What changed in this filing

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Item 9A. Controls and Procedures

2023-05-17 compared with 2022-05-05 · 239 added, 208 removed, 420 unchanged (52% of the section changed)

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Management ’ s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a) thru 15(f) of the Exchange Act.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a) through 15(f) of the Exchange Act.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

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Based on our evaluation under the 2013 COSO Framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 28, 2023.

Our internal control over financial reporting as of February 28, 2022 has been audited by HoganTaylor LLP, an independent registered public accounting firm, as stated in their report, which is included in this Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Educational Development Corporation

Opinion on the Internal Control Over Financial Reporting

We have audited Educational Development Corporation's (the Company) internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements and our report dated May 5, 2022 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management's Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ HOGANTAYLOR LLP

Tulsa, Oklahoma

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this annual report.

OTHER INFORMATION

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(a) Identification of Directors

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Election of Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

(b) Identification of Executive Officers

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Executive Officers of the Registrant" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

EXECUTIVE COMPENSATION

The information required by this Item 11 is furnished by incorporation by reference to the information under the caption "Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is furnished by incorporation by reference to the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Compensation Plans" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is furnished by incorporation by reference to the information under the caption "Independent Registered Public Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

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Balance Sheets as of February 28, 2023 and February 28, 2022

Statements of Earnings for the Years ended February 28, 2022 and February 28, 2021

Statements of Operations for the Years ended February 28, 2023 and February 28, 2022

Statements of Shareholders' Equity for the Years ended February 28, 2023 and February 28, 2022

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Fourth Amendment to the Amended and Restated Loan Agreement, dated November 19, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated November 24, 2021 (File No.

Fifth Amendment to the Amended and Restated Loan Agreement, dated April 11, 2022 by and between the Company and MidFirst Bank, Tulsa, OK.

Fifth Amendment to the Amended and Restated Loan Agreement, dated April 11, 2022 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.14 to form 10-K dated February 28, 2022 (File No.

Usborne Distribution Agreement dated May 16, 2022 by and between the Company and Usborne Publishing Limited, London, England is incorporated herein by reference to Exhibit 10.2 to form 10-Q dated May 31, 2022 (File No.

Credit Agreement dated August 9, 2022 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to form 8-K dated August 11, 2022 (File No.

First Amendment to Credit Agreement, dated December 22, 2022 by and between the Company and BOKF, NA, Tulsa, OK.

Is incorporated herein by reference to Exhibit 10.4 to Form 10-Q dated November 30, 2022 (File No.

Second Amendment to Credit Agreement, dated May 10, 2023 by and between the Company and BOKF, NA, Tulsa, OK.

Consent of Independent Registered Public Accounting Firm.

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Peters, Director

/s/ Bradley V.

Stoots, Director

Chief Financial Officer and Corporate Secretary

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Opinion on the Financial Statements

We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements).

We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 2023 and 2022, the related statements of operations, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated May 5, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Liquidity and Management's Plans

While the Company received a waiver for the fixed charge ratio default that occurred on February 28, 2023, the borrowing and purchasing capacity was restricted and management's forecast indicated that the Company will not be in compliance in future periods as described in Note 9.

These conditions, among others in the aggregate, raise substantial doubt over the Company's ability to meet its obligations over the next twelve months.

Management has evaluated these conditions and concluded that its plans have alleviated the substantial doubt about the Company's ability to continue for at least the next twelve months.

To assess their ability to meet obligations as they come due and assess future compliance with debt covenants for at least twelve months from the issuance date of the financial statements, the Company has forecasted future financial results which requires significant judgment and estimation.

Additionally, there is significant judgment and increased level of audit effort involved in determining that it is probable that management's plans will be effectively implemented and alleviate substantial doubt about the Company's ability to continue beyond the next twelve months.

Our audit procedures we performed to address this critical audit matter included, among others:

Reading and evaluating management's plans for dealing with the adverse effects of the conditions and events.

Obtaining the Company's amended debt agreement and assessing whether the terms were appropriately considered on the Company's debt covenant compliance.

Evaluating the reasonableness of management's significant assumptions and judgments used in the preparation of the forecast.

Comparing the forecast to budgets provided to the board of directors, to historical results, to recent trends used in other audit areas and to subsequent actual results.

Evaluating the adequacy of the disclosure included in the notes to the financial statements.

/s/ HOGANTAYLOR LLP

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Total current liabilities

LONG-TERM DEBT - net of current maturities and debt issuance costs

DEFERRED INCOME TAX LIABILITY

LONG-TERM DEBT - net

OTHER LONG-TERM LIABILITIES

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EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF EARNINGS

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED FEBRUARY 28,

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INTEREST EXPENSE

EARNINGS BEFORE INCOME TAXES

BASIC AND DILUTED EARNINGS PER SHARE:

EARNINGS (LOSS) BEFORE INCOME TAXES

INCOME TAX EXPENSE (BENEFIT)

NET EARNINGS (LOSS)

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:

WEIGHTED AVERAGE NUMBER OF COMMON

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BALANCE - February 28, 2021

Purchases of treasury stock

Sales of treasury stock

Issuance of restricted share awards for vesting

Dividends declared ($ 0.40 /share)

Forfeiture of restricted share awards

Share-based compensation expense (see Note 10)

Share-based compensation expense - net

BALANCE - February 28, 2022

Sales of treasury stock

Forfeiture of restricted shares

Issuance of restricted share awards for vesting

Dividends declared ($ 0.40 /share)

Share-based compensation expense (see Note 10)

Share-based compensation expense - net

BALANCE – February 28, 2023

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CASH FLOWS FROM OPERATING ACTIVITIES:

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

Net earnings (loss)

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

Depreciation and amortization

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Provision for inventory valuation allowance

Share-based compensation expense

Share-based compensation expense - net

Changes in assets and liabilities:

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Deferred revenues

Income taxes payable

Income taxes payable/receivable

Total adjustments

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Payments on term debt

Payments on debt issuance costs

Proceeds from term debt

Sales of treasury stock

Purchases of treasury stock

Net borrowings under line of credit

Net borrowings (payments) under line of credit

Dividends paid

Net cash provided by/(used in) financing activities

NET DECREASE IN CASH AND CASH EQUIVALENTS

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

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Cash paid for interest

Cash paid for income taxes

NON-CASH TRANSACTIONS:

Accrued capital expenditures

Cash paid for income taxes (net of refunds)

See notes to financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business —Educational Development Corporation (“we,” “our,” “us,” or “the Company”) distributes books and publications through our Usborne Books & More (“UBAM”) and EDC Publishing (“Publishing”) divisions to individual consumers, book, toy and gift stores, libraries and home educators located throughout the United States (“U.S.”).

We are the exclusive U.S.

trade co-publisher of books and related items published by Usborne Publishing Limited (“Usborne”), an England-based publishing company, our largest supplier.

We also publish books and related items through our ownership of Kane Miller Book Publisher (“Kane Miller”).

Nature of Business —Educational Development Corporation (“we,” “our,” “us,” or “the Company”) distributes books and educational products and publications through our PaperPie and EDC Publishing (“Publishing”) divisions to individual consumers, book, toy and gift stores, libraries and home educators located throughout the United States (“U.S.”).

We are the owner and exclusive publisher of Kane Miller children’s books;

Learning Wrap-Ups, maker of educational manipulatives;

and SmartLab Toys, maker of STEAM-based toys and games.

We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books.

Estimates —Our financial statements were prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements.

Actual results could differ from these estimates.

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

These reclassifications had no effect on net earnings.

Business Concentration —A significant portion of our inventory purchases are concentrated with Usborne.

Purchases from them were approximately $ 42,596,300 and $ 50,772,900 for the years ended February 28, 2022 and February 28, 2021, respectively.

Total inventory purchases for those same periods were approximately $ 64,670,700 and $ 72,359,900 , respectively.

As of February 28, 2022 and February 28, 2021, our outstanding accounts payable due to Usborne was $ 8,783,900 and $ 14,561,000 , respectively.

A significant portion of our UBAM division sales are facilitated through the use of social media collaboration platforms that allow our consultants to interact in real-time, or near real-time, with customers.

Consultants use these platforms to invite potential customers to “online parties,” provide book recommendations, answer questions and provide links to other supporting online materials.

When a customer is ready to purchase books from the online party, they are redirected from the social media platform to the consultant’s e-commerce site where the order can be placed.

Liquidity - In accordance with ASU No.

2014-15, Disclosure of Uncertainties about an Entity ’ s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

Determining the extent to which conditions or events raise substantial doubt about our ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us.

Our significant estimates related to this analysis may include identifying business factors such as changes in our brand partners, growth and profitability used in the forecasted financial results and liquidity.

Further, we make assumptions about the probability that management's plans will be effectively implemented and alleviate substantial doubt and our ability to continue as a going concern.

We believe that the estimated values used in our going concern analysis are based on reasonable assumptions.

However, such assumptions are inherently uncertain and actual results could differ materially from those estimates.

See Note 9 for more information about our going concern assessment.

Sales Concentration —Significant portions of our sales are generated in our Direct Sales division, PaperPie.

Of these sales, a substantial portion are facilitated through the use of social media collaboration platforms that allow our Brand Partners (formerly, consultants) to interact in real-time, or near real-time, with customers.

Brand Partners use these platforms to invite potential customers to “online parties,” provide product recommendations, answer questions and provide links to other supporting online materials.

When a customer is ready to purchase products from the online party, they are redirected from the social media platform to the Brand Partner’s company hosted e-commerce site where the order can be placed.

Cash and Cash Equivalents —Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $ 250,000 .

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Extended payment terms are offered at certain times of the year for orders that meet minimum quantities or amounts.

During fiscal year 2021, extended payment terms were granted to customers that were negatively impacted by the COVID-19 pandemic.

Delinquency fees are not assessed.

Payments of accounts receivable are allocated to the specific invoices identified on the customers’ remittance advice.

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Recoveries of accounts receivable previously written off are recorded as income when received.

Management has estimated an allowance for doubtful accounts of $ 336,700 and $ 331,900 as of February 28, 2022 and February 28, 2021, respectively.

Inventories —Inventories are stated at the lower of cost or net realizable value.

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We present a portion of our inventory as a noncurrent asset.

Occasionally we purchase book inventory in quantities in excess of what will be sold within the normal operating cycle due to the minimum order requirements of our primary supplier.

These excess quantities are included in noncurrent inventory.

We estimate noncurrent inventory using the current year turnover ratio by title and anticipated sales of specific titles.

For inventory that has at least twelve months of sales history, inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory.

Occasionally we purchase products inventory in quantities in excess of what will be sold within the normal operating cycle due to the minimum order requirements of our primary supplier.

We estimate noncurrent inventory using an anticipated turnover ratio by title, based primarily on historical trends.

These excess quantities of 2½ years of anticipated sales are classified as noncurrent inventory.

The Company assumes title and responsibility for inventory purchased according to the contract language with our suppliers and the individual shipment terms for the order.

The majority of Usborne and Kane Miller orders pass title at FOB-Port of Shipment.

The Company maintains insurance for the value of the inventory once the title has been passed until it is received at our warehouse (“inventory in transit”).

Consultants that meet certain eligibility requirements may request and receive inventory on consignment.

Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.

Consignment inventory is stated at the lower of cost or net realizable value, 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, excluding the estimated reserve, with consultants was $ 1,399,200 and $ 1,114,100 at February 28, 2022 and February 28, 2021, respectively.

The total cost of inventory on consignment, excluding the estimated reserve, with Brand Partners was $ 1,531,600 and $ 1,399,200 at February 28, 2023 and February 28, 2022, respectively.

The Company has reserved for consignment inventory not expected to be sold or returned of $ 488,500 and $ 505,100 as of February 28, 2023 and February 28, 2022, respectively.

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

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

Management estimates the allowance for both current and noncurrent inventory.

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Furniture and fixtures

Capitalized projects that are not placed in service are recorded as in progress and are not depreciated until the related assets are placed in service.

Molds and tooling

Capitalized projects that are not placed in service are recorded as in progress and are not depreciated until the related assets are placed in service, including capitalized software.

The development of customer and Brand Partner software applications are critical to our ongoing business operations and included in capitalized software.

External and internal costs associated with the development of new software applications incurred during the application development stage are capitalized.

Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

Impairment of Long-Lived Assets —We review the value of long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable based on estimated future cash flows.

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No impairment was noted during fiscal years 2023 or 2022.

Income Taxes —We account for income taxes using the liability method.

Leases —We have both lessee and lessor arrangements.

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 Accounting Standards Codification (“ASC”) 842 - Leases.

In accordance with ASC 842, we have made an accounting policy election to not apply the standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise.

We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components.

This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.

Income Taxes —We account for income taxes under ASC 740 - Income Taxes, which requires an asset and liability approach.

Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using the current tax laws and rates.

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Revenue Recognition —Revenue is derived from the sales of children’s books and related products which are generally capable of being distinct and accounted for as a single performance obligation to deliver tangible goods.

Substantially all of our books are sold to end consumers through our UBAM division and retail outlets through our Publishing division.

Substantially all of our products are sold to end consumers through our PaperPie division and retail outlets through our Publishing division.

Refer to Note 14 – Business Segments for revenue by segment.

Revenues of both divisions are recognized at shipping point, which is the point in time the customer obtains control of the products and risk of loss and rewards of ownership have been transferred.

Products are shipped FOB-Shipping Point.

Revenues of both divisions are recognized when the product is shipped, FOB-Shipping Point, which is the point in time the customer obtains control of the products and risk of loss and rewards of ownership have been transferred.

Sales taxes that are collected from customers and remitted to governmental authorities are accounted for as a pass-through liability, and therefore are excluded from net sales.

The majority of UBAM’s sales contracts have a single performance obligation and are short-term in nature.

UBAM’s sales are generally collected at the time the product is ordered.

The majority of PaperPie’s sales contracts have a single performance obligation and are short-term in nature.

PaperPie’s sales are generally collected at the time the product is ordered.

Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheets.

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Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.

Certain UBAM sales contracts associated with the hostess award programs include sales incentives, such as discounted products.

Certain PaperPie sales contracts associated with the hostess award programs include sales incentives, such as discounted products.

These incentives provide a separate performance obligation in the contract and material right to the customer.

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As the products included as sales incentives are shipped with the associated products ordered, there is no deferral required.

Revenues allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our statements of earnings.

Revenues allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our statements of operations.

The majority of Publishing’s sales contracts have a single performance obligation and are short-term in nature.

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Advertising Costs —Advertising costs are expensed as incurred.

Advertising expenses, included in general and administrative expenses in the statements of earnings, were $ 765,100 and $ 1,181,300 for the years ended February 28, 2022 and February 28, 2021, respectively.

Shipping and Handling Costs —We classify shipping and handling costs as operating and selling expenses in the statements of earnings.

Advertising expenses, included in general and administrative expenses in the statements of operations, were $ 428,600 and $ 765,100 for the years ended February 28, 2023 and February 28, 2022, respectively.

Shipping and Handling Costs —We classify shipping and handling costs as operating and selling expenses in the statements of operations.

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

These costs were $ 13,588,400 and $ 22,005,600 for the years ended February 28, 2023 and February 28, 2022, respectively.

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.

Share-Based Compensation —We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant.

For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis.

Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche.

Forfeitures are recognized when they occur.

Earnings per Share —Basic earnings (loss) per share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period.

Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options and the assumed vesting of granted restricted share awards.

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Year Ended February 28,

Earnings per share:

Net earnings applicable to common shareholders

Earnings (loss) per share:

Net earnings (loss) applicable to common shareholders

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

Diluted earnings per share:

For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis.

Forfeitures are recognized when they occur.

Diluted 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.

Year Ended February 28,

Weighted average shares:

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

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 pronouncements and concluded that the following recently issued accounting standard updates (“ASU”) 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:

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

Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.

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 apply such guidance to those contract modifications.

We have reviewed the recently issued pronouncements and concluded that no new accounting standard updates (“ASU”) had or may have a material impact on the Company.

Inventories consist of the following:

Book inventory

Product inventory

Inventory valuation allowance

Inventories net - current

Book inventory

Product inventory

Inventory valuation allowance

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Inventory in transit totaled $ 850,100 and $ 2,732,400 at February 28, 2023 and February 28, 2022, respectively.

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are included in noncurrent inventory.

Product inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are included in noncurrent inventory.

BUSINESS CONCENTRATION

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

During fiscal 2023, we entered into a new distribution agreement (“Agreement”) with Usborne.

The Agreement includes annual minimum purchase volumes along with specific payment terms and letter of credit requirements, which if not met may result in Usborne having the right to terminate the Agreement on less than 30 days’ written notice.

Should termination of the Agreement occur, the Company will be allowed to sell its remaining Usborne inventory for an agreed upon period, but not less than twelve months following the termination date.

As of February 28, 2023, the Company did not meet the minimum purchase requirements and did not supply the letter of credit required under the Agreement, which could allow Usborne to exercise their option to terminate the Agreement.

Usborne has not notified the Company of termination of the Agreement.

Usborne has refused to pay the $ 1.0 million volume rebate owed to the Company from purchases made during fiscal 2022.

The Company is disputing the cancellation of the rebate but has not recognized any rebate in fiscal 2023 due to its uncertainty.

Additionally, under the terms in the Agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers after November 15, 2022, at which time Usborne was to use a different distributor to supply retail accounts with its products.

As a courtesy upon Usborne’s request, the November 15, 2022 transition was extended until their new supplier can start distribution in 2023.

Gross sales attributed to Usborne’s products sold within the Publishing division accounted for 83.1 %, or $ 23,220,600 , during the fiscal year ended February 28, 2023, and 86.5 %, or $ 24,341,100 , during the fiscal year ended February 28, 2022.

Purchases received from Usborne were approximately $ 11,448,500 and $ 42,596,300 for the years ended February 28, 2023 and February 28, 2022, respectively.

Total inventory purchases for those same periods were approximately $ 20,377,600 and $ 64,670,700 , respectively.

Included in our balance sheets, outstanding accounts payable due to Usborne as of February 28, 2023 and February 28, 2022 were $ 117,600 and $ 6,361,500 , respectively.

Total Usborne inventory owned by the Company and included in our balance sheets were $ 35,363,500 and $ 44,170,000 as of February 28, 2023 and February 28, 2022, respectively.

PROPERTY, PLANT AND EQUIPMENT

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Capitalized software

Property, plant and equipment - in progress

Molds and tooling

Capitalized software - in progress

Total property, plant and equipment

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Property, plant and equipment-net

During fiscal year 2021, the Company placed into service UBAM platform upgrades that the consultants use to monitor their business and continued its development of a new platform for customers to place orders.

In fiscal year 2022, the Company put into production two new pick-pack-ship lines to increase the Company’s daily shipping capacity.

During fiscal year 2022, the Company added two new pick-pack-ship lines to increase the Company’s daily shipping capacity and acquired Learning Wrap-Ups.

In fiscal year 2023, the Company purchased the SmartLab Toys product line and opened facilities in Seattle, Washington.

The Company has continued its development of its new customer portal and e-commerce platform, both of which are expected to be released in fiscal year 2024.

OTHER CURRENT LIABILITIES

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Accrued royalties

Accrued UBAM incentives

Accrued PaperPie incentives

Accrued freight

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Allowance for sales returns

Research and development capitalization

Net operating loss carryforward (1)

Total deferred tax assets

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Total deferred tax liabilities

Net deferred income tax assets (liabilities)

The components of income tax expense are as follows:

Total income tax expense

Net deferred income tax assets

(1) The Company’s net operating loss (“NOL”) carryforward was generated from losses incurred in fiscal 2023.

The Company’s NOL can be carried forward indefinitely, but are limited to a 80% maximum offset of taxable income.

Authoritative guidance requires a valuation allowance to be established when determining whether deferred tax assets are more likely-than-not to be realized.

Based on the Company’s evaluation, we determined the net deferred tax assets do meet the requirements to be realized, and as such, no valuation allowance has been established.

The components of income tax expense (benefit) are as follows:

Total income tax expense (benefit)

(1) The Company incurred losses in fiscal 2023, resulting in a net operating loss carryforward and reclassification from current to deferred.

The following reconciles our expected income tax rate to the U.S.

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Therefore, no reserves for uncertain income tax positions have been recorded.

We classify interest and penalties associated with income taxes as a component of income tax expense on the statements of earnings.

We classify interest and penalties associated with income taxes as a component of income tax expense on the statements of operations.

EMPLOYEE BENEFIT PLAN

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We have both lessee and lessor arrangements.

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

Our lessee arrangement includes 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.

We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components.

Our lessee arrangements include four rental agreements where we have the exclusive use of dedicated office space in San Diego, California, warehouse and office space in Layton, Utah, warehouse and office space in Seattle, Washington, and warehouse space locally in Tulsa, OK, all of which qualify as an operating lease.

Our lessor arrangements includes one rental agreement for warehouse and office space in Tulsa, Oklahoma, and qualifies as an operating lease under ASC 842.

Operating Leases – Lessee

We recognize a lease liability, reported in other liabilities on the balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term.

We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

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Long-term lease liabilities

Remaining lease term (months)

Discount Rate

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of earnings.

Weighted-average remaining lease term (months)

Weighted-average discount rate

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of operations.

Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

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Total future minimum rental payments

Present value discount

Total operating lease liability

imputed interest

Total operating lease liabilities

The following table provides further information about our operating leases reported in our financial statements:

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The lease terms allow for one five -year extension, which is not a bargain renewal option, at the expiration of the 15-year term.

Revenues associated with the lease are being recorded on a straight-line basis over the initial lease term and are reported in other income in the statements of earnings.

Revenues associated with the lease are being recorded on a straight-line basis over the initial lease term and are reported in other income in the statements of operations.

We recognize variable rental payments as revenue 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:

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Line of credit

Advancing term loan #1

Advancing term loan #2

Total long-term debt

Less current maturities

Floating rate term loan(s) (1)

Fixed rate term loan

Total term debt

Less current portion

Less debt issue cost

Long-term debt, net

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

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.

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 3.40 % at February 28, 2022).

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 $ 2,276,500 and $ 9,570,200 at February 28, 2022 and February 28, 2021, respectively.

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

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

The Advancing Term Loan #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 3.40 % at February 28, 2022).

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 3.40 % at February 28, 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 third party, see Note 7.

The $20.0 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

LIBOR 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 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.

We had no letters of credit outstanding as of February 28, 2022.

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.

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

Years ending February 28 (29),

(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 6.28 % at February 28, 2023)

Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 2.50 % (effective rate was 7.03 % at February 28, 2023)

Revolving Loan allows for Letters of Credit up to $ 7,500,000 upon bank approval (none were outstanding at February 28, 2023)

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.

The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender.

Available credit under the current $ 15,000,000 revolving line of credit with the Company’s Lender was approximately $ 4,365,500 at February 28, 2023.

On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender.

This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.

On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender.

This amendment waived the fixed charge ratio default which occurred on February 28, 2023.

The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5 %, requires certain swap agreements, reduced the revolving commitment from $15,000,000 to $ 14,000,000 , effective May 10, 2023, and further reduced the revolving commitment to $ 13,500,000 , effective July 15, 2023, among other items.

The Company does not expect to meet the fixed charge ratio, outlined in the amended Loan Agreement, during fiscal year 2024.

Under the terms of the amended Loan Agreement, not meeting this ratio could represent an Event of Default.

Should an Event of Default occur, the Lender will have the right to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan.

As an Event of Default is expected, and no waiver of the Event of Default is guaranteed to be received by the Lender, the long-term maturities of the Fixed Rate Term Loan and Float Rate Term Loan have been reclassified as current liabilities.

An Event of Default is expected associated with the amended Loan Agreement, there is no guaranty that the Event of Default will be waived by the Lender, and the bank may choose to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan.

These conditions, among others in the aggregate, raise substantial doubt over the Company's ability to continue as a going concern.

Management has plans to enter into a new financing agreement by August 9, 2023, with the Lender, that will allow it to operate without default and reclassify the non-current portions of the Fixed Rate Term Loan and Floating Rate Term Loan as long-term liabilities.

In addition, management’s plans include reducing inventory and related borrowing costs, building the active PaperPie Brand Partners to pre-pandemic levels, as the distraction and costs associated with the rebrand that occurred in fiscal year 2023 are expected to have a lesser impact in the future, reducing expenses due to lower revenue volumes and receipt of the contingent Employee Retention Credit.

Although there is no guarantee, we believe management's plans are probable of being achieved to alleviate the substantial doubt about our ability to continue as a going concern and we will have sufficient liquidity to meet our obligations as they become due over the next twelve months.

The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the next fiscal years as follows:

Year ending February 29,

COMMITMENTS AND CONTINGENCIES

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Of these inventory commitments, $ 2,309,000 were with Usborne, $ 2,103,300 with various Kane Miller publishers and the remaining $ 456,300 with other suppliers.

As a response to the COVID-19 outbreak, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which contained a number of programs to assist workers, families and businesses.

Part of the CARES Act provides an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes equal to 50% of qualified wages paid, up to $10,000 per employee annually, from March 12, 2020 through January 1, 2021.

Additional relief provisions were passed by the United States government, which extended and expanded the qualified wage caps on these credits to 70% of qualified wages paid, up to $10,000 per employee per quarter, through September 30, 2021.

At the time of the original filing of Form 941, we were unaware that we qualified for the ERC.

Subsequent to the original filing, we became aware of our qualification based on a more than nominal impact to the business due to a government order/mandate.

We recognized our qualification during the fourth quarter of fiscal 2023 based on a study provided by a third party amounting to $ 1,369,900 in the first quarter of 2021, $ 1,065,900 in the second quarter of 2021, and $ 1,196,100 in the third quarter of 2021.

On April 11, 2023 the Company filed 2021 Q1, Q2 and Q3 941-X forms to claim a refund for the ERC.

Due to the subjectivity of the credit, the Company elected to account for the ERC as a gain under ASC 450-30, Gain Contingencies.

The Company will not recognize the credit until all uncertainties are resolved and the income is “realized” or “realizable.”

SHARE-BASED COMPENSATION

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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.

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

The remaining compensation expense for the outstanding awards, totaling approximately $653,500, will be recognized ratably over the remaining vesting period of approximately 12 months as of February 28, 2022.

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.

The remaining compensation expense of these awards, totaling approximately $ 1,178,400 , will be recognized ratably over the remaining vesting period of approximately 36 months as of February 28, 2022.

As of February 28, 2022, no shares have been granted under the 2022 LTI Plan.

In fiscal year 2021, 5,000 restricted shares were forfeited and later regranted to other participants.

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

The 10,000 forfeited shares were re-granted to participants during the fiscal 2023 third quarter with an average grant-date fair value of $ 2.08 .

The 969 shares purchased with dividends were not reissued.

The 303,000 outstanding shares were vested on February 28, 2023.

During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 6.30 per share.

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

The 18,000 forfeited shares were re-granted to participants during fiscal 2023 with an average grant-date fair value of $ 2.08 .

The 760 shares purchased with dividends were not reissued.

The remaining compensation expense of these awards, totaling approximately $769,500 as of February 28, 2023, will be recognized ratably over the remaining vesting period of 24 months.

As of February 28, 2023, no shares were granted under the 2022 LTI Plan.

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

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This plan has no expiration date.

During fiscal year 2022, there were no repurchases under the 2019 stock repurchase plan.

During fiscal year 2021, we purchased 22,565 shares at an average price of $ 7.27 per share totaling approximately $ 163,800 under the 2019 stock repurchase plan.

During fiscal years 2023 and 2022, there were no repurchases under the 2019 stock repurchase plan.

The maximum number of shares that may be repurchased in the future is 514,594 .

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The following is a summary of the quarterly results of operations for the years ended February 28, 2023 and February 28, 2022:

Basic Earnings

Diluted Earnings

Net Earnings (Loss)

Basic Earnings (Loss)

Diluted Earnings (Loss)

First quarter

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We have two reportable segments:

Publishing and UBAM.

These reportable segments offer different methods of distribution to different types of customers.

PaperPie and Publishing.

These reportable segments are business units that offer different methods of distribution to different types of customers.

They are managed separately based on the fundamental differences in their operations.

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

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 PaperPie segment markets its products through a network of independent brand partners 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, museums, trade and specialty wholesalers, through commissioned sales representatives and our internal tele-sales group.

See Note 3 for the impact of our updated distribution agreement on the Publishing segment.

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

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DEFERRED REVENUES

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

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

Any payments received prior to our fiscal year end that were not shipped as of February 28, 2023 and February 28, 2022 are recorded as deferred revenues on the balance sheets.

1 unchanged sentence

SUBSEQUENT EVENTS

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.

It also extended the termination date on the revolving loan from August 15, 2022 to April 11, 2023.

Furthermore, this amendment defines the Benchmark Replacement, as the use of LIBO Rates have been discontinued, and now uses SOFR (“Secured Overnight Financing Rate”) which is published by the Chicago Mercantile Exchange.

SOFR Margin, based upon the Adjusted Funded Debt to EBITDA Ratio increased across all four pricing tiers by 5 basis points.

Lastly, the Adjusted Funded Debt Test Default changed to 3.50:1.00 for calendar months ending before May 31, 2022, and 2.75:1.00 thereafter.

On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with BOKF, NA.

This amendment waived the fixed charge ratio default which occurred on February 28, 2023.

The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate + 3.5% , reduced the revolving commitment from $ 15,000,000 to $ 14,000,000 , effective May 10, 2023, and further reduced the revolving commitment to $ 13,500,000 , effective July 15, 2023, among lesser items.

See Note 9 for more information about our going concern assessment.

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

What changed 10-K

Item 9A. Controls and Procedures