NOTE 7 – SEGMENT INFORMATION

Our sales are primarily comprised of training and consulting services. Consistent with changes during the first quarter of fiscal 2018 in our organization designed to promote the sale of subscription-based offerings, our internal reporting structure was revised and is now comprised of three operating segments and a corporate services group. The former Strategic Markets operating segment was absorbed by the Direct Office operating segment since their target customers and sales methodologies were essentially identical. The remaining operating segments were determined to be reportable segments under the applicable accounting guidance. The following is a brief description of our reportable segments:

Direct Offices – This segment includes our sales personnel that serve the United States and Canada; our international sales offices located in Japan, China, the United Kingdom, and Australia; our governmental sales channel; and our public program operations.

Education Practice – This group includes our domestic and international Education practice operations, which are focused on sales to educational institutions.

International Licensees – This segment is primarily comprised of our international licensees’ royalty revenues.

Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, and certain corporate administrative expenses.

We determined that the Company’s chief operating decision maker continues to be the Chief Executive Officer (CEO), and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts disclosed by other companies. For reporting purposes, our consolidated Adjusted EBITDA may be calculated as our income or loss from operations excluding stock-based compensation, depreciation expense, amortization expense, and certain other charges such as restructuring charges and adjustments for changes in the fair value of contingent liabilities from business acquisitions. Prior period segment financial information was reclassified to conform to our current reporting and operating structure.

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment. Accordingly, we do not allocate assets to the reportable segments for analysis purposes. Interest expense and interest income are primarily generated at the corporate level and are not allocated. Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes.

We account for the following segment information on the same basis as the accompanying condensed consolidated financial statements (in thousands).



		Sales to
Quarter Ended		External				Adjusted
May 31, 2018		Customers		Gross Profit		EBITDA

Direct offices	$	36,331	$	26,444	$	2,624
Education practice		9,235		5,501		(723)
International licensees		3,543		2,735		1,672
Total		49,109		34,680		3,573
Corporate and eliminations		1,352		236		(2,985)
Consolidated	$	50,461	$	34,916	$	588

Quarter Ended
May 31, 2017

Direct offices	$	30,075	$	18,626	$	679
Education practice		8,596		5,193		341
International licensees		3,822		2,964		1,714
Total		42,493		26,783		2,734
Corporate and eliminations		1,258		558		(2,752)
Consolidated	$	43,751	$	27,341	$	(18)

Three Quarters Ended
May 31, 2018

Direct offices	$	103,802	$	75,886	$	7,467
Education practice		27,418		16,094		(2,273)
International licensees		9,909		7,601		4,252
Total		141,129		99,581		9,446
Corporate and eliminations		3,810		947		(8,922)
Consolidated	$	144,939	$	100,528	$	524

Three Quarters Ended
May 31, 2017

Direct offices	$	86,595	$	56,425	$	413
Education practice		25,187		14,625		19
International licensees		10,191		7,877		4,607
Total		121,973		78,927		5,039
Corporate and eliminations		3,761		1,753		(8,243)
Consolidated	$	125,734	$	80,680	$	(3,204)

As a result of the change in our segments, all of the goodwill previously included in the Strategic Markets segment was reassigned to the Direct Office segment. As of May 31, 2018, our goodwill balances were $16.8 million in the Direct Offices segment, $2.3 million in the Education Practice segment, and $5.1 million in the International Licensee segment. In conjunction with the change in reportable segments, we evaluated goodwill in the Direct Offices and Strategic Markets reportable segments for impairment, both before and after the segment change, and determined that goodwill was not impaired.

A reconciliation of our consolidated Adjusted EBITDA to consolidated net loss is provided below (in thousands).



	Quarter Ended				Three Quarters Ended
		May 31,		May 31,		May 31,		May 31,
		2018		2017		2018		2017
Segment Adjusted EBITDA	$	3,573	$	2,734	$	9,446	$	5,039
Corporate expenses		(2,985)		(2,752)		(8,922)		(8,243)
Consolidated Adjusted EBITDA		588		(18)		524		(3,204)
Stock-based compensation expense		(446)		(1,210)		(2,182)		(3,987)
Reduction (increase) in contingent
consideration liabilities		(136)		-		(789)		1,936
Costs to exit Japan publishing business		-		(1,792)		-		(1,792)
Restructuring costs		-		(1,335)		-		(1,335)
Contract termination costs		-		-		-		(1,500)
China office start-up costs		-		-		-		(505)
ERP system implementation costs		-		(327)		(855)		(920)
Other expenses		-		(25)		-		(25)
Depreciation		(1,267)		(949)		(3,547)		(2,743)
Amortization		(1,326)		(835)		(4,117)		(2,278)
Loss from operations		(2,587)		(6,491)		(10,966)		(16,353)
Interest income		35		52		94		181
Interest expense		(738)		(618)		(1,979)		(1,861)
Discount accretion on related
party receivable		202		34		258		129
Loss before income taxes		(3,088)		(7,023)		(12,593)		(17,904)
Income tax benefit		554		2,482		4,927		6,073
Net loss	$	(2,534)	$	(4,541)	$	(7,666)	$	(11,831)