Factors Affecting Forward Looking Statements

MD&A contains statements that are forward-looking and include numerous risks which you should carefully consider. Additional risks and uncertainties may also materially and adversely affect our business. You should read the following discussion in connection with our financial statements, including the notes to those statements, included in this document. Our fiscal years end on February 28.

Overview

We operate two separate divisions, Publishing and Usborne Books at Home ("UBAH"), to sell the Usborne line of children's books. These two divisions each have their own customer base. The Publishing Division markets its products on a wholesale basis to various retail accounts. The UBAH Division markets its products to individual consumers as well as school and public libraries.

The following table shows consolidated statement of income data as a percentage of net revenues.

                    Earnings as a Percent of Total Revenues



                                   Three Months Ended November 30,       Nine Months Ended November 30,
                                      2008                2007               2008               2007
Net revenues                               100.0 %             100.0 %           100.0 %            100.0 %
Cost of sales                               36.5 %              34.2 %            37.1 %             35.4 %
Gross margin                                63.5 %              65.8 %            62.9 %             64.6 %
Operating expenses:
Operating & selling                         22.9 %              22.0 %            24.4 %             23.6 %
Sales commissions                           25.3 %              25.4 %            22.9 %             23.4 %
General & administrative                     4.4 %               4.4 %             5.7 %              5.3 %
Interest                                     0.0 %               0.0 %             0.0 %              0.0 %
Total operating expenses                    52.6 %              51.8 %            53.0 %             52.3 %
Income from operations                      10.9 %              14.0 %             9.9 %             12.3 %
Other income                                 0.2 %               0.2 %             0.2 %              0.2 %
Earnings before income taxes                11.1 %              14.2 %            10.1 %             12.5 %
Income taxes                                 4.2 %               5.3 %             3.8 %              4.7 %
Net earnings                                 6.9 %               8.9 %             6.3 %              7.8 %

Operating Results for the Three Months Ended November 30, 2008

We earned income before income taxes of $1,044,800 for the three months ended November 30, 2008 compared with $1,406,500 for the three months ended November 30, 2007.

Revenues



                                  For the Three Months Ended November 30,        $ Increase/     % Increase/
                                        2008                    2007             (decrease)      (decrease)
Gross sales                     $         12,301,200    $         12,660,700    $    (359,500 )         -2.8 %
Less discounts & allowances               (3,447,600 )            (3,344,200 )       (103,400 )          3.1 %
Transportation revenue                       534,600                 587,000          (52,400 )         -8.9 %
Net revenues                    $          9,388,200    $          9,903,500    $    (515,300 )         -5.2 %

The UBAH Division's gross sales decreased $1,200 during the three month period ending November 30, 2008 when compared with the same quarterly period a year ago. This decrease consists of a 3% increase in Internet sales, offset by a 26% decrease in school and library sales, a 10% decrease in home party sales and 12% decrease in direct sales. The decline in home party sales is attributed to a 4% decline in the total number of home shows held and a 6% decrease in the average order size.

The Publishing Division's gross sales decreased 8.6% or $358,200 during the three month period ending November 30, 2008 when compared with the same quarterly period a year ago. We attribute this to an 18.6% decrease in inside sales accounts and a 4.5% decrease in sales to major national accounts, offset by a 4.6% increase in smaller retail stores.

The UBAH Division's discounts and allowances were $1,303,300 and $1,028,200 for the quarterly periods ended November 30, 2008 and 2007, respectively. The UBAH Division is a multi-level selling organization that markets its products through independent sales representatives ("consultants"). Sales are made to individual purchasers and school and public libraries. Most sales in the UBAH Division are at retail. As a part of the UBAH Division'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 UBAH Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAH Division's discounts and allowances were 16.0% of UBAH's gross sales for the quarterly period ended November 30, 2008 and 12.6% for the quarterly period ended November 30, 2007.

The Publishing Division's discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAH Division due to the different customer markets that each division targets. The Publishing Division's discounts and allowances were $2,144,300 and $2,315,900 for the quarterly periods ended November 30, 2008 and 2007, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division 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. The Publishing Division's discounts and allowances were 51.5% of Publishing's gross sales for the quarterly period ended November 30, 2008 and 51.2% for the quarterly period ended November 30, 2007.

Expenses



                              For Three Months Ended November 30,        $ Increase/     % Increase/
                                   2008                  2007            (decrease)       (decrease)
Cost of sales                        3,424,000    $        3,388,900    $      35,100            1.0 %
Operating & selling                  2,149,800             2,178,200          (28,400 )         -1.3 %
Sales commissions                    2,371,300             2,517,400         (146,100 )         -5.8 %
General & administrative               416,500               434,300          (17,800 )         -4.1 %
Total                       $        8,361,600    $        8,518,800    $    (157,200 )         -1.8 %

Cost of sales increased 1.0% for the three months ended November 30, 2008 when compared with the three months ended November 30, 2007. Cost of sales as a percentage of gross sales was 27.8% for the three months ended November 30, 2008 and for the three months ended November 30, 2007 was 26.8%. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses. These costs totaled $289,200 in the quarter ended November 30, 2008 and $294,800 in the quarter ended November 30, 2007. When comparing our gross margins with the gross margins of other companies, note that we do not include the costs of our distribution network in our cost of sales.

In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing Division, the UBAH Division and the order entry and customer service functions. Operating and selling expenses as a percentage of gross sales were 17.5% for the quarter ended November 30, 2008 and 17.2% for the quarter ended November 30, 2007.

Sales commissions in the Publishing Division decreased 1.8% to $33,800 for the three months ended November 30, 2008. Publishing Division sales commissions are paid on net sales and were 1.7% of net sales for the three months ended November 30, 2008 and 1.7% of net sales for the three months ended November 30, 2007. Sales commissions in the Publishing Division will fluctuate depending upon the amount of sales made to our "house accounts," which are the Publishing Division's largest customers and do not have any commission expense associated with them, and sales made by our outside sales representatives.

Sales commissions in the UBAH Division decreased 6.2% to $2,337,500 for the three months ended November 30, 2008 as a result of decreased sales from home shows and direct sales, offset by increased internet sales. UBAH Division sales commissions are paid on retail sales and were 36.3% of retail sales for the three months ended November 30, 2008 and 37.7% of retail sales for the three months ended November 30, 2007. The fluctuation in the percentages of commission expense to retail sales is the result of the type of sale. Home shows, book fairs, school and library sales and direct sales have different commission rates. Also contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants' monthly sales and downline sales.

Our effective tax rate was 37.8 % and 37.7% for the quarterly periods ended November 30, 2008 and 2007, respectively. These rates are higher than the federal statutory rate due to state income taxes.

Operating Results for the Nine Months Ended November 30, 2008

We earned income before income taxes of $2,333,400 for the nine months ended November 30, 2008 compared with $2,951,100 for the nine months ended November 30, 2007.

Revenues



                                  For the Nine Months Ended November 30,        $ Increase/     % Increase/
                                       2008                    2007             (decrease)      (decrease)
Gross sales                    $         31,444,500    $         31,564,800    $    (120,300 )         -0.4 %
Less discounts & allowances              (9,557,000 )            (9,163,300 )       (393,700 )          4.3 %
Transportation revenue                    1,243,000               1,326,900          (83,900 )         -6.3 %
Net revenues                   $         23,130,500    $         23,728,400    $    (597,900 )         -2.5 %

The UBAH Division's gross sales increased 0.6% or $113,800 during the nine month period ending November 30, 2008 when compared with the same nine month period a year ago. This increase consists of a 17% increase in Internet sales, offset by an 11% decrease in home party sales and a 19% decrease in direct sales. The decline in home party sales is attributed primarily to a 7% decline in the total number of home shows held and a 5% decrease in average per order sales.

The Publishing Division's gross sales decreased by 1.8% or $234,100 during the nine month period ending November 30, 2008 when compared with the same nine month period a year ago. We attribute this to a 7.6% decrease in inside sales accounts, offset by a 3.7% increase in sales to the national chains.

The UBAH Division's discounts and allowances were $2,872,100 and $2,358,200 for the nine month periods ended November 30, 2008 and 2007, respectively. The UBAH Division is a multi-level selling organization that markets its products through independent sales representatives ("consultants"). Sales are made to individual purchasers and school and public libraries. Most sales in the UBAH Division are at retail. As a part of the UBAH Division'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 UBAH Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAH Division's discounts and allowances were 15.5% of UBAH's gross sales for the nine month period ended November 30, 2008 and 12.8% for the nine month period ended November 30, 2007.

The Publishing Division's discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAH Division due to the different customer markets that each division targets. The Publishing Division's

discounts and allowances were $6,684,900 and $6,805,100 for the nine month periods ended November 30, 2008 and 2007, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division 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. The Publishing Division's discounts and allowances were 51.7% of Publishing's gross sales for the nine month period ended November 30, 2008 and 51.7% for the nine month period ended November 30, 2007.

Expenses



                              For Nine Months Ended November 30,        $ Increase/      % Increase/
                                  2008                  2007             (decrease)       (decrease)
Cost of sales                       8,581,600             8,397,400    $      184,200             2.2 %
Operating & selling                 5,640,700             5,607,300            33,400             0.6 %
Sales commissions                   5,296,900             5,565,200          (268,300 )          -4.8 %
General & administrative            1,318,400             1,251,600            66,800             5.3 %
Total                      $       20,837,600    $       20,821,500    $       16,100             0.1 %

Cost of sales increased 2.2% for the nine months ended November 30, 2008 when compared with the nine months ended November 30, 2007, consistent with the increase in sales for the period. Cost of sales as a percentage of gross sales was 27.8% for the nine months ended November 30, 2008 and for the nine months ended November 30, 2007 was 27.2%. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses. These costs totaled $847,000 in the nine months ended November 30, 2008 and $838,600 in the nine months ended November 30, 2007. When comparing our gross margins with the gross margins of other companies, note that we do not include the costs of our distribution network in our cost of sales.

In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing Division, the UBAH Division and the order entry and customer service functions. Operating and selling expenses as a percentage of gross sales were 17.9% for the nine months ended November 30, 2008 and 17.8% for the nine months ended November 30, 2007.

Sales commissions in the Publishing Division decreased 3.0% to $107,100 for the nine months ended November 30, 2008. Publishing Division sales commissions are paid on net sales and were 1.7% of net sales for the nine months ended November 30, 2008 and 1.7% of net sales for the nine months ended November 30, 2007. Sales commissions in the Publishing Division will fluctuate depending upon the amount of sales made to our "house accounts," which are the Publishing Division's largest customers and do not have any commission expense associated with them, and sales made by our outside sales representatives.

Sales commissions in the UBAH Division decreased 5.1% to $5,189,800 for the nine months ended November 30, 2008, the direct result of decreased sales from home shows and school and library sales in this division. UBAH Division sales commissions are paid on retail sales and were 35.1% of retail sales for the nine months ended November 30, 2008 and 36.3% of retail sales for the nine months ended November 30, 2007. The fluctuation in the percentages of commission expense to retail sales is the result of the type of sale. Home shows, book fairs, school and library sales and direct sales have different commission rates. Also contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants' monthly sales and downline sales.

Our effective tax rate was 37.7% and 37.6% for the nine month period ended November 30, 2008 and 2007, respectively. These rates are higher than the federal statutory rate due to state income taxes.

Liquidity and Capital Resources

Our primary sources of cash are operating cash flow and proceeds from the exercise of stock options. Our primary uses of cash are to repurchase outstanding shares of stock, purchase property and equipment and pay dividends. We utilize our bank credit facility to meet our short-term cash needs when necessary.

Our Board of Directors has adopted a stock repurchase plan in which we may purchase up to 3,000,000 shares as market conditions warrant. Management believes the stock is undervalued and when stock becomes available at an attractive price, we will utilize free cash flow to repurchase shares. Management believes this enhances the value to the remaining stockholders and that these repurchases will have no adverse effect on our short-term and long-term liquidity. We repurchased 138,434 shares at a cost of $776,800 during the nine month period ended November 30, 2008.

We have a history of profitability and positive cash flow. We can sustain planned growth levels with minimal capital requirements. Consequently, cash generated from operations is used to liquidate any existing debt and then to repurchase shares outstanding or capital distributions through dividends.

Our primary source of liquidity is cash generated from operations. During the first nine months of fiscal year 2009, we experienced a positive cash flow from operating activities of $3,989,600. Cash flow from operating activities was increased primarily by net income after taxes of $1,452,200, a decrease in inventories of $2,643,700 and increases in current liabilities of $467,500, offset by a net change in net income taxes receivable of $326,200. Fluctuations in accounts payable and accrued expenses involve timing of shipments received from our principal supplier and the payments associated with these shipments. They tend to be highest in the third quarter when holiday season shipments have arrived and prior to payments being made.

We believe that in fiscal year 2009 we will experience a positive cash flow and that this positive cash flow along with the bank credit facility will be adequate to meet our liquidity requirements for the foreseeable future.

We estimate that total cash used in investing activities for fiscal year 2009 will be less than $200,000. This would consist of software and hardware enhancements to our existing data processing equipment, property improvements and additional warehouse equipment.

Cash used in financing activities was $1,345,600 from dividend payments of $1,526,500, the purchase of $776,800 of treasury stock, offset by the exercise of $848,700 in stock options and the sale of $109,000 in treasury stock.

As of November 30, 2008 we did not have any commitments in excess of one year.

Bank Credit Agreement

Effective June 30, 2008, we signed a Tenth Amendment to the Credit and Security Agreement with Arvest Bank which provided a $5,000,000 line of credit through June 30, 2009. Interest is payable monthly at the Wall Street Journal prime-floating rate minus 0.75% (3.25% at November 30, 2008) and borrowings are collateralized by substantially all of our assets. At November 30, 2008 we had no debt outstanding under this agreement. Available credit under the revolving credit agreement was $5,000,000 at November 30, 2008. No borrowings were outstanding under the agreement during the quarter ended November 30, 2008.

This 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 standby letters of credit provided that no letters of credit will have an expiry date later than June 30, 2009 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. For the quarter ended November 30, 2008, we had no letters of credit outstanding.

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. 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 are recognized and recorded when products are shipped. Products are shipped FOB shipping point. The UBAH Division's sales are paid before the product is shipped. These sales accounted for 78.4% of net revenues for the quarter ended November 30, 2008 and 77.6% for the quarter ended November 30, 2007. The provisions of the SEC Staff Accounting Bulletin No.104, "Revenue Recognition in Financial Statements," have been applied, and as a result, a reserve is provided for estimated future sales returns.

Our sales return policy allows the customer to return all purchases for an exchange or refund for up to 30 days after the customer receives the item. Estimated allowances for sales returns are recorded as sales are recognized and recorded. 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 from the retail stores. The damages occur in the stores, not in shipping to the stores. It is industry practice to accept returns from wholesale customers. Transportation revenue, the amount billed to the customer for shipping the product, is recorded when products are shipped. Management has estimated and included a reserve for sales returns of $84,000 as of November 30, 2008 and February 29, 2008.

Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer's financial condition and current economic trends. If the actual uncollected amounts significantly exceed the estimated allowance, then our operating results would be significantly adversely affected. Management has estimated and included an allowance for doubtful accounts of $84,600 and $74,400 as of November 30, 2008 and February 29, 2008, respectively.

Inventory

Management continually estimates and calculates the amount of non-current inventory. Non-current inventory arises due to occasionally purchasing 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. Non-current 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, before valuation allowance, were $822,000 at November 30, 2008 and $764,000 at February 29, 2008.

Inventories are presented net of a valuation allowance. Management has estimated and included a valuation allowance for both current and noncurrent inventory. This reserve is based on management's identification of slow moving inventory on hand at November 30, 2008 and February 29, 2008. Management has estimated a valuation allowance for both current and noncurrent inventory of $345,000 and $331,200 as of November 30, 2008 and February 29, 2008, respectively.

Stock-Based Compensation

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 over the vesting period.