During fiscal year 2016,2017, we experienced positivea negative cash flow from our operations of $6,650,600.$1,572,400.  Cash flow resulted from the following:

The significant increase in accounts payable, accrued salaries and commissions, and other current liabilities iswas primarily a result of the current payments owed to our suppliers for our increased inventory stock required to sustain our sales increase.

Cash used in investing activities was $24,911,600$2,485,400 for capital expenditures.  On December 1, 2015, we closed on aOur capital expenditures were primarily associated with new facility which has allowed us to expand to accommodate our growth oversoftware products implemented during the past year.year that are classified as machinery and equipment.

Our capital expenditures included:

Cash provided by financing activities was $19,060,800,$3,573,300, which was primarily due to $18,400,000from an increase in long-term debt related to the purchase of our new facility,$4,000,000, offset by long-term debt payments of $97,200.  Also, $4,881,800$738,500.  Other financing activities included $1,551,100 in net borrowings were provided under our revolving credit agreement, offset by $2,950,000 in payments against this agreement. Additionally, $202,500 was providedWe also received $227,800 from the sale of treasury stock associated with employee purchases through payroll withholdings and employer matching contributions to their 401(k) accounts, offset by $1,600$200 paid to acquire treasury stock.  Cash was alsostock and used for dividend payments of $1,374,700.$1,466,900 to pay dividends.

In September 2002, the Board of Directors authorized a minimum annual cash dividend of 20% of net earnings.  In fiscal years 20162017 and 2015,2016, we declared dividends equal to 67%38% and 149%67%, respectively, of net income after taxes.  On February 16, 2017, we announced that we were suspending dividends to focus all resources and cash requirements toward financing future growth.

The following presents an overview of our results of operations for years ended February 29, 201628, 2017 and February 28, 2015.29, 2016.  We had earnings before income taxes of $3,545,900 for$4,612,100 in fiscal year 20162017 compared with $1,402,500 for$3,545,900 in fiscal year 2015.2016.

UBAM’s gross sales increased 138.0%84%, or $33,274,800$48,189,200, during fiscal year 20162017 to $57,385,300$105,574,500 when compared with fiscal year 2015.2016.  This increase is attributable to a 151%32% increase in the number of independent sales consultants, with resulting increases in all types of sales, including internet, school and library/book fair, home parties, and fund raisers.representatives. The overall number of orders was up 398%111% due to increases in orders from all order types including internet, home show, school and library, kits and fund raiser orders.other, and fundraisers. Average sales per order for this division were down 48%20%, primarily due to a shift from larger home party orders to multiple individual online orders per internet-based party.

EDC Publishing’s gross sales decreased 5.4%15.5%, or $1,300,800$3,549,700, during fiscal year 20162017 to $19,384,400 when compared with fiscal year 2015.  Sales increased2016.  Gross sales decreased by 5.0%26.3% to smaller retail stores and decreased by 14.4%34.9% to national chain stores.stores, both decreases resulted from order cancellations in the fall selling season resulting from increased delivery times.

UBAM’s discounts and allowances were $19,088,100 in fiscal year 2017 and $9,927,900 in fiscal year 2016 and $4,533,600 in fiscal year 2015.2016.  Most sales by UBAM are at retail.  As a part of UBAM’s marketing programs, discounts between 40% and 50% of retail are offered on selected items at various times throughout the year.  The discounts and allowances in the UBAM division will vary from year to year depending upon the marketing programs in place during any given year.UBAM’s discounts and allowances were 17.3%18.1% of UBAM’s gross sales in fiscal year 20162017 and 18.8%17.3% in fiscal year 2015.2016.

EDC Publishing’s discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAM division due to the different customer markets that each division targets.  The EDC Publishing division’s discounts and allowances were $10,398,200 in fiscal year 2017 and $12,133,600 in fiscal year 2016 and $12,739,500 in fiscal year 2015.2016. To be competitive with other wholesale book distributors, EDC Publishing sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the order.  EDC Publishing’s discounts and allowances were 52.9%53.6% of their gross sales in fiscal year 20162017 and 52.6%52.9% in fiscal year 2015.2016.

Transportation revenues increased $3,884,400$5,795,100 or 263.2%108.1% in fiscal year 2016,2017, due primarily to the increase in UBAM gross sales during the year and the shift in sales to more, smaller internet-based orders, which each are subject to a flat minimum shipping charge.  Also, we realized the benefit of a full year with a 20% increase in the minimum shipping charge made during fiscal year 2015.

Cost of sales increased 60.6%39.6% in fiscal year 20162017 when compared with fiscal year 2015.2016.  Our cost of products is 22% to 28% of the gross sales price, depending upon the product. The percentage change in gross sales to the percentage change in cost of sales, depends largely on the mix of products sold.  Approximately 67% of our products come from one vendor, where the cost of the products is a fixed percentage of the retail price.  Cost of sales is the inventory cost of product sold (including the cost of the product itself and inbound freight charges), along with royalties accrued for sales of Kane Miller titles for which we have royalty payment contracts.   The costs of our distribution network are not included in our cost of sales, but rather in our operating and selling expenses.

Operating and selling expenses include order entry, customer service, purchasing and receiving, inspection, warehousing, and other costs of operating our distribution network.facility.  These costs totaled $2,865,700$9,322,100 in fiscal year 20162017 and $1,259,500$4,700,600 in fiscal year 2015.  In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing and UBAM divisions, along with the order entry and customer service functions.  2016.  Operating and selling expenses as a percentage of gross sales were 28.3% for fiscal year 2017 and 24.2% for fiscal year 2016 and 19.7% for fiscal year 2015.

Sales commissions for UBAM increased $11,219,300.$15,976,400 for the fiscal year ended 2017.  UBAM division sales commissions are paid based on the retail price of non-promotional products sold and were 30.9%31.9% of UBAM gross sales for fiscal year 20162017 and 26.9%30.9% for fiscal year 2015.2016. The fluctuation in the percentages of commission expense to gross sales is the result of the change in the mix in type of sale.  Internet sales, home shows, book fairs, school and library sales and fundraiser sales have different commission rates.  Also, anotherAnother factor contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants’ monthly sales and downline sales.  The increase in sales commissions is the result of higher gross sales in the UBAM division.

General and administrative expenses include the executive department, accounting department, information services department, general office management and building facilities management.  General and administrative expenses as a percentage of gross sales were 2.9% for both fiscal year 2016years 2017 and 4.2% for fiscal year 2015.2016.

We are a smaller reporting company and are not required to provide this information.

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

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments.  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.  Consignment inventory related to inactive consultants is reclassified to accounts receivable and the associated reserve is included within our allowance.  Management has estimated an allowance for doubtful accounts of $401,900$485,000 and $234,500$401,900 as of February 28, 2017 and February 29, 2016, respectively. Included within this allowance is $217,000 and February 28, 2015, respectively.$148,000 of reserve related to consignment inventory held by inactive consultants.

Management continually estimates and calculates the amount of noncurrent inventory.  TheOur inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier.  Noncurrent inventory was estimated by management using the current year turnover ratio by title.  All inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory.  Noncurrent inventory balances prior to valuation allowances were $469,000 and $718,900 at February 29, 2016 and February 28, 2015, respectively.

Our principal supplier, based in England, generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run.  Smaller orders would require a shared print run with the supplier’s other customers, which can result in more 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 Managementour management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products.

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 standards apply to us.

In May 2014, FASB issued ASU No. 2014-09, and amended with ASU No. 2015-14 “Revenue from Contracts with Customers,” which provides a single revenue recognition model which is intended to improve comparability over a range of industries, companies and geographical boundaries and will also result in enhanced disclosures. The changes are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which means the first quarter of our fiscal year 2019. We are currently reviewing the ASU and assessing the potential impact on our financial statements.

In AugustJuly 2015, FASB issued ASU No. 2015-15 “Interest—Imputation2015-11 "Inventory - Simplifying the Measurement of Interest,”Inventory", which modifies the presentation and subsequentis intended to allow measurement of debt issuanceinventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs associated with line-of-credit arrangements.  These changes allow an entity to deferof completion, disposal, and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.transportation.   The changes arenew standard is effective for financial statements issued for annual periodsfiscal years beginning after December 15, 2015, and2016, including interim periods within those annual periods,fiscal years, which means the first quarter of our fiscal year 2017.We are currently reviewing the2018.  We anticipate this ASU and assessing the potentialhaving minimal impact on our financial statements.

In November 2015, FASB issued ASU No. 2015-17 which is“Income Taxes – Balance Sheet Classification of Deferred Taxes,” intended to improve how deferred taxes are classified on organizations’ balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet.  Instead, organizations will now be required to classify all deferred tax assets and liabilities as noncurrent.  The changes are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, which means the first quarter of our fiscal year 2018.  We anticipate this ASU having minimal impact on our financial statements.

In February 2016, FASB issued ASU No. 2016-02, “Leases,” which is intended to establish a comprehensive new lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset. The new standard is effective for interim and annual periods beginning after December 15, 2018, which means the first quarter of our fiscal year 2020. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. We are currently reviewing the ASU and evaluating the potential impact on our financial statements.

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting,” which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for interim and annual periods beginning after December 15, 2016, which means the first quarter of our fiscal year 2018.  We are currently reviewing the ASU and evaluating the potential impact on our financial statements.

We are a smaller reporting company and are not required to provide this information.

The information required by this Item 8 begins at page 23.24.

None

An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e)13a-15(a) as of February 29, 2016.28, 2017. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Controller/Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).

Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported in accordance within the time periods specified in Securities and Exchange CommissionSEC rules and forms.  It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events.

During the fourth fiscal quarter of the fiscal year covered by this report on Form 10-K, there have been no changes in our internal control over financial reporting, except for describe below, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. In response to the material weakness identified in the third quarter, we have implemented additional controls over deferred revenue and cash that include various levels of reviews and reconciliations performed on a monthly basis.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the “Exchange Act”).Act. Under the supervision and with the participation of our management, including our PresidentChief Executive Officer and our Controller,Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in INTERNAL CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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. Based on our evaluation under that framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 29, 2016.28, 2017.  The original framework was updated with the issuance of the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Our management has not yet implemented the 2013 Framework, but does not deem it impacting our effective assessment conclusion.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’sManagement's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange CommissionSEC that permit us to provide only management’smanagement's report in this annual report.

None

(a)  Identification of Directors

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Election"Election of Directors”Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.26, 2017.

(b)  Identification of Executive Officers

Information regarding our executive officersThe information required by this Item 401 of Regulation S-K10 is presented in Item 1 hereoffurnished by incorporation by reference to the information under the subcaption “Executive Officers” as permitted by General Instruction G (3)caption "Executive Officers of the Registrant" in our definitive Proxy Statement to Form 10-K and Instruction 3be filed in connection with the Annual Meeting of Shareholders to Item 401(b) of Regulation S-K.be held on July 26, 2017.

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Section"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 19, 2016.26, 2017.

The information required by this Item 11 is furnished by incorporation by reference to the information under the caption “Executive Compensation”"Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.26, 2017.

The information required by this Item 12 is furnished by incorporation by reference to the information under the captions “Security"Security Ownership of Certain Beneficial Owners and Management”Management" and “Compensation Plans”"Compensation Plans" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.26, 2017.

None

The information required by this Item 14 is furnished by incorporation by reference to the information under the caption “Independent"Independent Registered Public Accountants”Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.26, 2017.