What changed in this filing

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Item 1. Financial Statements

2022-10-06 compared with 2022-07-07 · 235 added, 165 removed, 329 unchanged (55% of the section changed)

5 unchanged sentences

Accounts receivable, less allowance for doubtful accounts of

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

$ 238,600 (August 31) and $ 336,700 (February 28)

Inventories - net

21 unchanged sentences

Authorized 16,000,000 shares;

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

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

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

Outstanding 8,685,289 (August 31) and 8,707,247 (February 28) shares

Capital in excess of par value

5 unchanged sentences

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

Three Months Ended May 31,

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended

Six Months Ended

Less discounts and allowances

7 unchanged sentences

INTEREST EXPENSE

EARNINGS BEFORE INCOME TAXES

BASIC AND DILUTED EARNINGS PER SHARE

EARNINGS (LOSS) BEFORE INCOME TAXES

NET EARNINGS (LOSS)

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING

3 unchanged sentences

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 31, 2022

FOR THE SIX MONTHS ENDED AUGUST 31, 2022

(par value $0.20 per share)

3 unchanged sentences

Sales of treasury stock

Forfeiture of restricted share awards

Share-based compensation expense (see Note 6)

Forfeiture of restricted shares

Share-based compensation expense - net

BALANCE - May 31, 2022

FOR THE THREE MONTHS ENDED MAY 31, 2021

Forfeiture of restricted shares

Share-based compensation expense - net

BALANCE - August 31, 2022

FOR THE SIX MONTHS ENDED AUGUST 31, 2021

(par value $0.20 per share)

4 unchanged sentences

Dividends declared ($ 0.10 /share)

Share-based compensation expense (see Note 6)

Share-based compensation expense - net

BALANCE - May 31, 2021

Sales of treasury stock

Issuance of restricted share awards for vesting

Dividends declared ($ 0.10 /share)

Share-based compensation expense - net

BALANCE - August 31, 2021

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended May 31,

Six Months Ended August 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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

Net earnings (loss)

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

Deferred income taxes

1 unchanged sentence

Provision for inventory valuation allowance

Share-based compensation expense

Share-based compensation expense - net

Changes in assets and liabilities:

10 unchanged sentences

Purchases of property, plant and equipment

Purchases of other assets

Net cash used in investing activities

3 unchanged sentences

Sales of treasury stock

Net borrowings under line of credit

Net borrowings (payments) on line of credit

Dividends paid

5 unchanged sentences

Cash paid for interest

Cash paid for income taxes

Cash paid for income taxes (net of refunds)

NON-CASH TRANSACTIONS

Accrued capital expenditures

See notes to condensed financial statements (unaudited).

10 unchanged sentences

Reclassifications

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

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

These reclassifications had no effect on net earnings.

1 unchanged sentence

The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic.

Effective May 1, 2021, we lessened our safety and health practices in the office and warehouse based on the recommendations from the local Tulsa Health Department.

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

5 unchanged sentences

Significant Accounting Policies

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2022 included in our Form 10-K.

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein and unless other disclosed, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2022 included in our Form 10-K.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting.

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

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

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

Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as London Interbank Offered Rate (“LIBOR”).

This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are discontinued, such as London Interbank Offered Rate (“LIBOR”).

This ASU includes practical expedients for contract modifications due to reference rate reform.

1 unchanged sentence

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

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.

With the execution of the Company’s new Credit Agreement with BOKF, NA on August 9, 2022, the Company no longer has a loan agreement utilizing interest rates that reference LIBOR.

The Company’s new Credit Agreement utilizes the Secured Overnight Financing Rate (“SOFR”) published by the Chicago Mercantile Exchange.

Note 2 – INVENTORIES

Inventories consist of the following:

August 31, 2022

February 28, 2022

5 unchanged sentences

Inventories net – noncurrent

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

Inventory in transit totaled $ 442,800 and $ 2,732,400 at August 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 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.

Our distribution agreement includes annual minimum purchase volumes along with specific payment terms, which if not met or payments are not received timely may result in termination of the agreement.

Should termination of the agreement occur, the Company will be allowed to sell through their remaining Usborne inventory over the twelve months following the termination date.

Purchases received from Usborne were $ 1,206,200 and $ 12,127,000 for the three months ended August 31, 2022 and 2021, respectively.

Total inventory purchases received from all suppliers were $ 3,163,100 and $ 18,779,100 for the three months ended August 31, 2022 and 2021, respectively.

Purchases received from Usborne were $ 4,783,500 and $ 24,415,300 for the six months ended August 31, 2022 and 2021, respectively.

Total inventory purchases received from all suppliers were $ 9,141,700 and $ 36,564,300 for the six months ended August 31, 2022 and 2021, respectively.

Note 3 – LEASES

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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.

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

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 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.

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

The accumulated depreciation associated with the leased assets was $ 2,796,700 and $ 2,603,300 as of August 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:

August 31, 2022

February 28, 2022

Line of credit

Advancing term loan #1

Advancing term loan #2

Floating rate term loan(s) (1)

Fixed rate term loan

Total long-term debt

2 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 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 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.

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.

EBITDA is defined in the Loan Agreement as net income plus interest expense, income tax expense (benefit) and depreciation and amortization expenses.

The Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve months EBITDA, reduced by specific rental income received from a non-related third party (see Note 3).

The $25.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

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

The variable interest pricing tiers are as follows:

Adjusted Funded Debt to EBITDA Ratio

SOFR Margin (bps)

> 2.00 but < 2.50

> 1.50 but < 2.00

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 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.

Additionally, the Loan Agreement places limitations on the amount of dividends that may be distributed and the total value of stock that can be repurchased using advances from the line of credit.

(1) The February 28, 2022 floating rate term loans balance of $14,651,000 was comprised of the MidFirst Bank advancing term loans #1 and #2.

On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company and MidFirst Bank.

The Company’s payment to MidFirst Bank, including interest, was $ 45,028,600 , which satisfied all of the Company’s debt obligations with MidFirst Bank.

The Company did not incur any early termination penalties as a result of the repayment of indebtedness or termination of the Amended and Restated Loan Agreement, which provided Term Loan #1, Advancing Term Loan #1, Advancing Term Loan #2 and the Revolving Loan.

In connection with the repayment of outstanding indebtedness, the Company was automatically and permanently released from all security interests, mortgages, liens and encumbrances under the Amended and Restated Loan Agreement with MidFirst Bank.

The material terms of the Amended and Restated Loan Agreement with MidFirst Bank are described in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 5, 2022.

On August 9, 2022, the Company executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).

The Loan Agreement establishes a fixed rate term loan in the principal amount of $ 15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $ 21,000,000 (the “Floating Rate Term Loan”;

together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $ 15,000,000 (the “Revolving Loan” or “Line of Credit”).

Features of the Loan Agreement include:

Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027

Revolving Loan maturity date of August 9, 2023

Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26 %

Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75 % (effective rate was 4.03 % at August 31, 2022)

Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 2.50 % (effective rate was 4.78 % at August 31, 2022)

Revolving Loan allows for Letters of Credit up to $ 7,500,000 (none were outstanding at August 31, 2022)

The Loan Agreement also contains provisions that require the Company to maintain a minimum fixed charge ratio and limits any additional debt with other lenders.

Available credit under the current $ 15,000,000 revolving line of credit with the Lender was approximately $ 2,939,100 at August 31, 2022.

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

1 unchanged sentence

Note 5 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period excluding nonvested restricted stock awards.

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

Basic earnings (loss) per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period excluding nonvested restricted stock awards.

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

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

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

Three Months Ended May 31,

Net earnings applicable to common shareholders

Three Months Ended

Six Months Ended

Earnings (loss):

Net earnings (loss) applicable to common shareholders

Weighted average shares:

Weighted average shares outstanding-basic

Issuance of nonvested restricted shares

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

Weighted average shares outstanding-diluted

Earnings per share:

Earnings (loss) per share:

As shown in the table below, the following shares have not been included in the calculation of diluted earnings (loss) per share as they would be anti-dilutive to the calculation above.

Three Months Ended

Six Months Ended

Weighted average shares:

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

Note 6 – SHARE-BASED COMPENSATION

9 unchanged sentences

In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”).

The 2022 LTI Plan establishes up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023.

The 2022 LTI Plan established up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 or 2023.

The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2022 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2022 LTI Plan.

1 unchanged sentence

During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 9.94 per share.

In the third quarter of fiscal year 2021, 5,000 of these restricted shares were forfeited.

In fiscal year 2021, 5,000 of these restricted shares were forfeited.

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

The fiscal year 2023 forfeitures are available for reissue to remaining participants under the 2019 LTI Plan.

The remaining compensation expense for the outstanding awards, totaling approximately $ 315,300 as of August 31, 2022, will be recognized ratably over the remaining vesting period of approximately 6 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 May 31, 2022, no shares have been granted under the 2022 LTI Plan.

During fiscal year 2023, 18,000 of these restricted shares were forfeited, along with 760 additional shares purchased with dividends received from the original issue date.

These shares are available for reissue to remaining participants under the 2019 LTI Plan.

The remaining compensation expense of these awards, totaling approximately $ 922,600 as of August 31, 2022, will be recognized ratably over the remaining vesting period of approximately 30 months.

Total shares available for reissue to remaining participants under the 2019 LTI Plan was 28,000 at August 31, 2022.

As of August 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 May 31,

Three Months Ended August 31,

Six Months Ended August 31,

Share-based compensation expense

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

Less reduction of expense for forfeitures

Share-based compensation expense - net

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

Weighted Average Fair Value (per share)

Outstanding at February 28, 2022

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.

Outstanding at August 31, 2022

As of August 31, 2022, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $ 1,237,900 , which we expect to recognize over a weighted-average period of 23.9 months.

Note 7 – SHIPPING AND HANDLING COSTS

We classify shipping and handling costs as operating and selling expenses in the condensed statements of earnings.

We classify shipping and handling costs as operating and selling expenses in the condensed statements of operations.

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

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

These costs were $ 3,123,700 and $ 5,036,000 for the three months ended August 31, 2022 and 2021, respectively.

These costs were $ 6,686,300 and $ 11,392,400 for the six months ended August 31, 2022 and 2021, respectively.

Note 8 – BUSINESS SEGMENTS

4 unchanged sentences

Our UBAM segment markets its products through a network of independent sales consultants using a combination of internet sales, direct sales, home shows and book fairs.

Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, trade and specialty wholesalers, through commissioned sales representatives and our internal tele-sales group.

Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade and specialty wholesalers, through commissioned sales representatives and our internal tele-sales group.

The accounting policies of the segments are the same as those of the rest of the Company.

We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses.

We evaluate segment performance based on earnings (loss) before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses.

Corporate expenses, depreciation, interest expense and income taxes are not allocated to the segments but are listed in the “Other” row below.

1 unchanged sentence

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

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

Three Months Ended May 31,

Information by reporting segment for the three and six-month periods ended August 31, 2022 and 2021, are as follows:

Three Months Ended

Six Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended May 31,

Three Months Ended

Six Months Ended

Note 9 – FINANCIAL INSTRUMENTS

1 unchanged sentence

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.

The estimated fair value of our term notes payable is estimated by management to approximate $ 35,475,900 and $ 24,521,600 as of August 31, 2022 and February 28, 2022, respectively.

The term notes payable reflected on the Company’s condensed balance sheets were $ 36,000,000 and $ 25,000,100 as of August 31, 2022 and February 28, 2022, respectively.

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

1 unchanged sentence

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 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.

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

We received approximately $ 785,500 and $ 681,600 , as of August 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

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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.

Our distribution agreement includes annual minimum purchase volumes along with specific payment terms, which if not met or payments are not received timely may result in termination of the agreement.

Should termination of the agreement occur, the Company will be allowed to sell through their remaining Usborne inventory over the twelve months following the termination date.

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

4 unchanged sentences

Other expenses consist primarily of the compensation of our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate office and distribution facility.

The following table shows our condensed statements of earnings data:

Three Months Ended May 31,

The following table shows our condensed statements of operations data:

Three Months Ended

Six Months Ended

Cost of goods sold

5 unchanged sentences

Interest expense

Earnings before income taxes

Earnings (loss) before income taxes

Net earnings (loss)

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

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 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.

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

Total operating expenses not associated with a reporting segment decreased $0.7 million, or 16.7%, to $3.5 million for the three-month period ended August 31, 2022, when compared to $4.2 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.6 million decrease in labor, primarily within our warehouse operations, and a $0.2 million decrease in freight handling expenses, both resulting from a decrease in gross sales.

These expense reductions were offset by a $0.1 million increase in depreciation expense primarily driven by last year’s addition of two new pick/pack/ship lines.

Interest expense increased $0.3 million, or 150.0%, to $0.5 million for the three months ended August 31, 2022, when compared to $0.2 million for the same quarterly period a year ago, due to increased borrowings with our Lenders which resulted primarily from our increased inventory levels and recent increases in floating interest rates.

Income taxes decreased $1.1 million, or 137.5%, to a tax benefit of $0.3 million for the three months ended August 31, 2022, from an expense of $0.8 million for the same quarterly period a year ago, primarily resulting from operating losses in the second quarter ended August 31, 2022.

Our effective tax rate decreased to 27.5% for the quarter ended August 31, 2022, from 28.6% for the quarter ended August 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 Months Ended May 31, 2022

Non-Segment Operating Results for the Six Months Ended August 31, 2022

Total operating expenses not associated with a reporting segment decreased $1.4 million, or 16.1%, to $7.3 million for the six-month period ended August 31, 2022, when compared to $8.7 million for the same period a year ago.

Labor expenses decreased $1.3 million, primarily within our warehouse operations, and freight handling costs decreased $0.5 million for the six months ended August 31, 2022, both associated with reduced sales.

These expense reductions were offset by a $0.3 million increase in depreciation expense primarily driven by last year’s addition of two new pick/pack/ship lines and a $0.1 million increase in other various expenses.

Interest expense increased $0.5 million, or 125.0%, to $0.9 million for the six months ended August 31, 2022, when compared to $0.4 million for the same period a year ago, due to increased borrowings with our Lenders which resulted primarily from our increased inventory levels.

Income taxes decreased $2.2 million, or 110.0%, to a tax benefit of $0.2 million for the six months ended August 31, 2022, from a tax expense of $2.0 million for the same period a year ago, primarily resulting from operating losses for the six months ended August 31, 2022.

Our effective tax rate increased to 28.6% for the six months ended August 31, 2022, from 27.1% for the six months ended August 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 Six Months Ended August 31, 2022

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

Three Months Ended May 31,

Three Months Ended

Six Months Ended

Less discounts and allowances

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Average number of active consultants

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.

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.

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

UBAM net revenues decreased $13.6 million, or 46.1%, to $15.9 million during the three months ended August 31, 2022, when compared to $29.5 million during the same period a year ago.

The average number of active consultants in the second quarter of fiscal 2023 was 26,800, a decrease of 19,300, or 41.9%, from 46,100 average active consultants selling in the second quarter of fiscal 2022.

Our consultant numbers declined during this period 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.

We also saw new consultant recruiting negatively impacted by the recent change in our distribution agreement with Usborne Publishing Limited.

The new agreement caused a temporary level of confusion with our consultants until we were able to effectively communicate the continuation of our relationship within the UBAM division.

In addition, sales during the second quarter of fiscal 2023 were negatively impacted by recent record inflation, which resulted in high fuel cost and food price increases that has impacted the disposable income of our customers.

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

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.

Gross margin decreased $10.1 million, or 48.3%, to $10.8 million during the three months ended August 31, 2022, when compared to $20.9 million during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended August 31, 2022 decreased to 68.1%, compared to 70.7% 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 resulting in higher discounts totaling approximately $0.1 million, rising ocean freight costs on inbound inventory totaling approximately $0.2 million and reduced purchasing volume discounts/rebates totaling approximately $0.1 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 $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

Total operating expenses decreased $6.2 million, or 40.5%, to $9.1 million during the three-month period ended August 31, 2022, when compared to $15.3 million reported in the same quarter a year ago.

Operating and selling expenses decreased $1.2 million, or 28.6%, to $3.0 million during the three-month period ended August 31, 2022, when compared to $4.2 million reported in the same quarter a year ago, primarily due to a decrease in outbound freight from fewer sales and shipments totaling approximately $2.0 million.

This expense reduction was partially offset by increased freight costs of approximately $0.3 million due to increased freight rates and fuel surcharges, as well as $0.3 million in increased consultant incentive trip expenses and convention expense increases of $0.2 million.

The June 2022 annual UBAM convention was the first hybrid “in-person & virtual” convention.

While our in-person convention attendance numbers were promising, net profits were down from the prior two years, when our convention costs were minimal given we were 100% virtual.

Sales commissions decreased $4.4 million, or 44.4%, to $5.5 million during the three-month period ended August 31, 2022, when compared to $9.9 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

General and administrative expenses decreased $0.4 million, or 36.4%, to $0.7 million during the three months ended August 31, 2022, when compared to $1.1 million during the same period a year ago, due primarily to $0.2 million of reduced bank fees from fewer credit card transactions and a $0.2 million reduction in consultant bonus awards, both resulting from the decrease in sales during the quarter ended August 31, 2022.

Operating income of the UBAM segment decreased $3.9 million, or 69.6% to $1.7 million during the three months ended August 31, 2022, when compared to $5.6 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 August 31, 2022 decreased to 10.7%, compared to 18.9% for the three months ended August 31, 2021.

This change primarily resulted from increased cost of goods sold, increased freight costs and other increased operating and selling expenses.

UBAM Operating Results for the Six Months Ended August 31, 2022

UBAM net revenues decreased $31.2 million, or 46.5%, to $35.9 million during the six-month period ended August 31, 2022, compared to $67.1 million from the same period a year ago.

The average number of active consultants in the six-month period ended August 31, 2022 was 29,500, a decrease of 20,700, or 41.2%, from 50,200 selling in same period a year ago.

In addition, sales during the first six months of fiscal 2023 were negatively impacted by recent record inflation, which resulted in fuel cost and food price increases that has impacted the disposable income of our customers.

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

Gross margin decreased $23.5 million, or 48.8%, to $24.7 million during the six-month period ended August 31, 2022, when compared to $48.2 million during the same period a year ago, due primarily to a decrease in net revenues.

Gross margin as a percentage of net revenues decreased to 68.7% for the six-month period ended August 31, 2022, when compared to 71.9% for the same period a year ago.

During the six months ended August 31, 2022, sales through book fairs, booths and home parties increased compared to the six-month period ended August 31, 2021 when these traditional sales types were challenged by the effects of the pandemic.

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

Gross margin, as a percentage of net revenues was also impacted negatively by rising ocean freight costs on inbound inventory totaling approximately $0.3 million and reduced purchasing volume discounts/rebates totaling approximately $0.5 million.

Total operating expenses decreased $15.1 million, or 43.4%, to $19.7 million during the six-month period ended August 31, 2022, from $34.8 million for the same period a year ago.

Operating and selling expenses decreased $3.7 million, or 38.5%, to $5.9 million during the six-month period ended August 31, 2022, when compared to $9.6 million reported in the same period a year ago, primarily due to a decrease in shipping costs associated with the decrease in volume of orders shipped totaling approximately $5.5 million.

This expense reduction was partially offset by increased freight costs of approximately $1.2 million due to increased freight rates and fuel surcharges, as well as $0.4 million in increased consultant incentive trip expenses and increases in convention expense of $0.2 million.

The June 2022 annual UBAM convention was the first hybrid “in-person & virtual” convention.

While our in-person convention attendance numbers were promising, net profits were down from the prior two years, when our convention costs were minimal given we were 100% virtual.

Sales commissions decreased $10.6 million, or 46.5%, to $12.2 million during the six-month period ended August 31, 2022, when compared to $22.8 million reported in the same period a year ago, primarily due to the decrease in net revenues.

General and administrative expenses decreased $1.0 million, or 40.0%, to $1.5 million, from $2.5 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes of $0.6 million and a $0.3 million reduction in consultant bonus awards, both resulting from the decrease in sales during the six months ended August 31, 2022.

Operating income of the UBAM segment decreased $8.4 million, or 62.7%, to $5.0 million during the six months ended August 31, 2022, when compared to $13.4 million reported in the same period last year.

Operating income of the UBAM division as a percentage of net revenues for the six months ended August 31, 2022 was 14.0%, compared to 20.0% for the six months ended August 31, 2021.

This change primarily resulted from increased cost of goods sold, increased freight costs and other increased operating and selling expenses.

Publishing Operating Results for the Three and Six Months Ended August 31, 2022

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

Three Months May 31,

Three Months Ended

Six Months Ended

Less discounts and allowances

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Operating income

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.

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

Our Publishing division’s net revenues remained consistent at $3.5 million during the three-month period ended August 31, 2022, and 2021.

Gross margin remained consistent at $1.6 million during the three-month period ended August 31, 2022, and 2021.

Gross margin as a percentage of net revenues increased slightly to 46.8% during the three-month period ended August 31, 2022, from 46.4% 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 40.0%, to $0.7 million, from $0.5 million, during the three-month periods ended May 31, 2022 and 2021, respectively.

Total operating expenses of the Publishing segment increased $0.2 million, or 33.3%, to $0.8 million, from $0.6 million, during the three-month periods ended August 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.

Operating income of the Publishing segment decreased $0.2 million, or 20.0%, to $0.8 million from $1.0 million for the three-month periods ended August 31, 2022 and 2021, respectively.

This change was driven by the increase in our operating expenses.

Publishing Operating Results for the Six Months Ended August 31, 2022

Our Publishing division’s net revenues decreased slightly by $0.1 million, or 1.5%, to $6.6 million during the six-month period ended August 31, 2022, from $6.7 million reported in the same period a year ago.

Gross margin increased $0.1 million, or 3.3%, to $3.1 million during the six-month period ended August 31, 2022, from $3.0 million reported in the same period a year ago, primarily due to a decrease in discounts resulting from a change in our customer mix.

Gross margin as a percentage of net revenues increased to 46.6%, during the six-month period ended August 31, 2022, from 45.4% reported in the same period a year ago.

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

Total operating expenses of the Publishing segment increased $0.3 million, or 25.0%, to $1.5 million during the six-month period ended August 31, 2022, from $1.2 million reported in the same period a year ago.

This change was due to an increase of $0.2 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 11.1%, to $1.6 million during the six-month period ended August 31, 2022 when compared to $1.8 million reported in the same period a year ago, due primarily to the increase in operating expenses.

Liquidity and Capital Resources

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We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.

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

During the first six months of fiscal year 2023, we experienced cash outflows from operations of $3,628,900.

These cash outflows resulted from:

●net earnings of $215,800

●net loss of $586,100

Adjusted for:

●depreciation expense of $1,207,500

●share-based compensation expense of $261,600

●share-based compensation expense, net of $381,300

●deferred income taxes of $239,000

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●decrease in inventories, net of $6,028,500

●decrease in prepaid expenses and other assets of $214,200

●increase in deferred revenues of $103,900

●increase in income taxes payable of $37,200

Negatively impacted by:

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●decrease in accrued salaries and commissions, and other liabilities of $2,263,200

●decrease in income taxes payable of $241,900

●increase in accounts receivable of $212,200

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

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 used in investing activities was $254,000 for capital expenditures, consisting of $221,000 of software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders and $33,000 of other assets associated with the Company’s planned rebranding of its UBAM sales division.

Cash provided by financing activities was $4,354,200, which was comprised of net proceeds from term debt of $36,000,000 and cash received in treasury stock transactions of $63,400, offset by payments on term debt of $25,175,900, net payments on the line of credit of $5,662,600 and payments of $870,700 for dividends.

During fiscal year 2023, we continue to expect the cash generated from our operations and cash available through our line of credit with our Lender will provide us the liquidity we need to support ongoing operations.

We expect to generate positive operational cash flow as we normalize inventory levels.

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 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 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 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 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.

Following a return to profitability, any excess cash is expected to be distributed to our shareholders.

The Company’s payment to MidFirst Bank, including interest, was approximately $45.0 million, which satisfied all of the Company’s debt obligations with MidFirst Bank.

On August 9, 2022, the Company executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).

The Loan Agreement establishes a fixed rate term loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”;

together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan”).

Features of the Loan Agreement include:

Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027

Revolving Loan maturity date of August 9, 2023

Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26%

Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% (effective rate was 4.03% at August 31, 2022)

Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 2.50% (effective rate was 4.78% at August 31, 2022)

Revolving Loan allows for Letters of Credit up to $7,500,000

The Loan Agreement also contains provisions that require the Company to maintain a minimum fixed charge ratio and limits any additional debt with other lenders.

Available credit under the current $15,000,000 revolving line of credit with the Company’s new Lender was approximately $2,939,100 at August 31, 2022.

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

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Historically, however, actual results have not differed materially from those determined using required estimates.

Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report.

Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report and in our audited financial statements as of and for the year ended February 28, 2022 included in our Form 10-K.

However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.

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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 May 31, 2022 and February 28, 2022.

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

Allowance for Doubtful Accounts

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An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends.

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

Management has estimated and included an allowance for doubtful accounts of $0.2 million and $0.3 million at August 31, 2022 and February 28, 2022, respectively.

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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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 minimum order requirements of our suppliers.

Noncurrent inventory was estimated by management using the current year turnover ratio by title.

Noncurrent inventory was estimated by management using an anticipated turnover ratio by title.

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

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.

Noncurrent inventory balances prior to valuation allowances were $3.8 million and $2.4 million at August 31, 2022 and February 28, 2022, respectively.

Noncurrent inventory valuation allowances were $0.5 million and $0.4 million at August 31, 2022 and February 28, 2022, respectively.

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.

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

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

Approximately 7.9% of our active consultants have maintained consignment inventory at the end of the second quarter of fiscal year 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 $1.2 million and $1.4 million at May 31, 2022 and February 28, 2022, respectively.

The total cost of inventory on consignment with consultants was $1.3 million and $1.4 million at August 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 $0.8 million and $0.9 million at May 31, 2022 and February 28, 2022, respectively.

Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.9 million at August 31, 2022 and February 28, 2022.

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 three months of fiscal year 2023, the Company recognized $0.3 million of compensation expense associated with the shares granted.

During the first six months of fiscal year 2023, the Company recognized $0.5 million of compensation expense associated with the shares granted, which was offset by a $0.1 million reduction of compensation expense during the quarter associated with shares that were forfeited.

These forfeited shares are available for re-issue under the terms of the 2019 LTI Plan.

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