What changed in this filing

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Item 1. Financial Statements

2022-07-07 compared with 2022-01-06 · 136 added, 225 removed, 358 unchanged (50% of the section changed)

5 unchanged sentences

Accounts receivable, less allowance for doubtful accounts of

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

$ 265,000 (May 31) and $ 336,700 (February 28)

Inventories - net

16 unchanged sentences

LONG-TERM DEBT - net

DEFERRED INCOME TAX LIABILITY

OTHER LONG-TERM LIABILITIES

3 unchanged sentences

Authorized 16,000,000 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

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

Outstanding 8,698,838 (May 31) and 8,707,247 (February 28) shares

Capital in excess of par value

6 unchanged sentences

CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

Three Months Ended

Nine Months Ended

Three Months Ended May 31,

Less discounts and allowances

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CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2021

FOR THE THREE MONTHS ENDED MAY 31, 2022

(par value $0.20 per share)

3 unchanged sentences

Sales of treasury stock

Dividends declared ($ 0.10 /share)

Stock-based compensation (see note 6)

BALANCE - May 31, 2021

Sales of treasury stock

Issuance of restricted share awards for vesting

Dividends declared ($ 0.10 /share)

Share-based compensation expense (see Note 6)

BALANCE - August 31, 2021

Sales of treasury stock

Dividends declared ($ 0.10 /share)

Forfeiture of restricted share awards

Share-based compensation expense (see Note 6)

BALANCE - November 30, 2021

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2020

BALANCE - May 31, 2022

FOR THE THREE MONTHS ENDED MAY 31, 2021

(par value $0.20 per share)

2 unchanged sentences

BALANCE - February 28, 2021

Purchases of treasury stock

Sales of treasury stock

2 unchanged sentences

BALANCE - May 31, 2021

Sales of treasury stock

Dividends declared ($ 0.06 /share)

Share-based compensation expense (see Note 6)

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)

Nine Months Ended

Three Months Ended May 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Adjustments to reconcile net earnings to net cash used in operating activities:

Deferred income taxes

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Total adjustments

Net cash provided by (used in) operating activities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

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Sales of treasury stock

Purchases of treasury stock

Net payments on line of credit

Net borrowings under line of credit

Dividends paid

Net cash provided by (used in) financing activities

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

16 unchanged sentences

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.

Certain reclassifications have been made to the fiscal 2022 condensed statement of cash flows to conform to the classifications used in fiscal 2023.

These reclassifications had no effect on net earnings.

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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 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.

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.

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We have reviewed the recently issued accounting standards updates (“ASU”) and concluded that the following recently issued accounting standards apply to us:

In December 2019, the FASB published ASU 2019-12:

Income Taxes (Topic 740), which simplifies the accounting for income taxes.

Topic 740 addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intra-period allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year.

The amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in tax laws or rates.

Topic 740 was adopted by the Company at the beginning of fiscal year 2022 and did not have a material impact on our financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04:

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This ASU is effective March 12, 2020 through December 31, 2022.

The Company’s debt agreements include the use of alternate rates when LIBOR is not available.

We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications .

With the execution of the Fifth Amendment to the Company’s Amended and Restated Loan Agreement the Benchmark Replacement for LIBOR is defined as the Secured Overnight Financing Rate (“SOFR") published by the Chicago Mercantile Exchange.

The change from LIBOR to SOFR did not require remeasurement or reassessment of a previous accounting determination and did not have a material impact to our condensed financial statements.

Note 2 – INVENTORIES

Inventories consist of the following:

November 30, 2021

February 28, 2022

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Inventories net – noncurrent

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

Inventory in transit totaled $ 590,700 and $ 2,732,400 at May 31, 2022 and February 28, 2022, 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 $ 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.

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”).

Our distribution agreement includes an annual minimum purchase volume, which if not met may modify the termination provisions from not less than 12 months to not less than 30 days.

Purchases received from this company were $ 3,577,300 and $ 12,288,300 for the three months ended May 31, 2022 and 2021, respectively.

Total inventory purchases received from all suppliers were $ 5,978,600 and $ 17,785,200 for the three months ended May 31, 2022 and 2021, respectively.

Note 3 – LEASES

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Our leases are evaluated at inception or at any subsequent modification.

Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842.

One lessee arrangement includes a rental agreement where we have the exclusive use of dedicated office space in San Diego, California, and qualifies as an operating lease.

Our other lessee arrangement is short-term and offers flexible storage space on a month-to-month basis.

Our lessee arrangements are not material to our condensed financial statements or notes to the condensed financial statements.

Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualifies as an operating lease under ASC 842.

Our lessee arrangements include two rental agreements where we have the exclusive use of dedicated office space in San Diego, California, as well as warehouse and office space in Layton, Utah, and both qualify as an operating lease.

Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualify as an operating lease under ASC 842.

Operating Leases – Lessor

We recognize fixed rental income on a straight-line basis over the life of the lease as other income on our condensed statements of earnings.

Variable rental payments are recognized as other income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

On April 4, 2020, we executed an amendment to one of our existing leases that abated rental payments for the months of May, June and July 2020.

The amendment also extended the term of the lease for three additional months.

This amendment represents a lease modification and, as such, we have adjusted our fixed rental income on a straight-line basis over the remaining term starting May 1, 2020.

Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:

Years ending February 28 (29),

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.

The cost of the leased space was $ 10,834,300 for both May 31, 2022 and February 28, 2022, respectively.

The accumulated depreciation associated with the leased assets was $ 2,700,000 and $ 2,603,300 as of May 31, 2022 and February 28, 2022, 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:

November 30, 2021

February 28, 2022

6 unchanged sentences

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.

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 .

On April 1, 2021, the Company executed the First Amendment to the Loan Agreement which reduced the fixed interest rate on Term Loan #1 to 3.12 % and removed the prepayment premium from the Loan Agreement.

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

Term Loan #1 Tranche A (“Term Loan #1”), originally totaling $ 13.4 million, has a fixed interest rate of 3.12 % 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.

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.

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 Loan Agreement also provides a $ 20.0 million revolving loan (“line of credit”) through April 11, 2023 with interest payable monthly at the Bank-adjusted Secured Overnight Financing Rate (“SOFR”) 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 4.02 % at May 31, 2022).

On April 11, 2022, the Company executed the Fifth Amendment to the Loan Agreement which temporarily increased the maximum revolving principal amount from $ 20.0 million to $25.0 million.

The temporary increase period began on April 11, 2022 and ends on September 15, 2022, at which time the maximum revolving principal will automatically revert back to $20.0 million.

Available credit under the revolving line of credit was approximately $ 582,300 and $ 2,276,500 at May 31, 2022 and February 28, 2022, respectively.

In addition, the Loan Agreement provides a $ 6.0 million Advancing Term Loan #1 and a $ 10.0 million Advancing Term Loan #2.

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% (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).

Advancing Term Loan #2 is a 120-month amortizing loan maturing November 19, 2031.

The Advancing Term Loans #1 and #2 accrue interest at the Bank-adjusted SOFR 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 4.02 % at May 31, 2022).

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

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Adjusted Funded Debt to EBITDA Ratio

LIBOR Margin (bps)

SOFR Margin (bps)

> 2.00 but < 2.50

1 unchanged sentence

The Loan Agreement 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 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 November 30, 2021, we had no letters of credit outstanding.

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 April 11, 2023 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 May 31, 2022, 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.

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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

Nine Months Ended

Three Months Ended May 31,

Net earnings applicable to common shareholders

1 unchanged sentence

Weighted average shares outstanding-basic

Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards

Issuance of nonvested restricted shares

Weighted average shares outstanding-diluted

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These shares were made available to be reissued to remaining participants upon forfeiture.

During the first quarter of fiscal year 2023, 10,000 of these restricted shares were forfeited, along with 969 additional shares purchased with dividends received from original issue date.

The fiscal year 2023 forfeitures will not be reissued under the 2019 LTI Plan.

The remaining compensation expense for the outstanding awards, totaling approximately $ 472,900 , will be recognized ratably over the remaining vesting period of approximately 9 months.

During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan, including the 5,000 aforementioned shares that were previously forfeited and held in Treasury, with an average grant-date fair value of $ 6.30 per share.

In the first quarter of fiscal year 2023, 5,000 of these restricted shares were forfeited, along with 211 additional shares purchased with dividends received from original issue date.

These shares will not be reissued under the 2019 LTI Plan.

The remaining compensation expense of these awards, totaling approximately $ 1,062,000 , will be recognized ratably over the remaining vesting period of approximately 33 months.

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

As of May 31, 2022, 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 November 30,

Nine Months Ended November 30,

Three Months Ended May 31,

Share-based compensation expense

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

The following table summarizes stock award activity during the first three months of fiscal year 2023 under the 2019 LTI Plan:

Weighted Average Fair Value (per share)

Outstanding at February 28, 2022

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.

Outstanding at May 31, 2022

As of May 31, 2022, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $ 1,534,900 , which we expect to recognize over a weighted-average period of 25.6 months.

Note 7 – SHIPPING AND HANDLING COSTS

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

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.

These costs were $ 3,562,600 and $ 6,356,400 for the three months ended May 31, 2022 and 2021, respectively.

Note 8 – BUSINESS SEGMENTS

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

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

Three Months Ended

Nine Months Ended

Information by reporting segment for the three-month period ended May 31, 2022 and 2021, are as follows:

Three Months Ended May 31,

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended

Nine Months Ended

Note 9 – FAIR VALUE MEASUREMENTS

The valuation hierarchy included in GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement date.

A financial instrument’s classification within the valuation hierarchy is based on the lowest level of input that is significant to its fair value measurement.

The three levels of the valuation hierarchy and the classification of our financial assets and liabilities within the hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly.

If an asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs for the asset or liability.

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.

Three Months Ended May 31,

Note 9 – FINANCIAL INSTRUMENTS

The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:

The carrying amounts reported in the condensed balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

The estimated fair value of our term notes payable is estimated by management to approximate $ 23,364,100 and $ 24,521,600 as of May 31, 2022 and February 28, 2022, respectively.

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

Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.

Note 10 – DEFERRED REVENUES

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 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.

Any payments received prior to the end of the period that were not shipped as of May 31, 2022 or February 28, 2022 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 1,718,000 and $ 681,600 , as of May 31, 2022 and February 28, 2022, respectively, in payments for sales orders which will be shipped subsequent to the end of the period.

Note 11 – SUBSEQUENT EVENTS

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

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See “ Cautionary Remarks Regarding Forward-Looking Statements ” in the front of this Quarterly Report on Form 10-Q.

We are the exclusive United States trade co-publisher of Usborne children’s books and the owner of Kane Miller.

We are the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books and the owner and exclusive publisher of Kane Miller Book Publisher (“Kane Miller”).

Significant portions of our inventory purchases are concentrated with Usborne.

Our distribution agreement includes an annual minimum purchase volume, which if not met may modify the termination provisions from not less than 12 months to not less than 30 days.

In the past five years, we have exceeded the new annual minimum purchase commitments with Usborne.

We operate two separate segments, UBAM and Publishing, to sell our Usborne and Kane Miller children’s books.

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The following table shows our condensed statements of earnings data:

Three Months Ended

Nine Months Ended

Three Months Ended May 31,

Cost of goods sold

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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 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 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.

Non-Segment Operating Results for the Three Months Ended May 31, 2022

Total operating expenses not associated with a reporting segment decreased $0.7 million, or 15.6%, to $3.8 million for the three-month period ended May 31, 2022, when compared to $4.5 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.6 million decrease in labor and a $0.3 million decrease in freight handling expenses, both resulting from a decrease in gross sales, offset by $0.2 million increase in depreciation expense primarily driven by the addition of two new pick/pack/ship lines.

Interest expense increased $0.2 million, or 100.0%, to $0.4 million for the three months ended May 31, 2022, when compared to $0.2 million for the same quarterly period a year ago, due to increased borrowings against our line of credit and the addition of the $10.0 million Advancing Term Loan #2 at the end of the previous fiscal year, which was not utilized in the same quarterly period a year ago.

Income taxes decreased $1.1 million, or 91.7%, to $0.1 million for the three months ended May 31, 2022, from $1.2 million for the same quarterly period a year ago, primarily resulting from a decrease in gross sales.

Our effective tax rate decreased to 24.3% for the quarter ended May 31, 2022, from 26.2% for the quarter ended May 31, 2021 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 Nine Months Ended November 30, 2021

UBAM Operating Results for the Three Months Ended May 31, 2022

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

Three Months Ended

Nine Months Ended

Three Months Ended May 31,

Less discounts and allowances

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Average number of active consultants

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.

UBAM net revenues decreased $17.6 million, or 46.8%, to $20.0 million during the three months ended May 31, 2022, when compared to $37.6 million during the same period a year ago.

The average number of active consultants in the first quarter of fiscal 2023 was 32,200, a decrease of 22,900, or 41.6%, from 55,100 average active consultants selling in the first quarter of fiscal 2022.

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.

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.

Reduced cost of goods sold resulted from larger volume discounts and vendor rebates associated with increased purchasing volumes over pre-COVID-19 levels.

In addition, sales during the first quarter of fiscal 2023 were negatively impacted by the recent record inflation.

Record inflation that resulted from high fuel costs and food price increases has impacted the disposable income of our customers.

We expect this impact on sales to continue as inflationary pressures continue.

Historically, when we have experienced these difficult inflationary times, our UBAM active consultant numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.

Gross margin decreased $13.5 million, or 49.3%, to $13.9 million during the three months ended May 31, 2022, when compared to $27.4 million during the same period a year ago.

Gross margin as a percentage of net revenues decreased 3.6%, to 69.2% for the three-month period ended May 31, 2022, when compared to 72.5% the same period a year ago.

The decrease in gross margin as a percentage of net revenues is attributed to a change in order mix and less transportation revenue of $0.4 million and rising ocean freight costs on inbound inventory of $0.2 million.

UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses.

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

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

Total operating expenses decreased $9.0 million, or 46.2%, to $10.5 million during the three-month period ended May 31, 2022, when compared to $19.5 million reported in the same quarter a year ago.

Operating and selling expenses decreased $2.3 million, or 43.4%, to $3.0 million during the three-month period ended May 31, 2022, when compared to $5.3 million reported in the same quarter a year ago, primarily due to a decrease in outbound freight from fewer sales and shipments.

Sales commissions decreased $6.2 million, or 48.1%, to $6.7 million during the three-month period ended May 31, 2022, when compared to $12.9 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

General and administrative expenses decreased $0.5 million, or 38.5%, to $0.8 million during the three months ended May 31, 2022, when compared to $1.3 million during the same period a year ago, due primarily to reduced bank fees from fewer credit card transactions during the quarter ended May 31, 2022.

Operating income of the UBAM segment decreased $4.6 million, or 58.2% to $3.3 million during the three months ended May 31, 2022, when compared to $7.9 million reported in the same quarter a year ago.

Operating income of the UBAM division as a percentage of net revenues for the three months ended May 31, 2022 decreased to 16.6%, compared to 20.9% for the three months ended May 31, 2021.

This change primarily resulted from the decrease in net revenues and gross margin.

Publishing Operating Results for the Three Months Ended May 31, 2022

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

Three Months Ended

Nine Months Ended

Three Months May 31,

Less discounts and allowances

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Operating income

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.

Our Publishing division’s net revenues decreased slightly by $0.1 million, or 3.1%, to $3.1 million during the three-month period ended May 31, 2022, from $3.2 million reported in the same period a year ago, with sales orders remaining consistent between the periods.

Gross margin increased slightly by $0.1 million, or 7.1%, to $1.5 million during the three-month period ended May 31, 2022, from $1.4 million reported in the same quarter a year ago, with consistent sales.

Gross margin as a percentage of net revenues increased to 46.3% during the three-month period ended May 31, 2022, from 44.2% 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 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.

Total operating expenses of the Publishing segment increased $0.2 million, or 40.0%, to $0.7 million, from $0.5 million, during the three-month periods ended May 31, 2022 and 2021, respectively.

This change was due to an increase of $0.1 million in payroll expenses from our acquisition of Learning Wrap-Ups in December 2021 and a $0.1 million increase in other various expenses.

Operating income of the Publishing segment decreased $0.2 million, or 22.2%, to $0.7 million from $0.9 million for the three-month periods ended May 31, 2022 and 2021, respectively.

This change is primarily driven by the increase in our operating expenses.

Liquidity and Capital Resources

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We typically fund our operations from the cash we generate.

We also use available cash to pay down outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock.

We also use available cash to pay down outstanding bank loan balances, to pay for capital expenditures, to pay dividends, and to acquire treasury stock.

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

During the first three months of fiscal year 2023, we experienced cash outflows from operations of $2,197,000.

These cash outflows resulted from:

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●share-based compensation expense of $261,600

●provision for inventory valuation allowance of $180,000

●provision for doubtful accounts of $91,800

●deferred income taxes of $1,400

●provision for doubtful accounts of $63,600

Positively impacted by:

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

●decrease in inventories, net of $3,057,800

●increase in deferred revenues of $1,036,400

●increase in income taxes payable of $37,200

Negatively impacted by:

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

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

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

●decrease in accounts payable of $5,699,000

●decrease in accrued salaries and commissions, and other liabilities of $1,472,300

●increase in accounts receivable of $140,500

●increase in prepaid expenses and other assets of $31,400

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.

Cash used in investing activities was $108,800 for capital expenditures, primarily for software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders.

Cash provided by financing activities was $3,364,000, which was comprised of cash received in treasury stock transactions of $63,400 and net borrowings under the line of credit of $4,785,400, offset by payments of $870,700 for dividends and payments on term debt of $614,100.

During fiscal year 2023, 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 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.

Cash generated from operations will be used to purchase inventory in order to expand our product offerings and to liquidate existing debt.

Any excess cash is expected to be distributed to our shareholders.

We have an Amended and Restated Loan Agreement with MidFirst Bank executed on February 15, 2021 which replaced the prior loan agreement and includes multiple loans.

Term Loan #1 Tranche A (“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement.

Term Loan #1 had a fixed interest rate of 4.23%, with principal and interest payable monthly and a stated maturity date of December 1, 2025.

Term Loan #1 has a fixed interest rate of 3.12%, 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 $10.5 million and $11.0 million as of November 30, 2021 and February 28, 2021, respectively.

The outstanding borrowings on Term Loan #1 were $10.2 million and $10.3 million as of May 31, 2022 and February 28, 2022, respectively.

In addition, the Amended and Restated Loan Agreement provides a $6.0 million Advancing Term Loan #1 to be used to finance planned equipment purchases.

The Advancing Term Loan #1 required interest-only payments through July 15, 2021, at which time it was converted to a 60-month amortizing term loan maturing July 15, 2026.

The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%.

Our borrowings outstanding under the Advancing Term Loan #1 at 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%.

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 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 Advancing Term Loan #1 accrues interest at the Bank-adjusted Secured Overnight Financing Rate (“SOFR”) 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 May 31, 2022 were $4.6 million.

The Amended and Restated Loan Agreement also provides a $20.0 million revolving loan (“line of credit”) through April 11, 2023 with interest payable monthly at the Bank-adjusted SOFR 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 4.02% at May 31, 2022).

The line of credit was temporarily increased from $20.0 million to $25.0 million with the execution of the Fifth Amendment.

The temporary increase period began on April 11, 2022 and ends on September 15, 2022, at which time the maximum revolving principal will automatically revert back to $20.0 million.

Our borrowings outstanding on our line of credit at May 31, 2022 and February 28, 2022 were $22.5 million and $17.7 million, respectively.

Available credit under the revolving line of credit was approximately $0.6 million and $2.3 million at May 31, 2022 and February 28, 2022, respectively.

Advancing Term Loan #2 was executed on November 19, 2021 in the principal amount of $10.0 million and is a 120-month amortizing loan maturing November 19, 2031.

Advancing Term Loan #2 accrues interest at the Bank-adjusted SOFR 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 4.02% at May 31, 2022).

Our borrowings outstanding under the Advancing Term Loan #2 at May 31, 2022 were $9.7 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 November 30, 2021, we had no letters of credit outstanding.

As of May 31, 2022, we had no letters of credit outstanding.

The agreement contains provisions that require us to maintain specified financial ratios, place limitations on additional debt with other banks, limit the amounts of dividends declared and limits the 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 November 30, 2021 and February 28, 2021.

Management has estimated and included a reserve for sales returns of $0.2 million as of May 31, 2022 and February 28, 2022.

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.

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.

Management has estimated and included an allowance for doubtful accounts of $0.3 million at May 31, 2022 and February 28, 2022.

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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As such, the majority of the titles we sell remain current in content for several years.

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

Certain inventory is maintained in a noncurrent classification.

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

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

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.

These inventory quantities have additional exposure for storage damages and related issues, and therefore have higher obsolescence reserves.

Noncurrent inventory balances prior to valuation allowances were $4.3 million and $2.4 million at May 31, 2022 and February 28, 2022, respectively.

Noncurrent inventory valuation allowances were $0.4 million at May 31, 2022 and February 28, 2022.

Our principal supplier, based in England, generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run.

Smaller orders would require a shared print run with the supplier’s other customers, which can result in lengthy delays to receive the ordered title.

Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series.

We then place the initial order or re-order based upon this analysis.

We then place the initial order or reorder based upon this analysis.

These factors and historical analysis have led our management to determine that 2½ years represents a reasonable estimate of the normal operating cycle for our products.

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

Approximately 6.5% of our active consultants have maintained consignment inventory at the end of the third quarter of fiscal 2022.

Approximately 7.1% of our active consultants have maintained consignment inventory at the end of the first quarter of fiscal 2023.

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 $1.6 million and $1.1 million at November 30, 2021 and February 28, 2021, respectively.

The total cost of inventory on consignment with consultants was $1.2 million and $1.4 million at May 31, 2022 and February 28, 2022, respectively.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company.

Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory.

Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.9 million and $0.7 million at November 30, 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 $0.8 million and $0.9 million at May 31, 2022 and February 28, 2022, 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 nine months of fiscal year 2022, the Company recognized $0.8 million of compensation expense associated with the shares granted.

During the first three months of fiscal year 2023, the Company recognized $0.3 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