%. Our borrowings outstanding under the
Advancing Term Loan #1 at February 28, 2022 were $4.8 million.



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The Amended and Restated Loan Agreement also provides a $20.0 million revolving
loan (“line of credit”) through August 15, 2022 with interest payable monthly at
the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s
Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. On July 16,
2021
, the Company executed the Second Amendment to the Loan Agreement which
increased the Maximum Revolving Principal Amount from $15.0 million to $20.0
million
. On August 31, 2021, the Company executed the Third Amendment to the
Loan Agreement which modified the advance rates used in the borrowing base
certificate. Our borrowings outstanding on our line of credit at February 28,
2022
and February 28, 2021 were $17.7 million and $5.2 million, respectively.
Available credit under the revolving line of credit was approximately $2.3
million
and $9.6 million at February 28, 2022 and February 28, 2021,
respectively.

On November 19, 2021, the Company executed the Fourth Amendment to the Loan
Agreement which established Advancing Term Loan #2 in the principal amount of
$10.0 million, amended the definition of LIBO Rate and LIBOR Margin and added
Benchmark Replacement Provisions. The Advancing Term Loan #2 is a 120-month
amortizing loan maturing November 19, 2031 and accrues interest at the
Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s
Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. Our
borrowings outstanding under the Advancing Term Loan #2 at February 28, 2022
were $9.9 million.

The Amended and Restated Loan Agreement also contains a provision for our use of
the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of
commercial or stand-by letters of credit provided that the sum of the line of
credit plus the letters of credit issued would not exceed the borrowing base in
effect at the time. For the year ended February 28, 2022, we had no letters of
credit outstanding. The agreement contains provisions that require us to
maintain specified financial ratios, place limitations on additional debt with
other banks, limit the amounts of dividends declared and limits the amount of
shares that can be repurchased using funding from the line of credit.

The following table reflects aggregate future maturities of long-term debt
during the next five fiscal years as follows:



Years ending February 28 (29),
2023                             $  2,542,200
2024                                2,591,800
2025                                2,638,500
2026                               10,489,800
2027                                1,518,700
Thereafter                          5,219,100
Total                            $ 25,000,100



During fiscal year 2022 we continued our quarterly dividend payments of $0.10.

In April 2008, our Board of Directors amended our 1998 stock repurchase plan,
establishing that we may purchase up to an additional 1,000,000 shares as market
conditions warrant. In February 2019, our Board of Directors approved a new
stock repurchase plan to replace the amended 2008 plan. Under the new 2019 plan,
the Company is authorized to purchase up to 800,000 shares of common stock,
which represented approximately 9% of the outstanding shares as of February 28,
2022
, of which 514,594 remains available to purchase as of February 28, 2022.
Management believes using excess liquidity to purchase outstanding shares
enhances the value to the remaining shareholders and that these repurchases will
have no adverse effect on our short-term and long-term liquidity.


Contractual Obligations


We are a smaller reporting company and are not required to provide this
information.

Off Balance Sheet Arrangements

As of February 28, 2022, we had no off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future material effect on our
financial condition, results of operations, liquidity, capital expenditures or
capital resources.


Seasonality


The Company experiences increased sales in the Fall season. Historically, we
have experienced an increase in inventory during the Summer in anticipation for
the Fall increase in sales. In addition, new titles are typically released twice
a year, in the Spring and Fall, which increases our inventory the months
preceding these scheduled releases. The Company uses available cash or working
capital borrowings to fund these increases in inventory.



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Critical Accounting Policies


Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to our
valuation of inventory, allowance for uncollectible accounts receivable,
allowance for sales returns, long-lived assets and deferred income taxes. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.

Actual results may materially differ from these estimates under different
assumptions or conditions. Historically, however, actual results have not
differed materially from those determined using required estimates. Our
significant accounting policies are described in the notes accompanying the
financial statements included elsewhere in this report. However, we consider the
following accounting policies to be more significantly dependent on the use of
estimates and assumptions.


Share-Based Compensation


We account for share-based compensation whereby share-based payment transactions
with employees, such as stock options and restricted stock, are measured at
estimated fair value at the date of grant. For awards subject to service
conditions, compensation expense is recognized over the vesting period on a
straight-line basis. Awards subject to performance conditions are attributed
separately for each vesting tranche of the award and are recognized ratably from
the service inception date to the vesting date for each tranche. Forfeitures are
recognized when they occur. Any cash dividends declared after the restricted
stock award is issued, but before the vesting period is completed, will be
reinvested in Company shares at the opening trading price on the dividend
payment date. Shares purchased with cash dividends will also retain the same
restrictions until the completion of the original vesting period associated with
the awarded shares.

The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI
Plan”) and 2022 Long-Term Incentive Plan (“2022 LTI Plan”) contain both service
and performance conditions. The Company recognizes share-based compensation
expense only for the portion of the restricted share awards that are considered
probable of vesting. Shares are considered granted, and the service inception
date begins, when a mutual understanding of the key terms and conditions between
the Company and the employees have been established. The fair value of these
awards is determined based on the closing price of the shares on the grant date.
The probability of restricted share awards granted with future performance
conditions is evaluated at each reporting period and compensation expense is
adjusted based on the probability assessment.

During fiscal years 2022 and 2021, the Company recognized $1.0 million and $0.9
million
, respectively, of compensation expense associated with the shares
granted.



Revenue Recognition



Sales associated with product orders are recognized and recorded when products
are shipped. Products are shipped FOB- Shipping Point. UBAM’s sales are
generally paid at the time the product is ordered. Sales which have been paid
for but not shipped are classified as deferred revenue on the balance sheet.
Sales associated with consignment inventory are recognized when reported and
payment associated with the sale has been remitted. Transportation revenue
represents the amount billed to the customer for shipping the product and is
recorded when the product is shipped.

Estimated allowances for sales returns are recorded as sales are recognized.
Management uses a moving average calculation to estimate the allowance for sales
returns. We are not responsible for product damaged in transit. Damaged returns
are primarily received from the retail customers of our Publishing division.
Those damages occur in the stores, not in shipping to the stores, and we
typically do not offer credit for damaged returns. It is industry practice to
accept non-damaged returns from retail customers. Management has estimated and
included a reserve for sales returns of $0.2 million for the fiscal years ended
February 28, 2022 and February 28, 2021.



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Table of Contents

Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of
our customers to make required payments and a reserve for vendor share
markdowns, when applicable (collectively “allowance for doubtful accounts”). An
estimate of uncollectible amounts is made by management based upon historical
bad debts, current customer receivable balances, age of customer receivable
balances, customers’ financial conditions and current economic trends.
Management has estimated and included an allowance for doubtful accounts of $0.3
million
for the fiscal years ended February 28, 2022 and February 28, 2021.


Inventory


Our inventory contains over 2,000 titles, each with different rates of sale
depending upon the nature and popularity of the title. Almost all of our product
line is saleable as the books are not topical in nature and remain current in
content today as well as in the future. Most of our products are printed in
China, Europe, Singapore, India, Malaysia and Dubai typically resulting in a
four to six-month lead-time to have a title printed and delivered to us.

Certain inventory is maintained in a noncurrent classification. Management
continually estimates and calculates the amount of noncurrent inventory.
Noncurrent inventory arises due to occasional purchases of titles in quantities
in excess of what will be sold within the normal operating cycle, due to the
minimum order requirements of our suppliers. Noncurrent inventory was estimated
by management using the current year turnover ratio by title and anticipated
sales of specific titles. Inventory in excess of 2½ years of anticipated sales
is classified as noncurrent inventory. Noncurrent inventory balances prior to
valuation allowances were $2.4 million and $0.9 million at February 28, 2022 and
February 28, 2021, respectively. Noncurrent inventory valuation allowances were
$0.4 million and $0.2 million at February 28, 2022 and February 28, 2021,
respectively.

Consultants that meet certain eligibility requirements may request and receive
inventory on consignment. We believe allowing our consultants to have
consignment inventory greatly increases their ability to be successful in making
effective presentations at home shows, book fairs and other events; in summary,
having consignment inventory leads to additional sales opportunities.
Approximately 6.4% of our active consultants have maintained consignment
inventory at the end of fiscal year 2022. Consignment inventory is stated at
cost, less an estimated reserve for consignment inventory that is not expected
to be sold or returned to the Company. The total cost of inventory on
consignment with consultants was $1.4 million and $1.1 million at February 28,
2022
and February 28, 2021, respectively.

Inventories are presented net of a valuation allowance, which includes reserves
for inventory obsolescence and reserves for consigned inventory that is not
expected to be sold or returned to the Company. Management estimates the
inventory obsolescence allowance for both current and noncurrent inventory,
which is based on management’s identification of slow-moving inventory.
Management has estimated a valuation allowance for both current and noncurrent
inventory, including the reserve for consigned inventory, of $0.9 million and
$0.7 million at February 28, 2022 and February 28, 2021, respectively.

Our principal supplier, based in England, generally requires a minimum re-order
of 6,500 or more of a title in order to get a solo print run. Smaller orders
would require a shared print run with the supplier’s other customers, which can
result in lengthy delays to receive the ordered title. Anticipating customer
preferences and purchasing habits requires historical analysis of similar titles
in the same series. We then place the initial order or re-order based upon this
analysis. These factors and historical analysis have led our management to
determine that 2½ years represents a reasonable estimate of the normal operating
cycle for our products.



New Accounting Pronouncements



See the New Accounting Pronouncements section of Note 1 to our financial
statements, included in Part IV, Item 15 of this report, for further details of
recent accounting pronouncements.

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