What changed in this filing

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Item 1. Financial Statements

2022-01-06 compared with 2021-10-07 · 158 added, 142 removed, 425 unchanged (41% of the section changed)

5 unchanged sentences

Accounts receivable, less allowance for doubtful accounts of

$ 388,100 (August 31) and $ 331,900 (February 28)

$ 315,600 (November 30) and $ 331,900 (February 28)

Inventories - net

3 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT - net

DEFERRED INCOME TAX ASSET

LIABILITIES AND SHAREHOLDERS' EQUITY

9 unchanged sentences

Total current liabilities

LONG-TERM DEBT - net of current maturities

DEFERRED INCOME TAXES - net

LONG-TERM DEBT - net

DEFERRED INCOME TAX LIABILITY

OTHER LONG-TERM LIABILITIES

3 unchanged sentences

Authorized 16,000,000 shares;

Issued 12,702,080 (August 31) and 12,410,080 (February 28) shares;

Outstanding 8,650,229 (August 31) and 8,346,600 (February 28) shares

Issued 12,702,080 (November 30) and 12,410,080 (February 28) shares;

Outstanding 8,656,135 (November 30) and 8,346,600 (February 28) shares

Capital in excess of par value

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Less discounts and allowances

14 unchanged sentences

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED AUGUST 31, 2021

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2021

(par value $0.20 per share)

11 unchanged sentences

BALANCE - August 31, 2021

FOR THE SIX MONTHS ENDED AUGUST 31, 2020

Sales of treasury stock

Dividends declared ($ 0.10 /share)

Share-based compensation expense (see Note 6)

BALANCE - November 30, 2021

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2020

(par value $0.20 per share)

11 unchanged sentences

BALANCE - August 31, 2020

Sales of treasury stock

Dividends declared ($ 0.10 /share)

Share-based compensation expense (see Note 6)

BALANCE - November 30, 2020

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

22 unchanged sentences

Purchases of treasury stock

Net borrowings under line of credit

Net payments on line of credit

Dividends paid

6 unchanged sentences

Cash paid for income taxes

NON-CASH TRANSACTIONS

Accrued capital expenditures

See notes to condensed financial statements (unaudited).

9 unchanged sentences

The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

Reclassifications

Certain reclassifications have been made to the fiscal 2021 condensed balance sheet, condensed statement of cash flows and footnotes to conform to the classifications used in fiscal 2022.

These reclassifications had no effect on net earnings.

COVID-19 Update

2 unchanged sentences

We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business.

While the Company did not experience a decrease in net revenues during fiscal year 2021, and the year-to-date result of fiscal 2022 are more normalized, the long-term severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted.

While the Company did not experience a decrease in net revenues during fiscal year 2021, and the year-to-date results of fiscal 2022 are more normalized, the long-term severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact COVID-19 had during the current fiscal period.

22 unchanged sentences

Inventories consist of the following:

August 31, 2021

November 30, 2021

February 28, 2021

5 unchanged sentences

Inventories net – noncurrent

Book inventory includes inventory in transit which totaled $ 2,796,900 and $ 6,467,400 at August 31, 2021 and February 28, 2021, respectively.

Book inventory includes inventory in transit which totaled $ 4,204,700 and $ 6,467,400 at November 30, 2021 and February 28, 2021, respectively.

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2½ years of anticipated sales, are included in noncurrent inventory.

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing, Ltd.

Purchases received from this company were $ 12,127,000 and $ 7,357,600 for the three months ended August 31, 2021 and 2020, respectively.

Total inventory purchases received from all suppliers were $ 18,779,100 and $ 12,370,600 for the three months ended August 31, 2021 and 2020, respectively.

Purchases received from Usborne were $ 24,415,300 and $ 11,332,000 for the six months ended August 31, 2021 and 2020, respectively.

Total inventory purchases received from all suppliers were $ 36,564,300 and $ 18,217,200 for the six months ended August 31, 2021 and 2020, respectively.

Purchases received from this company were $ 10,728,800 and $ 26,199,600 for the three months ended November 30, 2021 and 2020, respectively.

Total inventory purchases received from all suppliers were $ 15,946,700 and $ 34,973,000 for the three months ended November 30, 2021 and 2020, respectively.

Purchases received from Usborne were $ 35,144,100 and $ 37,531,600 for the nine months ended November 30, 2021 and 2020, respectively.

Total inventory purchases received from all suppliers were $ 52,511,000 and $ 53,190,200 for the nine months ended November 30, 2021 and 2020, respectively.

Note 3 – LEASES

14 unchanged sentences

Years ending February 28 (29),

The cost of the leased space was $ 10,828,600 and $ 10,826,400 as of August 31, 2021 and February 28, 2021, respectively.

The accumulated depreciation associated with the leased assets was $ 2,407,600 and $ 2,216,700 as of August 31, 2021 and February 28, 2021, respectively.

The cost of the leased space was $ 10,834,300 and $ 10,826,400 as of November 30, 2021 and February 28, 2021, respectively.

The accumulated depreciation associated with the leased assets was $ 2,506,600 and $ 2,216,700 as of November 30, 2021 and February 28, 2021, respectively.

Both the leased assets and accumulated depreciation are included in property, plant and equipment-net on the condensed balance sheets.

1 unchanged sentence

Debt consists of the following:

August 31, 2021

November 30, 2021

February 28, 2021

1 unchanged sentence

Advancing term loan #1

Long-term debt

Advancing term loan #2

Total long-term debt

Less current maturities

Long-term debt, net of current maturities

Less debt issue cost

Long-term debt, net

The Company executed an Amended and Restated Loan Agreement on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”), which replaced the prior loan agreement and includes multiple loans.

3 unchanged sentences

Term Loan #1 is secured by the primary office, warehouse and land.

The outstanding borrowings on Term Loan #1 were $ 10,678,900 and $ 10,984,700 as of August 31, 2021 and February 28, 2021, respectively.

The 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 2.75% (the effective rate was 2.75 % at August 31, 2021).

The 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% (the effective rate was 3.00 % at November 30, 2021).

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 as of August 31, 2021 and February 28, 2021, were $ 16,653,800 and $ 5,245,300 , respectively.

Available credit under the revolving line of credit was approximately $ 3,346,200 and $ 9,570,200 at August 31, 2021 and February 28, 2021, respectively.

Available credit under the revolving line of credit was approximately $ 16,980,600 and $ 9,570,200 at November 30, 2021 and February 28, 2021, respectively.

In addition, the 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 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 2.75% (the effective rate was 2.75 % at August 31, 2021).

Our borrowings outstanding under the Advancing Term Loan at August 31, 2021 were $ 5,244,700 and we had no borrowings at February 28, 2021.

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% (the effective rate was 3.00 % at November 30, 2021).

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% (the effective rate was 3.00 % at November 30, 2021).

Adjusted Funded Debt is defined as all long-term and short-term bank debt less the outstanding balance of Term Loan #1.

2 unchanged sentences

The $20.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

The Advancing Term Loan and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio.

The variable interest pricing tier is as follows:

The advancing term loans and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio.

The variable interest pricing tiers are as follows:

Adjusted Funded Debt to EBITDA Ratio

4 unchanged sentences

The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than August 15, 2022, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time.

As of August 31, 2021, we had no letters of credit outstanding.

As of November 30, 2021, we had no letters of credit outstanding.

The Loan Agreement also contains provisions that require the Company to maintain specified financial ratios and limits any additional debt with other lenders.

5 unchanged sentences

Diluted EPS includes the dilutive effect of issued unvested restricted stock awards and additional potential common shares issuable under stock warrants, restricted stock and stock options.

We utilized the treasury stock method in computing the potential common shares issuable under stock warrants, restricted stock, stock options and preferred shares.

We utilized the treasury stock method in computing the potential common shares issuable under stock warrants, restricted stock and stock options.

The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted EPS is shown below:

Three Months Ended

Six Months Ended

Nine Months Ended

Net earnings applicable to common shareholders

24 unchanged sentences

The remaining compensation expense of these awards, totaling approximately $ 1,276,600 , will be recognized ratably over the remaining vesting period of approximately 39 months.

As of August 31, 2021, no shares have been granted under the 2022 LTI Plan.

As of November 30, 2021, no shares have been granted under the 2022 LTI Plan.

A summary of compensation expense recognized in connection with restricted share awards follows:

Three Months Ended August 31,

Six Months Ended August 31,

Three Months Ended November 30,

Nine Months Ended November 30,

Share-based compensation expense

The following table summarizes stock award activity during the first six months of fiscal year 2022 under the 2019 LTI Plan:

The following table summarizes stock award activity during the first nine months of fiscal year 2022 under the 2019 LTI Plan:

Weighted Average Fair Value (per share)

Outstanding at February 28, 2021

Outstanding at August 31, 2021

As of August 31, 2021, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $ 2,355,000 , which we expect to recognize over a weighted-average period of 32.0 months.

Outstanding at November 30, 2021

As of November 30, 2021, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $ 2,093,500 , which we expect to recognize over a weighted-average period of 29.6 months.

Note 7 – SHIPPING AND HANDLING COSTS

1 unchanged sentence

Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies.

These costs were $ 5,036,000 and $ 9,984,600 for the three months ended August 31, 2021 and 2020, respectively.

These costs were $ 11,392,400 and $ 16,299,900 for the six months ended August 31, 2021 and 2020, respectively.

These costs were $ 6,924,800 and $ 10,610,900 for the three months ended November 30, 2021 and 2020, respectively.

These costs were $ 18,317,200 and $ 26,910,800 for the nine months ended November 30, 2021 and 2020, respectively.

Note 8 – BUSINESS SEGMENTS

10 unchanged sentences

Our assets and liabilities are not allocated on a segment basis.

Information by reporting segment for the three and six-month periods ended August 31, 2021 and 2020, are as follows:

Information by reporting segment for the three and nine-month periods ended November 30, 2021 and 2020, are as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

Nine Months Ended

Note 9 – FAIR VALUE MEASUREMENTS

6 unchanged sentences

Level 3 – Unobservable inputs for the asset or liability.

We do not report any assets or liabilities at fair value in the financial statements.

However, the estimated fair value of our term notes payable is estimated by management to approximate $ 15,654,000 and $ 11,078,800 at August 31, 2021 and February 28, 2021, respectively.

The Company did not have any financial assets and liabilities that were required to be measured at fair value.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to their short maturities.

The fair value of our term notes payable is estimated by management to approximate $ 25,161,000 and $ 11,078,800 at November 30, 2021 and February 28, 2021, respectively.

Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity, and collateral.

2 unchanged sentences

The Company’s UBAM division receives payments on orders in advance of shipment.

Any payments received prior to the end of the period that were not shipped as of August 31, 2021 or February 28, 2021 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 751,400 and $ 1,914,100 , as of August 31, 2021 and February 28, 2021, respectively, in payments for sales orders which were shipped out subsequent to the end of the period.

Orders that were included in deferred revenues predominantly shipped within the first few days of the next fiscal period.

Any payments received prior to the end of the period that were not shipped as of November 30, 2021 or February 28, 2021 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 1,155,700 and $ 2,475,900 , as of November 30, 2021 and February 28, 2021, respectively, in payments for sales orders which will be shipped subsequent to the end of the period.

Note 11 – SUBSEQUENT EVENTS

On October 6, 2021 , the Board of Directors approved a $ 0.10 dividend that will be paid to shareholders of record on Thursday, November 18, 2021 .

On December 1, 2021 the Company acquired Learning Wrap-Ups, Inc, (Learning Wrap-Ups) for an initial purchase price of $800,000, which approximates the net assets acquired by the Company.

Learning Wrap-Ups historical annual sales total approximately $ 1.5 million.

On January 5, 2022 the Board of Directors approved a $ 0.10 dividend that will be paid to shareholders of record on Tuesday, February 22, 2022 .

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

15 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

8 unchanged sentences

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

Non-Segment Operating Results for the Three Months Ended August 31, 2021

Total operating expenses not associated with a reporting segment decreased $0.8 million, or 16.0%, to $4.2 million for the three-month period ended August 31, 2021, when compared to $5.0 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.6 million decrease in warehouse labor and a $0.4 million decrease in freight handling expenses, both resulting from a decrease in gross sales, offset by a $0.2 million increase in other various expenses.

Interest expense increased $0.1 million, or 100.0%, to $0.2 million for the three months ended August 31, 2021, when compared to $0.1 million for the same quarterly period a year ago associated with the increase in our line of credit and the addition of the Advancing Term Loan in the current fiscal year.

Income taxes decreased $0.7 million, or 46.7%, to $0.8 million for the three months ended August 31, 2021, from $1.5 million for the same quarterly period a year ago.

Our effective tax rate increased to 28.6% for the quarter ended August 31, 2021, from 26.6% for the quarter ended August 31, 2020 due to sales mix fluctuations between states.

Non-Segment Operating Results for the Three Months Ended November 30, 2021

Total operating expenses not associated with a reporting segment decreased $0.8 million, or 13.1%, to $5.3 million for the three-month period ended November 30, 2021, when compared to $6.1 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.8 million decrease in warehouse labor and a $0.3 million decrease in freight handling expenses, both resulting from a decrease in gross sales, offset by a $0.2 million increase in depreciation expense and a $0.1 million increase in other various expenses.

Interest expense increased $0.1 million, or 100.0%, to $0.2 million for the three months ended November 30, 2021, when compared to $0.1 million for the same quarterly period a year ago associated with the borrowings against our line of credit and the addition of the advancing term loans in the current fiscal year, not utilized in the same quarterly period a year ago.

Income taxes decreased $0.5 million, or 33.3%, to $1.0 million for the three months ended November 30, 2021, from $1.5 million for the same quarterly period a year ago, resulting from a decrease in gross sales.

Our effective tax rate increased to 26.5% for the quarter ended November 30, 2021, from 26.1% for the quarter ended November 30, 2020 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.

Non-Segment Operating Results for the Six Months Ended August 31, 2021

Total operating expenses remained consistent at $8.7 million for the six-month periods ended August 31, 2021 and August 31, 2020.

Warehouse labor decreased $0.2 million and freight handling decreased $0.4 million for the six months ended August 31, 2021, both associated with reduced sales.

These changes were offset by increased warehouse rental of $0.2 million and property insurance of $0.1 million associated with increased inventory levels along with a $0.3 million increase in other various expenses.

Interest expense increased $0.1 million, or 33.3%, to $0.4 million for the six months ended August 31, 2021, when compared to $0.3 million for the same period a year ago as a result of the increase in our line of credit and the addition of the Advancing Term Loan in the current fiscal year.

Income taxes decreased $0.3 million, or 13.0%, to $2.0 million for the six months ended August 31, 2021, from $2.3 million for the same period a year ago.

Our effective tax rate increased to 27.1% for the six months ended August 31, 2021, from 26.7% for the six months ended August 31, 2020 due to sales mix fluctuations between states.

Non-Segment Operating Results for the Nine Months Ended November 30, 2021

Total operating expenses decreased $0.8 million, or 5.4%, to $14.0 million for the nine months ended November 30, 2021, from $14.8 million for the same quarterly period a year ago.

Warehouse labor decreased $1.0 million and freight handling decreased $0.8 million for the nine months ended November 30, 2021, both associated with reduced sales.

These changes were offset by an increase in warehouse rental expenses of $0.3 million, an increase in depreciation expense of $0.3 million, an increase in property insurance of $0.1 million associated with increased inventory levels, along with a $0.1 million increase in other various expenses.

Interest expense increased $0.2 million, or 50.0%, to $0.6 million for the nine months ended November 30, 2021, when compared to $0.4 million for the same period a year ago as a result of the increase in our line of credit and the addition of the advancing term loans in the current fiscal year.

Income taxes decreased $0.9 million, or 23.7%, to $2.9 million for the nine months ended November 30, 2021, from $3.8 million for the same period a year ago, resulting from a decrease in gross sales.

Our effective tax rate increased to 26.9% for the nine months ended November 30, 2021, from 26.5% for the nine months ended November 30, 2020 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.

UBAM Operating Results for the Three and Six Months Ended August 31, 2021

UBAM Operating Results for the Three and Nine Months Ended November 30, 2021

The following table summarizes the operating results of the UBAM segment:

Three Months Ended

Six Months Ended

Nine Months Ended

Less discounts and allowances

8 unchanged sentences

Average number of active consultants

UBAM Operating Results for the Three Months Ended August 31, 2021

UBAM net revenues decreased $27.4 million, or 48.2%, to $29.5 million during the three months ended August 31, 2021, when compared to $56.9 million during the same period a year ago.

The average number of active consultants in the second quarter of fiscal 2022 was 46,100, an increase of 700, or 1.5%, from 45,400 selling in the second quarter of fiscal 2021.

The Company reports the average number of active consultants each quarter as a key indicator for this division.

During the quarter ended August 31, 2020 our sales per average number of active consultants increased significantly to due to the increase in demand for our products resulting from the impacts of the COVID-19 pandemic.

During last summer, school closings and public interaction restrictions increased the need for educational materials in the home and our consultants were positioned to fill this increased demand.

During the quarter ended August 31, 2021, our sales per average number of active consultants remained consistent with years prior to the COVID-19 pandemic.

Gross margin decreased $19.9 million, or 48.8%, to $20.9 million during the three months ended August 31, 2021, when compared to $40.8 million during the same period a year ago, primarily associated with the decrease in net revenues.

Gross margin as a percentage of net revenues decreased 1.0%, to 70.7% for the three-month period ended August 31, 2021, when compared to 71.7% the same period a year ago.

UBAM Operating Results for the Three Months Ended November 30, 2021

UBAM net revenues decreased $22.8 million, or 35.5%, to $41.4 million during the three months ended November 30, 2021, when compared to $64.2 million during the same period a year ago.

The average number of active consultants in the third quarter of fiscal 2022 was 41,500, a decrease of 15,700, or 27.4%, from 57,200 consultants selling in the third quarter of fiscal 2021.

During the first and second quarter of fiscal 2021, our active consultants grew significantly due to pandemic-related events such as seeking replacement income from the 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.

Our consultant numbers declined this year due to consultants returning to full-time employment, 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 the decrease in sales and consultants has occurred in fiscal 2022, our UBAM division’s active consultants and sales continue to exceed pre-pandemic levels.

Gross margin decreased $16.5 million, or 35.9%, to $29.4 million during the three months ended November 30, 2021, when compared to $45.9 million during the same period a year ago, primarily associated with the decrease in net revenues.

Gross margin as a percentage of net revenues decreased 0.5%, to 71.1% for the three-month period ended November 30, 2021, when compared to 71.6% the same period a year ago.

The decrease in gross margin as a percentage of net revenues resulted from a change in order mix partially offset by reduced cost of goods sold.

During the quarter ended August 31, 2021 sales through book fairs, booths and home parties increased over the second quarter last year when these sales types were challenged.

Throughout the quarter ended November 30, 2021 sales through book fairs, booths and home parties increased over the third quarter last year when these sales types were challenged.

These sales types have higher sales discounts and pay less sales commissions to our consultants, resulting in similar operating income.

5 unchanged sentences

General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the UBAM segment.

Total operating expenses decreased $15.8 million, or 50.8%, to $15.3 million during the three-month period ended August 31, 2021, when compared to $31.1 million reported in the same quarter a year ago.

Operating and selling expenses decreased $4.9 million, or 53.8%, to $4.2 million during the three-month period ended August 31, 2021, when compared to $9.1 million reported in the same quarter a year ago, primarily due to a decrease in net revenues and a decrease in postage and freight peak charges we experienced in the second quarter last year.

Sales commissions decreased $10.3 million, or 51.0%, to $9.9 million during the three-month period ended August 31, 2021, when compared to $20.2 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

General and administrative expenses decreased $0.6 million, or 35.3%, to $1.1 million during the three months ended August 31, 2021, when compared to $1.7 million during the same period a year ago, due primarily to reduced bank fees from less credit card transactions during the quarter ended August 31, 2021.

Operating income of the UBAM segment decreased $4.1 million, or 42.3%, to $5.6 million during the three months ended August 31, 2021, when compared to $9.7 million reported in the same quarter a year ago, primarily due to the change in net revenues.

Operating income of the UBAM division as a percentage of net revenues for the three months ended August 31, 2021 increased to 18.9%, compared to 17.0% for the three months ended August 31, 2020, primarily from reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes and reduced outbound shipping peak charges experienced in the second quarter last year.

UBAM Operating Results for the Six Months Ended August 31, 2021

UBAM net revenues decreased $26.7 million, or 28.5%, to $67.1 million during the six-month period ended August 31, 2021, compared to $93.8 million from the same period a year ago.

The average number of active consultants in the six-month period ended August 31, 2021 was 50,200, an increase of 10,900, or 27.7%, from 39,300 selling in same period a year ago.

During the six months ended August 31, 2020 our sales per average number of active consultants increased significantly due to the increase in demand for our products resulting from the impacts of the COVID-19 pandemic.

School closings and quarantine restrictions increased the need for educational materials in the home and our consultants were positioned to fill this increased demand.

During the six months ended August 31, 2021, our sales per average number of active consultants remained consistent with years prior to the COVID-19 pandemic.

Gross margin decreased $18.8 million, or 28.1%, to $48.2 million during the six-month period ended August 31, 2021, when compared to $67.0 million during the same period a year ago, due primarily to a decrease in net revenues.

Gross margin as a percentage of net revenues increased to 71.9% for the six-month period ended August 31, 2021, when compared to 71.4% for the same period a year ago.

During the six months ended August 31, 2021 , sales through book fairs, booths and home increased over the first six months of fiscal year 2021 when these sales types were challenged.

These sales types have higher sales discounts and pay less sales commissions to our consultants, resulting in similar operating income.

The decrease in gross margin percentage associated with the mix from these sales types was offset by reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes over pre-COVID-19 levels.

Total operating expenses decreased $16.7 million, or 32.4%, to $34.8 million during the six-month period ended August 31, 2021, from $51.5 million for the same period a year ago.

Operating and selling expenses decreased $5.0 million, or 34.2%, to $9.6 million during the six-month period ended August 31, 2021, when compared to $14.6 million reported in the same period a year ago, primarily due to a decrease in shipping costs associated with the decrease in volume of orders shipped.

Sales commissions decreased $11.0 million, or 32.5%, to $22.8 million during the six-month period ended August 31, 2021, when compared to $33.8 million reported in the same period a year ago, primarily due to the decrease in net revenues along with a lower percentage of internet-based sales, which offer fewer discounts and higher sales commissions to consultants.

General and administrative expenses decreased $0.7 million, or 21.9%, to $2.5 million, from $3.2 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes.

Operating income of the UBAM segment decreased $2.1 million, or 13.5%, to $13.4 million during the six months ended August 31, 2021, when compared to $15.5 million reported in the same period last year.

Operating income of the UBAM division as a percentage of net revenues for the six months ended August 31, 2021 was 20.0%, compared to 16.5% for the six months ended August 31, 2020, a change of 3.5%.

Operating income as a percentage of net revenues increased from the prior year primarily from reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes and reduced outbound shipping peak charges experienced during the first six months of the prior fiscal year.

Publishing Operating Results for the Three and Six Months Ended August 31, 2021

Total operating expenses decreased $13.2 million, or 37.6%, to $21.9 million during the three-month period ended November 30, 2021, when compared to $35.1 million reported in the same quarter a year ago.

Operating and selling expenses decreased $4.0 million, or 39.6%, to $6.1 million during the three-month period ended November 30, 2021, when compared to $10.1 million reported in the same quarter a year ago, primarily due to a $3.4 million decrease in postage and freight and a $0.6 million decrease in accruals for the Company’s annual incentive trip and other consultant rewards associated with the decrease in net sales.

Sales commissions decreased $8.5 million, or 37.1%, to $14.4 million during the three-month period ended November 30, 2021, when compared to $22.9 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

General and administrative expenses decreased $0.7 million, or 31.8%, to $1.5 million during the three months ended November 30, 2021, when compared to $2.2 million during the same period a year ago, due primarily to $0.6 million of reduced bank fees from less credit card transactions during the quarter ended November 30, 2021.

Operating income of the UBAM segment decreased $3.3 million, or 30.6% to $7.5 million during the three months ended November 30, 2021, when compared to $10.8 million reported in the same quarter a year ago, primarily due to the change in net revenues.

Operating income of the UBAM division as a percentage of net revenues for the three months ended November 30, 2021 increased to 18.2%, compared to 16.9% for the three months ended November 30, 2020, a change of $0.6 million.

This operating improvement resulted primarily from $0.2 million of reduced outbound shipping peak surcharges, a $0.2 million decrease in accruals for the Company’s annual incentive trip and other consultant rewards and a $0.2 million decrease in consultant promotion bonuses paid.

UBAM Operating Results for the Nine Months Ended November 30, 2021

UBAM net revenues decreased $49.5 million, or 31.3%, to $108.5 million during the nine-month period ended November 30, 2021, compared to $158.0 million from the same period a year ago.

The average number of active consultants in the nine-month period ended November 30, 2021 was 47,300, an increase of 2,100, or 4.6%, from 45,200 selling in same period a year ago.

During fiscal 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 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 2022, our UBAM division’s active consultants and sales continue to exceed pre-pandemic levels.

Gross margin decreased $35.3 million, or 31.2%, to $77.7 million during the nine-month period ended November 30, 2021, when compared to $113.0 million during the same period a year ago, due primarily to a decrease in net revenues.

Gross margin as a percentage of net revenues remained consistent at 71.6% for the nine-month period ended November 30, 2021, when compared to 71.5% for the same period a year ago.

Total operating expenses decreased $29.9 million, or 34.5%, to $56.7 million during the nine-month period ended November 30, 2021, from $86.6 million for the same period a year ago.

Operating and selling expenses decreased $9.0 million, or 36.6%, to $15.6 million during the nine-month period ended November 30, 2021, when compared to $24.6 million reported in the same period a year ago, primarily due to a $8.1 million decrease in shipping costs associated with the decrease in volume of orders shipped and a $0.9 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 $19.6 million, or 34.6%, to $37.1 million during the nine-month period ended November 30, 2021, when compared to $56.7 million reported in the same period a year ago, primarily due to the decrease in net revenues.

General and administrative expenses decreased $1.5 million, or 27.8%, to $3.9 million, from $5.4 million recognized during the same period last year, due primarily to a $1.2 million decrease in credit card transaction fees associated with decreased sales volumes and a $0.3 million decrease in other various expenses.

Operating income of the UBAM segment decreased $5.3 million, or 20.2%, to $21.0 million during the nine months ended November 30, 2021, when compared to $26.3 million reported in the same period last year.

Operating income of the UBAM division as a percentage of net revenues for the nine months ended November 30, 2021 was 19.3%, compared to 16.7% for the nine months ended November 30, 2020, a change of 2.6%.

Operating income as a percentage of net revenues increased from the prior year primarily due to $0.9 million of reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes, $0.9 million of increased transportation revenue due to the increase of our minimum shipping charge implemented in the third quarter of fiscal 2021, $0.9 million of reduced freight handling costs primarily from reduced peak surcharges in the current fiscal year due to lower shipping volumes, $0.7 million improvement from the change in order type mix, a $0.5 million decrease in accrual expenses for the Company’s annual incentive trip and other consultant rewards resulting from less award earners and $0.2 million of other various cost reductions, offset by $1.2 million of reduced transportation revenue associated with free shipping days offered in the current fiscal year, not offered in the previous fiscal year.

Publishing Operating Results for the Three and Nine Months Ended November 30, 2021

The following table summarizes the operating results of the Publishing segment:

Three Months Ended

Six Months Ended

Nine Months Ended

Less discounts and allowances

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Operating income

Publishing Operating Results for the Three Months Ended August 31, 2021

Our Publishing division’s net revenues increased $1.2 million, or 52.2%, to $3.5 million during the three-month period ended August 31, 2021, from $2.3 million reported in the same period a year ago.

Many Publishing customers began to reopen in the latter half of fiscal year 2021 after closing in the first quarter of fiscal year 2021 due to the COVID-19 pandemic.

Gross margin increased $0.4 million, or 33.3%, to $1.6 million during the three-month period ended August 31, 2021, from $1.2 million reported in the same quarter a year ago, primarily due to the increase in net revenues.

Gross margin as a percentage of net revenues decreased to 46.4% during the three-month period ended August 31, 2021, from 49.5% reported in the same quarter a year ago.

Publishing Operating Results for the Three Months Ended November 30, 2021

Our Publishing division’s net revenues increased $1.1 million, or 42.3%, to $3.7 million during the three-month period ended November 30, 2021, from $2.6 million reported in the same period a year ago.

Many Publishing customers closed their stores during the first and second quarters of fiscal 2021 due to the COVID-19 pandemic and did not reopen until the third or fourth quarter of fiscal 2021.

As such, much of the sales increase resulted from the return of customer activity to pre-pandemic levels.

In addition, sales in the current year third fiscal quarter were boosted by the addition of new customers added during the quarter.

Gross margin increased $0.6 million, or 50.0%, to $1.8 million during the three-month period ended November 30, 2021, from $1.2 million reported in the same quarter a year ago, primarily due to the increase in net revenues.

Gross margin as a percentage of net revenues increased to 47.9% during the three-month period ended November 30, 2021, from 47.0% reported in the same quarter a year ago.

Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to customers as well as changes in the mix of products sold between Kane Miller and Usborne.

Total operating expenses of the Publishing segment increased $0.2 million, or 50.0%, to $0.6 million, from $0.4 million, during the three-month periods ended August 31, 2021 and 2020, primarily as a result of increased freight expenses from an increase in sales.

Operating income of the Publishing segment increased $0.3 million, or 42.9%, to $1.0 million from $0.7 million for the three-month periods ended August 31, 2021 and 2020, primarily driven by the increase in net revenues.

Publishing Operating Results for the Six Months Ended August 31, 2021

Our Publishing division’s net revenues increased $3.0 million, or 81.1%, to $6.7 million during the six-month period ended August 31, 2021, from $3.7 million reported in the same period a year ago.

The increase in sales resulted from temporary store closures impacted by the COVID-19 pandemic in fiscal year 2021.

Many Publishing customers temporarily closed during the first quarter of fiscal year 2021, following the guidance from their local authorities to slow the spread of the pandemic, and began reopening at varying times in the latter half of fiscal year 2021.

Gross margin increased $1.2 million, or 66.7%, to $3.0 million during the six-month period ended August 31, 2021, from $1.8 million reported in the same period a year ago, primarily due to the increase in net revenues.

Gross margin as a percentage of net revenues decreased to 45.4%, during the six-month period ended August 31, 2021, from 49.1% reported in the same period a year ago.

The decrease in gross margin percentage results primarily from a change in our customer mix.

Customers receive varying discounts due to sales volumes and contract terms.

Total operating expenses of the Publishing segment increased $0.5 million, or 71.4%, to $1.2 million during the six-month period ended August 31, 2021, from $0.7 million reported in the same period a year ago, resulting from a $0.3 million increase in postage and freight from an increase in sales volumes and a $0.2 million increase in sales commissions from an increase in sales volumes.

Operating income of the Publishing segment increased $0.7 million, or 63.6%, to $1.8 million during the six-month period ended August 31, 2021 when compared to $1.1 million reported in the same period a year ago, due primarily to the increase in net revenues.

Total operating expenses of the Publishing segment increased $0.2 million, or 50.0%, to $0.6 million, from $0.4 million, during the three-month periods ended November 30, 2021 and 2020, resulting from a $0.1 million increase in postage and freight from an increase in sales volumes and a $0.1 million increase in sales commissions from an increase in sales volumes.

Operating income of the Publishing segment increased $0.4 million, or 50.0%, to $1.2 million from $0.8 million for the three-month periods ended November 30, 2021 and 2020, primarily driven by the increase in gross margin.

Publishing Operating Results for the Nine Months Ended November 30, 2021

Our Publishing division’s net revenues increased $4.1 million, or 65.1%, to $10.4 million during the nine-month period ended November 30, 2021, from $6.3 million reported in the same period a year ago.

The increase in sales primarily resulted from temporary store closures in fiscal year 2021 due to the COVID-19 pandemic.

Many Publishing customers closed during the first and second quarters of fiscal year 2021, following the guidance from their local authorities to slow the spread of the pandemic, and began reopening at varying times in the latter half of fiscal year 2021.

In addition, Publishing’s sales during the first nine months increased beyond pre-pandemic levels from the addition of new customers, as well as increased sales volumes with existing customers due to increased demand for our products.

Gross margin increased $1.8 million, or 60.0%, to $4.8 million during the nine-month period ended November 30, 2021, from $3.0 million reported in the same period a year ago, primarily due to the increase in net revenues.

Gross margin as a percentage of net revenues decreased to 46.3%, during the nine-month period ended November 30, 2021, from 48.2% reported in the same period a year ago.

The decrease in gross margin percentage results primarily from a change in our customer mix, as customers receive varying discounts due to sales volumes and contract terms, as well as changes in the mix of products sold between Kane Miller and Usborne.

Total operating expenses of the Publishing segment increased $0.6 million, or 50.0%, to $1.8 million during the nine-month period ended November 30, 2021, from $1.2 million reported in the same period a year ago, resulting from a $0.3 million increase in postage and freight from an increase in sales volumes and a $0.3 million increase in sales commissions from an increase in sales volumes.

Operating income of the Publishing segment increased $1.1 million, or 57.9%, to $3.0 million during the nine-month period ended November 30, 2021 when compared to $1.9 million reported in the same period a year ago, due primarily to the increase in gross margin.

Liquidity and Capital Resources

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We have 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.

During the first six months of fiscal year 2022, we experienced cash outflows from operations of $12,422,100.

During the first nine months of fiscal year 2022, we experienced cash outflows from operations of $7,377,100.

These cash outflows resulted from:

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●deferred income taxes of $226,700

Positively impacted by:

●increase in accounts payable of $4,451,400

●increase in income taxes payable of $453,900

Negatively impacted by:

●increase in inventories, net of $18,817,000

●decrease in accrued salaries and commissions, and other liabilities of $4,076,900

●decrease in deferred revenues of $1,162,700

●increase in accounts receivable of $1,476,700

●decrease in deferred revenues of $1,320,200

●decrease in accrued salaries and commissions, and other liabilities of $841,100

●increase in prepaid expenses and other assets of $159,000

●decrease in accounts payable of $104,700

●decrease in income taxes payable of $4,100

Cash used in investing activities was $3,210,200 for capital expenditures, which were comprised of $2,849,700 in equipment purchased to increase our daily shipping capacity, $280,500 in software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders and $80,000 in building and building improvements.

Cash provided by financing activities was $14,741,300, which was comprised of proceeds from term debt of $5,244,700, net borrowings under the line of credit of $11,408,500 and net cash received in treasury stock transactions of $92,400, offset by payments of $1,698,500 for dividends and payments on term debt of $305,800.

Cash used in investing activities was $3,387,100 for capital expenditures, which were comprised of $2,901,600 in equipment purchased to increase our daily shipping capacity, $392,800 in software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders and $92,700 in other building and equipment improvements.

Cash provided by financing activities was $9,858,700, which was comprised of proceeds from term debt of $15,244,700 and net cash received in treasury stock transactions of $154,400, offset by payments of $2,563,400 for dividends, repayment of borrowings on the line of credit of $2,225,900, and payments on term debt of $751,100.

During fiscal year 2022, 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.

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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 $10.7 million and $11.0 million as of August 31, 2021 and February 28, 2021, respectively.

The outstanding borrowings on Term Loan #1 were $10.5 million and $11.0 million as of November 30, 2021 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.

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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 at August 31, 2021 were $5.2 million.

Our borrowings outstanding under the Advancing Term Loan #1 at November 30, 2021 were $5.0 million.

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%.

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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 August 31, 2021 and February 28, 2021 were $16.7 million and $5.2 million, respectively.

Available credit under the revolving line of credit was approximately $3.3 million and $9.6 million at August 31, 2021 and February 28, 2021, respectively.

Our borrowings outstanding on our line of credit at November 30, 2021 and February 28, 2021 were $3.0 million and $5.2 million, respectively.

Available credit under the revolving line of credit was approximately $17.0 million and $9.6 million at November 30, 2021 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.

Our borrowings outstanding under the Advancing Term Loan #2 at November 30, 2021 were $10.0 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.

As of August 31, 2021, we had no letters of credit outstanding.

As of November 30, 2021, 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 number of shares that can be repurchased using funding from the line of credit.

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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 as of August 31, 2021 and February 28, 2021.

Management has estimated and included a reserve for sales returns of $0.2 million as of November 30, 2021 and February 28, 2021.

Allowance for Doubtful Accounts

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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 $0.4 million at August 31, 2021, and $0.3 million at February 28, 2021.

Included within this allowance is $0.1 million of reserve for vendor discounts to sell remaining inventory as of August 31, 2021 and February 28, 2021.

Management has estimated and included an allowance for doubtful accounts of $0.3 million at November 30, 2021, and $0.3 million at February 28, 2021.

Our inventory contains over 2,000 titles, each with different sell through rates depending upon the nature and popularity of the title.

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These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves.

Noncurrent inventory balances prior to valuation allowances were $1.1 million and $0.9 million at August 31, 2021 and February 28, 2021, respectively.

Noncurrent inventory valuation allowances were $0.3 million and $0.2 million at August 31, 2021 and February 28, 2021, respectively.

Noncurrent inventory balances prior to valuation allowances were $2.2 million and $0.9 million at November 30, 2021 and February 28, 2021, respectively.

Noncurrent inventory valuation allowances were $0.3 million and $0.2 million at November 30, 2021 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.

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in summary, having consignment inventory leads to additional sales opportunities.

Approximately 4.8% of our active consultants maintained consignment inventory at the end of the second quarter of fiscal 2022.

Approximately 6.5% of our active consultants have maintained consignment inventory at the end of the third quarter of fiscal 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 $1.2 million and $1.1 million at August 31, 2021 and February 28, 2021, respectively.

The total cost of inventory on consignment with consultants was $1.6 million and $1.1 million at November 30, 2021 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 $0.8 million and $0.7 million at August 31, 2021 and February 28, 2021, respectively.

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 November 30, 2021 and February 28, 2021, respectively.

Share-Based Compensation

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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 the first six months of fiscal year 2022, the Company recognized $0.5 million of compensation expense associated with the shares granted.

During the first nine months of fiscal year 2022, the Company recognized $0.8 million of compensation expense associated with the shares granted.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements