PEDAGOGICAL DEVELOPMENT: DISCUSSION AND ANALYSIS BY THE MANAGEMENT OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

Factors Affecting Forward-Looking Statements



The following discussion contains forward-looking statements that reflect our
future plans, estimates, beliefs and expected performance. The forward-looking
statements are dependent upon events, risks and uncertainties that may be
outside our control. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, our success in
recruiting and retaining new consultants, our ability to locate and procure
desired books, our ability to ship the volume of orders that are received
without creating backlogs, our ability to obtain adequate financing for working
capital and capital expenditures, economic and competitive conditions,
regulatory changes and other uncertainties, the COVID-19 pandemic, as well as
those factors discussed below and elsewhere in our Annual Report on Form 10-K
for the year ended February 28, 2021 and this Quarterly Report on Form 10-Q, all
of which are difficult to predict. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed may or may not occur. See
"Cautionary Remarks Regarding Forward-Looking Statements" in the front of this
Quarterly Report on Form 10-Q.



Overview



We are the exclusive United States trade co-publisher of Usborne children's
books and the owner of Kane Miller. We operate two separate segments, UBAM and
Publishing, to sell our Usborne and Kane Miller children's books. These two
segments each have their own customer base. The UBAM segment markets its
products through a network of independent sales consultants using a combination
of home shows, internet party plan events and book fairs. The Publishing segment
markets its products on a wholesale basis to various retail accounts. All other
supporting administrative activities are recognized as other expenses outside of
our two segments. 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 income data statements:


                                        Three Months Ended                 Six Months Ended
                                            August 31,                        August 31,
                                       2021             2020             2021             2020
Net revenues                       $ 32,994,400     $ 59,250,100     $ 73,802,300     $ 97,541,800
Cost of goods sold                   10,498,900       17,309,500       22,528,800       28,705,000
Gross margin                         22,495,500       41,940,600       

51 273 500 68 836 800

Operating expenses
Operating and selling                 5,239,900       10,531,900       11,682,500       16,872,100
Sales commissions                    10,105,200       20,304,400       23,072,000       33,904,900
General and administrative            4,793,900        5,664,000        9,932,800       10,200,000
Total operating expenses             20,139,000       36,500,300       

44 687 300 60 977 000

Interest expense                        213,700          140,000          381,500          322,200
Other income                           (515,300 )       (499,200 )     (1,114,000 )       (905,800 )
Earnings before income taxes          2,658,100        5,799,500        7,318,700        8,443,400

Income taxes                            759,900        1,544,500        1,982,400        2,257,300
Net earnings                       $  1,898,200     $  4,255,000     $  5,336,300     $  6,186,100



See the detailed discussion of revenue, gross margin, and general and administrative expenses by segment to be presented below. The following is an analysis of significant changes in corporate general and administrative expenses, other income and expenses and income taxes during the respective periods.



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Non-segment operating results for the three months ended August 31, 2021



Total operating expenses not associated with a reporting segment decreased $0.8
million, or 16.0%, to $4.2 million for the three-month period ended August 31,
2021, when compared to $5.0 million for the same quarterly period a year ago.
Operating expenses decreased primarily as a result of a $0.6 million decrease in
warehouse labor and a $0.4 million decrease in freight handling expenses, both
resulting from a decrease in gross sales, offset by a $0.2 million increase in
other various expenses.



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



Income taxes decreased $0.7 million, or 46.7%, to $0.8 million for the three
months ended August 31, 2021, from $1.5 million for the same quarterly period a
year ago. Our effective tax rate increased to 28.6% for the quarter ended August
31, 2021, from 26.6% for the quarter ended August 31, 2020 due to sales mix
fluctuations between states. Our tax rates are higher than the federal statutory
rate of 21% due to the inclusion of state income and franchise taxes.



Non-segment operating results for the half-year ended August 31, 2021



Total operating expenses remained consistent at $8.7 million for the six-month
periods ended August 31, 2021 and August 31, 2020. Warehouse labor decreased
$0.2 million and freight handling decreased $0.4 million for the six months
ended August 31, 2021, both associated with reduced sales. These changes were
offset by increased warehouse rental of $0.2 million and property insurance of
$0.1 million associated with increased inventory levels along with a $0.3
million increase in other various expenses.



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



Income taxes decreased $0.3 million, or 13.0%, to $2.0 million for the six
months ended August 31, 2021, from $2.3 million for the same period a year ago.
Our effective tax rate increased to 27.1% for the six months ended August 31,
2021, from 26.7% for the six months ended August 31, 2020 due to sales mix
fluctuations between states. Our tax rates are higher than the federal statutory
rate of 21% due to the inclusion of state income and franchise taxes.



UBAM’s operating results for the three and six months ended August 31, 2021

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


                                             Three Months Ended                   Six Months Ended
                                                 August 31,                          August 31,
                                           2021              2020              2021              2020
Gross sales                            $  36,789,400     $  68,868,300     $  82,325,100     $ 112,814,400
Less discounts and allowances            (10,590,700 )     (18,828,400 )     (22,876,400 )     (30,135,100 )
Transportation revenue                     3,319,400         6,871,700         7,686,300        11,158,500
Net revenues                              29,518,100        56,911,600        67,135,000        93,837,800

Cost of goods sold                         8,636,600        16,129,700        18,886,500        26,818,300
Gross margin                              20,881,500        40,781,900        48,248,500        67,019,500

Operating expenses
Operating and selling                      4,215,000         9,137,600         9,559,700        14,563,900
Sales commissions                          9,937,600        20,249,400        22,795,900        33,809,800
General and administrative                 1,149,800         1,732,300         2,452,500         3,156,100
Total operating expenses                  15,302,400        31,119,300      

34 808 100 51 529 800

Operating income                       $   5,579,100     $   9,662,600     

$ 13,440,400 $ 15,489,700

Average number of active consultants          46,100            45,400            50,200            39,300




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UBAM’s operating results for the three months ended August 31, 2021



UBAM net revenues decreased $27.4 million, or 48.2%, to $29.5 million during the
three months ended August 31, 2021, when compared to $56.9 million during the
same period a year ago. The average number of active consultants in the second
quarter of fiscal 2022 was 46,100, an increase of 700, or 1.5%, from 45,400
selling in the second quarter of fiscal 2021. The Company reports the average
number of active consultants each quarter as a key indicator for this division.
During the quarter ended August 31, 2020 our sales per average number of active
consultants increased significantly to due to the increase in demand for our
products resulting from the impacts of the COVID-19 pandemic. During last
summer, school closings and public interaction restrictions increased the need
for educational materials in the home and our consultants were positioned to
fill this increased demand. During the quarter ended August 31, 2021, our sales
per average number of active consultants remained consistent with years prior to
the COVID-19 pandemic.



Gross margin decreased $19.9 million, or 48.8%, to $20.9 million during the
three months ended August 31, 2021, when compared to $40.8 million during the
same period a year ago, primarily associated with the decrease in net revenues.
Gross margin as a percentage of net revenues decreased 1.0%, to 70.7% for the
three-month period ended August 31, 2021, when compared to 71.7% the same period
a year ago. The decrease in gross margin as a percentage of net revenues
resulted from a change in order mix partially offset by reduced cost of goods
sold. During the quarter ended August 31, 2021 sales through book fairs, booths
and home parties increased over the second quarter last year when these sales
types were challenged. These sales types have higher sales discounts and pay
less sales commissions to our consultants, resulting in similar operating
income. Reduced cost of goods sold resulted from larger volume discounts and
vendor rebates associated with increased purchasing volumes over pre-COVID-19
levels.



UBAM operating expenses consists of operating and selling expenses, sales
commissions and general and administrative expenses. Operating and selling
expenses primarily consists of freight expenses and materials and supplies.
Sales commissions include amounts paid to consultants for new sales and
promotions. These operating expenses are directly tied to the sales volumes of
the UBAM segment. General and administrative expenses include payroll, outside
services, inventory reserves and other expenses directly associated with the
UBAM segment. Total operating expenses decreased $15.8 million, or 50.8%, to
$15.3 million during the three-month period ended August 31, 2021, when compared
to $31.1 million reported in the same quarter a year ago. Operating and selling
expenses decreased $4.9 million, or 53.8%, to $4.2 million during the
three-month period ended August 31, 2021, when compared to $9.1 million reported
in the same quarter a year ago, primarily due to a decrease in net revenues and
a decrease in postage and freight peak charges we experienced in the second
quarter last year. Sales commissions decreased $10.3 million, or 51.0%, to $9.9
million during the three-month period ended August 31, 2021, when compared to
$20.2 million reported in the same quarter a year ago, due primarily to the
decrease in net revenues. General and administrative expenses decreased $0.6
million, or 35.3%, to $1.1 million during the three months ended August 31,
2021, when compared to $1.7 million during the same period a year ago, due
primarily to reduced bank fees from less credit card transactions during the
quarter ended August 31, 2021.



Operating income of the UBAM segment decreased $4.1 million, or 42.3%, to $5.6
million during the three months ended August 31, 2021, when compared to $9.7
million reported in the same quarter a year ago, primarily due to the change in
net revenues. Operating income of the UBAM division as a percentage of net
revenues for the three months ended August 31, 2021 increased to 18.9%, compared
to 17.0% for the three months ended August 31, 2020, primarily from reduced cost
of goods sold resulting from larger volume discounts and vendor rebates
associated with increased purchasing volumes and reduced outbound shipping peak
charges experienced in the second quarter last year.



UBAM’s operating results for the half-year ended August 31, 2021



UBAM net revenues decreased $26.7 million, or 28.5%, to $67.1 million during the
six-month period ended August 31, 2021, compared to $93.8 million from the same
period a year ago. The average number of active consultants in the six-month
period ended August 31, 2021 was 50,200, an increase of 10,900, or 27.7%, from
39,300 selling in same period a year ago. During the six months ended August 31,
2020 our sales per average number of active consultants increased significantly
due to the increase in demand for our products resulting from the impacts of the
COVID-19 pandemic. School closings and quarantine restrictions increased the
need for educational materials in the home and our consultants were positioned
to fill this increased demand. During the six months ended August 31, 2021, our
sales per average number of active consultants remained consistent with years
prior to the COVID-19 pandemic.



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Gross margin decreased $18.8 million, or 28.1%, to $48.2 million during the
six-month period ended August 31, 2021, when compared to $67.0 million during
the same period a year ago, due primarily to a decrease in net revenues. Gross
margin as a percentage of net revenues increased to 71.9% for the six-month
period ended August 31, 2021, when compared to 71.4% for the same period a year
ago. During the six months ended August 31, 2021 , sales through book fairs,
booths and home increased over the first six months of fiscal year 2021 when
these sales types were challenged. These sales types have higher sales discounts
and pay less sales commissions to our consultants, resulting in similar
operating income. The decrease in gross margin percentage associated with the
mix from these sales types was offset by reduced cost of goods sold resulting
from larger volume discounts and vendor rebates associated with increased
purchasing volumes over pre-COVID-19 levels.



Total operating expenses decreased $16.7 million, or 32.4%, to $34.8 million
during the six-month period ended August 31, 2021, from $51.5 million for the
same period a year ago. Operating and selling expenses decreased $5.0 million,
or 34.2%, to $9.6 million during the six-month period ended August 31, 2021,
when compared to $14.6 million reported in the same period a year ago, primarily
due to a decrease in shipping costs associated with the decrease in volume of
orders shipped. Sales commissions decreased $11.0 million, or 32.5%, to $22.8
million during the six-month period ended August 31, 2021, when compared to
$33.8 million reported in the same period a year ago, primarily due to the
decrease in net revenues along with a lower percentage of internet-based sales,
which offer fewer discounts and higher sales commissions to consultants. General
and administrative expenses decreased $0.7 million, or 21.9%, to $2.5 million,
from $3.2 million recognized during the same period last year, due primarily to
decreased credit card transaction fees associated with decreased sales volumes.



Operating income of the UBAM segment decreased $2.1 million, or 13.5%, to $13.4
million during the six months ended August 31, 2021, when compared to $15.5
million reported in the same period last year. Operating income of the UBAM
division as a percentage of net revenues for the six months ended August 31,
2021 was 20.0%, compared to 16.5% for the six months ended August 31, 2020, a
change of 3.5%. Operating income as a percentage of net revenues increased from
the prior year primarily from reduced cost of goods sold resulting from larger
volume discounts and vendor rebates associated with increased purchasing volumes
and reduced outbound shipping peak charges experienced during the first six
months of the prior fiscal year.



Publication of operating results for the three and six months ended August 31, 2021



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



                                        Three Months Ended                 Six Months Ended
                                            August 31,                        August 31,
                                       2021             2020             2021             2020
Gross sales                        $  7,397,700     $  4,814,500     $ 14,253,600     $  7,765,300
Less discounts and allowances        (3,922,800 )     (2,535,000 )     (7,591,200 )     (4,124,200 )
Transportation revenue                    1,400           59,000            4,900           62,900
Net revenues                          3,476,300        2,338,500        

6,667,300 3,704,000

Cost of goods sold                    1,862,300        1,179,800        3,642,300        1,886,700
Gross margin                          1,614,000        1,158,700        

3,025,000 1,817,300

Total operating expenses                631,200          419,900        

1 180 700 731 900

Operating income                   $    982,800     $    738,800     $  1,844,300     $  1,085,400



Publication of operating results for the three months ended August 31, 2021



Our Publishing division's net revenues increased $1.2 million, or 52.2%, to $3.5
million during the three-month period ended August 31, 2021, from $2.3 million
reported in the same period a year ago. Many Publishing customers began to
reopen in the latter half of fiscal year 2021 after closing in the first quarter
of fiscal year 2021 due to the COVID-19 pandemic.



Gross margin increased $0.4 million, or 33.3%, to $1.6 million during the
three-month period ended August 31, 2021, from $1.2 million reported in the same
quarter a year ago, primarily due to the increase in net revenues. Gross margin
as a percentage of net revenues decreased to 46.4% during the three-month period
ended August 31, 2021, from 49.5% reported in the same quarter a year ago. 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.



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



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



Publication of operating results for the half-year ended August 31, 2021



Our Publishing division's net revenues increased $3.0 million, or 81.1%, to $6.7
million during the six-month period ended August 31, 2021, from $3.7 million
reported in the same period a year ago. The increase in sales resulted from
temporary store closures impacted by the COVID-19 pandemic in fiscal year 2021.
Many Publishing customers temporarily closed during the first quarter of fiscal
year 2021, following the guidance from their local authorities to slow the
spread of the pandemic, and began reopening at varying times in the latter half
of fiscal year 2021.



Gross margin increased $1.2 million, or 66.7%, to $3.0 million during the
six-month period ended August 31, 2021, from $1.8 million reported in the same
period a year ago, primarily due to the increase in net revenues. Gross margin
as a percentage of net revenues decreased to 45.4%, during the six-month period
ended August 31, 2021, from 49.1% reported in the same period a year ago. The
decrease in gross margin percentage results primarily from a change in our
customer mix. Customers receive varying discounts due to sales volumes and
contract terms.



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



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





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Liquidity and capital resources



EDC has a history of profitability and positive cash flow. We typically fund our
operations from the cash we generate. We also use available cash to pay down
outstanding bank loan balances, for capital expenditures, to pay dividends, and
to acquire treasury stock. We have utilized a bank credit facility and other
term loan borrowings to meet our short-term cash needs, as well as fund capital
expenditures, when necessary.



During the first six months of fiscal 2022, we recorded cash outflows related to the operation of $ 12,422,100. These cash outflows result from:


?net earnings of $5,336,300



Adjusted for:


? depreciation expense of $ 924,200

? share-based compensation expense of $ 523,300

? provision for depreciation of inventories of $ 120,000

? allowance for doubtful accounts $ 61,600


Offset by:


? deferred taxes of $ 48,500


Negatively impacted by:


increase in inventories, net of $ 13,223,100

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

? decrease in deferred revenue by $ 1,162,700

increase in accounts receivable from $ 609,300

? increase in prepaid expenses and other assets of $ 158,200

decrease in accounts payable by $ 104,700

? decrease in income taxes payable by $ 4,100



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



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



During fiscal year 2022, we continue to expect the cash generated from our
operations and cash available through our line of credit with our Bank will
provide us the liquidity we need to support ongoing operations. Cash generated
from operations will be used to increase inventory by expanding our product
offerings, to liquidate existing debt, and any excess cash is expected to be
distributed to our shareholders.



On February 15, 2021, the Company executed the Amended and Restated Loan
Agreement with MidFirst Bank which replaced the prior loan agreement and
includes multiple loans. Term Loan #1 Tranche A ("Term Loan #1"), originally
totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a
fixed interest rate of 4.23%, with principal and interest payable monthly and a
stated maturity date of December 1, 2025. Term Loan #1 is secured by the primary
office, warehouse and land. Term Loan #1 was amended on April 1, 2021 by
executing the First Amendment to the Loan Agreement which reduced the fixed
interest rate to 3.12% and removed the prepayment premium from the Loan
Agreement. The outstanding borrowings on Term Loan #1 were $10.7 million and
$11.0 million as of August 31, 2021 and February 28, 2021, respectively.



In addition, the Amended and Restated Loan Agreement provides a $6.0 million
Advancing Term Loan to be used to finance planned equipment purchases. The
Advancing Term Loan required interest-only payments through July 15, 2021, at
which time it was converted to a 60-month amortizing term loan maturing July 15,
2026. The Advancing Term Loan accrues interest at the Bank-adjusted LIBOR Index
plus a tiered pricing rate based on the Company's Adjusted Funded Debt to EBITDA
Ratio, with a minimum rate of 2.75%. Our borrowings outstanding under the
Advancing Term Loan at August 31, 2021 were $5.2 million.



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The Amended and Restated Loan Agreement also provides a $20.0 million revolving
loan ("line of credit") through August 15, 2022 with interest payable monthly at
the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company's
Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 2.75%. On July 16,
2021, the Company executed the Second Amendment to the Loan Agreement which
increased the Maximum Revolving Principal Amount from $15.0 million to $20.0
million. On August 31, 2021, the Company executed the Third Amendment to the
Loan Agreement which modified the advance rates used in the borrowing base
certificate. Our borrowings outstanding on our line of credit at August 31, 2021
and February 28, 2021 were $16.7 million and $5.2 million, respectively.
Available credit under the revolving line of credit was approximately $3.3
million and $9.6 million at August 31, 2021 and February 28, 2021, respectively.



The Amended and Restated Loan Agreement also contains a provision for our use of
the Bank's letters of credit. The Bank agrees to issue or obtain issuance of
commercial or stand-by letters of credit provided that the sum of the line of
credit plus the letters of credit issued would not exceed the borrowing base in
effect at the time. As of August 31, 2021, we had no letters of credit
outstanding. 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.



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



Years ending February 28 (29),
2022                             $    816,900
2023                                1,658,800
2024                                1,678,300
2025                                1,697,700
2026                                9,546,400
Thereafter                            525,500
Total                            $ 15,923,600




Critical Accounting Policies



Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States("GAAP"). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to our
valuation of inventory, allowance for uncollectible accounts receivable,
allowance for sales returns, long-lived assets and deferred income taxes. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.



Actual results may materially differ from these estimates under different
assumptions or conditions. 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. However, we consider the
following accounting policies to be more significantly dependent on the use of
estimates and assumptions.



Revenue Recognition



Sales associated with product orders are recognized and recorded when products
are shipped. Products are shipped FOB shipping point. UBAM's sales are generally
paid at the time the product is ordered. Sales which have been paid for but not
shipped are classified as deferred revenue on the balance sheet. Sales
associated with consignment inventory are recognized when reported and payment
associated with the sale has been remitted. Transportation revenue represents
the amount billed to the customer for shipping the product and is recorded when
the product is shipped.



Estimated allowances for sales returns are recorded as sales are
recognized. Management uses a moving average calculation to estimate the
allowance for sales returns. We are not responsible for product damaged in
transit. Damaged returns are primarily received from the retail stores of our
Publishing division. Those damages occur in the stores, not in shipping to the
stores, and we typically do not offer credit for damaged returns. It is industry
practice to accept non-damaged returns from retail customers. Management has
estimated and included a reserve for sales returns of $0.2 million as of August
31, 2021 and February 28, 2021.



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Provision for bad debts



We maintain an allowance for estimated losses resulting from the inability of
our customers to make required payments and a reserve for vendor share markdowns
(collectively "allowance for doubtful accounts"). An estimate of uncollectible
amounts is made by management based upon historical bad debts, current customer
receivable balances, age of customer receivable balances, customers' financial
conditions and current economic trends. Management has estimated and included an
allowance for doubtful accounts of $0.4 million at August 31, 2021, and $0.3
million at February 28, 2021. Included within this allowance is $0.1 million of
reserve for vendor discounts to sell remaining inventory as of August 31, 2021
and February 28, 2021.



Inventory



Our inventory contains over 2,000 titles, each with different sell through rates
depending upon the nature and popularity of the title. We maintain very few
titles that are topical in nature. As such, the majority of the titles we sell
remain current in content for several years. Most of our products are printed in
China, Europe, Singapore, India, Malaysia and Dubai resulting in a four- to
six-month lead-time to have a title printed and delivered to us.



Certain inventory is maintained in a noncurrent classification. Management
continually estimates and calculates the amount of noncurrent inventory.
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. Inventory in excess
of 2½ years of anticipated sales is classified as noncurrent inventory. These
inventory quantities have exposure of becoming out of date, and therefore have
higher obsolescence reserves. Noncurrent inventory balances prior to valuation
allowances were $1.1 million and $0.9 million at August 31, 2021 and February
28, 2021, respectively. Noncurrent inventory valuation allowances were $0.3
million and $0.2 million at August 31, 2021 and February 28, 2021, respectively.



Our principal supplier, based in England, generally requires a minimum re-order
of 6,500 or more of a title in order to get a solo print run. Smaller orders
would require a shared print run with the supplier's other customers, which can
result in lengthy delays to receive the ordered title. Anticipating customer
preferences and purchasing habits requires historical analysis of similar titles
in the same series. We then place the initial order or re-order based upon this
analysis. These factors and historical analysis have led our management to
determine that 2½ years represents a reasonable estimate of the normal operating
cycle for our products.



Consultants that meet certain eligibility requirements may request and receive
inventory on consignment. We believe allowing our consultants to have
consignment inventory greatly increases their ability to be successful in making
effective presentations at home shows, book fairs and other events; in summary,
having consignment inventory leads to additional sales
opportunities. Approximately 4.8% of our active consultants maintained
consignment inventory at the end of the second quarter of fiscal
2022. Consignment inventory is stated at cost, less an estimated reserve for
consignment inventory that is not expected to be sold or returned to the
Company. The total cost of inventory on consignment with consultants was $1.2
million and $1.1 million at August 31, 2021 and February 28, 2021, respectively.



Inventories are presented net of a valuation allowance, which includes reserves
for inventory obsolescence and reserves for consigned inventory that is not
expected to be sold or returned to the Company. Management estimates the
inventory obsolescence allowance for both current and noncurrent inventory,
which is based on management's identification of slow-moving
inventory. Management has estimated a valuation allowance for both current and
noncurrent inventory, including the reserve for consigned inventory, of $0.8
million and $0.7 million at August 31, 2021 and February 28, 2021, respectively.



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. Any cash dividends declared after the restricted
stock award is issued, but before the vesting period is completed, will be
reinvested in Company shares at the opening trading price on the dividend
payment date. Shares purchased with cash dividends will also retain the same
restrictions until the completion of the original vesting period associated with
the awarded shares.



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The restricted share awards under the 2019 Long-Term Incentive Plan ("2019 LTI
Plan") and 2022 Long-Term Incentive Plan ("2022 LTI Plan") contain both service
and performance conditions. The Company recognizes share-based compensation
expense only for the portion of the restricted share awards that are considered
probable of vesting. Shares are considered granted, and the service inception
date begins, when a mutual understanding of the key terms and conditions between
the Company and the employees have been established. The fair value of these
awards is determined based on the closing price of the shares on the grant date.
The probability of restricted share awards granted with future performance
conditions is evaluated at each reporting period and compensation expense is
adjusted based on the probability assessment.



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




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