<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 November 30, 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 November 30, 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>
November 30, 1995 February 28, 1995
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 102,500 $ 328,900
Accounts Receivable - (less
allowances for doubtful accounts
and returns: 11/30/95 - $246,900
2/28/95 - $206,000) 3,545,000 1,743,900
Inventories (Note 3) 9,537,200 6,588,800
Deferred Income Taxes (Note 1) 265,700 257,000
Prepaid Expenses 166,100 169,300
----------- ----------
Total Current Assets 13,616,500 9,087,900
Property, plant and equipment
at cost (less accumulated
depreciation: 11/30/95 - $416,000
2/28/95 - $347,500) 749,300 364,200
Inventories (Note 3) 80,900 80,900
Other Assets (Note 4) 67,400 132,400
----------- ----------
Total Assets $14,514,100 $9,665,400
=========== ==========
</TABLE>
2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- ---------------------------------------------------------------------------
BALANCE SHEETS (UNAUDITED and continued)
<TABLE>
<CAPTION>
November 30, 1995 February 28, 1995
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term
obligations (Note 2) $ 3,940,000 $ 7,700
Accounts payable 2,918,600 3,004,300
Accrued salaries, bonuses and
commissions 379,300 171,700
Accrued test scoring 17,000 18,200
Income taxes 119,400 67,700
Other current liabilities 288,800 123,200
----------- ----------
Total Current Liabilities 7,663,100 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 1,823,100 309,700
----------- ----------
6,926,000 5,347,600
LESS TREASURY SHARES AT COST
(85,873 shares) ( 75,000) ( 75,000)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 6,851,000 5,272,600
----------- ----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $14,514,100 $9,665,400
=========== ==========
</TABLE>
3
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- ---------------------------------------------------------------------------
STATEMENT OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended November 30 Nine Months Ended November 30
1995 1994 1995 1994
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross Sales $ 8,649,000 $ 5,861,000 $ 22,621,200 $ 15,714,200
Less Discounts & Allowances ( 2,750,100) ( 2,214,100) ( 8,013,300) ( 6,308,100)
------------ ------------ ------------ ------------
Net Sales 5,898,900 3,646,900 14,607,900 9,406,100
Cost of Sales 2,352,000 1,581,300 6,065,500 4,249,800
------------ ------------ ------------ ------------
Gross Margin 3,546,900 2,065,600 8,542,400 5,156,300
Operating & Selling Exp. 914,700 636,300 2,314,000 1,645,800
Sales Commissions 1,426,300 681,600 2,893,900 1,364,500
General & Admin. Exp. 238,300 196,700 643,500 553,000
Interest Expense 86,800 1,000 204,400 6,900
------------ ------------ ------------ ------------
Operating Income 880,800 550,000 2,486,600 1,586,100
Other Income -Net 400 200 800 800
------------ ------------ ------------ ------------
Earnings Before Provision for
Income Taxes 881,200 550,200 2,487,400 1,586,900
Provision for Income Taxes (Note 1) ( 338,300) ( 209,400) ( 974,000) ( 610,800)
------------ ------------ ------------ ------------
Net Earnings $ 542,900 $ 340,800 $ 1,513,400 $ 976,100
============ ============ ============ ============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Primary and Fully Diluted $ .20 $ .13 $ .57 $ .38
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary and fully diluted 2,680,476 2,639,054 2,663,675 2,594,325
============ ============ ============ ===========
</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 ----- ----- ----- 1,513,400 ----- ----- 1,513,400
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, NOV. 30, 1995 2,369,120 $473,800 $4,629,100 $1,823,100 85,873 $( 75,000) $6,851,000
========= ======== ========== =========== ======== ========= ==========
</TABLE>
5
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended November 30 Nine Months Ended November 30
------------------------------ -------------------------------
1995 1994 1995 1994
------------- ----------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net earnings $ 542,900 $ 340,800 $ 1,513,400 $ 976,100
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 29,300 30,300 68,500 78,000
Deferred income taxes ( 9,300) ( 8,100) ( 8,700) ( 19,700)
Provision for doubtful accounts
and sales returns 299,800 269,700 766,200 770,700
Changes in assets and liabilities:
Accounts receivable ( 425,600) ( 634,800) ( 2,567,300) ( 1,659,300)
Inventories ( 1,428,600) ( 624,600) ( 2,948,400) ( 878,100)
Prepaid expenses 39,300 ( 35,600) 3,200 ( 64,100)
Other assets 6,600 ( 6,600) 65,000 15,300
Accounts payable and accrued expenses 212,100 922,300 286,300 1,200,500
Income taxes payable 32,600 51,000 51,700 ( 20,300)
------------ ---------- ------------ ------------
Total adjustments ( 1,243,800) ( 36,400) ( 4,283,500) ( 577,000)
------------ ---------- ------------ ------------
Net cash provided by (used in) operating
activities ( 700,900) 304,400 ( 2,770,100) 399,100
------------ ---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 84,900) ( 27,900) ( 453,600) ( 70,500)
------------ ---------- ------------ ------------
Net cash used in investing activities ( 84,900) ( 27,900) ( 453,600) ( 70,500)
------------ ---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement 3,290,000 -- 8,070,000 940,000
Payments under revolving credit
agreement ( 2,400,000) -- ( 5,130,000) ( 940,000)
Principal payments on capital lease
obligations ( 3,300) ( 10,600) ( 7,700) ( 30,400)
Sale of treasury stock -- 86,300 -- 86,300
Cash received from exercise of stock options -- -- 65,000 --
------------ ---------- ------------ ------------
Net cash provided by financing activities 886,700 75,700 2,997,300 55,900
------------ ---------- ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents 100,900 352,200 ( 226,400) 384,500
Cash and Cash Equivalents, Beginning of
Period 1,600 110,900 328,900 78,600
------------ ---------- ------------ ------------
Cash and Cash Equivalents, End of Period $ 102,500 $ 463,100 $ 102,500 $ 463,100
============ ========== ============ ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 89,400 $ 1,100 $ 177,900 $ 7,100
============ ========== ============ ============
Cash paid for income taxes $ 315,000 $ 166,500 $ 931,000 $ 620,000
============ ========== ============ ============
</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 November 30, 1995 and
March 1, 1995 are as follows:
<TABLE>
<CAPTION>
November 30, 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 96,300 80,000
Inventories 117,400 118,000
Amortization of assets not
currently deductible 58,900 48,000
-------- --------
279,300 271,000
Deferred tax liability-
Property and equipment 13,600 14,000
-------- --------
Net deferred tax asset $265,700 $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 November 30 Nine Months Ended November 30
------------------------------- -------------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Income tax expense:
Current $347,600 $217,500 $982,700 $ 630,500
Deferred ( 9,300) ( 8,100) ( 8,700) ( 19,700)
-------- -------- -------- ---------
$338,300 $209,400 $974,000 $ 610,800
======== ======== ======== =========
</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 provided a $1,300,000 line of
credit. The line of credit was evidenced by a promissory note in the amount of
$1,300,000 payable June 30, 1995. The note was 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 expired October 25, 1995 and the remaining $2,000,000
expired June 30, 1996. The note bore interest at prime plus 1%, payable
monthly.
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 and is collateralized by
substantially all of the assets of the Company. The Company utilizes this line
of credit primarily to fund routine operations. Payments are made from current
cash flows. At November 30, 1995 the Company had available $2,060,000 under
this credit agreement.
Note 3 - Inventories consist of the following:
- ------
<TABLE>
<CAPTION>
11/30/95 02/28/95
---------- ----------
<S> <C> <C>
Publishing Inventory $9,553,400 $6,616,800
School Inventory 365,800 354,000
---------- ----------
9,919,200 6,970,800
Reserve for Obsolescence ( 301,100) ( 301,100)
---------- ----------
9,618,100 6,669,700
Less Noncurrent School Inventory ( 80,900) ( 80,900)
---------- ----------
$9,537,200 $6,588,800
========== ==========
Note 4 - Other assets consist of the following:
Prepublication Costs $ 22,900 $ 49,900
Advances to Employees 4,700 40,900
Other 39,800 41,600
---------- ----------
$ 67,400 $ 132,400
========== ==========
</TABLE>
Note 5 - The results of operations for the three and nine months ended
- ------
November 30, 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 nine months ended
- ------
November 30, 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
- ---------------------------------------------------------------------------
NINE MONTHS ENDED NOVEMBER 30, 1995
- -----------------------------------
FINANCIAL CONDITION
- -------------------
The financial condition of the Company remains strong. Working capital increased
slightly at November 30, 1995 over amounts at year-end February 28, 1995. The
Company's debt increased $2,940,000 over amounts at year end February 28, 1995
resulting in a $4,200,000 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 55% for the nine months ended November 30, 1995 over the nine
months ended November 30, 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 $6,534,400 for the nine
- --------
months ended November 30, 1995, an increase of 26% over net sales of $5,195,000
for the nine months ended November 30, 1994. This increase can be attributed to
increased volume as the Division continued to increase it's market penetration.
Net sales from the School Division decreased 69% to $ 34,200 for the nine months
ended November 30, 1995 compared to $109,900 for the same nine 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 $6,937,600 for the nine months
ended November 30, 1995, an increase of 120% over the net sales of $3,150,300
for the nine months ended November 30, 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.
Net sales from the Library Services Division were $1,101,700 for the nine months
ended November 30, 1995, compared to $950,900 for the same nine month period a
year ago, an increase of 16%. This increase resulted from an increase in sales
volume as the Division continued to increase it's market share.
9
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
- ------------------------------------------------------------------------
Operating Expenses - The Company's cost of sales increased to $6,065,500 for the
- ------------------
nine months ended November, 1995 compared with $4,249,800 for the same period
last year, an increase of 43%. Cost of sales as a percentage of gross sales was
26.8% for the nine months ended November 30, 1995 compared with 27% for the same
period a year ago.
Operating and selling expenses were $2,314,000 for the nine months ended
November 30, 1995 compared to $1,645,800 for the same period last year, an
increase of 40.6%. Operating and selling expenses as a percentage of gross
sales were 10.2% for the nine months ended November 30, 1995 compared to 10.5%
for the same period a year ago.
Sales commissions were $2,893,900 for the nine months ended November 30, 1995
compared to $1,364,500 for the same period last year, an increase of 112%.
Sales commissions as a percentage of gross sales were 12.8% for the nine months
ended November 30, 1995 compared to 8.7% 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.
General and administrative expenses increased to $643,500 for nine months ended
November 30, 1995 compared to $553,000 for the same period last year, an
increase of 16.4%. General and administrative expenses as a percentage of gross
sales were 2.8% for the nine months ended November 30, 1995 and 3.5% for the
same period last year.
Interest expense was $204,400 for the nine months ended November 30, 1995
compared to $6,900 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 increased its inventory levels to provide for
anticipated increases in future sales.
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: January 16, 1996
-----------------------
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>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1995 FEB-28-1995
<PERIOD-START> MAR-01-1995 MAR-01-1994
<PERIOD-END> NOV-30-1995 FEB-28-1995
<CASH> 102,500 328,925
<SECURITIES> 0 0
<RECEIVABLES> 3,791,900 1,949,894
<ALLOWANCES> 246,900 206,000
<INVENTORY> 9,537,200 6,588,744
<CURRENT-ASSETS> 13,616,500 9,087,866
<PP&E> 1,165,300 711,701
<DEPRECIATION> 416,000 347,489
<TOTAL-ASSETS> 14,514,100 9,665,378
<CURRENT-LIABILITIES> 7,663,100 3,392,774
<BONDS> 0 0
0 0
0 0
<COMMON> 473,800 468,824
<OTHER-SE> 6,452,200 4,803,780
<TOTAL-LIABILITY-AND-EQUITY> 14,514,100 9,665,378
<SALES> 14,607,900 12,479,907
<TOTAL-REVENUES> 14,607,900 12,479,907
<CGS> 6,065,500 5,629,254
<TOTAL-COSTS> 11,272,600 9,873,818
<OTHER-EXPENSES> 598,500 706,351
<LOSS-PROVISION> 45,000 58,000
<INTEREST-EXPENSE> 204,400 9,952
<INCOME-PRETAX> 2,487,400 1,831,786
<INCOME-TAX> 974,000 660,000
<INCOME-CONTINUING> 1,513,400 1,171,786
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,513,400 1,171,786
<EPS-PRIMARY> .57 .45
<EPS-DILUTED> .57 .45
</TABLE>
