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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended August 31, 1995.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from________ to ________ .
Commission file number: 0-4957
EDUCATIONAL DEVELOPMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 73-0750007
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10302 East 55th Place #B, Tulsa Oklahoma 74146-6515
(Address of principal executive offices)
Issuer's telephone number: (918) 622-4522
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _______
--------
As of August 31, 1995 there were 2,283,247 shares of Educational Development
Corporation Common Stock, $0.20 par value outstanding.
1
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
PART 1. FINANCIAL INFORMATION
- ------------------------------
ITEM 1
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
August 31, 1995 February 28, 1995
--------------- -----------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 1,600 $ 328,900
Accounts Receivable - (less
allowances for doubtful accounts
and returns: 8/31/95 - $232,600
2/28/95 - $206,000) 3,419,200 1,743,900
Inventories (Note 3) 8,108,600 6,588,800
Deferred Income Taxes (Note 1) 256,400 257,000
Prepaid Expenses 205,400 169,300
--------- ---------
Total Current Assets 11,991,200 9,087,900
Property, plant and equipment
at cost (less accumulated
depreciation: 8/31/95 - $386,700
2/28/95 - $347,500) 693,700 364,200
Inventories (Note 3) 80,900 80,900
Other Assets (Note 4) 74,000 132,400
--------- ---------
Total Assets $12,839,800 $9,665,400
=========== ==========
</TABLE>
2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
BALANCE SHEETS (UNAUDITED and continued)
<TABLE>
<CAPTION>
August 31, 1995 February 28, 1995
--------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations (Note 2) $ 3,053,300 $ 7,700
Accounts payable 3,063,900 3,004,300
Accrued salaries, bonuses and
commissions 153,400 171,700
Accrued test scoring 17,200 18,200
Income taxes 86,800 67,700
Other current liabilities 157,100 123,200
----------- ----------
Total Current Liabilities 6,531,700 3,392,800
LONG-TERM OBLIGATIONS -0- 1,000,000
SHAREHOLDERS' EQUITY
(Notes 5 and 6):
Common Stock, par value of
$0.20 per share (authorized
3,000,000 shares; issued
2,369,120 shares and 2,344,120 shares) 473,800 468,800
Capital in excess of par value 4,629,100 4,569,100
Retained earnings 1,280,200 309,700
----------- ----------
6,383,100 5,347,600
LESS TREASURY SHARES AT COST
(85,873 shares) ( 75,000) ( 75,000)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 6,308,100 5,272,600
----------- ----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $12,839,800 $9,665,400
=========== ==========
</TABLE>
3
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
STATEMENT OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended August 31 Six Months Ended August 31
1995 1994 1995 1994
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Gross Sales $ 7,594,600 $ 5,324,700 $ 13,972,200 $ 9,853,200
Less Discounts & Allowances ( 2,889,200) ( 2,265,900) ( 5,263,200) ( 4,094,000)
------------ ------------ ------------ ------------
Net Sales 4,705,400 3,058,800 8,709,000 5,759,200
Cost of Sales 2,023,700 1,428,000 3,713,500 2,668,500
------------ ------------ ------------ ------------
Gross Margin 2,681,700 1,630,800 4,995,500 3,090,700
Operating & Selling Exp. 727,100 527,700 1,399,300 1,009,500
Sales Commissions 792,600 357,300 1,467,600 682,900
General & Admin. Exp. 215,200 204,300 405,200 356,300
Interest Expense 71,000 2,200 117,600 5,900
------------ ------------ ------------ ------------
Operating Income 875,800 539,300 1,605,800 1,036,100
Other Income (Net) 300 400 400 600
------------ ------------ ------------ ------------
Earnings Before Provision for
Income Taxes 876,100 539,700 1,606,200 1,036,700
Provision for Income Taxes (Note 1) ( 336,300) ( 216,000) ( 635,700) ( 401,400)
-------- -------- -------- --------
Net Earnings $ 539,800 $ 323,700 $ 970,500 $ 635,300
============ ============ ============ ============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Primary and Fully Diluted $ .20 $ .13 $ .37 $ .25
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary and fully diluted 2,656,377 2,575,949 2,655,274 2,571,960
============ ============ ============ ============
</TABLE>
4
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
(par value $.20 per share) Treasury Stock
------------------------ --------------
Number of Capital in Number
Shares Excess of Retained of Shareholders'
Issued Amount Par Value Earnings Shares Amount Equity
--------- ------- ---------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 1, 1995 2,344,120 $468,800 $4,569,100 $ 309,700 85,873 $( 75,000) $5,272,600
Net earnings ----- ----- ----- 970,500 ----- ----- 970,500
Exercise of options
at $3.00/share 5,000 1,000 14,000 ----- ----- ----- 15,000
Exercise of options
at $6.25/share 5,000 1,000 30,250 ----- ----- ----- 31,250
Exercise of options
at $1.25/share 15,000 3,000 15,750 ----- ----- ----- 18,750
--------- -------- ---------- ----------- -------- --------- ----------
BALANCE, AUGUST 31, 1995 2,369,120 $473,800 $4,629,100 $ 1,280,200 85,873 $( 75,000) $6,308,100
========= ======== ========== =========== ======== ======== ==========
</TABLE>
5
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended August 31 Six Months Ended August 31
---------------------------- --------------------------
1995 1994 1995 1994
------- ------- ---------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 539,800 $ 323,700 $ 970,500 $ 635,300
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 21,400 27,700 39,200 47,700
Deferred income taxes ( 9,400 ) ( 9,800 ) 600 ( 11,600 )
Provision for doubtful accounts
and sales returns 168,000 305,800 466,400 501,000
Changes in assets and liabilities:
Accounts receivable ( 1,059,600 ) ( 670,400 ) ( 2,141,700 ) ( 1,024,500 )
Inventories ( 1,337,100 ) ( 264,400 ) ( 1,519,800 ) ( 253,500 )
Prepaid expenses ( 73,300 ) ( 64,200 ) ( 36,100 ) ( 28,500 )
Other assets 9,800 11,500 58,400 21,900
Accounts payable and accrued expenses 1,270,500 384,400 74,200 278,200
Income taxes payable ( 165,300 ) ( 142,700 ) 19,100 ( 71,300 )
------- ------- ------- -------
Total adjustments ( 1,175,000 ) ( 422,100 ) ( 3,039,700 ) ( 540,600 )
--------- ------- --------- -------
Net cash provided by (used in) operating
activities ( 635,200 ) ( 98,400 ) ( 2,069,200 ) 94,700
------- ------ --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 220,100 ) ( 25,000 ) ( 368,700 ) ( 42,600 )
------- ------ ------- -------
Net cash used in investing activities ( 220,100 ) ( 25,000 ) ( 368,700 ) ( 42,600 )
------- ------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement 2,080,000 330,000 4,780,000 940,000
Payments under revolving credit
agreement ( 1,430,000 ) ( 330,000 ) ( 2,730,000 ) ( 940,000 )
Principal payments on capital lease
obligations ( 100 ) ( 10,100 ) ( 4,400 ) ( 19,800 )
Cash received from exercise of stock options 65,000 - 65,000 -
------------ ----------- ------------ ------------
Net cash provided by (used in)
financing activities 714,900 ( 10,100 ) 2,110,600 ( 19,800 )
------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents ( 140,400) ( 133,500 ) ( 327,300 ) 32,300
Cash and Cash Equivalents, Beginning of
Period 142,000 244,400 328,900 78,600
------------ ---------- ------------ ------------
Cash and Cash Equivalents, End of Period $ 1,600 $ 110,900 $ 1,600 $ 110,900
============ ========== ============ ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 59,200 $ 2,100 $ 88,500 $ 6,000
============ ========== ============ ============
Cash paid for income taxes $ 511,000 $ 368,500 $ 616,000 $ 478,500
============ ========== ============ ============
</TABLE>
6
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1 - Deferred income taxes reflect the net tax effects of temporary
- ------
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and operating
loss and tax credit carryforwards. The tax effects of significant items
comprising the Company's net tax deferred assets as of August 31, 1995 and March
1, 1995 are as follows:
<TABLE>
<CAPTION>
August 31, 1995 March 1, 1995
--------------- -------------
<S> <C> <C>
Deferred tax assets:
Expenses deducted on the cash
basis for income tax purposes $ 6,700 $ 25,000
Allowance for doubtful accounts
and sales returns 90,700 80,000
Inventories 117,400 118,000
Amortization of assets not
currently deductible 55,200 48,000
-------- --------
270,000 271,000
Deferred tax liability-
Property and equipment 13,600 14,000
-------- --------
Net deferred tax asset $256,400 $257,000
======== ========
</TABLE>
Management has determined that no valuation allowance is necessary to reduce the
value of deferred tax assets as it is more likely than not that such assets are
realizable.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended August 31 Six Months Ended August 31
---------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income tax expense:
Current $345,700 $225,800 $635,100 $ 413,000
Deferred ( 9,400 ) ( 9,800 ) 600 ( 11,600 )
-------- -------- -------- ---------
$336,300 $216,000 $635,700 $ 401,400
======== ======== ======== =========
</TABLE>
7
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
Note 2 - Effective June 30, 1994 the Company signed a Fourth Amendment to Credit
- ------
and Security Agreement with State Bank which provides a $1,300,000 line of
credit. The line of credit is evidenced by a promissory note in the amount of
$1,300,000 payable June 30, 1995. The note is collateralized by substantially
all of the assets of the Company. During the first quarter of fiscal year 1996
this revolving credit agreement was amended, increasing the line to $3,000,000.
During the second quarter of fiscal year 1996 this revolving credit agreement
was amended, increasing the line to $3,750,000. $1,750,000 of the amended
revolving credit agreement expires October 25, 1995 and the remaining $2,000,000
expires June 30, 1996. The note bears interest at prime plus 1%, payable
monthly. The Company utilizes this line of credit primarily to fund routine
operations. Payments are made from current cash flows. At August 31, 1995 the
Company had available $700,000 under this credit agreement.
Effective September 25, 1995 the Company signed a Restated Credit and Security
Agreement with State Bank which provides a $6,000,000 line of credit which
replaced the agreements referred to above. The line of credit is evidenced by a
promissory note in the amount of $6,000,000 payable June 30, 1996. The note
bears interest at prime plus 1/2%, payable monthly. The note is collateralized
by substantially all of the assets of the Company.
Note 3 - Inventories consist of the following:
- ------
<TABLE>
<CAPTION>
08/31/95 02/28/95
-------- --------
<S> <C> <C>
Publishing Inventory $8,131,000 $6,616,800
School Inventory 359,600 354,000
---------- ----------
8,490,600 6,970,800
Reserve for Obsolescence ( 301,100 ) ( 301,100 )
---------- ----------
8,189,500 6,669,700
Less Noncurrent School Inventory ( 80,900 ) ( 80,900 )
---------- ----------
$8,108,600 $6,588,800
========== ==========
Note 4 - Other assets consist of the following:
- ------
Prepublication Costs $ 31,900 $ 49,900
Advances to Employees 1,400 40,900
Other 40,700 41,600
---------- ----------
$ 74,000 $ 132,400
========== ==========
</TABLE>
Note 5 - The results of operations for the three and six months ended August 31,
- ------
1995 and 1994 are not necessarily indicative of the results to be expected at
year end due to seasonality of the product sales.
Note 6 - The information shown with respect to the three and six months ended
- ------
August 31, 1995 and 1994, which is unaudited, includes all adjustments which in
the opinion of Management are considered to be necessary for a fair presentation
of earnings for such periods. There were no adjustments, other than normal
recurring accruals, entering into the determination of the results shown except
as noted in this report. Reclassifications were made to 1994 balances to
conform with 1995 presentation.
Note 7 - These statements should be read in conjunction with the Notes to
- ------
Financial Statements contained in the Company's Annual Report to Shareholders
for the Fiscal Year ended February 28, 1995 and with Management's Discussion and
Analysis or Plan of Operations appearing on page 9 of this report.
8
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE SIX
- --------------------------------------------------------------------------------
MONTHS ENDED AUGUST 31, 1995
- ----------------------------
FINANCIAL CONDITION
- -------------------
The financial condition of the Company remains strong. Working capital
decreased slightly at August 31, 1995 over amounts at year-end February 28,
1995. The Company's debt increased $2,000,000 over amounts at year end February
28, 1995 resulting in a $3,000,000 increase over year end in current
liabilities. This debt matures within one year and is classified as a current
liability. This increase was offset by increases in the level of receivables
and inventory. Sales increased 51% for the six months ended August 31, 1995
over the six months ended August 31,1994.
Management continues to focus on increasing market share in its Library Service
and Publishing Division and to increase revenue from the Home Business Division
through increasing its sales consultants network. Management's analysis
indicates that the increased exposure of its products through the Home Business
Division contributes to increased sales in the Publishing Division. Because the
Company has a relatively small share of the children's book market, Management
believes there is potential to continue to increase market share in the
Publishing and Library Service Division in the future. Additionally, based upon
the feedback Management receives from Home Business Division sales consultants,
the products being offered through this Division are well received by the public
and becoming more widely known and accepted. Accordingly, Management expects
this Division to continue to experience growth.
RESULTS OF OPERATIONS
- ---------------------
Revenues - Net sales from the Publishing Division were $4,518,900 for the six
- --------
months ended August 31, 1995, an increase of 28% over net sales of $3,526,700
for the six months ended August 31, 1994. This increase can be attributed to
increased volume as the Division continued to increase it's market penetration.
Management expects sales to continue to increase in the Publishing Division.
Net sales from the School Division decreased 43% to $ 28,400 for the six months
ended August 31, 1995 compared to $49,700 for the same six month period last
year. With reductions in funding available to schools, cutbacks in spending
occur. Often supplementary materials, which are the Division's primary products,
are the first to be cut. Management believes its product line to be competitive
in the school market, but the uncertainty of funding to schools is of concern.
Management is evaluating its long-term options in the School Division.
Net sales from the Home Business Division were $3,457,900 for the six months
ended August 31, 1995, an increase of 122% over the net sales of $1,555,800 for
the six months ended August 31, 1994. This increase in net sales is the result
of an increase in the number of active consultants, which can be attributed to
new incentive programs which motivate and assist consultants in sales and
recruiting. This Division offers the entire Usborne line of approximately 800
titles. Management believes this Division has excellent potential for continued
growth.
Net sales from the Library Services Division were $703,800 for the six months
ended August 31, 1995, compared to $627,000 for the same six month period a year
ago, an increase of 12%. This increase resulted from an increase in sales
volume as the Division continued to increase it's market share. Management is
optimistic that this Division has excellent potential and that it expects sales
to improve.
9
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
Operating Expenses - The Company's cost of sales increased to $3,713,500 for the
- ------------------
six months ended August 31, 1995 compared with $2,668,500 for the same period
last year, an increase of 39%. Cost of sales as a percentage of gross sales was
26.6% for the six months ended August 31, 1995 compared with 27% for the same
period a year ago.
Operating and selling expenses were $1,399,300 for the six months ended August
31, 1995 compared to $1,009,500 for the same period last year, an increase of
38.6%. Operating and selling expenses as a percentage of gross sales were 10%
for the six months ended August 31, 1995 compared to 10.2% for the same period a
year ago.
Sales commissions were $1,467,600 for the six months ended August 31, 1995
compared to $682,900 for the same period last year, an increase of 115%. Sales
commissions as a percentage of gross sales were 10.5% for the six months ended
August 31, 1995 compared to 6.9% for the same period last year. Sales
commissions as a percentage of gross sales is determined by the product mix
being sold, as the commission rates vary with the product being sold.
General and administrative expenses increased to $405,200 for six months ended
August 31, 1995 compared to $356,300 for the same period last year, an increase
of 13.7%. General and administrative expenses as a percentage of gross sales
were 2.9% for the six months ended August 31, 1995 and 3.6% for the same period
last year.
Interest expense was $117,600 for the six months ended August 31, 1995 compared
to $5,900 for the same period a year ago. This increase was attributable to
increased borrowing levels throughout the current period when compared with the
same period a year ago. The increased borrowing levels occurred as the Company
paid its principal supplier for inventory acquired in an earlier period.
10
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
1. None
B. Reports on Form 8-K
1. There were no reports filed on Form 8-K during the three
months covered by this report.
11
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- -----------------------------------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION
(Registrant)
By /s/ Randall W. White
--------------------------
Randall W. White
President
Date: October 16, 1995
-----------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1995 FEB-28-1995
<PERIOD-START> MAR-01-1995 MAR-01-1995
<PERIOD-END> AUG-31-1995 FEB-28-1995
<CASH> 1,600 328,925
<SECURITIES> 0 0
<RECEIVABLES> 3,651,800 1,949,894
<ALLOWANCES> 232,600 206,000
<INVENTORY> 8,108,600 6,588,744
<CURRENT-ASSETS> 11,991,200 9,087,866
<PP&E> 1,080,400 711,701
<DEPRECIATION> 386,700 347,489
<TOTAL-ASSETS> 12,839,800 9,665,378
<CURRENT-LIABILITIES> 6,531,700 3,392,774
<BONDS> 0 0
<COMMON> 473,800 468,824
0 0
0 0
<OTHER-SE> 5,834,300 4,803,780
<TOTAL-LIABILITY-AND-EQUITY> 12,839,800 9,665,378
<SALES> 8,709,000 12,479,907
<TOTAL-REVENUES> 8,709,000 12,479,907
<CGS> 3,713,500 5,629,254
<TOTAL-COSTS> 6,580,000 9,873,818
<OTHER-EXPENSES> 375,200 706,351
<LOSS-PROVISION> 30,000 58,000
<INTEREST-EXPENSE> 117,600 9,952
<INCOME-PRETAX> 1,606,200 1,831,786
<INCOME-TAX> 635,700 660,000
<INCOME-CONTINUING> 970,500 1,171,786
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 970,500 1,171,786
<EPS-PRIMARY> .37 .45
<EPS-DILUTED> .37 .45
</TABLE>
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