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 and More ("UBAM"), to sell the Usborne and Kane/Miller lines 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 UBAM Division markets its products to individual consumers as well as school and public libraries.

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

                    Earnings as a Percent of Total Revenues



                                     Three Months Ended August 31,        Six Months Ended August 31,
                                        2009               2008             2009              2008
Net revenues                                100.0 %            100.0 %          100.0 %           100.0 %
Cost of sales                                40.8 %             39.0 %           38.3 %            37.5 %
Gross margin                                 59.2 %             61.0 %           61.7 %            62.5 %
Operating expenses:
Operating & selling                          26.3 %             25.9 %           25.5 %            25.4 %
Sales commissions                            18.1 %             19.8 %           19.8 %            21.3 %
General & administrative                      8.8 %              7.2 %            8.3 %             6.6 %
Total operating expenses                     53.2 %             52.9 %           53.6 %            53.3 %
Income from operations                        6.0 %              8.1 %            8.1 %             9.2 %
Other income                                  0.0 %              0.1 %            0.2 %             0.2 %
Earnings before income taxes                  6.0 %              8.2 %            8.3 %             9.4 %
Income taxes                                  2.2 %              3.1 %            3.1 %             3.5 %
Net earnings                                  3.8 %              5.1 %            5.2 %             5.9 %

Operating Results for the Three Months Ended August 31, 2009

We earned income before income taxes of $359,200 for the three months ended August 31, 2009 compared with $520,600 for the three months ended August 31, 2008.

Revenues



                                 For the Three Months Ended
                                         August 31,               $ Increase/     % Increase/
                                   2009             2008          (decrease)      (decrease)
Gross sales                    $   9,476,000    $   9,327,100    $     148,900            1.6 %
Less discounts & allowances       (3,758,200 )     (3,317,100 )       (441,100 )         13.3 %
Transportation revenue               288,100          357,500          (69,400 )        (19.4 )%
Net revenues                   $   6,005,900    $   6,367,500    $    (361,600 )         (5.7 )%

The UBAM Division's gross sales decreased $522,800 during the three month period ending August 31, 2009 when compared with the same quarterly period a year ago. This decrease consists of decreases in internet sales of 27%, 11% in home party sales, 13% school and library sales, and a 14% decrease in direct sales. The decline in home party sales is attributed to a 18% decline in the total number of home shows held offset by a 2% increase in the average order size.

The Publishing Division's gross sales increased $671,700 during the three month period ending August 31, 2009 when compared with the same quarterly period a year ago. We attribute this to a 27.8% increase in sales to major national accounts, a 26.4% increase in sales to smaller retail stores and a 9.7% increase in inside sales accounts.

The UBAM Division's discounts and allowances were $921,000 and $831,300 for the quarterly periods ended August 31, 2009 and 2008, respectively. The UBAM 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 UBAM Division are at retail. As a part of the UBAM 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 UBAM Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAM Division's discounts and allowances were 23.0% and 18.3% of UBAM's gross sales for the quarterly periods ended August 31, 2009 and 2008, respectively.

The Publishing Division'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 Publishing Division's discounts and allowances were $2,837,200 and $2,485,800 for the quarterly periods ended August 31, 2009 and 2008, 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 51.9% of Publishing's gross sales for the quarterly period ended August 31, 2009 and 51.8% for the quarterly period ended August 31, 2008.

Expenses



                              For the Three Months Ended
                                      August 31,               $ Increase/     % Increase/
                                2009             2008          (decrease)      (decrease)
Cost of sales               $   2,452,600    $   2,486,500    $     (33,900 )         (1.4 )%
Operating & selling             1,578,500        1,648,700          (70,200 )         (4.3 )%
Sales commissions               1,088,100        1,258,500         (170,400 )        (13.5 )%
General & administrative          527,300          461,100           66,200           14.4 %
Total                       $   5,646,500    $   5,854,800    $    (208,300 )         (3.6 )%

Cost of sales decreased 1.4% for the three months ended August 31, 2009 when compared with the three months ended August 31, 2008. Cost of sales as a percentage of gross sales was 25.9% for the three months ended August 31, 2009 and for the three months ended August 31, 2008 was 26.7%. 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, not in cost of sales. These costs totaled $274,700 in the quarter ended August 31, 2009 and $265,900 in the quarter ended August 31, 2008.

In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing Division, the UBAM Division and the order entry and customer service functions. Operating and selling expenses as a percentage of gross sales were 16.7% for the quarter ended August 31, 2009 and 17.7% for the quarter ended August 31, 2008.

Sales commissions in the Publishing Division increased 24.3% to $47,000 for the three months ended August 31, 2009. Publishing Division sales commissions are paid on net sales and were 1.8% of net sales for the three months ended August 31, 2009 and 1.6% of net sales for the three months ended August 31, 2008. Sales commissions in the Publishing Division 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 UBAM Division decreased 14.7% to $1,041,100 for the three months ended August 31, 2009 as a result of decreases in internet sales, home show sales, school and library sales and direct sales. UBAM Division sales commissions are paid on retail sales and were 40.3% of retail sales for the three months ended August 31, 2009 and 35.3% of retail sales for the three months ended August 31, 2008. 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 37.2 % and 38.0% for the quarterly periods ended August 31, 2009 and 2008, respectively. These rates are higher than the federal statutory rate due to state income taxes.

Operating Results for the Six Months Ended August 31, 2009

We earned income before income taxes of $1,025,200 for the six months ended August 31, 2009 compared with $1,288,600 for the six months ended August 31, 2008.

Revenues



                                  For the Six Months Ended
                                         August 31,              $ Increase/     % Increase/
                                   2009             2008          (decrease)     (decrease)
Gross sales                    $  18,229,100    $  19,143,300    $   (914,200 )         (4.8 )%
Less discounts & allowances       (6,398,600 )     (6,109,400 )      (289,200 )          4.7 %
Transportation revenue               566,000          708,400        (142,400 )        (20.1 )%
Net revenues                   $  12,396,500    $  13,742,300    $ (1,345,800 )         (9.8 )%

The UBAM Division's gross sales decreased 15.8% or $1,641,100 during the six month period ending August 31, 2009 when compared with the same six month period a year ago. This decrease consists of a 28% decrease in Internet sales, a 16% decrease in home party sales, a 13% decrease in school and library sales and a 10% decrease in direct sales. The decline in home party sales is attributed primarily to a 15.2% decline in the total number of home shows held and a 1.1% decrease in average per order sales.

The Publishing Division's gross sales increased by 8.3% or $726,900 during the six month period ending August 31, 2009 when compared with the same six month period a year ago. We attribute this to a 27.5% increase in sales to the national chains, a 18.2% increase in sales to smaller retail stores and a 2.3% increase in inside sales accounts.

The UBAM Division's discounts and allowances were $1,518,800 and $1,568,800 for the six month periods ended August 31, 2009 and 2008, respectively. The UBAM 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 UBAM Division are at retail. As a part of the UBAM 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 UBAM Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAM Division's discounts and allowances were 17.4% of UBAM's gross sales for the six month period ended August 31, 2009 and 15.1% for the six month period ended August 31, 2008.

The Publishing Division'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 Publishing Division's discounts and allowances were $4,879,800 and $4,540,600 for the six month periods ended August 31, 2009 and 2008, 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 six month period ended August 31, 2009 and 51.9% for the six month period ended August 31, 2008.

Expenses



                               For the Six Months Ended August 31,         $ Increase/     % Increase/
                                   2009                   2008             (decrease)      (decrease)
Cost of sales                         4,752,800    $         5,157,600    $    (404,800 )         (7.8 )%
Operating & selling                   3,162,000              3,490,900         (328,900 )         (9.4 )%
Sales commissions                     2,450,100              2,925,600         (475,500 )        (16.3 )%
General & administrative              1,033,200                901,900          131,300           14.6 %
Total                       $        11,398,100    $        12,476,000    $  (1,077,900 )         (8.6 )%

Cost of sales decreased 7.8% for the six months ended August 31, 2009 when compared with the six months ended August 31, 2008, consistent with the decrease in sales for the period. Cost of sales as a percentage of gross sales was 26.1% for the six months ended August 31, 2009 and for the six months ended August 31, 2008 was 26.9%. 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 $561,200 in the six months ended August 31, 2009 and $557,800 in the six months ended August 31, 2008. 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 UBAM Division and the order entry and customer service functions. Operating and selling expenses as a percentage of gross sales were 17.3% for the six months ended August 31, 2009 and 18.2% for the six months ended August 31, 2008.

Sales commissions in the Publishing Division increased 17.6% to $86,200 for the six months ended August 31, 2009. Publishing Division sales commissions are paid on net sales and were 1.9% of net sales for the six months ended August 31, 2009 and 1.7% of net sales for the six months ended August 31, 2008. 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 UBAM Division decreased 17.1% to $2,363,900 for the six months ended August 31, 2009, the direct result of decreased sales from home shows and school and library sales in this division. UBAM Division sales commissions are paid on retail sales and were 38.2% of retail sales for the six months ended August 31, 2009 and 34.2% of retail sales for the six months ended August 31, 2008. 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 37.5% and 37.7% for the six month periods ended August 31, 2009 and 2008, respectively. These rates are higher than the federal statutory rate due to state income taxes.

Liquidity and Capital Resources

Our primary source of cash is typically operating cash flow. Typically, our primary uses of cash are to repurchase outstanding shares of stock, pay dividends and purchase property and equipment. 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 a total of 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 173 shares at a cost of $600 during the quarter ended August 31, 2009.

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.

For the six months ended August 31, 2009, we experienced a negative cash flow from operating activities of $1,371,400. Cash flow from operating activities was decreased primarily by an increase in inventory of $2,712,700 and accounts receivable of $298,400, offset by net income after taxes of $640,800 and increases in current liabilities of $913,100.

We believe that in fiscal year 2010 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 2010 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.

For the six months ended August 31, 2009, cash used in financing activities was $1,267,200 from dividend payments of $1,536,600, revolving credit payments of $847,600 and the purchase of $3,700 of treasury stock, offset by revolving credit borrowings of $1,000,000 and the sale of $120,700 in treasury stock.

As of August 31, 2009 we did not have any commitments in excess of one year.

Bank Credit Agreement

Effective June 30, 2009, we signed an Eleventh Amendment to the Credit and Security Agreement with Arvest Bank which provided a reduced $2,500,000 line of credit through June 30, 2010. Interest is payable monthly at the greater of 5.00% or the Wall Street Journal prime-floating rate minus 0.75% (3.25% at August 31, 2009) and borrowings are collateralized by substantially all of our assets. At August 31, 2009 we had $152,400 outstanding under this agreement. Available credit under the revolving credit agreement was $2,347,600 at August 31, 2009.

This agreement also contains a provision for our use of the Bank's letters of credit. The Bank agrees to issue commercial or standby letters of credit provided that none will have an expiry date later than June 30, 2010 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 August 31, 2009, 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 UBAM Division's sales are paid before the product is shipped. These sales accounted for 56.0% of net revenues for the quarter ended August 31, 2009 and 63.5% for the quarter ended August 31, 2008. 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.

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 $100,000 as of August 31, 2009 and $84,000 as of February 28, 2009.

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 $111,800 and $92,900 as of August 31, 2009 and February 28, 2009, 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 $854,000 at August 31, 2009 and $913,000 at February 28, 2009.

Inventories are presented net of a valuation allowance. Management has estimated and included a valuation allowance for both current and noncurrent inventory. This allowance is based on management's identification of slow moving inventory on hand. Management has estimated a valuation allowance for both current and noncurrent inventory of $328,000 and $370,000 as of August 31, 2009 and February 28, 2009, 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.