<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended May 31, 1996.
[ ] 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 registrant 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 May 31, 1996 there were 5,221,631 shares of Educational Development
Corporation Common Stock, $0.20 par value outstanding.
1
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1996 February 29, 1996
(unaudited) -----------------
------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 204,600 $ 216,000
Accounts Receivable - (less
allowances for doubtful accounts
and returns: 5/31/96 - $241,900
2/29/96 - $228,000) 2,365,800 2,591,400
Inventories (Note 3) 10,092,000 11,776,100
Income Taxes Receivable 171,500 352,300
Deferred Income Taxes (Note 1) 172,400 168,300
Prepaid Expenses 392,900 333,400
----------- -----------
Total Current Assets 13,399,200 15,437,500
Property, plant and equipment
at cost (less accumulated
depreciation: 05/31/96 - $249,900
2/29/96 - $341,100) 794,500 815,400
Other Assets 9,700 5,100
----------- -----------
Total Assets $14,203,400 $16,258,000
=========== ===========
</TABLE>
2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
May 31, 1996 February 29, 1996
------------------
(unaudited)
--------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations (Note 2) $ 5,510,000 $ 5,820,000
Accounts payable 990,100 3,215,700
Accrued salaries, bonuses and
commissions 321,700 270,900
Other current liabilities 273,900 219,500
----------- -----------
Total Current Liabilities 7,095,700 9,526,100
SHAREHOLDERS' EQUITY
(Notes 4 and 5):
Common Stock, par value of
$0.20 per share (authorized
6,000,000 shares; issued 5,424,240
and 5,398,240 shares; outstanding
5,221,631 and 5,191,498 shares) 1,084,900 1,079,700
Capital in excess of par value 4,403,200 4,391,300
Retained earnings 2,091,400 1,788,300
----------- -----------
7,579,500 7,259,300
LESS TREASURY SHARES AT COST
( 471,800 ) ( 527,400 )
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 7,107,700 6,731,900
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $14,203,400 $16,258,000
=========== ===========
</TABLE>
3
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended May 31
---------------------------
1996 1995
------------ -------------
<S> <C> <C>
Gross Sales $ 8,138,500 $ 6,304,200
Less Discounts & Allowances ( 2,453,400) ( 2,319,100)
----------- ------------
Net Sales 5,685,100 3,985,100
Cost of Sales 2,288,900 1,685,800
----------- ------------
Gross Margin 3,396,200 2,299,300
Operating & Selling Exp. 1,146,200 652,400
Sales Commissions 1,344,800 673,500
General & Admin. Exp. 286,900 190,000
Interest Expense 124,300 46,600
----------- ------------
Operating Income 494,000 736,800
Other Income, Net 800 100
----------- ------------
Earnings From Continuing
Operations Before Income Taxes 494,800 736,900
Income Taxes ( 191,700) ( 302,000)
----------- ------------
Earnings From Continuing Operations 303,100 434,900
Loss From Discontinued Operations,
Net of Tax -- ( 4,200)
----------- ------------
Net Earnings $ 303,100 $ 430,700
=========== ============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Primary and Fully Diluted:
Earnings From Continuing Operations $ .06 $ .08
Discontinued Operations -- --
----------- ------------
Net Earnings $ .06 $ .08
=========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary and fully diluted 5,373,763 5,308,342
========== ==========
</TABLE>
4
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
Common Stock
(par value $.20 per share) Treasury Stock
-------------------------- --------------
<CAPTION>
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, 1996 5,398,240 $1,079,700 $4,391,300 $1,788,300 206,742 $( 527,400 ) $6,731,900
Exercise of options
at $.25/share 20,000 4,000 1,000 --- --- --- 5,000
Exercise of options
at $1.50/share 6,000 1,200 7,800 --- --- --- 9,000
Issuance of treasury
stock --- --- 3,100 --- ( 450 ) 1,100 4,200
Purchase of treasury
stock --- --- --- --- 4,000 ( 47,300 ) ( 47,300 )
Sales of treasury stock --- --- --- --- ( 7,683 ) 101,800 101,800
Net earnings --- --- --- 303,100 --- --- 303,100
--------- ---------- ---------- ----------- -------------- ---------- ----------
Balance, May 31, 1996 5,424,240 $1,084,900 $4,403,200 $2,091,400 202,609 $( 471,800 ) $7,107,700
========= ========== ========== =========== ============== ========== ==========
</TABLE>
5
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended May 31
----------------------------
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 303,100 $ 430,700
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 56,100 17,800
Deferred income taxes ( 4,100) 10,000
Provision for doubtful accounts
and sales returns 243,200 298,400
Changes in assets and liabilities:
Accounts and income taxes receivable 163,200 ( 1,082,100)
Inventories 1,684,100 ( 182,700)
Prepaid expenses and other assets ( 64,100) 85,800
Accounts payable and accrued expenses ( 2,120,400) ( 1,196,300)
Income taxes payable -- 184,400
------------ ------------
Total adjustments ( 42,000) ( 1,864,700)
------------ ------------
Net cash provided by (used in)
operating activities 261,100 ( 1,434,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 35,200) ( 148,600)
------------ ------------
Net cash used in investing activities ( 35,200) ( 148,600)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement 2,390,000 2,700,000
Payments under revolving credit
agreement ( 2,700,000) (1,300,000)
Principal payments on capital lease
obligations -- ( 4,300)
Cash received from exercise of
stock options 14,000 --
Cash received from sale of
treasury stock 106,000 --
Cash paid to acquire treasury stock ( 47,300) --
------------ ------------
Net cash (used in) provided by
financing activities ( 237,300) 1,395,700
------------ ------------
Net Decrease in Cash and Cash
Equivalents ( 11,400) ( 186,900)
Cash and Cash Equivalents, Beginning of
Period 216,000 328,900
------------ ------------
Cash and Cash Equivalents, End of Period $ 204,600 $ 142,000
============ ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 118,500 $ 29,300
============ ============
Cash paid for income taxes $ 15,000 $ 105,000
============ ============
</TABLE>
6
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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 asset as of May 31, 1996 and
February 29, 1996 are as follows:
<TABLE>
<CAPTION>
May 31, 1996 February 29, 1996
------------ -----------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts
and sales returns $ 55,000 50,300
Inventories 117,400 118,000
-------- --------
Net deferred tax asset $172,400 $168,300
======== ========
</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
May 31, 1996 May 31, 1995
------------- ------------
<S> <C> <C>
Income tax expense:
Current $195,800 $289,400
Deferred ( 4,100) 10,000
-------- --------
$191,700 $299,400
======== ========
</TABLE>
7
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------------
Note 2 - Effective September 25, 1995 the Company signed a Restated Credit and
------
Security Agreement with State Bank which provided a $6,000,000 line of credit
and replaced the existing loan agreement. The line of credit matured June 30,
1996. The note bore interest at prime plus 1/2%, payable monthly (8.75% at
May 31, 1996) and was collateralized by substantially all of the assets of the
Company. The Company utilized this line of credit primarily to fund routine
operations. Payments were made from current cash flows. At May 31, 1996 the
Company had available $490,000 under this credit agreement.
Effective June 10, 1996 the Company signed a Restated Credit and Security
Agreement with State Bank which provides a $9,000,000 line of credit. The
line of credit is evidenced by a promissory note in the amount of $9,000,000
payable June 30, 1997. The note bears interest at the Wall Street Journal
prime floating rate. The note is collateralized by substantially all of the
assets of the Company. The Company utilizes this line of credit primarily to
fund routine operations.
Note 3 - Inventories consist of the following:
------
<TABLE>
<CAPTION>
<S> <C> <C>
05/31/96 02/29/96
----------- -----------
Book Inventory $10,393,100 $12,077,200
Reserve for Obsolescence ( 301,100) ( 301,100)
----------- -----------
$10,092,000 $11,776,100
=========== ===========
</TABLE>
Note 4 - The results of operations for the three months ended May 31, 1996 and
------
1995 are not necessarily indicative of the results to be expected at year end
due to seasonality of the product sales.
Note 5 - The information shown with respect to the three months ended May 31,
------
1996 and 1995, 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 1995 balances
to conform with 1996 presentation.
Note 6 - 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 29, 1996, which are incorporated herein by
reference, and with Management's Discussion and Analysis or Plan of Operations
appearing on page 9 of this report.
8
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EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
---------------------------------------------------------------------------
THREE MONTHS ENDED MAY 31, 1996
-------------------------------
Certain statements contained in this Management Discussion and Analysis are
not based on historical facts, but are forward-looking statements that are
based upon numerous assumptions about future conditions that may ultimately
prove to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties. Such
risks and uncertainties include but are not limited to, product prices,
continued availability of capital and financing, and other factors affecting
the Company's business that may be beyond its control.
FINANCIAL CONDITION
-------------------
The financial condition of the Company remains strong. Working capital
increased 7% at May 31, 1996 over year-end February 29, 1996. Inventory
decreased 14% as the Company streamlined its purchasing procedures. Payables
decreased 69% at May 31,1996 over year-end February 29, 1996 as the Company
paid for inventory received in the prior quarter. The Company increased its
credit line to $9,000,000 effective June 10, 1996.
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 marketability 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 $2,011,800 for the
--------
three months ended May 31, 1996, a decrease of 1.2% over net sales of
$2,036,100 for the three months ended May 31, 1995. Sales in the publishing
industry nationwide were down from the previous year. Management expects the
Publishing Division's sales to improve during the next quarter.
Net sales from the Home Business Division were $3,353,900 for the three months
ended May 31, 1996, an increase of 104% over the net sales of $1,645,800 for
the three months ended May 31, 1995. 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 900
titles. Management believes this Division has excellent potential for
continued growth.
Net sales from the Library Services Division were $319,300 for the three
months ended May 31, 1996, compared to $303,200 for the same three month
period a year ago, an increase of 5%. Management is optimistic that the
library market will continue to afford opportunity for growth.
9
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- --------------------------------------------------
Operating Expenses - The Company's cost of sales increased to $2,288,900 for
- ------------------
the three months ended May 31, 1996 compared with $1,685,800 for the same
period last year, an increase of 36%. Cost of sales as a percentage of gross
sales was 28.1% for the three months ended May 31, 1996 compared with 26.7%
for the same period a year ago.
Operating and selling expenses were $1,146,200 for the three months ended May
31, 1996 compared to $652,400 for the same period last year, an increase of
76%. Operating and selling expenses as a percentage of gross sales were 14%
for the three months ended May 31, 1996 compared to 10% for the same period a
year ago. Contributing to the increase in operating and selling expenses were
sales incentives which increased 186% in the Home Business Division as a
result of the increase in sales.
Sales commissions were $1,344,800 for the three months ended May 31, 1996
compared to $673,500 for the same period last year, an increase of 100%.
Sales commissions as a percentage of gross sales were 16.5% for the three
months ended May 31, 1996 compared to 10.7% 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. The
increase in sales by the Home Business Division, which has a higher commission
percentage, resulted in higher commission costs.
General and administrative expenses increased to $286,900 for three months
ended May 31, 1996 compared to $190,000 for the same period last year, an
increase of 51%. General and administrative expenses as a percentage of gross
sales were 3.5% for the three months ended May 31, 1996 and 3% for the same
period last year. The Company leased additional office and warehouse space,
increasing rents 42%.
Interest expense was $124,300 for the three months ended May 31, 1996 compared
to $46,600 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.
Discontinued Operations - Effective February 29, 1996, the Company
- -----------------------
discontinued its School Division. The Company anticipates that the
liquidation of the division will be completed during fiscal 1997 through the
disposition of remaining assets of the division. The remaining assets of the
division were written off at February 29, 1996. Accordingly, the operating
results of the School Division are segregated and reported as discontinued
operations in the accompanying statements of earnings for the first quarter
ended May 31, 1995.
The condensed statements of operations relating to the discontinued School
Division operations for the period ended May 31, 1995 is presented below.
<TABLE>
<CAPTION>
<S> <C>
Gross sales $ 22,900
Less discount and allowances ( 4,400 )
--------
Net sales 18,500
Cost of sales 4,000
--------
Gross margin 14,500
Operating expenses 21,300
--------
Loss before income taxes ( 6,800 )
Income tax benefit 2,600
--------
Loss from operations ($ 4,200 )
=======
</TABLE>
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: July 12, 1996
--------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM ______________
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-29-1996 FEB-29-1996
<PERIOD-START> MAR-01-1996 MAR-01-1996
<PERIOD-END> MAY-31-1996 FEB-29-1996
<CASH> 204,600 215,963
<SECURITIES> 0 0
<RECEIVABLES> 2,607,700 2,819,384
<ALLOWANCES> 241,900 228,000
<INVENTORY> 10,092,000 11,776,138
<CURRENT-ASSETS> 13,399,200 15,437,504
<PP&E> 1,044,400 1,156,414
<DEPRECIATION> 249,900 341,052
<TOTAL-ASSETS> 14,203,400 16,257,968
<CURRENT-LIABILITIES> 7,095,700 9,526,080
<BONDS> 0 0
0 0
0 0
<COMMON> 1,084,900 1,079,648
<OTHER-SE> 6,022,800 5,652,240
<TOTAL-LIABILITY-AND-EQUITY> 14,203,400 16,257,968
<SALES> 5,685,100 19,253,467
<TOTAL-REVENUES> 5,685,100 19,253,467
<CGS> 2,288,900 8,083,221
<TOTAL-COSTS> 4,779,100 15,116,797
<OTHER-EXPENSES> 271,900 860,786
<LOSS-PROVISION> 15,000 60,000
<INTEREST-EXPENSE> 124,300 297,849
<INCOME-PRETAX> 494,800 2,918,035
<INCOME-TAX> 191,700 1,112,700
<INCOME-CONTINUING> 303,100 1,805,335
<DISCONTINUED> 0 (326,621)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 303,100 1,478,714
<EPS-PRIMARY> .06 .28
<EPS-DILUTED> .06 .28
</TABLE>
