What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-05-05 compared with 2021-05-13 · 86 added, 95 removed, 213 unchanged (46% of the section changed)

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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 office and distribution facility.

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.

UBAM Division

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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.

This past fiscal year continued with a significant shift toward internet sales via social media platform events, such as Facebook parties.

An important factor in the continued growth of the UBAM division is the addition of new sales consultants and the retention of existing consultants.

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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, have become popular sales tools.

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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We also offer two display racks to assist stores in displaying our products.

Our Publishing division activities and sales were significantly impacted during the last fiscal year due to the COVID-19 pandemic.

Many of the national trade shows were cancelled and a significant number of our retail customers temporarily closed to comply with their local health department recommendations.

The Company has taken steps to limit the exposure to bad credit as well as offer flexible payment terms for those customers that requested additional time to pay their outstanding invoices.

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.

Result of Operations

The following table shows our statements of earnings data:

Twelve Months Ended February 28 (29),

Twelve Months Ended

Cost of goods sold

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Non-Segment Operating Results

Operating expenses not associated with a reporting segment were $19.4 million for fiscal year ended February 28, 2021 compared to $13.1 million for the same period a year ago.

Operating expenses increased $6.3 million due to a $3.8 million increase in payroll primarily related to an increase in warehouse labor and incentive plan expenses, an increase in freight handling costs of $1.9 million from an escalation in the number of shipments, a $0.2 million increase in depreciation expense, a $0.2 million increase in other services related to the increase in sales volumes, a $0.1 million increase in rent for the addition of warehouse space needed for the influx of inventory and other various increases totaling $0.1 million.

Interest expense decreased $0.3 million to $0.6 million for the fiscal year ended February 28, 2021, compared to $0.9 million reported for fiscal year ended February 29, 2020 due to the early extinguishment of two long-term debt agreements during the second quarter of fiscal year 2021.

Other income increased $0.2 million to $1.8 million for the fiscal year ended February 28, 2021, compared to $1.6 million for the fiscal year ended February 29, 2020 due primarily to increased royalties received from a national fast food restaurant chain that prints shortened versions of selected titles to include with their kids meals.

Income taxes increased $2.5 million to $4.6 million for the fiscal year ended February 28, 2021, from $2.1 million for the same period a year ago.

This increase was primarily related to an increase in taxable income for the current fiscal year compared to prior fiscal year.

The effective tax rate decreased by 0.5% to 26.7% for the fiscal year ended February 28, 2021, as compared to 27.2% for the fiscal year ended February 29, 2020 due to sales mix fluctuations between states.

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

Twelve Months Ended February 28 (29),

Twelve Months Ended

Less discounts and allowances

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Average number of active consultants

UBAM net revenues increased $92.7 million, or 89.7%, to $196.0 million for the fiscal year ended February 28, 2021, when compared with net revenues of $103.3 million reported for fiscal year ended February 29, 2020.

The average number of active consultants in fiscal year 2021 was 48,700, an increase of 16,200, or 49.8%, from 32,500 average active consultants selling in fiscal year 2020.

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.

UBAM's increase in active consultants resulted from several factors, including:

an increase in families looking for non-traditional income streams to supplement or replace income lost from the COVID-19 pandemic, a change in new consultant kits which offered lower introductory prices, the restructure of our UBAM consultant success program, which was introduced during the first quarter of fiscal 2021 and technology improvements that have enhanced the customer experience and streamlined the proprietary systems that our consultants use to run their business.

Our increase in active consultants and our ability to receive orders online and deliver directly to our customers’ homes resulted in our increased revenues during the current fiscal year.

UBAM gross margin increased $68.8 million, or 96.1%, to $140.4 million for the fiscal year ended February 28, 2021, from $71.6 million reported for fiscal year ended February 29, 2020.

Gross margin as a percentage of net revenues increased 2.3% to 71.6% for fiscal year 2021 when compared to 69.3% for fiscal year 2020.

The increase 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, increased significantly while book fairs, school and library sales and other in-person sale types declined year over year, due to the quarantining effects of the COVID-19 pandemic.

The increase in web sales and decrease in in-person sales also resulted in overall higher sales commissions as a percentage of net revenues during the fiscal year.

The overall net profit impact of the order type mix change after selling expenses, commissions and direct operating expenses was minimal.

Total UBAM operating expenses increased $53.5 million, or 98.9%, to $107.6 million during the fiscal year ended February 28, 2021, when compared with $54.1 million reported for fiscal year ended February 29, 2020.

Operating and selling expenses increased $15.6 million, to $31.2 million for fiscal year ended February 28, 2021 from $15.6 million reported for fiscal year 2020, primarily due to an increase in postage and freight costs of $15.0 million and an increase in expenses for trip accruals and other consultant rewards of $0.6 million, both associated with increased UBAM sales.

Sales commissions increased $35.1 million, to $69.7 million, for fiscal year ended February 28, 2021 from $34.6 million reported for fiscal year 2020, due primarily to the increase in sales volumes and the increase in internet-based sales, which offer fewer discounts and higher sales commissions to consultants.

General and administrative expenses increased $2.8 million to $6.7 million during the fiscal year ended February 28, 2021, when compared with $3.9 million reported for fiscal year ended February 29, 2020.

This increase was primarily due to $2.1 million of increased credit card transaction fees associated with increased sales volumes and a $0.7 million increase in promotions and marketing expenses associated with increased consultant counts.

Operating income of our UBAM division increased $15.4 million, or 88.5%, to $32.8 million for fiscal year ended February 28, 2021, as compared to $17.4 million reported for fiscal year ended February 29, 2020.

Operating income of the UBAM division as a percentage of net revenues for the year ended February 28, 2021 was 16.7%, compared to 16.9% for the year ended February 29, 2020, a change of 0.2%, or $0.3 million.

Operating income as a percentage of net revenues changed from the prior year primarily due to increased postage and freight expenses as a percentage of net revenues totaling approximately $0.8 million, partially offset by the positive impact of the change to a “virtual” annual convention in our fiscal 2020 second quarter totaling approximately $0.5 million.

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.

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 (29),

Twelve Months Ended

Less discounts and allowances

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Operating income

Our Publishing division’s net revenues decreased $1.1 million, or 11.3%, to $8.6 million for the fiscal year ended February 28, 2021, when compared with net revenues of $9.7 million reported for fiscal year ended February 29, 2020.

The decrease in sales resulted from temporary store closures in areas impacted by the COVID-19 pandemic.

Many Publishing customers temporarily closed during the first part of our fiscal year 2021, following the guidance from their local authorities to prevent the spread of the pandemic, and have begun reopening at varying times over the last six months of the fiscal year.

In addition, many customers expanded their capacity to sell online, which had a positive impact on Publishing sales in the last six months.

Gross margin decreased $0.4 million to $4.2 million for the fiscal year ended February 28, 2021, from $4.6 million reported for fiscal year ended February 29, 2020.

The decrease in gross margin primarily resulted from the decrease in net revenues.

Gross margin as a percentage of net revenues increased 1.2% to 48.6% for the fiscal year 2021, compared to 47.4% reported the same period a year ago.

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

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

Operating income for the segment decreased $0.1 million, or 3.7%, to $2.6 million for fiscal year ended February 28, 2021, from $2.7 million reported during the same period last year.

The decrease in operating income resulted primarily from the $0.4 million decrease in gross margin, offset by $0.1 million of reduced freight from fewer sales orders, $0.1 million reduced sales commissions from fewer sales orders and $0.1 million of reduced expenses due to trade show cancellations resulting from the COVID-19 pandemic.

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 flows.

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 primarily to purchase additional inventory, to pay down our outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock.

During fiscal year 2021, we dramatically increased our inventory purchases based on fiscal year 2021 sales.

At fiscal year-end 2021, our revolving bank credit facility loan balance was $5.2 million with $9.6 million in available capacity.

During fiscal year 2021, we generated positive cash flows from our operations of $7.8 million.

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.

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

These cash flows resulted from:

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Positively impacted by:

● increase in accounts payable of $8,952,000

● increase in accrued salaries, commissions, and other liabilities of $4,676,000

● increase in deferred revenue of $1,528,800

● increase in income taxes payable of $111,700

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● 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

Cash used in investing activities was $4.1 million for capital expenditures.

Our capital expenditures were primarily associated with equipment purchased to increase our daily shipping capacity and the software upgrades that our UBAM consultants use to monitor their business and place customer orders.

Our capital expenditures included:

● Equipment purchased to increase our daily shipping capacity of $3,475,600

● UBAM consultant and customer facing software upgrades of $502,100

● Building and other improvements of $167,600

Cash used in financing activities was $4.9 million, which was comprised of net cash used to pay down term debt of $7.8 million, payments of $2.3 million for dividends and were offset by $5.2 million in net borrowings under the line of credit.

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 increase inventory by expanding our product lines, to liquidate existing debt, and any excess cash is expected to be distributed to our shareholders.

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, originally totaling $13.4 million, was part of the prior loan agreement.

Term Loan #1 Tranche A has 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 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 requires interest-only payments through July 15, 2021, at which time it will convert 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% and matures on July 15, 2026.

The Company had no borrowings under the Advancing Term Loan at February 28, 2021.

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.

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%.

The Company had $5.2 million of borrowings outstanding on the line of credit as of February 28, 2021.

Available credit under the revolving credit agreement was $9.6 million as of February 28, 2021.

During the second quarter of fiscal year 2021, we paid off Term Loan #1 Tranche B totaling $4.2 million from the previous loan agreement, which had a maturity date of December 1, 2025.

In addition, we also paid off Term Loan #2 from the previous loan agreement totaling $2.9 million, which previously had a maturity date of June 28, 2021.

The purpose of paying off these loans early was to utilize our existing cash flows from operations to increase future profits by reducing interest expense, as well as, free up future cash flows to be used to either pay dividends or purchase additional shares.

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.

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Years ending February 28 (29),

During the first quarter of fiscal 2021 we increased our quarterly dividend payments from $0.05 to $0.06.

During the third quarter of fiscal 2021 we further increased our quarterly dividend from $0.06 to $0.10 per quarter.

The Company has a long history of paying quarterly dividends and expects to continue its current practice of paying quarterly dividends to its shareholders.

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.

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The Company experiences increased sales in the Fall season.

We experience an increase in inventory during the Summer in anticipation for the Fall increase in sales.

In addition, new titles are released twice a year, in the Spring and Fall, which increases our inventory the months preceding these scheduled releases.

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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Forfeitures are recognized when they occur.

The restricted share awards granted under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) contain both service and performance conditions.

The Company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting.

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 are determined based on the closing price of the shares on the grant date.

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.

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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 (collectively “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.

The COVID-19 pandemic caused several of our retail customers to temporarily close their stores during the past fiscal year.

The impact of the temporary store closures on our customers is uncertain and many customers may be financially harmed and unable to continue operations.

Management has evaluated customers with significant receivable balances to determine if additional bad debt reserves are needed.

In addition, we have offered extended payment terms to customers that have requested assistance.

Management has estimated an allowance for doubtful accounts of $0.3 million and $0.2 million as of February 28, 2021 and February 29, 2020, respectively.

Included within this allowance is $0.1 million of reserve for vendor discounts to sell remaining inventory as of February 28, 2021 and February 29, 2020.

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.

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 resulting in a four to six-month lead-time to have a title printed and delivered to us.

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.

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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.

All inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory.

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;

and having consignment inventory leads to additional sales opportunities.

Approximately 4.0% of our active consultants maintained consignment inventory at the end of fiscal year 2021.

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.

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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 $0.7 million and $0.5 million as of February 28, 2021 and February 29, 2020, respectively.

The increase in our valuation allowance is primarily an increase in the reserve for consigned inventory.

Management has increased this reserve due to declined consignment sales as in-person events, such as booths and fairs, have been cancelled due to the Covid-19 pandemic.

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.

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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-K

Item 7. Management’s Discussion and Analysis